BILL ANALYSIS �
AB 2597
Page 1
Date of Hearing: May 7, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2597 (Ting) - As Amended: April 23, 2014
Policy Committee: Revenue and
Taxation Vote: 8-0
Natural Resources 6-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill revises the underwriting standard of the California
Alternative Energy and Advanced Transportation Financing
Authority's (CAEATFA) Property Assessed Clean Energy (PACE)
program by increasing the maximum amount of an assessment from
10% to 15% of the property value. Specifically, this bill:
1)Increases the maximum financing amount from 10% of the
assessed value of the property to 15% for the first $700,000
in property value. Maintains the existing 10% on property
values over $700,000.
2)States legislative findings to clarify the PACE program is
voluntary, clarify that the PACE risk mitigation program is
intended to provide an additional safeguard for both existing
and new PACE financing programs, and remove any additional
risk to the first mortgage lender and federal mortgage
enterprises.
3)Revises code sections that refer to the PACE loan program to
refer to the PACE financing program.
FISCAL EFFECT
1)No increased administrative costs for CAEATFA.
2)It is not anticipated that the change in financing terms will
modify the sustainability of the PACE fund. According to
CAEATFA, the fund will last at least 8-12 years.
AB 2597
Page 2
COMMENTS
1)Purpose. According to the author, by reinforcing local
government's authority to offer PACE, this bill protects an
innovative and affordable clean energy tool that achieves
tremendous reductions in GHG emissions and helps California
meet its climate and energy efficiency goals.
2)Background. 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.
In 2010, the Federal Housing Finance Agency (FHFA) raised
concerns that residential PACE financing could pose a risk for
Fannie Mae and Freddie Mac, because PACE assessments are a
first-priority lien in the case of foreclosure and lenders
would have to pay outstanding PACE assessments before paying
mortgage costs. The FHFA's action triggered many local
governments to suspend their residential PACE programs.
To address this concern, in 2013, the Legislature created the
PACE Loss Reserve Program administered by CAEATFA. SB 96
authorized 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, but
the statutory language creating the PACE Loss Reserve Program
AB 2597
Page 3
incorrectly names these voluntary assessments as loans.
Attempting to clarify the terminology, CAEATFA regulations
have added to the confusion by defining a PACE "loan" as a
voluntary tax assessment. Statute also limits the value of
assessments receiving assistance to less than 10% of the
property value. This restrictive criteria precludes property
owners in less affluent areas from participating in PACE and
does not match current PACE program practices.
This bill clarifies that PACE assessments are special tax
assessments, rather than loans, and updates the value of
eligible improvements financed PACE to up to 15% of the home
value.
3) 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.
Analysis Prepared by : Jennifer Galehouse / APPR. / (916)
319-2081