BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 2618 |Hearing | 6/15/16 |
| | |Date: | |
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|Author: |Nazarian |Tax Levy: |No |
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|Version: |5/2/16 |Fiscal: |No |
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|Consultant| Weinberger |
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Community facilities districts: powers
Authorizes Mello-Roos community facilities districts to finance
improvements to bring real property into compliance with seismic
safety standards or regulations
Background
Property assessed clean energy (PACE) financing programs allow
local governments to offer loans to private property owners to
cover the initial costs of renewable energy, energy efficiency,
water efficiency, and other improvements to private property
that offer public benefits. Property owners repay the loans
through voluntary assessments or parcel taxes, which are secured
by priority liens and appear annually on property tax bills
until the loans are repaid.
State law establishes two distinct statutory frameworks under
which local governments can implement and administer PACE loan
programs that rely on voluntary contractual assessments or
parcel taxes for repayment of the loans.
Voluntary Contractual Assessment PACE Financing. A benefit
assessment is an involuntary charge that property owners pay for
a public improvement or service that provides a special benefit
to their property. As an alternative to benefit assessments,
and only with the free and willing consent of affected property
AB 2618 (Nazarian) 5/2/16 Page 2
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owners, state law lets public agencies use voluntary contractual
assessments to finance:
Renewable energy sources or energy efficiency
improvements that are permanently fixed to real property
(AB 811, Levine, 2008).
Water efficiency improvements that are permanently fixed
to real property (AB 474, Blumenfield, 2009).
Electric vehicle charging infrastructure (SB 1340,
Kehoe, 2010).
Seismic strengthening improvements (AB 184, Swanson,
2011).
Mello-Roos Parcel Tax PACE Financing. The Mello-Roos Community
Facilities Act allows counties, cities, special districts, and
school districts to levy special taxes (parcel taxes) to finance
a wide variety of public works, including parks, recreation
centers, schools, libraries, child care facilities, and utility
infrastructure. A Mello-Roos Community Facilities District
(CFD) issues bonds against these special taxes to finance the
public works projects. In addition to financing public works,
state law also allows CFDs to finance improvements to private
property that bring the property into compliance with seismic
safety standards or regulations. State law establishes an
alternative process by which a local government can form a CFD
to finance only energy efficiency, water conservation, and
renewable energy improvements that are affixed to or on real
property and in buildings, whether the real property or
buildings are privately or publicly owned (SB 555, Hancock,
2011). Under the alternative formation process, a CFD can
initially consist solely of territory proposed for future
annexation to the CFD, with the condition that a parcel or
parcels within that territory may be annexed to the CFD and
subjected to the special tax only with the unanimous approval of
the parcel owner or owners at the time of annexation.
In 2010, the Federal Housing Finance Agency (FHFA), which
oversees the nation's largest mortgage finance companies, Fannie
Mae and Freddie Mac, raised concerns that residential PACE
financing could pose a risk for Fannie Mae and Freddie Mac,
because PACE loans are a first-priority lien in the case of
foreclosure and outstanding PACE assessments would be paid
AB 2618 (Nazarian) 5/2/16 Page 3
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before mortgage obligations. As a result, Fannie Mae and
Freddie Mac stated that they would no longer purchase mortgage
loans secured by properties with outstanding PACE loans.
Unlike the statutes allowing local government to offer PACE
loans that are secured with voluntary contractual assessments,
which can be used to finance seismic improvements to private
property, the Mello-Roos Act's alternative process for allowing
parcels to annex into a CFD and be subject to a voluntary parcel
tax can only be used to finance energy efficiency, water
conservation, and renewable energy improvements. Some advocates
for PACE financing programs want the Legislature to allow local
governments to use the Mello-Roos PACE financing framework to
provide loans for improvements to private property that bring
the property into compliance with seismic safety standards or
regulations.
Proposed Law
Assembly Bill 2618 adds seismic improvements, as specified, to
the types of improvements that can be financed on publicly or
privately owned property by a community facilities district that
is formed through an alternative process that allows property
owners to voluntarily annex their property into the CFD.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Millions of California's residents live
in close proximity to some of the most active earthquake faults
in the United States. To save lives and improve the resiliency
of their communities, many local governments are requiring
property owners to make seismic strengthening retrofits to
structures that are likely to suffer severe damage in a strong
earthquake, including "soft first-story" buildings and concrete
structures built before the 1980s. Some communities have
adopted financing programs based on the voluntary contractual
assessment model authorized by the 2011 Swanson bill. To make
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more seismic retrofit financing options available to local
governments and property owners, AB 2618 adds seismic safety
improvements to the types of projects that can be financed by
annexing a parcel to a community facilities district that
imposes a parcel tax to repay the loan. With communities across
California passing ordinances requiring seismic retrofits, it is
essential the property owners have options when considering how
to finance these improvements. Expanding the Mello-Roos parcel
tax PACE statutes to cover seismic improvements will make this
financing option available to more property owners across the
state while making the two state-authorized PACE models more
consistent with each other.
2. Premature ? Despite the best efforts of the California
Legislature and local governments to support the development and
implementation of innovative PACE financing programs, the
programs still raise some questions that have yet to be
resolved. For example, federal officials' ongoing concerns
about the priority of PACE financing liens raise concerns about
the effect of PACE financing on residential mortgages. Some
real estate finance stakeholders and public officials raise
concerns about inadequate disclosure provided to consumers by
PACE financing providers. Additionally, the California
Alternative Energy and Advanced Transportation Financing
Authority (CAEATFA) is still in the process of developing
criteria for comparative assessment of energy efficiency
financing programs. It may be premature to expand the allowable
uses of PACE financing before some of these outstanding concerns
have been resolved and a comparative assessment of PACE
financing's effectiveness has been conducted.
3. Are seismic improvements different ? Despite the concerns
that federal regulators generally raise about the interactions
between residential mortgages and priority PACE liens, using
PACE financing for seismic improvements may be different.
Unlike the installation of photovoltaic panels or low-flow
plumbing fixtures, seismic improvements that are paid for with
PACE loans make it less likely that the real property that is
being improved will be damaged or destroyed in an earthquake.
As a result, the improvements may directly benefit insurance
providers by reducing claims and mortgage lenders by helping to
protect the real property that serves as security for the
mortgage. Concerns about the priority of PACE liens on
residential property may be less justified when PACE financing
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is used to pay for seismic strengthening improvements.
4. Related legislation . AB 2693 (Nazarian) amends statutes
governing Property Assessed Clean Energy (PACE) financing to add
consumer notice requirements and tighten financing standards for
PACE loans for residential properties.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Floor: 77-1
Support and
Opposition (6/9/16)
Support : Ygrene Energy Fund.
Opposition : Unknown.
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