BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1131
                                                                  Page 1

          AB 1131 (Skinner)
          As Amended April 22, 2013
          2/3 vote 

           NATURAL RESOURCES   9-0         APPROPRIATIONS      16-1        
          |Ayes:|Chesbro, Grove, Bigelow,  |Ayes:|Gatto, Harkey, Bigelow,   |
          |     |Garcia, Muratsuchi,       |     |Bocanegra, Bradford, Ian  |
          |     |Patterson, Skinner,       |     |Calderon, Campos, Eggman, |
          |     |Stone, Williams           |     |Gomez, Hall, Ammiano,     |
          |     |                          |     |Linder, Pan, Quirk,       |
          |     |                          |     |Wagner, Weber             |
          |     |                          |     |                          |
          |     |                          |Nays:|Donnelly                  |
          |     |                          |     |                          |
           SUMMARY  :  Revises and extends the Clean Energy Upgrade Program  
          (CEUP) administered by the California Alternative Energy and  
          Advanced Transportation Financing Authority (Authority), which  
          offers assistance to financial institutions for privately-issued  
          loans for real property projects, including energy and water  
          efficiency improvements and renewable distributed generation.   
          Specifically,  this bill:
          1)Extends the appropriation to support the CEUP from the  
            Renewable Resource Trust Fund (RRTF) for two years, until  
            January 1, 2017.

          2)Repeals a limit on CEUP loans of 10% of property value.

          3)Expands eligible residential properties to include residential  
            projects four units or fewer and mobilehomes.

           EXISTING LAW  :

          1)Creates the Authority within the State Treasurer's Office for  
            the purpose of promoting the development and utilization of  
            alternative energy sources and the development and  
            commercialization of advanced transportation technologies.   
            The Authority is authorized to issue up to $1 billion in  
            revenue or prepayment bonds to fund projects.


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          2)Requires the Authority to develop and administer the Property  
            Assessed Clean Energy (PACE) Reserve program, to be used to  
            reduce the overall costs to property owners of PACE bonds  
            issued by a local jurisdiction, by providing a reserve of no  
            more than 10 percent of the initial principal amount of the  
            PACE bond.  Defines PACE bond as a bond that is secured by  
            voluntary contractual assessment on a property or through a  
            voluntary special tax for the purposes of financing the  
            installation of renewable energy sources, or energy or water  
            efficiency improvements.

          3)Requires the Authority to administer the CEUP as an  
            alternative to the PACE Reserve Program.  The purpose of the  
            CEUP is to reduce overall costs to property owners of a loan  
            provided by a financial institution to finance the  
            installation of distributed generation renewable energy  
            sources or energy or water efficiency improvements on real  
            property by providing a reserve or other financial assistance  
            at a level to be determined by the California Energy  
            Commission (CEC) and the Authority.

          4)Appropriates up to $50 million, until January 1, 2015, from  
            the RRTF to be used by the Authority for purposes of the PACE  
            Reserve and CEUP Programs, and authorizes the Authority to  
            spend up to $550,000 for its administrative costs.

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee, this bill would likely make RRTF funds unavailable  
          for the New Solar Homes Partnership (NSHP).  This bill redirects  
          the remainder of the funds in the RRTF appropriated for the CEUP  
          and other programs, approximately $25 million that under current  
          law would revert to the NSHP, also administered by the CEC

           COMMENTS  :  The Authority consists of five members:  the Director  
          of Finance, the Chairman of the CEC, the President of the Public  
          Utilities Commission, the State Controller, and the State  
          Treasurer.  Its current mission is to provide financing for  
          facilities that use alternative energy sources and technologies,  
          and develop and commercialize advanced transportation  
          technologies that conserve energy, reduce air pollution, and  
          promote economic development and jobs.

          Under the PACE program, local governments provide funds to  


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          participating homeowners to install energy upgrades, which are  
          paid back over time in the form of a special assessment on the  
          property tax.  Payments are typically secured by a lien on the  
          property that gives local governments priority of repayment if  
          the home goes into foreclosure.  PACE removes many of the  
          barriers of energy efficiency and renewable energy retrofits  
          that otherwise exist for residential homeowners and businesses,  
          particularly the high upfront cost of making such an investment  
          and the long-term ability to reap the benefits of cost savings.   
          Berkeley was the first city in the nation to launch a PACE  
          program, using a special assessment district to establish a  
          financing mechanism in which individual property owners can  
          voluntarily participate and repay improvements through a special  
          property tax assessment.  

          SB 77 (Pavley), Chapter 15, Statutes of 2010, sought to lower  
          the costs to local governments and property owners in the  
          financing of PACE bonds by authorizing the Authority to tap up  
          to $50 million from the RRTF to fund the PACE Reserve Program.   
          Prior to SB 77, the primary purpose of the RRTF had been to fund  
          a new solar home rebate program pursuant to the California Solar  
          Initiative.  However, given the steep decline in new home  
          construction in California, the RRTF accumulated a balance  
          (approximately $170 million) that exceeded the near term demand  
          for solar rebates.  A smaller proportion of RRTF monies (20% or  
          less) are devoted to production incentives for a handful of  
          existing biomass and solar thermal power plants.

          In 2010, PACE programs were dealt a setback when the Federal  
          Housing Finance Agency (FHFA), which oversees the nation's  
          largest mortgage finance companies Fannie Mae and Freddie Mac,  
          issued a statement objecting to local governments holding the  
          first lien on PACE homes, calling it a significant risk to the  
          mortgage financier.  This caused the mortgage lenders to stop  
          underwriting loans on properties with PACE assessments and  
          tighten lending standards in communities with PACE programs.   
          Efforts by the California Attorney General and others to  
          overturn the FHFA directives have been unsuccessful.  Meanwhile,  
          the FHFA's action has sidetracked implementation of PACE  
          programs, including the Authority's PACE Reserve Program.  In  
          the wake of the FHFA action, the CEC adopted Energy Upgrade  
          California using federal stimulus funds to support residential  
          and commercial energy improvements, without relying on the PACE  
          mechanism.  AB 14 X1 (Skinner), Chapter 9, Statutes of 2011-12  


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          First Extraordinary Session, repurposed the Authority's program  
          along the same lines.

          According to the author, in the initial phase of implementing AB  
          14 X1, the Authority has established a program to provide  
          financial assistance to participating financial institutions  
          making loans to property owners for energy efficiency and  
          renewable energy improvements to their homes.  The program is  
          set to expire on January 1, 2015.  Extending the program may  
          encourage additional financial institutions to participate in  
          the program, thereby providing more loans to homeowners and  
          furthering the state's energy efficiency goals.  This bill  
          extends the program expiration date to January 1, 2017.

          Currently, when considering the amounts of loans, the law says  
          that loans cannot be for more than 10% of the value of the  
          property.  In California, property valuations are based on the  
          value of the property when it was purchased.  But for people who  
          bought their homes before 1975, the value of their home is the  
          1975 value plus a small annual increase.  Given that housing  
          prices have risen dramatically in the last couple of decades,  
          the requirement for loans to be less than 10% of the property  
          value excludes many homeowners who would otherwise be eligible  
          for energy retrofit loans.  This bill removes the requirement  
          that loan amounts be less than 10% of the property value.

          Analysis Prepared by  :  Lawrence Lingbloom / NAT. RES. / (916)  

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