BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1883| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 1883 Author: Skinner (D), et al. Amended: 8/5/14 in Senate Vote: 21 SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 6/25/14 AYES: Wolk, Knight, Beall, DeSaulnier, Hernandez, Liu, Walters SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 ASSEMBLY FLOOR : 76-0, 5/15/14 - See last page for vote SUBJECT : Public improvements: contractual assessments SOURCE : County of Alameda Renewable Funding DIGEST : This bill allows a public agency to transfer its interest in voluntary contractual assessments and makes several other changes to the statutes governing those assessments. ANALYSIS : Existing law authorizes with the free and willing consent of affected property owners, public agencies to use "voluntary contractual assessments" to finance: Public improvements to developed parcels (SB 837, McQuorquodale, Chapter 1388, Statutes of 1987). Renewable energy sources or energy efficiency improvements that are permanently fixed to real property (AB 811, Levine, CONTINUED AB 1883 Page 2 Chapter 159, Statutes of 2008). Water efficiency improvements that are permanently fixed to real property (AB 474, Blumenfield, Chapter 444, Statutes of 2009). Electric vehicle charging infrastructure (SB 1340, Kehoe, Chapter 649, Statutes of 2010). Seismic strengthening improvements that are permanently fixed to real property (AB 184, Swanson, Chapter 28, Statutes of 2011). Recently, voluntary contractual assessments have been used to finance property-assessed clean energy (PACE) projects, which rely on public financing to pay for the installation of renewable energy and energy efficiency improvements on private property. The Legislature has amended the Mello-Roos Community Facilities District Act to allow for Mello-Roos parcel taxes to finance PACE projects (SB 555, Hancock, Chapter 493, Statutes of 2011). PACE financing practitioners want to amend provisions of the contractual benefits assessment statutes to make it easier to pool projects financed by PACE bonds and replicate some of the PACE financing provisions that are available under the Mello-Roos Act. This bill allows a public agency to transfer its right, title, and interest in any voluntary contractual assessments, if bonds have not been issued pursuant to existing law. This bill specifies that this authority must 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, and this bill requires that initiation and prosecution of a foreclosure action and the sole right to enforce its senior lien status remain with the local agency. This bill 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. CONTINUED AB 1883 Page 3 This bill 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. This bill prohibits the characterization of the transfer of any of those assets as an absolute transfer by the public agency from being 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. This bill defines "transfer" to mean the sale, assignment or other transfer. Existing law prohibits public agencies from using voluntary contractual assessments to finance facilities for parcels that are undergoing development. This bill, instead, prohibits public agencies from using voluntary contractual assessments to finance facilities for parcels in connection with the initial construction of a residential building, unless the initial construction is undertaken by the intended owner or occupant. This bill amends existing laws governing voluntary contractual assessment financing to clarify that references to "financing" also refer to "refinancing." This bill directs that a public agency's legislative body must conclude that providing refinancing will result in increased adoption of the improvements authorized to be financed with voluntary contractual assessments. Existing law requires a public agency's legislative body to cause documents to be recorded with the county recorder providing notice of a contractual assessment on real property. This bill requires that document to include the legal description and assessor's parcel number for the affected property. This bill allows a public agency to reduce costs by recording the document and another notice required by existing law as a single, combined recorded document. This bill amends and enacts numerous statutory provisions governing bonds that are to be repaid with revenues from contractual assessments. Existing law requires that each bond's interest rate may be determined by an appropriate index, but must be fixed at the time each bond is issued. This bill CONTINUED AB 1883 Page 4 specifies that this fixed interest rate requirement applies unless the bond is issued to finance improvements to nonresidential private property or residential private property with four or more units. This bill expands the purposes for which a bond reserve fund may be used to include: Paying the costs of foreclosure on properties participating in the program, Funding capitalized interest for a period of up to two years from the bond's date of issuance, and Funding the administrative fee required for participating in the state's PACE Reserve Program. This bill allows a public agency to conclude that it is in the public interest for bonds issued by the public agency to not be subject to redemption before their scheduled maturity date except as a result of full or partial prepayment of the contractual assessments. For bonds issued to finance improvements to nonresidential property or residential property with four or more units, the bonds' redemption premium must be determined by agreement of the public agency issuing the bonds, the property owner, and the initial purchaser of the bonds. This bill specifies conditions under which a public agency may issue bonds to refinance outstanding bonds payable