BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                       AB 450


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          ASSEMBLY THIRD READING


          AB  
          450 (McCarty)


          As Introduced  February 23, 2015


          Majority vote


           --------------------------------------------------------------------- 
          |Committee       |Votes |Ayes                    |Noes                |
          |                |      |                        |                    |
          |                |      |                        |                    |
          |----------------+------+------------------------+--------------------|
          |Natural         |9-0   |Williams, Dahle,        |                    |
          |Resources       |      |Cristina Garcia,        |                    |
          |                |      |Hadley, Harper,         |                    |
          |                |      |McCarty, Rendon, Mark   |                    |
          |                |      |Stone, Wood             |                    |
           --------------------------------------------------------------------- 


          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  








                                                                       AB 450


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            residential energy retrofits, up to 15% of the value of the  
            home, which homeowners repay as an "assessment" on their  
            property taxes.  The PACE Reserve 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 greenhouse gas  
            (GHG) emissions limit equivalent to 1990 levels by 2020 and  
            adopt regulations to achieve maximum technologically feasible  
            and cost-effective GHG emission reductions.  ARB is authorized  
            to permit the use of market-based compliance mechanisms to  
            comply with GHG reduction regulations, once specified conditions  
            are met.


          3)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.


          4)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.


          FISCAL EFFECT:  None









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          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 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. 


          To address this concern, in 2013, SB 96 (Budget and Fiscal Review  
          Committee), Chapter 356, Statutes of 2013, 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 (Ting), Chapter 614, Statutes of  
          2014, clarified that PACE assessments are special tax assessments,  








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          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% 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% 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.




          Analysis Prepared by:                                               
                          Lawrence Lingbloom / NAT. RES. / (916) 319-2092    
          FN: 0000139