BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2618|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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THIRD READING
Bill No: AB 2618
Author: Nazarian (D)
Amended: 8/19/16 in Senate
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 6-1, 6/15/16
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Pavley
NOES: Moorlach
ASSEMBLY FLOOR: 77-1, 5/12/16 - See last page for vote
SUBJECT: Community facilities districts: powers
SOURCE: Author
DIGEST: This bill allows Mello-Roos community facilities
districts to finance improvements to bring real property into
compliance with seismic safety standards or regulations.
Senate Floor Amendments of 8/19/16 avoid a potential chaptering
out conflict with AB 2693 (Dababneh, 2016) by incorporating
recent amendments to AB 2693 into the double-jointing language
added to this bill.
Senate Floor Amendments of 8/16/16 avoid a potential chaptering
out problem with AB 2693 (Dababneh, 2016).
ANALYSIS: Existing law establishes two distinct statutory
frameworks under which local governments can implement and
administer property assessed clean energy (PACE) loan programs
that rely either on voluntary contractual assessments or parcel
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taxes for repayment of the loans.
This bill 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 (CFD) that is
formed through an alternative process that allows property
owners to voluntarily annex their property into the CFD.
Background
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
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,
Chapter 159, Statutes of 2008).
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Water efficiency improvements that are permanently fixed to
real property (AB 474, Blumenfield, Chapter 444, Statutes of
2009).
Electric vehicle charging infrastructure (SB 1340, Kehoe,
Chapter 649, Statutes of 2010).
Seismic strengthening improvements (AB 184, Swanson, Chapter
28, Statutes of 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 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, Chapter 493, Statutes of 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, 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
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outstanding PACE assessments would be paid 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.
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 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 CFD 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
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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 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
is used to pay for seismic strengthening improvements.
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FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified8/17/16)
Ygrene Energy Fund
OPPOSITION: (Verified8/17/16)
None received
ASSEMBLY FLOOR: 77-1, 5/12/16
AYES: Achadjian, Alejo, Arambula, Atkins, Baker, Bigelow,
Bloom, Bonilla, Bonta, Brough, Brown, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,
Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk,
Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark
Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,
Wood, Rendon
NOES: Travis Allen
NO VOTE RECORDED: Burke, Jones-Sawyer
Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119
8/22/16 23:05:49
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