from contractual assessments. Specifically, this bill requires that: The total interest cost to maturity on the refunding bonds must be less than the total interest cost to maturity on the bonds to be refunded. The final maturity date of the refunding bonds must not be later than the final maturity date of the refunded bonds, except if the bonds to be refunded are variable rate bonds, the final maturity date of the refunding bonds may extend to, but not beyond, the useful life of the financed improvements. The total interest component of the scheduled contractual assessment installments to maturity, after issuance of the refunding bonds, must be less than the total interest CONTINUED AB 1883 Page 5 component of the scheduled contractual assessment installments to maturity prior to issuance of the refunding bonds. This bill allows a public agency, with the prior written approval of the owner of nonresidential property or residential property with four or more units, to refinance outstanding bonds payable from contractual assessments by issuing bonds that don't comply with the requirements above. However, the final maturity date of the refunding bonds may be later than the final maturity date of the bonds being refunded only if the final maturity date of the refunding bonds does not extend beyond the useful life of the financed improvements. Existing law specifies requirements that apply to the imposition and collection of voluntary contractual assessments, including lien priority, the manner of collection, and applicable penalties and remedies in the event of delinquency or default; directs that those procedures do not apply if another procedure has been authorized by the legislative body or by statute. This bill allows a public agency to impose a voluntary contractual assessment on a leasehold or possessory interest in property owned by a public agency with written consent of the public agency that owns the property. This bill specifies that: The contractual assessment levied on a leasehold or possessory interest is payable by the owner of the leasehold or possessory interest. The term of the leasehold interest must be at least as long as the term of the assessment contract at the time the contract is executed. The tax collector may collect unpaid contractual assessments on possessory interests pursuant to specified statutory collection procedures. For a system that is financed using voluntary contractual assessments and operated pursuant to a power purchase agreement, existing law specifies provisions that must be included in the power purchase agreement. To ensure that the property owner is guaranteed electric power from the system for the length of the lien, existing law requires that a power purchase agreement must include both of the following provisions: CONTINUED AB 1883 Page 6 The system cannot be removed if the system's owner is not performing its obligations under the contract. The owner of the system must be a bankruptcy-remote special purpose entity that meets specified conditions. This bill directs that a power purchase agreement must ensure that the system cannot be removed if the system's owner is not performing its obligation under the contract and one of the following is true: The system owner covenants in a contract with the property owner that neither the owner nor any successor will remove or decommission the system during the contract's term and warrants that no assignee, creditor, partner, or owner will have any right, during the contract's term, to remove or decommission the system. The owner of the system must be a bankruptcy-remote special purpose entity that meets specified conditions. This bill includes legislative findings and declarations regarding PACE financing and the need to reduce financing costs by pooling PACE projects before bonds are issued. This bill makes additional technical and clarifying changes to the statutes governing voluntary contractual assessments. Comments Existing 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. Existing law requires bonds to be issued 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 CONTINUED AB 1883 Page 7 between the individual projects. In some cases, this could reduce closing costs for individual projects by up to 60%. This bill makes additional changes to the statutes governing voluntary contractual assessments to allow PACE programs that operate under those statutes the same flexible financing tools that are available under newer PACE statutes. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 8/5/14) County of Alameda (co-source) Renewable Funding (co-source) California Energy Efficiency Industry Council California Solar Energy Industry Association Environmental Defense Fund Figtree Financing Natural Resources Defense Council Sonoma County Board of Supervisors Sonoma County Energy Independence Program ARGUMENTS IN SUPPORT : According to the author's office, this bill will help Californians finance energy efficiency, renewable energy, and water efficiency projects, allowing local governments to reduce greenhouse gas emissions and help businesses save money. This bill will allow PACE projects to be temporarily transferred to a third party so that these projects can gain access to capital, and makes a number of technical changes to California code that will bring all commercial PACE financing into conformity with existing law. ASSEMBLY FLOOR : 76-0, 5/15/14 AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dababneh, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea, John A. Pérez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner, CONTINUED AB 1883 Page 8 Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins NO VOTE RECORDED: Donnelly, Mansoor, V. Manuel Pérez, Vacancy AB:e 8/6/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED