BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 1883|
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THIRD READING
Bill No: AB 1883
Author: Skinner (D), et al.
Amended: 8/5/14 in Senate
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 6/25/14
AYES: Wolk, Knight, Beall, DeSaulnier, Hernandez, Liu, Walters
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 76-0, 5/15/14 - See last page for vote
SUBJECT : Public improvements: contractual assessments
SOURCE : County of Alameda
Renewable Funding
DIGEST : This bill allows a public agency to transfer its
interest in voluntary contractual assessments and makes several
other changes to the statutes governing those assessments.
ANALYSIS : Existing law authorizes with the free and willing
consent of affected property owners, public agencies to use
"voluntary contractual assessments" to finance:
Public improvements to developed parcels (SB 837,
McQuorquodale, Chapter 1388, Statutes of 1987).
Renewable energy sources or energy efficiency improvements
that are permanently fixed to real property (AB 811, Levine,
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Chapter 159, Statutes of 2008).
Water efficiency improvements that are permanently fixed to
real property (AB 474, Blumenfield, Chapter 444, Statutes of
2009).
Electric vehicle charging infrastructure (SB 1340, Kehoe,
Chapter 649, Statutes of 2010).
Seismic strengthening improvements that are permanently fixed
to real property (AB 184, Swanson, Chapter 28, Statutes of
2011).
Recently, voluntary contractual assessments have been used to
finance property-assessed clean energy (PACE) projects, which
rely on public financing to pay for the installation of
renewable energy and energy efficiency improvements on private
property. The Legislature has amended the Mello-Roos Community
Facilities District Act to allow for Mello-Roos parcel taxes to
finance PACE projects (SB 555, Hancock, Chapter 493, Statutes of
2011). PACE financing practitioners want to amend provisions of
the contractual benefits assessment statutes to make it easier
to pool projects financed by PACE bonds and replicate some of
the PACE financing provisions that are available under the
Mello-Roos Act.
This bill allows a public agency to transfer its right, title,
and interest in any voluntary contractual assessments, if bonds
have not been issued pursuant to existing law.
This bill specifies that this authority must not be construed to
authorize the transferee to initiate and prosecute a foreclosure
action resulting from a delinquency in the payment of the
voluntary contractual assessment, and this bill requires that
initiation and prosecution of a foreclosure action and the sole
right to enforce its senior lien status remain with the local
agency.
This bill requires the public agency and the transferee to enter
into an agreement that, among other things, identifies the
specific period of time during which the transfer of voluntary
contractual assessment will be operative, and prohibits that
timeframe from exceeding three years.
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This bill requires a transfer of any voluntary contractual
assessments to be treated as a true and absolute transfer of the
asset so transferred for the period of the transfer and not as a
pledge or grant of a security interest by the public agency for
any borrowing. This bill prohibits the characterization of the
transfer of any of those assets as an absolute transfer by the
public agency from being negated or adversely affected by the
fact that only a portion of any voluntary contractual assessment
is transferred or by any characterization of the transferee for
the purposes of accounting, taxation, or securities regulation.
This bill defines "transfer" to mean the sale, assignment or
other transfer.
Existing law prohibits public agencies from using voluntary
contractual assessments to finance facilities for parcels that
are undergoing development. This bill, instead, prohibits
public agencies from using voluntary contractual assessments to
finance facilities for parcels in connection with the initial
construction of a residential building, unless the initial
construction is undertaken by the intended owner or occupant.
This bill amends existing laws governing voluntary contractual
assessment financing to clarify that references to "financing"
also refer to "refinancing." This bill directs that a public
agency's legislative body must conclude that providing
refinancing will result in increased adoption of the
improvements authorized to be financed with voluntary
contractual assessments.
Existing law requires a public agency's legislative body to
cause documents to be recorded with the county recorder
providing notice of a contractual assessment on real property.
This bill requires that document to include the legal
description and assessor's parcel number for the affected
property. This bill allows a public agency to reduce costs by
recording the document and another notice required by existing
law as a single, combined recorded document.
This bill amends and enacts numerous statutory provisions
governing bonds that are to be repaid with revenues from
contractual assessments. Existing law requires that each
bond's interest rate may be determined by an appropriate index,
but must be fixed at the time each bond is issued. This bill
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specifies that this fixed interest rate requirement applies
unless the bond is issued to finance improvements to
nonresidential private property or residential private property
with four or more units.
This bill expands the purposes for which a bond reserve fund may
be used to include:
Paying the costs of foreclosure on properties participating in
the program,
Funding capitalized interest for a period of up to two years
from the bond's date of issuance, and
Funding the administrative fee required for participating in
the state's PACE Reserve Program.
This bill allows a public agency to conclude that it is in the
public interest for bonds issued by the public agency to not be
subject to redemption before their scheduled maturity date
except as a result of full or partial prepayment of the
contractual assessments. For bonds issued to finance
improvements to nonresidential property or residential property
with four or more units, the bonds' redemption premium must be
determined by agreement of the public agency issuing the bonds,
the property owner, and the initial purchaser of the bonds.
