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