Legislature(2017 - 2018)SENATE FINANCE 532
03/07/2017 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB80 | |
| SB14 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 14 | TELECONFERENCED | |
| + | HB 80 | TELECONFERENCED | |
| + | TELECONFERENCED |
CS FOR HOUSE BILL NO. 80(ENE)
"An Act adopting the Municipal Property Assessed Clean
Energy Act; authorizing municipalities to establish
programs to impose assessments for energy improvements
in regions designated by municipalities; imposing
fees; and providing for an effective date."
9:03:37 AM
REPRESENTATIVE ADAM WOOL, SPONSOR, presented HB 80, which
was known as the "C-PACE" or "PACE" bill. He understood
that the committee had previously heard SB 39, which was
identical to the bill being considered. He explained that
"C-PACE" meant commercial property-assessed clean energy.
The bill would allow municipalities (or any place with a
property tax) a mechanism to finance commercial buildings
for the purposes of clean or more efficient energy
conversion. The financing would be put as a line item on
individual businesses property tax. The bill would allow
access to low-interest or zero-interest loans, and
encouraged businesses and those with commercial buildings
to convert to a cleaner or more efficient energy source.
He specified that the program was voluntary, and
municipalities would have the opportunity to opt in.
Representative Wool continued to discuss the bill, and
explained that the program was flexible for different kinds
of fuel conversions. He shared that businesses in Fairbanks
were being encouraged to covert to natural gas. The loans
would stay with the building, and if the building was sold
the new owner would assume the loan and continue to make
payments through the property tax. He commented that banks
and municipalities were supportive of the PACE program
because of the low default rate and low interest. Thirty-
three states had adapted PACE legislation, and there was a
zero fiscal note.
Senator Dunleavy asked if the program was for cleaner
energy, more efficient energy, or both.
Representative Wool answered in the affirmative.
Senator Dunleavy asked if there was a possibility that if a
business focused on cleaner energy, it could cost more than
a legacy energy method that was being abandoned.
Representative Wool answered in the affirmative, and
continued that it was possible to covert to clean energy
that was not economically advantageous. He detailed that
there was language in a committee substitute that would
possibly be discussed later in the meeting, that would give
a municipality the option to assess the subject. He
detailed that the price of natural gas was not known in
Fairbanks, but he wanted to encourage conversion. He
considered that there was the option to go with cleaner
energy, or cheaper energy.
Senator Dunleavy asked if PACE could be qualified as a
"different" energy program. He asked if the program would
allow a business that was using coal to move to natural
gas; which would cost more.
Representative Wool answered in the affirmative.
9:08:04 AM
Senator von Imhof stated she had received a letter from the
Alaska Bankers Association that had indicated it supported
SB 39, but had reservations about the residential aspect of
PACE.
Representative Wool clarified that the bill did not address
residential properties in any way.
Senator von Imhof noted that each municipality set its own
parameters for loan-to-value ratio and debt-to-equity
ratio. She asked what assurances there were that
municipalities had the expertise to properly vet credit
risk for each property.
Representative Wool was unsure who would vet the financial
liability of projects. He noted that the municipality could
function in different roles; such as loan facilitator,
lending agent, or as a loaning entity.
Senator von Imhof asked about defaults in the program and
wondered who would absorb the liability.
Representative Wool informed that the municipality would
absorb any liability, as the funding was connected to
property tax. If there was a default, the municipality
would take over the property, as with any default on
property tax. He reiterated that the program had a very low
default rate.
Senator Olson asked about a default scenario in which a
bank was the first financer of a property.
Representative Wool stated that a bank would take second
place to the loan. He furthered that commercial buildings
were enabled in the legislation and residential buildings
were not; because banks were not willing to give up the
first position.
Co-Chair MacKinnon asked if there was a requirement that a
bank sign off on each individual property before it went
forward in the bill.
Representative Wool answered in the affirmative.
Senator Olson asked if banks were hesitant to lend a six-
figure amount for commercial building purchases, while
knowing they were in second position.
Representative Wool believed that banks had success with
loans and a low default rate in states that had enabled the
PACE program.
