BILL ANALYSIS Ó
AB 2597
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Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Wesley Chesbro, Chair
AB 2597 (Ting) - As Amended: April 23, 2014
SUBJECT : Energy: PACE program
SUMMARY : Revises the California Alternative Energy and
Advanced Transportation Financing Authority's (CAEATFA)
underwriting standard for the Property Assessed Clean Energy
(PACE) program by increasing the maximum amount of an assessment
from 10 percent to 15 percent of the property value and
specifies that PACE financing is an "assessment" or "financing"
(as appropriate) and not a "loan."
EXISTING LAW :
1)Authorizes CAEATFA to provide financing for facilities that
use alternative energy sources and technologies. CAEATFA can
issue revenue bonds (without voter approval), make loans, loan
loss reserves, loan guarantees, and authorize STEs to develop
and commercialize alternative energy projects and advanced
transportation technologies that conserve energy, reduce air
pollution, and promote economic development and jobs.
2)Establishes the PACE program to provide financing for
residential energy retrofits, up to 10 percent of the value of
the home, which homeowners repay as an "assessment" on their
property taxes.
3)Establishes the PACE Loss Reserve Program, which makes first
mortgage lenders whole for any losses in a foreclosure or a
forced sale that are attributable to the PACE program.
4)Requires CAEATFA to develop and administer a PACE risk
mitigation program to increase the program's acceptance in the
marketplace and protect against the risk of default and
foreclosure.
THIS BILL :
1)States legislative findings to clarify that the PACE program
is voluntary. The findings also clarify that the PACE risk
mitigation program is intended to provide an additional
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safeguard for both existing and new PACE financing programs
and remove any additional risk to the first mortgage lender
and federal mortgage enterprises resulting from the existence
of a PACE assessment on a property.
2)Revises code sections that refer to the PACE loan program to
refer to the PACE financing program.
3)Increases the maximum financing amount from 10 percent of the
assessed value of the property to 15 percent for the first
$700,000 in property value. Maintains the existing 10 percent
on property values over $700,000.
FISCAL EFFECT : Unknown
COMMENTS :
PACE is an innovative financing tool that residential or
commercial property owners can use to pay for renewable energy
upgrades, energy, or water efficiency, 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.
PACE programs typically are 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, this is
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.
In 2010, the Federal Housing Finance Agency (FHFA) raised
concerns that residential PACE financing could pose a risk for
Fannie Mae and Freddie Mac, because PACE assessments are a
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first-priority lien in the case of foreclosure and lenders would
have to pay outstanding PACE assessments before paying mortgage
costs. The FHFA's action triggered many local governments to
suspend their residential PACE programs.
To address this concern, in 2013, the Legislature created the
PACE Loss Reserve Program administered by the California
Alternative Energy and Advanced Transportation Financing
Authority (CAEATFA). SB 96 authorized 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, but the statutory language creating the PACE Loss
Reserve Program incorrectly names these voluntary assessments as
loans. Attempting to clarify the terminology, CAEATFA
regulations have added to the confusion by defining a PACE
"loan" as a voluntary tax assessment. Statute also limits the
value of assessments receiving assistance to less than 10% of
the property value. This restrictive criteria precludes
property owners in less affluent areas from participating in
PACE and does not match current PACE program practices.
AB 2597 clarifies that PACE assessments are special tax
assessments, rather than loans, and updates the value of
eligible improvements financed PACE to up to 15% of the home
value.
REGISTERED SUPPORT / OPPOSITION :
Support
Renewable Funding, LLC (co-sponsor)
Sierra Club California
Sonoma County Energy Independence Program (co-sponsor)
Western Riverside Council of Governments (co-sponsor)
Opposition
None on file
Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916)
319-2092
AB 2597
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