This bill specifies conditions under which a public agency may
issue bonds to refinance outstanding bonds payable from
contractual assessments. Specifically, this bill requires that:
The total interest cost to maturity on the refunding bonds
must be less than the total interest cost to maturity on the
bonds to be refunded.
The final maturity date of the refunding bonds must not be
later than the final maturity date of the refunded bonds,
except if the bonds to be refunded are variable rate bonds,
the final maturity date of the refunding bonds may extend to,
but not beyond, the useful life of the financed improvements.
The total interest component of the scheduled contractual
assessment installments to maturity, after issuance of the
refunding bonds, must be less than the total interest
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component of the scheduled contractual assessment installments
to maturity prior to issuance of the refunding bonds.
This bill allows a public agency, with the prior written
approval of the owner of nonresidential property or residential
property with four or more units, to refinance outstanding bonds
payable from contractual assessments by issuing bonds that don't
comply with the requirements above. However, the final maturity
date of the refunding bonds may be later than the final maturity
date of the bonds being refunded only if the final maturity date
of the refunding bonds does not extend beyond the useful life of
the financed improvements.
Existing law specifies requirements that apply to the imposition
and collection of voluntary contractual assessments, including
lien priority, the manner of collection, and applicable
penalties and remedies in the event of delinquency or default;
directs that those procedures do not apply if another procedure
has been authorized by the legislative body or by statute.
This bill allows a public agency to impose a voluntary
contractual assessment on a leasehold or possessory interest in
property owned by a public agency with written consent of the
public agency that owns the property. This bill specifies that:
The contractual assessment levied on a leasehold or possessory
interest is payable by the owner of the leasehold or
possessory interest.
The term of the leasehold interest must be at least as long as
the term of the assessment contract at the time the contract
is executed.
The tax collector may collect unpaid contractual assessments
on possessory interests pursuant to specified statutory
collection procedures.
For a system that is financed using voluntary contractual
assessments and operated pursuant to a power purchase agreement,
existing law specifies provisions that must be included in the
power purchase agreement. To ensure that the property owner is
guaranteed electric power from the system for the length of the
lien, existing law requires that a power purchase agreement must
include both of the following provisions:
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The system cannot be removed if the system's owner is not
performing its obligations under the contract.
The owner of the system must be a bankruptcy-remote special
purpose entity that meets specified conditions.
This bill directs that a power purchase agreement must ensure
that the system cannot be removed if the system's owner is not
performing its obligation under the contract and one of the
following is true:
The system owner covenants in a contract with the property
owner that neither the owner nor any successor will remove or
decommission the system during the contract's term and
warrants that no assignee, creditor, partner, or owner will
have any right, during the contract's term, to remove or
decommission the system.
The owner of the system must be a bankruptcy-remote special
purpose entity that meets specified conditions.
This bill includes legislative findings and declarations
regarding PACE financing and the need to reduce financing costs
by pooling PACE projects before bonds are issued.
This bill makes additional technical and clarifying changes to
the statutes governing voluntary contractual assessments.
Comments
Existing law authorizes local governments to help residences and
businesses finance energy and water improvements by issuing PACE
bonds. The property owner repays the loan through a voluntary
property assessment. The closing costs for issuing a bond can
be prohibitively high for small to medium sized commercial
projects. Pooling several small projects together allows them
to share the costs. Existing law requires bonds to be issued as
the need for work arises. This bill allows local governments to
temporarily transfer the revenue from assessments to a third
party capital provider. This way, projects can be funded
on-demand, as required by law. After a sufficient number of
projects have been financed, the local government will be able
to issue a single large bond and divide the bond issuance costs
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between the individual projects. In some cases, this could
reduce closing costs for individual projects by up to 60%. This
bill makes additional changes to the statutes governing
voluntary contractual assessments to allow PACE programs that
operate under those statutes the same flexible financing tools
that are available under newer PACE statutes.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 8/5/14)
County of Alameda (co-source)
Renewable Funding (co-source)
California Energy Efficiency Industry Council
California Solar Energy Industry Association
Environmental Defense Fund
Figtree Financing
Natural Resources Defense Council
Sonoma County Board of Supervisors
Sonoma County Energy Independence Program
ARGUMENTS IN SUPPORT : According to the author's office, this
bill will help Californians finance energy efficiency, renewable
energy, and water efficiency projects, allowing local
governments to reduce greenhouse gas emissions and help
businesses save money. This bill will allow PACE projects to be
temporarily transferred to a third party so that these projects
can gain access to capital, and makes a number of technical
changes to California code that will bring all commercial PACE
financing into conformity with existing law.
ASSEMBLY FLOOR : 76-0, 5/15/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Ch�vez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell,
Gray, Grove, Hagman, Hall, Harkey, Roger Hern�ndez, Holden,
Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal,
Maienschein, Medina, Melendez, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Patterson, Perea, John A. P�rez, Quirk,
Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner,
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Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk,
Williams, Yamada, Atkins
NO VOTE RECORDED: Donnelly, Mansoor, V. Manuel P�rez, Vacancy
AB:e 8/6/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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