9:11:50 AM
Senator Dunleavy asked if there was any default scenario
under which the state or local would be liable.
Representative Wool informed that the state would not be
liable, and detailed that the municipalities would assume
the property if the loan was defaulted.
Co-Chair MacKinnon asked if it was fair to say that
municipalities would vet the projects and assess the risk,
and not loan over the assessed value of the property so
that all parties would be protected by the sale of the
property.
Representative Wool answered in the affirmative, and
stipulated that banks would not loan an amount greater than
the assessed value of the property. All projects were
vetted and had an energy rater evaluate consider the costs
and savings.
Senator Dunleavy asked if there was language in the bill
that would compel a municipality to adopt the program.
Representative Wool stated that the program was totally
optional for municipalities.
Senator Micciche referred to Section 5, line 14 through
line 28. He thought the waiver under subsection H was
stronger than the requirements subsection G. He thought
there was usually more pressure to demonstrate value.
Representative Wool thought that Senator Micciche was
referring to language from the committee substitute (CS).
Co-Chair MacKinnon confirmed that the committee had a CS.
The version of the bill brought to the committee was
version U. She informed that the committee was allowing the
sponsor to introduce the bill. The committee had previously
heard the bill and had multiple questions on protection for
municipalities and local taxpayers. She asked for a pause
before consideration of a CS.
9:15:47 AM
AT EASE
9:17:20 AM
RECONVENED
Vice-Chair Bishop MOVED to ADOPT proposed committee
substitute for CSHB 80(FIN), Work Draft 30-LS0337\R
(Shutts, 2/20/17).
Co-Chair MacKinnon OBJECTED for discussion.
9:18:12 AM
JULI LUCKY, STAFF, REPRESENTATIVE ANNA MACKINNON, discussed
the CS, and noted that it was crafted based on concerns
that arose in previous discussions of the bill. Language
was drafted based on recommendations from a program in
Texas, which was the genesis for the bill.
Ms. Lucky read from the document "Explanation of Changes"
(copy on file):
Throughout the bill: the terms "eligible property,"
"qualified improvement," and "qualified project" have
been replaced with more descriptive terms. The
definitions for these terms have been deleted from the
definitions section, §29.55.160, as they are no longer
used in this legislation.
Page 3, lines 15-22: New language in §29.55.100 (a)
clarifies the intent and limit of the program.
Page 4, line 9: the requirement to "prepare the
report" is added to §29.55.100 (b)(2), which
previously only required providing notice of the
report.
Page 6, lines 4-8: New §29.55.105(d)(3) expands the
list of items that cannot use C-PACE financing to
include improvements made by utilities to "generate
electricity, provide thermal energy, or otherwise
furnish a service to the public for compensation."
9:20:58 AM
Ms. Lucky continued to discuss the explanation of changes
document:
Page 6, lines 11-13: New section 29.55.105(f) limits
the period of assessment to 20 years or the useful
life of the project. This required a technical change
on page 7, lines 25-26.
Page 6, lines 14-28: New sections 29.55.105(g) and
(h):
(g)(1) limits the amount that can be financed for a
project to 20% of the total assessed value of the
property.
(g)(2) requires the Savings to Investment Ratio be
greater than 1. In other words, the amount of
estimated monetary savings resulting from the project
over the term of the financing must be more than the
amount financed.
(h)(1) allows a waiver to the requirements specified
in (g)(1) and (2) if there is "reasonable
justification" and both parties acknowledge it in
writing.
(h)(2) requires a waiver for a project that doesn't
meet the Savings to Investment Ratio specified in
(g)(2) to also address the interests of potential
tenants and future property owners.
Ms. Lucky explained that if a business was not saving
enough money (via the energy project) to pay for an
assessment, then (h)(2) would kick into effect. The
provision came from model language from previous iterations
of the program. She continued to address the summary of
changes:
Page 7, lines 25-26: §29.55.110(a)(7) has been
reworded to conform to new time limits imposed by
§29.55.105(f).
Page 8, lines 24 & 27: In §29.55.115, replaced "the"
with "each" to ensure that all mortgage holders are
notified and required to consent to an assessment.
