BILL ANALYSIS                                                                                                                                                                                                    



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          CONCURRENCE IN SENATE AMENDMENTS


          AB  
          2693 (Dababneh)


          As Amended  August 19, 2016


          Majority vote


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          |ASSEMBLY:  |75-0  |(May 23, 2016) |SENATE: | 39-0 |(August 24,      |
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          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  








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            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  








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            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. 










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          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.  













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          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  








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            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  








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          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  








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          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  








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          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.