BILL ANALYSIS �
AB 1883
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CONCURRENCE IN SENATE AMENDMENTS
AB 1883 (Skinner)
As Amended August 5, 2014
Majority vote
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|ASSEMBLY: |76-0 |(May 15, 2014) |SENATE: |32-1 |(August 14, |
| | | | | |2014) |
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Original Committee Reference: L. GOV.
SUMMARY : Allows a public agency to transfer voluntary
contractual assessments, if bonds have not been issued, and
makes several other changes to the statutes governing voluntary
contractual assessments.
The Senate amendments :
1)Prohibit 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.
2)Allow assessments to be levied with the free and willing
consent of the owner of each lot or parcel on which an
assessment is levied at the time the assessment is levied.
3)Clarify that references to "financing" also refer to
"refinancing". Provide that a public agency's legislative
body shall conclude that providing refinancing will result in
an increased adoption of the improvements authorized to be
financed with voluntary contractual assessments.
4)Specify that provisions in existing law relating to fixed
interest rate requirements do not apply to a bond issued to
finance improvements to nonresidential private property or
residential private property with four or more units.
5)Add language relating to a bond reserve fund and expand the
purposes that a bond reserve fund may be used to include the
following:
a) Paying the costs of foreclosure on properties
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participating in the program;
b) Funding capitalized interest for a period of up to two
years from the date of issuance of the bonds; and,
c) Funding the administrative fee required for
participation in the PACE (Property Assessed Clean Energy)
Reserve Program established by existing law.
6)Allow 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 schedule maturity date
except as a result of the prepayment in whole or in part of
contractual assessments. Specify the redemption premium of a
bond issued to finance improvements to nonresidential property
or residential property with four or more units shall be
determined by agreement of the public agency issuing the
bonds, the property owner, and the initial purchaser of the
bonds.
7)Allow a public agency, without proper written approval of the
property owner, to issue bonds to refinance outstanding bonds
payable by contractual assessments if all of the following are
true:
a) The total interest cost to maturity on the refunding
bonds is less than the total interest cost to maturity on
the bonds to be refunded;
b) The final maturity date of the refunding bonds is not
later than the final maturity date of the refunded bonds,
except that if the bonds to be refunded are variable rate
bonds; and,
c) The total interest component of the scheduled
contractual assessment installments to maturity, after
issuance of the refunding bonds, is less than the total
interest component of the scheduled contractual assessment
installments to maturity prior to the issuance of the
refunding bonds.
8)Specify the interest rate on refunded bonds for purpose of
demonstrating compliance may be assumed to be the maximum
possible interest rate on the bonds to be refunded as long as
the legislative body concludes that the public interest will
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be served by issuing fixed rate bonds to refinance the
outstanding variable rate bonds.
9)Allow a public agency, with prior written approval of the
owner of nonresidential property or residential property with
four or more units, to issue bonds to refinance outstanding
bonds payable from contractual assessments without complying
with 8) above. Allow the final maturity date of the refunding
bonds to be later than the final maturity date of the refunded
bonds as long as the final maturity date of the refunded bonds
do not extend beyond the useful life of the financed
improvements.
10)Specify that a local agency's legislative body may authorize
another procedure for the collection of contractual
assessments including, but not limited to, lien priority, the
timing of collection, and any penalties and remedies in the
event of delinquency and default.
11)Allow 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. Specify the following:
a) The voluntary contractual assessment levied on a
leasehold or possessory interest shall be payable by the
owner of the leasehold or possessory interest;
b) The term of the leasehold shall be at least as long as
the term of the assessment contract, at the time the
assessment contract is executed; and,
c) The tax collector may collect unpaid contractual
assessment on possessory interest levied pursuant to
collection procedures in existing law.
12)Make changes to the existing provisions required in a power
purchase agreement to guarantee a property owner electric
power from a system for the length of the lien.
13)Make other technical and clarifying changes to existing law
which governs voluntary contractual assessments.
EXISTING LAW :
1)Authorizes the legislative body to determine that it would be
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convenient, advantageous, and in the public interest to
designate an area within the public agency's jurisdiction,
which may encompass the entire jurisdiction or a lesser
portion, within which authorized legislative officials and
property owners may enter into contractual assessments to
finance the installation of distributed generation renewable
energy sources or energy or water efficiency improvements that
are fixed to the property.
2)Authorizes a public agency to issue bonds and to repay the
principal and interest with the voluntary contractual
assessment.
3)Authorizes a public agency to advance its own funds to finance
work to be repaid through voluntary contractual assessment,
and from time to time sell bonds to reimburse itself.
4)Allows a public agency to enter into a relationship with an
underwriter or financial institution that would allow the
sequential issuance of a series of bonds, issuing each bond as
the need arose to finance work to be repaid through the
voluntary contractual assessments.
5)Provides that assessments and the interest and penalties shall
constitute a lien against the lots and parcels of land on
which they are made, until they are paid.
AS PASSED BY THE ASSEMBLY , this bill:
1)Allowed a public agency to transfer its right, title, and
interest in and to any voluntary contractual assessments, if
bonds have not been issued pursuant to current law.
2)Required initiation and prosecution of a foreclosure action
and the sole right to enforce its senior lien status to remain
with the local agency. Specifies that the authority granted
by 1) above, shall 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.
3)Required 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
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timeframe from exceeding three years.
4)Required 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.
5)Prohibited 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.
6)Defined "transfer" to mean the sale, assignment or other
transfer.