Ms. Lucky expanded that there had been concern about the
potential for more than one lienholder, so section 8 had
been re-worded and cited an existing mortgage definition.
Ms. Lucky continued to discuss the explanation of changes:
Page 8, line 31: Adds language to §29.55.120 to
require the independent, third-party review be done by
a "qualified energy auditor."
Page 10, lines 27-28: Reworded §29.55.140(d) to ensure
that the municipality confirms that bonds or notes
issued under the authority of this chapter meet the
goals of this program.
Page 11, lines 21-23: §29.55.160 (definitions section)
was amended by removing the terms "eligible property,"
"qualified improvement," and "qualified project" and
adding "mortgage."
9:25:52 AM
Senator Dunleavy asked why the bill was needed for
municipalities to do something that was optional. He
wondered what was preventing municipalities from engaging
in the program.
Ms. Lucky thought the sponsor could better answer the
question or the Alaska Industrial Development and Export
Authority (AIDEA).
Senator Dunleavy reiterated that he wanted to understand
why the bill was needed.
Senator von Imhof referred to page 8 of the bill, and
assumed that a municipality would provide whatever
information a mortgage holder asked for in order to allow
it to sign off on the loan. She thought there might need to
be a second credit analysis, particularly if several years
had passed since the original mortgage was performed. She
hoped that there would be a level of cooperation between
the community bank and the municipality.
Ms. Lucky confirmed that there was no requirement in the
bill to provide additional paperwork. She posited that if
an individual wanted to move forward with a loan, that
individual would provide all the necessary information
needed.
Vice-Chair Bishop referred to line 31, "qualified energy
auditor" and wondered if the language referred to an
individual that was certified by Alaska Housing Finance
Corporation (AHFC).
Ms. Lucky noted that the definition had been provided by
the Alaska Energy Authority (AEA).
Co-Chair MacKinnon WITHDREW her OBJECTION. There being NO
further OBJECTION, it was so ordered. The Senate Committee
Substitute for CSHB 80 was ADOPTED.
Senator Dunleavy asked why the bill was necessary.
GENE THERRIAULT, ENERGY POLICY ASSISTANT, ALASKA ENERGY
AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT, stated that the legislation allowed a local
government to use its tax collecting power to collect the
payments to satisfy a PACE loan. He thought it was a
powerful tool for a local government, which could not do so
without clear statutory authority.
9:30:24 AM
Vice-Chair Bishop referred to his previous question about a
third-party independent qualified rater. He wondered if the
definition pertained to a person that was certified by
AHFC.
SEAN SKALING, DEPUTY DIRECTOR, ALTERNATIVE ENERGY AND
ENERGY EFFICIENCY, ALASKA ENERGY AUTHORITY, DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, stated that
AEA had been hesitant to embed qualifications in statue
when the standards frequently changed. He noted that AEA
had further parameters in regulation for a commercial
energy audit program, and AHFC had program guidance
defining "energy auditor" as well. The definitions were
currently under review, as the standards were changing. He
shared that AEA had thought the definition should be put in
statute at a general level and let municipalities define it
further.
Senator Dunleavy asked if Mr. Therriault could describe a
worst-case scenario for a municipality or taxpayer if the
bill were to pass.
Mr. Therriault thought if a taxpayer had an obligation on
its property and was unable pay, there was a risk that the
property would go into default. If a local government were
to come into control of the property, it could satisfy
taxes owed as well as whatever PACE obligation was owed on
the property. In order to cover any potential defaults, a
local government was able to establish a loan default fund
by charging a fee on lending. He stated that the
municipality's power to collect all taxes and assessments
resulted in a very low default rate.
Senator Dunleavy asked about a hypothetical scenario in
which an unviable "white elephant" project ended up being
inherited by the local government through default. He
wondered if such a project, if unable to be sold or
dispersed, would be absorbed by the general tax base.
Mr. Therriault posited that ultimately a property would
retain some value. He considered that a number of the
sidewalls that the CS put into place (such as the loan to
value ratio capped at 20 percent of the assessment) would
be limiting factors. If there was an existing mortgage
owned by a lender, in order to take second position via the
PACE program, the lender would consider the proposed
project for viability.
