BILL ANALYSIS Ó
AB 1883
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ASSEMBLY THIRD READING
AB 1883 (Skinner)
As Amended April 29, 2014
Majority vote
LOCAL GOVERNMENT 9-0
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|Ayes:|Achadjian, Levine, Alejo, | | |
| |Bradford, Gordon, | | |
| |Melendez, Mullin, Rendon, | | |
| |Waldron | | |
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SUMMARY : Allows a public agency to transfer voluntary
contractual assessments, if bonds have not been issued, as
specified. Specifically, this bill :
1)Allows a public agency to transfer its right, title, and
interest in and to any voluntary contractual assessments, if
bonds have not been issued pursuant to current law.
2)Requires initiation and prosecution of a foreclosure action
and the sole right to enforce its senior lien status to remain
with the local agency. Specifies that the authority granted
by 1) above, shall not be construed to authorize the
transferee to initiate and prosecute a foreclosure action
resulting from a delinquency in the payment of the voluntary
contractual assessment.
3)Requires the public agency and the transferee to enter into an
agreement that, among other things, identifies the specific
period of time during which the transfer of voluntary
contractual assessment will be operative and, prohibits that
timeframe from exceeding three years.
4)Requires a transfer of any voluntary contractual assessments
to be treated as a true and absolute transfer of the asset so
transferred for the period of the transfer and not as a pledge
or grant of a security interest by the public agency for any
borrowing.
5)Prohibits the characterization of the transfer of any of those
assets as an absolute transfer by the public agency from being
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negated or adversely affected by the fact that only a portion
of any voluntary contractual assessment is transferred or by any
characterization of the transferee for the purposes of
accounting, taxation, or securities regulation.
6)Defines "transfer" to mean the sale, assignment or other
transfer.
7)Finds and declares, the following:
a) The closing costs associated with bond issuance can make
Property Assessed Clean Energy (PACE) financing for small
projects cost-prohibitive;
b) By pooling small to medium size PACE projects into one
bond, the closing costs for each project can be drastically
reduced;
c) In order for a third party to pool projects, it is
necessary to enable local governments to assign the revenue
from a PACE assessment to an investor prior to the issuance
of a bond; and,
d) The right to foreclose on delinquent voluntary
assessments, and the senior lien status
of those assessments, should remain with the local
government.
EXISTING LAW :
1)Authorizes the legislative body to determine that it would be
convenient, advantageous, and in the public interest to
designate an area within the public agency's jurisdiction,
which may encompass the entire jurisdiction or a lesser
portion, within which authorized legislative officials and
property owners may enter into contractual assessments to
finance the installation of distributed generation renewable
energy sources or energy or water efficiency improvements that
are fixed to the property.
2)Requires the governing body to adopt a resolution to use
voluntary contractual assessments, which would do the
following:
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a) Determine that it would be convenient, advantageous, and
in the public interest to designate an area within which
officials and property owners may enter into contractual
assessments and make related financing arrangements;
b) Identify the kinds of public works, distributed
generation renewable energy sources, or energy or water
efficiency improvements which may be financed;
c) Describe the area where contractual assessments may be
used;
d) Describe the proposed financing arrangements, including
criteria for determining the creditworthiness of a property
owner;
e) State the time and place for a public hearing; and,
f) Direct an official to prepare a detailed report about
the contractual assessment program and consult with the
county auditor and county controller regarding fees.
3)Requires the report to contain the following:
a) A map of the area where contractual assessments will be
offered;
b) A draft contract specifying the terms and conditions
that would be agreed to by a property owner and the public
agency;
c) A statement of public agency policies concerning
voluntary contractual assessments, including all of the
following:
i) A list of the types of facilities and improvements
which may be financed;
ii) The official authorized to enter into contractual
assessments on behalf of the county or city;
iii) The maximum aggregate dollar amount of contractual
assessments; and,
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iv) A method for prioritizing requests from property
owners for financing.
d) Information about the county auditor's and county
controller's fees.
4)Authorizes a public agency to issue bonds and to repay the
principal and interest with the voluntary contractual
assessment.
5)Authorizes a public agency to advance its own funds to finance
work to be repaid through voluntary contractual assessment,
and from time to time sell bonds to reimburse itself.
6)Allows a public agency to enter into a relationship with an
underwriter or financial institution that would allow the
sequential issuance of a series of bonds, issuing each bond as
the need arose to finance work to be repaid through the
voluntary contractual assessments.
7)Provides that assessments and the interest and penalties shall
constitute a lien against the lots and parcels of land on
which they are made, until they are paid.
FISCAL EFFECT : None
COMMENTS :
1)PACE and purpose of this bill. First conceived in Berkeley in
2007, PACE is a financing tool that residential or commercial
property owners can use to pay for renewable energy upgrades,
energy or water efficiency retrofits, or electric vehicle
charging stations for their homes or buildings. Local
agencies create PACE assessment districts in their
jurisdictions via a resolution of their legislative body,
allowing the local agency to issue bonds to finance the
up-front costs of improvements. In turn, property owners
enter into a voluntary contractual assessment agreement with
the local agency to re-pay the bonds via an assessment on
their property tax bill. The assessment remains with the
property even if it is sold or transferred, and the
improvements must be permanently fixed to the property.
This bill allows a local agency to transfer all rights to any
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voluntary contractual assessments, if bonds have not been
issued. Under this bill the local agency and transferee would
have to enter into an agreement that includes a specific time
period for the transfer of the assessments that cannot exceed
three years. This bill also specifies that in the instance of
delinquent payments of the voluntary contractual assessments,
the right to enforce the senior lien and foreclosure remain
with the local agency. This bill is co-sponsored by Renewable
Funding and the Alameda County Board of Supervisors.
