BILL ANALYSIS Ó
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 2693|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: AB 2693
Author: Dababneh (D), et al.
Amended: 8/2/16 in Senate
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 6/15/16
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach
NO VOTE RECORDED: Pavley
SENATE JUDICIARY COMMITTEE: 7-0, 6/28/16
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
ASSEMBLY FLOOR: 75-0, 5/23/16 - See last page for vote
SUBJECT: Financing requirements: property improvements
SOURCE: Author
DIGEST: This bill amends statutes governing Property Assessed
Clean Energy (PACE) financing to add consumer notice
requirements and tighten financing standards for PACE loans for
residential properties
ANALYSIS: Existing 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.
AB 2693
Page 2
This bill:
1)Prohibits a local agency from permitting the owner of a
residential property with four or fewer units from
participating in a voluntary contractual assessment program if
the owner's parcel or property does not comply with specified
statutory and regulatory requirements that currently apply to
participation in a PACE Loss Reserve program managed by the
State Treasurer's office.
2)Prohibits a local agency from permitting the owner of a
residential property with four or fewer units from
participating in a voluntary contractual assessment program
unless both of the following apply:
a) The property owner has been provided with a completed
financing estimate document or a substantially equivalent
document that displays the same information in a
substantially similar format.
b) The property owner is given the right to cancel the
contractual assessment at any time prior to midnight on the
third business day after the date of the transaction to
enter into the agreement without penalty or obligation.
The property owner must receive two copies of a right to
cancel document as specified in state law, or a
substantially similar document that displays the same
information in substantially similar format.
3)Requires that a Financing Estimate and Disclosure document
must be delivered to a property owner of a residential
property with four or fewer units at least three business days
before the property owner consummates a voluntary contractual
assessment. This disclosure must be provided to a property
owner as a printed copy, if requested by the property owner.
4)Requires that, before annexing a parcel or parcels to a
community facilities district (CFD) formed pursuant to an
AB 2693
Page 3
alternative process by which a local government can form a CFD
to finance energy efficiency, water conservation, and
renewable energy improvements, the legislative body of a
local agency must comply with the same requirements that
apply to a property owner who seeks to participate in a
voluntary contractual assessment program for a residential
property of four or fewer units.
5)Prohibits a public agency or other party to a voluntary
contractual assessment or a special tax from making any
representations to a property owner regarding the effect that
financed improvements will have on the market value of the
property unless that public agency or other party derives its
estimates of the market value using a specified methodology.
6)Specifies that for the purposes of the bill's provisions, the
term "property owner" includes all owners of record.
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
AB 2693
Page 4
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 of the Statutes of 2008).
Water efficiency improvements that are permanently fixed to
real property (AB 474, Blumenfield, Chapter 444 of the
Statutes of 2009).
Electric vehicle charging infrastructure (SB 1340, Kehoe,
Chapter 649 of the Statutes of 2010).
Seismic strengthening improvements (AB 184, Swanson, Chapter
28 of the 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 Community Facilities District
(CFD) issues bonds against these special taxes to finance the
public works projects. 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 of the 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 addition to these two statutory frameworks for providing PACE
loans, charter cities can establish their own PACE financing
programs under California Constitution's grant of authority to
charter cities to control their own "municipal affairs."
Some federal housing officials, mortgage lenders, and other
stakeholders in residential real property transactions are
concerned about the complications that priority liens for PACE
AB 2693
Page 5
loans may create for residential property owners who seek to
refinance or sell their properties. They worry about a lack of
consumer disclosures and protections for residential PACE
program borrowers and a lack of financing criteria to protect
the equity on homeowners' properties. They want the Legislature
to expand consumer disclosure requirements for PACE loans
offered to residential property owners and enhance the financing
criteria and other statutory requirements that local governments
must fulfill to provide PACE financing to residential property
owners.
Comments
Purpose of the bill. This bill responds to concerns that PACE
financing extends credit secured by a home without providing
truth in lending disclosures and without the underwriting
safeguards applicable to other consumer loans. Some consumers
have complained about misleading marketing campaigns related to
PACE and receiving insufficient information about a PACE lien's
interaction with their residential mortgage agreements. This
bill adds important consumer protections to the statutes
authorizing PACE financing. The bill requires that consumers
entering into a PACE financing transaction must be provided with
statutory model disclosure forms to ensure that all borrowers
receive information about the contractual obligation they will
assume and the related financial terms and conditions of PACE
agreements. The disclosures required by the bill are intended
to be consistent with an updated universal Truth in Lending
disclosure recently released by the federal Consumer Financial
Protection Bureau. This bill also enacts financial criteria
that build upon the basic requirements that state law has
established for participation in CAEATFA's reserve pool program.
These financial criteria are intended to ensure that PACE
transactions are based upon a sound financial foundation. By
requiring more disclosure and specifying stronger financing
criteria that must be applied to PACE financing, this bill takes
important steps to protect consumers and other stakeholders in
the real estate market.
Disclosures. This bill requires that consumers must be provided
with extensive disclosures at least three days before entering
AB 2693
Page 6
into a PACE financing agreement. Advocates for local
governments and PACE financing providers are concerned that the
timing and content the disclosures required by the bill could
discourage consumers from entering into PACE loans. They want
to eliminate the three day waiting period requirement and modify
language in the disclosure form to strike an appropriate balance
between informing consumers without biasing their decisions
about signing up for a PACE loan.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified8/3/16)
California Association of County Treasurers and Tax Collectors
California Coast Credit Union
California Community Banking Network
Central Valley Community Bank
Comerica Bank
Commonwealth Central Credit Union
Community West Bank
El Dorado Savings Bank
Farmers and Merchants Bank of Central California
First Choice Bank
First Northern California Credit Union
Heritage Community Credit Union
Neighborhood National Bank
Patelco Credit Union
Provident Credit Union
Sacramento Credit Union
Safe Credit Union
San Diego County Credit Union
San Francisco Federal Credit Union
Schools Financial Credit Union
Sierra Central Credit Union
Southwest California Legislative Council
Star One Credit Union
Valley First Credit Union
Valley Republic Bank
Two Individuals
AB 2693
Page 7
OPPOSITION: (Verified8/3/16)
California Solar Energy Industries Association
Renew Financial
Renovate America
ARGUMENTS IN SUPPORT: Supporters argue that by requiring
more disclosure and specifying stronger financing criteria that
must be applied to PACE financing, this bill takes important
steps to protect consumers and other stakeholders in the real
estate market.
ARGUMENTS IN OPPOSITION: Opponents argue that some of the
required disclosure language and the required three day waiting
period before consumers can enter into a PACE financing
agreement will discourage consumer from signing up for PACE
loans.
ASSEMBLY FLOOR: 75-0, 5/23/16
AYES: Achadjian, Alejo, Travis Allen, Atkins, Baker, Bigelow,
Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos,
Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh,
Dahle, Daly, Dodd, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, Medina, Melendez,
Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Quirk,
Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark
Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Wood,
Rendon
NO VOTE RECORDED: Arambula, Eggman, McCarty, Patterson,
Williams
Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119
8/4/16 14:11:49
**** END ****
AB 2693
Page 8