9:34:17 AM
Senator Micciche liked the changes in the CS. He inquired
about a hypothetical scenario under which a $2 million
strip mall that had a failed PACE project and a $450,000
lien from the municipality. If the municipality took
possession of the property, he mused that it would likely
get the full value of the lien. He was concerned about an
aggressive administration that might push energy projects
that were less economically feasible because it was
aggressive on the renewable and clean energy front. He
wondered about a larger lien and was concerned that a
distressed property often did not sell for 50 percent of
its value. He wondered if there should be a cap of some
kind.
Mr. Therriault relayed that AEA had information from the
program in Texas that advised there was a percentage above
which it was not wise to proceed on a project. He thought
even if a municipality was pushing for a project, it could
not force a property owner to utilize the program. He was
not sure that the additional sidebars added in the CS were
enough to keep projects under control. He thought it was
possible to set an absolute upper limit. He added that in
the case of a foreclosure, the only thing that had to be
paid off entirely was the current year's PACE assessment.
He reminded that the entire PACE loan would not have to be
paid off, as the obligation continued with the property,
much like a water and sewer assessment would in the case of
a default.
9:37:52 AM
Co-Chair MacKinnon asked if there were other questions on
the structure of bill.
Senator Dunleavy asked why a bank would ever deny a project
if it was guaranteed its money via the taxpayer.
Mr. Therriault thought a bank might not approve a project
if it thought the project unwise or that it did not improve
the value of a property. If a PACE modification would make
a building more efficient or more effective in the present
or future, a bank would likely allow itself to be bumped
into a second position as lienholder. He thought banks were
willing to do so since the properties themselves were
viewed as collateral for the mortgage, and the collateral
was made more attractive by any improvements being made.
Senator Micciche thought if a commercial lender had 85
percent of a building's value, it would be difficult to get
the value after default if it was second in line. He
thought if it was early in a loan, a bank would be less
likely to approve an assessment that was above the
remaining value of the property. He commented on the
conservative nature of banks.
Vice-Chair Bishop added to Senator Micciche's comments by
saying hypothetically a commercial entity could be the
first and second lienholder.
Mr. Therriault answered in the affirmative. He stated that
the existing mortgage holder might be interested in
providing funding for the PACE loan, because it improved
the collateral on the mortgage.
9:41:20 AM
Co-Chair MacKinnon OPENED public testimony.
ROB HILL, GENESIS ENERGY SYSTEMS, ANCHORAGE (via
teleconference), testified in support of the bill. He
stated he had an Anchorage-based business that specialized
in survey analysis and specifications of commercial and
government buildings. He stated that his company was one of
the auditors that had been previously referred to in
committee. He noted that his company had been working on
significant energy-efficient retro-fits in the last seven
years varying in scope from $5,000 to $900,000. He gave
examples such as the Golden Valley power plants, numerous
hospitals, and the Department of Transportation and Public
Facilities. He understood the value of meeting high
performance standards and meeting green solutions that had
a return on investment. He was supportive of the PACE
program, and had created numerous project models using the
PACE finance mechanism format. He had found that most of
the projects had shown immediate savings and positive
cashflow for owners.
Mr. Hill continued, explaining that the driver for the PACE
program was to decrease power consumption and cost; as well
as to reduce emissions, especially in cold-weather
climates. He thought another critical aspect of the program
was the high cost of imported energy in the North and
Western parts of the state. He saw the PACE program as a
finance bridge to the energy efficiency projects. He
thought many former approaches to energy-efficiency
projects would put the savings in the hands of profiteers,
rather than the owners. He thought the CS was an
improvement to the bill.
9:45:58 AM
KATHY WASSERMAN, ALASKA MUNICIPAL LEAGUE, JUNEAU, testified
in support of the bill. She noted that the Alaska Municipal
League (AML) had been following the bill for a number of
years. The reason the AML supported the bill was that it
was for a voluntary program that gave municipalities the
option to weigh in if they so choose and provided a tool to
do things better. She thought most of the first-class
cities or smaller boroughs would not be able to take
advantage of the program, but larger boroughs would. She
thought the larger boroughs had the expertise to run the
program. She thought there were safety checks along the way
to preclude bad projects taking part in the program.