7)Found and declared, the following:
a) The closing costs associated with bond issuance can make
Property Assessed Clean Energy (PACE) financing for small
projects cost-prohibitive;
b) By pooling small to medium size PACE projects into one
bond, the closing costs for each project can be drastically
reduced;
c) In order for a third party to pool projects, it is
necessary to enable local governments to assign the revenue
from a PACE assessment to an investor prior to the issuance
of a bond; and,
d) The right to foreclose on delinquent voluntary
assessments, and the senior lien status
of those assessments, should remain with the local
government.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS :
1)PACE and purpose of this bill. First conceived in Berkeley in
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2007, PACE is a financing tool that residential or commercial
property owners can use to pay for renewable energy upgrades,
energy or water efficiency retrofits, 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.
In California, some local governments administer their PACE
programs themselves, while others partner with a third-party
organization (like the sponsor of this bill) to carry out
their PACE programs. The cost of third-party administration
is not borne by the local agency, but is built in to PACE loan
financing. Some of these programs focus on residential
projects, others target commercial projects, and some handle
both residential and commercial portfolios. Joint powers
authorities (JPAs) also administer PACE programs and/or are
involved in issuing bonds for third-party administrators. A
wide variety of projects can qualify under PACE programs, from
building weatherization and solar panels to low-flow plumbing
fixtures and energy efficient lighting.
This bill allows a local agency to transfer all rights to any
voluntary contractual assessments, if bonds have not been
issued. Under this bill the local agency and transferee would
have to enter into an agreement that includes a specific time
period for the transfer of the assessments that cannot exceed
three years. This bill also specifies that in the instance of
delinquent payments of the voluntary contractual assessments,
the right to enforce the senior lien and foreclosure remain
with the local agency. Amendments taken in the Senate specify
the process under which a local agency can refinance bonds,
and make changes to several other provisions governing
contractual assessments. This bill is co-sponsored by
Renewable Funding and the Alameda County Board of Supervisors.
2)Author's statement. According to the author, "Current 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
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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. Current 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 between the individual
projects. In some cases, this could reduce closing costs for
individual projects by up to 60%."
3)Concerns about residential PACE. In 2010, the Federal Housing
Finance Agency (FHFA) raised concerns that residential PACE
financing could pose a risk for federal mortgage enterprises
(Fannie Mae and Freddie Mac), because PACE loans are a
first-priority lien in the case of foreclosure and lenders
would have to pay outstanding PACE assessments before paying
mortgage costs. In August of 2010, Fannie Mae and Freddie Mac
announced they would not purchase mortgages for homes with
first lien priority PACE obligations. The FHFA's action
triggered many local governments to suspend their residential
PACE programs.
To address this concern, the Legislature enacted SB 96 (Budget
and Fiscal Review Committee), Chapter 356, Statutes of 2013.
This budget trailer bill tasks the California Alternative
Energy and Advanced Transportation Financing Authority
(CAEATFA) with administering a PACE loss reserve program that
will use a $10 million reserve fund to keep mortgage interests
whole during a foreclosure or a forced sale. CAEATFA recently
filed its regulations for the program, and is now accepting
applications from PACE administrators.
4)Related legislation. AB 2597 (Ting) of the current
legislative session, clarifies that PACE assessments are
special tax assessments, rather than loans, and updates the
value of eligible improvements financed by PACE to up to 15%
of the property value for the first $700,000 of property
value. Any remaining value on the property after the initial
$700,000 would remain at the existing 10%. This bill is
pending in the Senate.
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5)Policy considerations. The Legislature may wish to consider
the following:
a) Interaction with CAEATFA PACE loss reserve program. The
PACE Loss Reserve Program (Program) will compensate first
mortgage lenders for losses resulting from the existence of
a PACE lien in a foreclosure or forced sale. The program
will cover PACE payments made during foreclosure if a
mortgage lender forecloses on a home that has a PACE lien,
and any losses to a first mortgage lender up to the amount
of outstanding PACE payment if a county conducts a forced
sale on a home for unpaid taxes. The intent of the Program
is to put the first mortgage lender in the same position it
would be in without a PACE lien. Since we have yet to see
the effects of this Program, the Legislature may wish to
ask the author or sponsor to describe the impact of this
bill and availability of the Program in the event of
foreclosure on a residential property when the assessments
are in possession of a transferee instead of the local
agency.
The Legislature may wish to consider absent evidence of
issues with residential projects that will be addressed by
this bill and the lack of understanding of how this bill
with interact with the PACE loss reserve program, if this
bill should only grant the authority for local agencies to
transfer assessments on commercial properties.
b) Agreement to transfer voluntary contractual assessments.
This bill requires the local agency to enter into an
agreement with the transferee to transfer the voluntary
contractual assessments for no more than three years. The
Legislature may wish to consider if other terms should be
included in this agreement. Despite a number of factors
that may vary, including the specific type of project,
agreement, and terms of financing, the Legislature has
required a number of other agreements between a public
agency and third party entity to include some basic
requirements.
Current law establishes a number of requirements for a
local agency upon passage of a resolution to use voluntary
contractual assessments. One of these requirements is a
report which must include specified information regarding
the contractual assessment program. For example, the
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report must include a brief description of criteria for
determining the underwriting requirements and safeguards
that will be used to ensure that the total annual property
tax and assessments on the property will not exceed 5% of
the property's market value, and a plan for raising a
capital amount required to pay for work performed pursuant
to contractual assessments. The Legislature may wish to
consider if the agreement that the local agency will be
entering into to transfer the voluntary contractual
assessments should also be included in the report.
6)Arguments in support. Supporters argue that this bill will
increase demand for PACE financing by allowing providers to
create a more efficient funding process which will attract
more capital providers thereby resulting in lower interest
rates. Additionally, accelerating the adoption of PACE among
California property owners will also further reduce greenhouse
gas emission, promote renewable energy, and support water
conservation efforts.
7)Arguments in opposition. None on file.
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958
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