BILL ANALYSIS
SB 77
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Date of Hearing: April 7, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 77 (Pavley) - As Amended: March 22, 2010
Policy Committee: N/A Vote:NA
Urgency: Yes State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill establishes a state-financed reserve for the Property
Assessed Clean Energy (PACE) program using proceeds from the
Renewable Resource Trust Fund, and makes other changes related
to the PACE program. Specifically, the bill:
1)Authorizes the California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA) within the State
Treasurer's Office to provide reserves for bonds issued
through the PACE program.
2)Specifies that the reserves may be up to 10% of PACE bonds
issued by local governments to support loans made for
residential projects involving three or fewer units or
commercial projects costing less than $25,000.
3)Sets forth various criteria that CAEATFA must consider when
providing the debt reserves to localities, including whether
the PACE program offers loans for energy efficiency projects.
4)Appropriates $50 million through January 1, 2015 from the
Renewable Resource Trust Fund to fund the program.
5)Authorizes CAEATFA to pool local PACE bonds (for the purpose
of reducing borrowing costs), by purchasing them from
individual municipalities, combining them with other PACE
bonds, and selling the pooled bonds through public or
negotiated sales.
FISCAL EFFECT
1)Appropriates $50 million from the Renewable Resources Trust
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Fund (special fund) for the PACE reserve program (special
fund).
2)Authorizes up to $300,000 of the appropriation to be used by
CAEATFA to cover start up costs of administering the program.
Ongoing administrative costs would be recovered from fees paid
by municipalities participating in the reserve program.
COMMENTS
1)Rationale . The bill is intended to reduce the costs to local
governments of issuing PACE related bonds, thereby making PACE
loans more affordable and energy improvements more financially
viable to homeowners and businesses.
2)Background - PACE program . The PACE program permits local
public agencies and utility districts to provide up-front
financing to property owners to install solar or other
renewable energy-generating devices or make specified water or
energy efficiency improvements to their properties. This
financing mechanism was first used by Berkeley through its
Charter Cities authority, and then authorized statewide by AB
811 (Levine), Chapter 159, Statutes of 2008, and AB 474
(Blumenfield), Chapter 444, Statutes of 2009.
Under the program, a city, county, or other public agency
issues bonds and uses the proceeds to make loans to property
owners to finance energy retrofits. These loans are repaid by
the property owner over 20 years via an annual assessment on
the owner's property tax bill. The assessment remains on the
property even if it is sold or transferred. From the property
owner's perspective, the added property tax assessments are
partly or fully offset by energy savings resulting from the
retrofit. The loan repayments from the property owners are
dedicated by the municipalities to the repayment of the
revenue bonds.
The recent negative developments in the economy, and
specifically in the housing and bond markets, have made it
difficult for local governments to sell PACE bonds, as
potential investors have become wary over property tax
defaults. Even though the loan assessments are secured by high
priority liens (which are paid before the mortgage loan),
investors have concerns about bond repayments being delayed.
The reserve program would address these concerns by providing
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a 10% reserve cushion that would be used for payments in the
event of defaults. The depleted reserves would eventually be
replenished when the property taxes were recovered from the
homeowners when the property is sold.
The benefit of the reserve fund is that municipalities will be
able to sell bonds at a lower interest rate, thereby reducing
the loan costs to property owners and making energy efficiency
projects more viable.
Smaller municipalities that have a relatively small number of
PACE loans may face prohibitively higher costs associated with
bringing a small bond to market. This bill would give
municipalities the option of using CAEATFA's bond authority to
pool these smaller bonds, thereby reducing the cost of
issuance.
3)Background - CAEATFA . This authority was created in 1980 to
finance projects utilizing alternative sources of energy, such
as cogeneration, wind and geothermal power. In 1994, its
charge was expanded to include the financing of advanced
transportation technologies. CAEATFA consists of five members
- the Director of the Department of Finance, the Chairman of
the CEC, the President of the Public Utilities Commission, the
State Controller, and the State Treasurer.
4)Background - Renewable Resources Trust Fund. This fund was
established in 1997 to promote development and expansion of
in-state renewable electricity generation. Revenues to the
fund are provided through surcharges levied on ratepayers by
utility companies, and are used to support various renewable
energy programs administered by the California Energy
Commission. About 80% of the fund's proceeds are dedicated to
the New Solar Homes Partnership program, which provides
financial incentives to encourage the installation of solar
energy systems on new residential construction. This program
has been undersubscribed during recent years due to the lack
of new home construction, and the fund currently has a large
uncommitted balance of about $170 million.
5)Related Legislation . This bill is similar to SB 26 X8
(Pavley), which was approved by this committee on March 10,
2010, but expired on the Assembly floor when the special
session adjourned on March 11, 2010. That measure would also
have appropriated $50 million to finance bond reserves related
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to the PACE program. However, SB 26 X8 differed from this bill
in three key ways: it permitted reserves to be used for bonds
supporting all commercial and residential projections (rather
than for just commercial projects costing less than $25,000
and residential projects with three or fewer units); it stated
that the projects financed by bonds using the reserves are
considered public works and thus subject to prevailing wage
requirements; and it provided an exemption from the prevailing
wage requirements for commercial projects costing less than
$25,000 loans and residential projects involving three or
fewer units.
Analysis Prepared by: Brad Williams / APPR. / (916) 319-2081