9:47:38 AM
BRITTANY SMART, FAIRBANKS NORTH STAR BOROUGH, MAYOR'S
OFFICE (via teleconference), testified in support of the
bill and the changes incorporated in the CS. She was
supportive of the concept of a waiver if there was not a
perceived energy cost-savings. She mentioned that the
borough was most interested in the project for its natural
gas conversion project, in which there might not be an
immediate cost savings. The waiver would allow for
assessment of conversion projects on each individual
project values. She addressed concerns about a possible cap
in the bill. She stated that PACE financing throughout the
nation was being used for a number of different projects to
achieve public interest. She recounted that the program was
being used in the State of Florida to alleviate flood
insurance costs and mitigate flood challenges. She urged
the committee to keep the bill as broad as possible to
allow for flexibility of the municipalities to establish a
good program administration that fit its needs.
9:49:51 AM
Co-Chair MacKinnon CLOSED public testimony.
Co-Chair MacKinnon asked for the committee to provide
amendments by 5:00pm the following day.
Co-Chair MacKinnon remarked that the bill was a new way to
finance improvements to a piece of commercial property that
would carry a loan for 20 years. She relayed that the CS
tried to address banking concerns and best practice
borrowing, but the program was a new way to finance
improvements on a piece of commercial property. The program
was voluntary. She noted that debt incurred in the program
would not be reflected in the credit rating of the entity
engaged in the project.
Senator von Imhof understood the purpose of the bill, and
thought it importantly presented opportunities to
municipalities and property owners to improve properties
for energy efficiency. She thought it helped communities
monetarily, as well as with carbon dioxide emissions. She
thought that while the committee could add safeguards to
the program, but thought it was important not to suffocate
the program. She thought that the legislature needed to
have faith that each municipality and local bank that would
be signing off on the loan would make the necessary good
decisions to move forward with the program. She discussed
the potential risk to small communities, but thought there
were many properties that could be significantly improved
through the program. She thought the committee had a robust
discussion on the matter, and was supportive of the bill
moving from committee.
Senator Dunleavy wondered if cities within a borough
municipality that had adopted the program would be able to
opt out.
Mr. Therriault stated that the bill language would allow a
local government to establish areas for the program. He
used the Fairbanks Northstar Borough as an example, as it
contained two independent cities within the borough
boundary. The borough would be able to craft a program that
would apply to any city that wanted to participate, and
would remit the tax to the city.
9:54:40 AM
Co-Chair MacKinnon thought it was fair to say that other
states were using a program like PACE. She noted that the
other bills required energy cost savings to backstop the
ability for an individual to make payments on the
improvements. She referenced comments by Senator von Imhof
about in the context of community needs. She referred to a
change in the CS that allowed debt financing based on air
quality.
Vice-Chair Bishop thought there could be a wash on savings
with a PACE project, but considered that Fairbanks had a
real air quality issue to consider. He thought the monetary
implications for potential non-compliance with air quality
were significant.
Senator Micciche appreciated the public testimony. He
referenced testimony about floodwater control in Florida.
He had remaining concerns about a cap, without which the
program could be abused and put properties at risk.
Co-Chair MacKinnon set HB 80 aside. She reiterated that
amendments were due by the following day at 5:00pm.
HB 80 was HEARD and HELD in committee for further
consideration.
9:58:02 AM
AT EASE
10:04:49 AM
RECONVENED
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 80 work draft version R.pdf |
SFIN 3/7/2017 9:00:00 AM |
HB 80 |
| HB 80 Explaination of Changes FIN version R.pdf |
SFIN 3/7/2017 9:00:00 AM |
HB 80 |
| SB 14 work draft version I.pdf |
SFIN 3/7/2017 9:00:00 AM |
SB 14 |
| SB 14 Summary work draft version I.pdf |
SFIN 3/7/2017 9:00:00 AM |
SB 14 |
| SB 14 Response to Senators' Questions.pdf |
SFIN 3/7/2017 9:00:00 AM |
SB 14 |