BILL ANALYSIS �
SB 679
Page 1
Date of Hearing: August 17, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 679 (Pavley) - As Amended: June 29, 2011
Policy Committee: Utilities and
Commerce Vote: 12-0
Natural Resources 6-2
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill appropriates $25 million to the Energy Conservation
Assistance Account (ECAA) from the $50 million that was
appropriated by SB 77 (Pavley, Chapter 15, Statutes of 2010) to
the Renewable Resources Trust Fund (RRTF) to support local
energy efficiency and renewable energy projects. The bill
specifies that any unexpended funds in the ECAA as of January 1,
2013, revert to the RRTF.
FISCAL EFFECT
1)Appropriation of $25 million from the RRTF to the ECAA.
2)Cost pressure to make awards for financial assistance from the
ECAA before January 1, 2013.
COMMENTS
1)Rationale . The author intends this bill to make idle funds
available for low-interest loans to local governments and
public institutions to finance energy efficiency improvements.
2)Background.
a) Federal Action Creates Space to Replace the Property
Assessed Clean Energy Program (PACE). 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 to
make specified water or energy efficiency improvements to
SB 679
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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 PACE 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.
SB 77 sought to lower the costs to local governments and
property owners in the financing of PACE bonds by
authorizing the authority to tap up to $50 million from the
RRTF to fund the PACE Reserve Program. Prior to SB 77, the
primary purpose of the RRTF had been to fund a new solar
home rebate program pursuant to the California Solar
Initiative. However, given the steep decline in new home
construction in California, the RRTF accumulated a large
fund balances in excess of near-term demand for solar
rebates.
The recent negative developments in the economy,
specifically in the housing and bond markets, have made it
difficult for local governments to sell PACE bonds.
Potential investors have become wary about property tax
defaults. Though the loan assessments are secured by high
priority liens (which are paid before the mortgage loan),
investors have concerns about PACE bond repayments being
delayed.
More damaging to the PACE program, the Federal Housing
Finance Agency (FHFA), which oversees the nation's largest
mortgage finance companies Fannie Mae and Freddie Mac,
issued a statement objecting to local governments holding
the first lien on PACE homes, calling it a significant risk
to the mortgage financier. This caused the mortgage
lenders to stop underwriting loans on properties with PACE
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assessments and tighten lending standards in communities
with PACE programs, thereby frustrating implementation of
PACE programs, including the authority's PACE Reserve
Program.
Following the FHFA action, the CEC adopted Energy Upgrade
California using federal stimulus funds to support
residential and commercial energy improvements without
relying on the PACE mechanism.
b) Energy Conservation Assistance Account. ECCA funds
provide loans to schools, hospitals and local governments
to finance energy conservation projects. Loan recipients
repay the loans from the savings realized by the
improvements.
Recently, ECAA received $25 million in federal American
Reinvestment and Recovery Act (ARRA). In addition, ARRA
provide $34 million for grants to schools, colleges,
hospitals, public care facilities and special districts.
Grant recipients have used the grant awards to leverage
ECCA loans, leading to demand for loans in excess of
available ECCA funds.
c) Related Legislation. AB X1 14 creates an alternative to
the PACE Reserve Program known as the Clean Energy Upgrade
Program (CEUP), which seeks to reduce overall costs to
property owners of a loan provided by a financial
institution to finance the installation of distributed
generation renewable energy sources, electric vehicle
charging infrastructure or energy or water efficiency
improvements on real property by providing a reserve or
other financial assistance. AB X1 14 (Skinner) is pending
action before Senate Appropriations.
Analysis Prepared by : Jay Dickenson / APPR. / (916) 319-2081