BILL ANALYSIS Ó
AB 2597
Page 1
ASSEMBLY THIRD READING
AB 2597 (Ting)
As Amended April 23, 2014
Majority vote
REVENUE & TAXATION 8-0 NATURAL RESOURCES 6-0
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|Ayes:|Bocanegra, Beth Gaines, |Ayes:|Chesbro, Garcia, |
| |Gordon, Mullin, Nestande, | |Muratsuchi, Patterson, |
| |Pan, | |Stone, Williams |
| |V. Manuel Pérez, Ting | | |
| | | | |
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APPROPRIATIONS 17-0
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|Ayes:|Gatto, Bigelow, | | |
| |Bocanegra, Bradford, Ian | | |
| |Calderon, Campos, | | |
| |Donnelly, Eggman, Gomez, | | |
| |Holden, Jones, Linder, | | |
| |Pan, Quirk, | | |
| |Ridley-Thomas, Wagner, | | |
| |Weber | | |
| | | | |
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SUMMARY : Modifies the California Alternative Energy and
Advanced Transportation Financing Authority's (CAEATFA)
underwriting standard for the Property Assessed Clean Energy
(PACE) program by providing that financing cannot exceed 15% for
the first $700,000 of the value of the property and 10% for the
remaining value of the property, and substitutes the term "loan"
with "financing" within various parts of the PACE program.
Specifically, this bill :
1)Requires CAEATFA, when evaluating an application for
participation in the PACE reserve program, to ensure that
financing made to property owners do not exceed 15% for the
first $700,000 of the value of the property and 10% for the
remaining value of the property.
2)Changes the term "PACE loan program" to "PACE financing
AB 2597
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program" within various parts of the PACE program.
EXISTING LAW :
1)Provides that the maximum amount of any ad valorem tax on real
property shall not exceed 1% of the full cash value of such
property.
2)Defines an "assessment" as any levy or charge upon real
property by an agency for a special benefit conferred upon the
real property. "Assessment" includes, but is not limited to,
"special assessment," "benefit assessment," "maintenance
assessment" and "special assessment tax."
3)Allows public agencies and property owners to enter into
voluntary contractual assessments to finance the installation
of distributed generation renewable energy sources or energy
or water efficiency improvements that are permanently affixed
on real property.
4)Establishes a PACE program as a way to help homeowners and
small business owners finance voluntary energy and water
efficiency and clean energy improvements.
5)Establishes a PACE Reserve Program designed to address the
Federal Housing Finance Agency's (FHFA) financial concerns by
making first mortgage lenders whole for any losses in a
foreclosure or a forced sale that are attributable to the PACE
program.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)No increased administrative costs for CAEATFA.
2)It is not anticipated that the change in financing terms will
modify the sustainability of the PACE fund. According to
CAEAFTA, the fund will last at least eight to 12 years.
COMMENTS : The author states that the PACE program "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. AB 2597 seeks to
reinforce local governments' authority to utilize PACE programs
AB 2597
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and brings the benefits of clean energy financing to more
Californians. Specifically, it clarifies that PACE liens are
special tax assessments, rather than loans, and updates the PACE
underwriting standards to make PACE financing available for more
middle-income homeowners. By reinforcing local government's
authority to offer PACE, this bill protects an innovative and
affordable clean energy tool that achieves tremendous reductions
in greenhouse gas emissions and helps California meet its AB 32
[(Pavley), Chapter 608, Statutes of 2013] energy efficiency
goals."
Supporters of this bill state "AB 2597 will clarify that PACE
assessments are special tax assessments rather than loans.
These special tax assessments are duly placed on property tax
bills by California local governments in accordance with
longstanding California law. AB 2597 will also make PACE
financing available for more middle-income homeowners, by
modifying the PACE underwriting standards outlined in California
law." Further, "[b]y amending California law, AB 2597 will
clarify local governments' authority to place special PACE tax
assessments on property and extend the benefits of PACE
financing to more California homeowners to help save California
money, reduce our greenhouse gas emissions, promote renewable
energy, and support water efficiency."
Assembly Revenue and Taxation Committee staff comments:
Background. The PACE program, which began in 2007, is a
financing tool that residential and 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.
In 2010, the FHFA raised concerns that residential PACE
financing could pose a risk for federal mortgage enterprises
(Fannie Mae and Freddie Mac) because PACE loans are
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first-priority liens in the case of foreclosure and lenders
would have to pay outstanding PACE assessments before paying
mortgage costs. In August 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 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. In order to receive the benefits of the state's PACE loss
reserve program, local PACE administrators must comply with a
specified set of underwriting standards.
Using the Term "Financing". The local PACE program is composed
of two parts: the local PACE program and the authority for
local governments to enter into voluntary contractual
assessments. The PACE program is a financing tool that allows
property owners to pay for renewable energy upgrades. The
financing received by the property owner must be repaid to the
local agency. Though the local agency runs a preliminary check
on the property owner's creditworthiness, the loan is primarily
secured and provided for because of an assessment on the
property. The property owner then makes payments to satisfy the
funding for the project, which is paid through the owner's
property tax bill. The PACE program is not structured like a
typical loan because the repayment of the funds are guaranteed
by the assessment, not the individual. Typically, a loan is a
promise by an individual or entity to repay borrowed funds. In
this case, the funds are paid for through property taxes, and
are due regardless of whether the property changes hands.
Therefore, because the assessment continues to run with the land
even if the property is sold, replacing the term "loan" with
"financing" is a more accurate description of how the PACE
program is structured.
Increase to 15%. This bill modifies the PACE reserve
underwriting standards by increasing the financing available for
eligible improvements to no more than 15% for the first $700,000
of the value of the property and 10% for any remaining value.
This increase will likely encourage property owners and local
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agencies to finance larger projects and, as explained by the
author, the increase would make PACE financing available to more
middle-income homeowners. However, the PACE reserve program
currently has a reserve amount of $10 million, and increasing
the financing for eligible improvements also increases the
liability on the reserve fund. In order to ensure that no
additional pressure will be placed on the reserve fund, this
bill has been amended to limit financing for eligible
improvements to no more than 15% for the first $700,000 of the
value of the property. The 10% limitation under current law
will apply to any value above and beyond the first $700,000.
Analysis Prepared by : Carlos Anguiano / REV. & TAX. / (916)
319-2098
FN: 0003508