BILL ANALYSIS Ó AB 2693 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 2693 (Dababneh) As Amended August 19, 2016 Majority vote -------------------------------------------------------------------- |ASSEMBLY: |75-0 |(May 23, 2016) |SENATE: | 39-0 |(August 24, | | | | | | |2016) | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: B. & F. SUMMARY: Creates the PACE Preservation and Consumer Protections Act by adding consumer protections to California's Property Assessed Clean Energy (PACE) Program. Specifically, 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 requirements. 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 AB 2693 Page 2 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 on or before midnight on the third business day after whichever of the following events occurs last: i) The date on which the property owner signed the contractual assessment; ii) The date the property owner received the Financing Estimate and Disclosure; or, iii) The date the property owner received the notice of the right to cancel. The property owner must receive the 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. Specifies that the disclosure document should be provided to the property owner as a printed copy unless the property owner agrees to an electronic copy. 4)Requires that, before annexing a parcel or parcels to a AB 2693 Page 3 community facilities district (CFD) formed pursuant to an 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 monetary or percentage representations of increased value 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. 7)Provides that the provisions of this act are in addition to any rights or remedies of property owners or borrowers under any other law. The Senate amendments: 1)Add a findings and declarations section declaring the measure as the PACE Preservation and Consumer Protections Act. 2)Create a right to cancel form. 3)Add a customer service toll-free telephone number and email shall be included in the disclosure document. AB 2693 Page 4 4)Clarify that the requirements in this measure only pertain to residential property with four or fewer units. 5)Specify that the disclosure document should be provided to the property owner as a printed copy unless the property owner agrees to an electronic copy. 6)Prohibit a public agency or other party to a voluntary contractual assessment or a special tax from making any monetary or percentage representations of increased value 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. 7)Add a section to the disclosure document that a property owner must initial stating "Statutory Penalties: If your property tax payment is late, the amount due will be subject to a 10% penalty, late fees, and 1.5% per month interest penalty as established by state law, and your property may be subject to foreclosure." 8)Specify that "property owner" shall include all owners of record. 9)Provide that the provisions of this act are in addition to any rights or remedies of property owners or borrowers under any other law. 10)Make other technical and clarifying changes. 11)Add double-jointing language. AB 2693 Page 5 EXISTING LAW: 1)Defines "Property Assessed Clean Energy bond" or "PACE bond" as a bond that is secured by any of the following: a) A voluntary contractual assessment on property authorized pursuant to paragraph (2) of the Streets and Highways Code Section 5898.20(a); b) A voluntary contractual assessment or a voluntary special tax on property to finance the installation of distributed generation renewable energy sources, electric vehicle charging infrastructure, or energy or water efficiency improvements that is levied pursuant to a chartered city's constitutional authority under the California Constitution Article XI Section 5; or, c) A special tax on property authorized pursuant to Government Code Section 53328.1(b). (Public Resources Code Section 26054) 2)Authorizes cities, counties, and other local public agencies and utility districts to provide up-front financing to property owners to install renewable energy-generating devices, make specified water or energy efficiency improvements, or install electric vehicle charging infrastructure on their properties through a system of voluntary contractual assessments which is repaid, with interest, through property tax assessments. The programs are commonly referred to as the PACE programs. (Streets and Highways Code Section 5898.10 et seq.) 3)Requires the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) to develop and administer a PACE Reserve program to reduce overall costs to the property owners of PACE bonds issued by an applicant by providing a reserve of no more than 10% of the initial principal amount of the PACE bond. Requires the CAEATFA to develop and administer a PACE risk mitigation program for PACE AB 2693 Page 6 financing to increase its acceptance in the marketplace and protect against the risk of default and foreclosure. [Public Resources Code Section 26060] 4)Allows a community facilities district to finance and refinance the acquisition, installation, and improvement of energy efficiency, water conservation, and renewable energy improvements that are affixed, as specified in Civil Code Section 660, to or on real property and in