In California, some local governments administer their PACE
programs themselves, while others partner with a third-party
organization (like the sponsor of this bill) to carry out
their PACE programs. The cost of third-party administration
is not borne by the local agency, but is built in to PACE loan
financing. Some of these programs focus on residential
projects, others target commercial projects, and some handle
both residential and commercial portfolios. Joint powers
authorities (JPAs) also administer PACE programs and/or are
involved in issuing bonds for third-party administrators. A
wide variety of projects can qualify under PACE programs, from
building weatherization and solar panels to low-flow plumbing
fixtures and energy efficient lighting.
PACE loans can be more attractive to borrowers and lenders
because they can offer a longer pay-back period (up to 20
years) with smaller payments than other types of loans, and
they are securitized by the property assessment rather than
the borrower. In addition, the contractual assessment can
glean lower interest rates on bond issues and, in turn, the
loans extended to the consumer. Property owners own the
improvements, allowing them to claim tax benefits and rebates
(this is not the case for leased improvements under power
purchase agreements). PACE can also offer a financing option
that doesn't inhibit a property owner's credit.
2)Author's statement. According to the author, "Current law
authorizes local governments to help residences and businesses
finance energy and water improvements by issuing PACE bonds.
The property owner repays the loan through a voluntary
property assessment. The closing costs for issuing a bond can
be prohibitively high for small to medium sized commercial
projects. Pooling several small projects together allows them
to share the costs. Current law requires bonds to be issued
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as the need for work arises. This bill allows local
governments to temporarily transfer the revenue from
assessments to a third party capital provider. This way,
projects can be funded on-demand, as required by law. After a
sufficient number of projects have been financed, the local
government will be able to issue a single large bond and
divide the bond issuance costs between the individual
projects. In some cases, this could reduce closing costs for
individual projects by up to 60%."
3)Concerns over residential PACE. In 2010, the Federal Housing
Finance Agency (FHFA) raised concerns that residential PACE
financing could pose a risk for federal mortgage enterprises
(Fannie Mae and Freddie Mac), because PACE loans are a
first-priority lien in the case of foreclosure and lenders
would have to pay outstanding PACE assessments before paying
mortgage costs. In August of 2010, Fannie Mae and Freddie Mac
announced they would not purchase mortgages for homes with
first lien priority PACE obligations. The FHFA's action
triggered many local governments to suspend their residential
PACE programs.
To address this concern, the Legislature enacted SB 96 (Budget
and Fiscal Review Committee), Chapter 356, Statutes of 2013.
This budget trailer bill tasks the California Alternative
Energy and Advanced Transportation Financing Authority
(CAEATFA) with administering a PACE loss reserve program that
will use a $10 million reserve fund to keep mortgage interests
whole during a foreclosure or a forced sale. CAEATFA recently
filed its regulations for the program, and is now accepting
applications from PACE administrators.
4)Related legislation. AB 2597 (Ting) of the current
legislative session, would revise CAEATFA's underwriting
standard for the PACE program by increasing the maximum amount
of an assessment from 10% to 15% of the property value and
specify that PACE financing is an "assessment or "financing"
and not a "loan". This bill is pending in the Assembly.
5)Policy considerations. The Legislature may wish to consider
the following:
a) Interaction with CAEATFA PACE loss reserve program. The
PACE Loss Reserve Program (Program) will compensate first
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mortgage lenders for losses resulting from the existence
of a PACE lien in a foreclosure or forced sale. The program
will cover PACE payments made during foreclosure if a
mortgage lender forecloses on a home that has a PACE lien,
and any losses to a first mortgage lender up to the amount
of outstanding PACE payment if a county conducts a forced
sale on a home for unpaid taxes. The intent of the Program
is to put the first mortgage lender in the same position it
would be in without a PACE lien. Since we have yet to see
the effects of this Program, the Legislature may wish to
ask the author or sponsor to describe the impact of this
bill and availability of the Program in the event of
foreclosure on a residential property when the assessments
are in possession of a transferee instead of the local
agency.
The Legislature may wish to consider absent evidence of
issues with residential projects that will be addressed by
this bill and the lack of understanding of how this bill
with interact with the PACE loss reserve program, if this
bill should only grant the authority for local agencies to
transfer assessments on commercial properties.
b) Agreement to transfer voluntary contractual assessments.
This bill requires the local agency to enter into an
agreement with the transferee to transfer the voluntary
contractual assessments for no more than three years. The
Legislature may wish to consider if other terms should be
included in this agreement. Despite a number of factors
that may vary, including the specific type of project,
agreement, and terms of financing, the Legislature has
required a number of other agreements between a public
agency and third party entity to include some basic
requirements.
Current law establishes a number of requirements for a
local agency upon passage of a resolution to use voluntary
contractual assessments. One of these requirements is a
report which must include specified information regarding
the contractual assessment program. For example, the
report must include a brief description of criteria for
determining the underwriting requirements and safeguards
that will be used to ensure that the total annual property
tax and assessments on the property will not exceed 5% of
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the property's market value, and a plan for raising a
capital amount required to pay for work performed pursuant
to contractual assessments. The Legislature may wish to
consider if the agreement that the local agency will be
entering into to transfer the voluntary contractual
assessments should also be included in the report.
6)Arguments in support. Supporters argue that this bill will
increase demand for PACE financing by allowing providers to
create a more efficient funding process which will attract
more capital providers thereby resulting in lower interest
rates. Additionally, accelerating the adoption of PACE among
California property owners will also further reduce greenhouse
gas emission, promote renewable energy, and support water
conservation efforts.
7)Arguments in opposition. None on file.
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958 FN:
0003375