BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 450


                                                                    Page  1





          Date of Hearing:  April 13, 2015


                       ASSEMBLY COMMITTEE ON NATURAL RESOURCES


                                 Das Williams, Chair


          AB 450  
          (McCarty) - As Introduced February 23, 2015


          SUBJECT:  Greenhouse gas:  energy efficiency:  financing


          SUMMARY:  Specifies that moneys appropriated from the Greenhouse  
          Gas Reduction Fund (GGRF) may be used for implementation of the  
          Property Assessed Clean Energy (PACE) Reserve Program.


          EXISTING LAW:  


          1)Establishes the PACE Reserve Program to provide financing for  
            residential energy retrofits, up to 15 percent of the value of  
            the home, which homeowners repay as an "assessment" on their  
            property taxes.  The Program is administered by the California  
            Alternative Energy and Advanced Transportation Financing  
            Authority (CAEATFA), which is authorized to support  
            alternative energy projects by issuing revenue bonds (without  
            voter approval), making loans, and authorizing sales tax  
            exemptions.
           
          2)Requires the Air Resources Board (ARB), pursuant to California  
            Global Warming Solutions Act of 2006 [AB 32 (Núñez), Chapter  
            488, Statutes of 2006], to adopt a statewide GHG emissions  
            limit equivalent to 1990 levels by 2020 and adopt regulations  
            to achieve maximum technologically feasible and cost-effective  








                                                                     AB 450


                                                                    Page  2





            GHG emission reductions.

          3)Authorizes ARB to permit the use of market-based compliance  
            mechanisms to comply with GHG reduction regulations, once  
            specified conditions are met.

          4)Establishes the GGRF and requires all moneys, except for fines  
            and penalties, collected by ARB from the auction or sale of  
            allowances pursuant to a market-based compliance mechanism  
            (i.e., the cap-and-trade program adopted by ARB under AB 32)  
            to be deposited in the GGRF and available for appropriation by  
            the Legislature.

          5)Establishes the GGRF Investment Plan and Communities  
            Revitalization Act [AB 1532 (John A. Pérez), Chapter 807,  
            Statutes of 2012] to set procedures for the investment of GHG  
            allowance auction revenues.  AB 1532 authorizes a range of GHG  
            reduction investments, including energy efficiency and  
            renewable energy generation, but does not specifically mention  
            PACE.

          6)Requires the investment plan to allocate:  1) a minimum of 25%  
            of the available moneys in the fund to projects that provide  
            benefits to identified disadvantaged communities; and, 2) a  
            minimum of 10% of the available moneys in the fund to projects  
            located within identified disadvantaged communities [SB 535  
            (De Leon), Chapter 830, Statutes of 2012].  

          FISCAL EFFECT:  Non-fiscal


















                                                                     AB 450


                                                                    Page  3





          
          COMMENTS:  


          Background.  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 get 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.  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  
          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. 










                                                                     AB 450


                                                                    Page  4





          To address this concern, in 2013, SB 96 authorized the PACE Loss  
          Reserve Program administered by CAEATFA, which is a reserve fund  
          to keep mortgage lenders whole during a foreclosure or a forced  
          sale.  Last year, AB 2597 clarified that PACE assessments are  
          special tax assessments, rather than loans, and updated the  
          value of eligible improvements financed PACE to up to 15% of the  
          home value.


          The 2014-15 Budget Act allocates cap-and-trade revenues for the  
          2014-15 fiscal year and establishes a long-term plan for the  
          allocation of cap-and-trade revenues beginning in fiscal year  
          2015-16.  The Budget continuously appropriates 35 percent of  
          cap-and-trade funds for investments in transit, affordable  
          housing, and sustainable communities.  Twenty-five percent of  
          the revenues are continuously appropriated to continue the  
          construction of high-speed rail.  The remaining 40 percent will  
          be appropriated annually by the Legislature for investments in  
          programs that include low-carbon transportation, energy  
          efficiency and renewable energy, and natural resources and waste  
          diversion.  No funds have been specifically appropriated for  
          PACE.


          REGISTERED SUPPORT / OPPOSITION:




          Support


          California Energy Efficiency Industry Council


          California State Association of Counties


          Renewable Funding








                                                                     AB 450


                                                                    Page  5







          Renovate America


          Sacramento Municipal Utility District









































                                                                     AB 450


                                                                    Page  6





          


          Opposition


          None on file







          Analysis Prepared by:Lawrence Lingbloom / NAT. RES. / (916)  
          319-2092