buildings, whether the real property or buildings are privately or publicly owned. Energy efficiency, water conservation, and renewable energy improvements financed by a district may only be installed on a privately owned building and on privately owned real property with the prior written consent of the owner or owners of the building or real property. This chapter shall not be used to finance installation of energy efficiency, water conservation, and renewable energy improvements on a privately owned building or on privately owned real property in connection with the initial construction of a residential building unless the initial construction is undertaken by the intended owner or occupant. [Government Code Section 53313.5] FISCAL EFFECT: None. COMMENTS: This bill provides enhanced consumer protections by requiring a public agency to provide property owners participating in the PACE program with a "Financing Estimate and Disclosure" document. This disclosure will provide much needed information to property owners regarding the financial terms and obligations of the PACE loan. This bill establishes uniform disclosures that must be provided to each homeowner when participating in a PACE program. Under this bill, each homeowner must receive a completed financing estimate document, which contains products and costs, financing costs, other terms, and notification to the homeowner about making payments via the property tax bill, and the potential requirement to pay the remaining balance of the assessment upon AB 2693 Page 7 sale or refinance. The measure also provides that a property owner is given the right to cancel the PACE loan without penalty or obligation. Background: In 2008, California enacted the first statewide PACE program through AB 811 (Levine), Chapter 159. Since 2008, at least 31 other states have created their own programs with variations. Not all PACE programs carry super-lien status. 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. PACE: Generally, PACE programs begin with a local public agency (such as a city, county or municipal utility district) adopting a resolution to create a Joint Power Authority (JPA) to authorize the creation of a PACE loan program. The JPA administers the program directly or may contract with a private entity to administer it. The JPA may authorize either local governments AB 2693 Page 8 or third parties to make loans to homeowners for the conservation improvements. When created, it was presumed that public agencies would run the PACE program themselves; instead the majority of cities or counties have contracted out the services to new unregulated private entities to administer the PACE program. Only two programs run their own PACE program internally: Sonoma County and Placer County. The programs are funded by either private or public sources, or a combination of both. For example, Sonoma County has generally used public funds for their residential PACE program. The residential PACE program in Sonoma County, Sonoma County Energy Independence Program, borrows money from the County, which is then paid back with interest as the lien is paid off by the homeowner. In other areas, it is primarily private funding. In PACE programs administered by private entities the bonds are typically issued to private investors to pay the cost of the of the conservation improvements. How does PACE work? Although details vary between the programs, generally a homeowner who is interested in adding a conservation improvement to his or her home is first advised and sometimes required to have an energy audit conducted on the property to identify areas of potential conservation improvements. After that, a homeowner contacts a contractor, who typically has to be approved or certified by the PACE program to be eligible to work on the project. The contractor provides an estimate of the costs of the conservation improvement(s) the homeowner wishes to add. The homeowner then applies to the program for approval. Typically there are costs associated with the application. Only once the improvement application is approved, will the work begin. If the project is approved, the entity administering the program will enter into an agreement with the property owner where the AB 2693 Page 9 entity agrees to pay the cost of the improvement. An assessment lien is placed on the property for the amount owed plus interest. After the work is performed, the PACE program entity pays the contractor. The property owner repays the entity for the improvements as a special tax assessment on the property tax bill, generally over a five to 20 year period. The property owner pays the lien in the same manner as he or she would pay property taxes. Who uses PACE? PACE financing is available to property owners in certain cities or counties that have adopted a program. In California, over 400 cities and counties participate in PACE. To qualify, homeowners need to have equity in their home. The homeowner must have no judgment liens or federal or state tax liens. The homeowner cannot be in bankruptcy. The property cannot be subject to a bankruptcy proceeding. The homeowner must not be delinquent on any mortgages. Analysis Prepared by: Kathleen O'Malley / B. & F. / (916) 319-3081 FN: 0004798 Click here to enter text.