BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    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,  
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            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.


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          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  

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          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  

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            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:

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           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  

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          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,  

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            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

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