Legislature(2021 - 2022)BELTZ 105 (TSBldg)
05/04/2022 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB227 | |
| HB132 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 227 | TELECONFERENCED | |
| + | HB 132 | TELECONFERENCED | |
| *+ | HB 30 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 227-MUNI ENERGY IMPROVEMNT ASSESSMENT PROGRAM
1:04:52 PM
CHAIR COSTELLO announced the consideration of HOUSE BILL NO. 227
"An Act relating to municipal energy and resilience improvement
assessment programs; and providing for an effective date."
She noted there was a committee substitute for the committee to
consider.
[SCS HB 227(CRA), version G, was before the committee.]
1:05:25 PM
REPRESENTATIVE CALVIN SCHRAGE, Alaska State Legislature, Juneau,
Alaska, sponsor of HB 227, introduced the bill speaking to the
following sponsor statement:
[Original punctuation provided.]
Property Assessed Clean Energy (PACE) is an
innovative financing mechanism that enables owners of
commercial and industrial properties to obtain fixed
rate, long-term financing through private lenders for
energy efficiency and renewable energy projects and
pay the costs back over time through a voluntary
assessment on the property tax. PACE attaches the loan
to the property, rather than the borrower. If the
property is sold, the loan transfers to the new owner.
With lower energy costs, building owners unlock
positive cash flow for their businesses and increase
their buildings' value from day 1.
Passed in 2017, the statute allows local governments
to create and manage C-PACE programs. The Municipality
of Anchorage launched the state's first program in
April 2021. Other regions are interested in launching
a program and are reviewing administration options.
While program administration is offset by
administrative fees, staff capacity is still required
to maintain the program and review applications.
Alaska's statute is based on Texas's C-PACE statute.
Based on the growing success of C-PACE, lawmakers
around the country are adding new eligible uses of C-
PACE. Several statutory clean-ups will ensure
efficient statewide promulgation and will greatly
facilitate investment in our building stock,
especially at a time when economic development is
needed most.
House Bill 227 aims to expand C-PACE in Alaska by:
1. Allowing new construction financing
2. Allowing Resiliency projects
3. Allowing C-PACE refinancing
4. Considering Market Values rather than assessed
values
5. Eliminating the Savings-to-Investment Ratio (SIR)
HB 227 changes serve the common goal of creating a
large, thriving and active C-PACE market, which in
turn will benefit Alaskans. These amendments were
developed in coordination with the Municipality of
Anchorage and the Alaska Energy Authority using the
best practices & lessons learned in the Lower 48. In
all cases, C-PACE assists property owners in dealing
with the up-front cost of property upgrades that
create a public benefit.
HB 227 will help municipalities and boroughs
statewide achieve the greatest overall environmental
and economic development benefits at no cost to state
or local governments.
REPRESENTATIVE SCHRAGE directed attention to the letters of
support in the packets, most notably the Municipality of
Anchorage (MOA) and the MatSu Assembly.
1:08:29 PM
SENATOR GRAY-JACKSON asked for confirmation that the note is
included in the property tax payments.
1:08:51 PM
REPRESENTATIVE SCHRAGE replied that is correct. The developer
applies for the financing through the program and once it's
approved, the voluntary property tax assessment is paid in
addition to the existing property tax. The additional amount,
less fees and costs of the program borne by the municipality, is
remitted to the financial institution.
1:09:23 PM
SENATOR GRAY-JACKSON asked if the additional property tax
payment is truly voluntary, so a borrower could opt out.
1:09:38 PM
REPRESENTATIVE SCHRAGE replied that is correct. HB 227 creates a
new financing mechanism for a developer to choose from when
looking at how to finance a project. A conventional loan is also
on the menu.
1:09:59 PM
SENATOR GRAY-JACKSON asked what the interest rates would be for
this program.
1:10:06 PM
REPRESENTATIVE SCHRAGE said he couldn't quote specific rates,
but it is often lower than the market standard at the time.
Financial institutions and users find it attractive because the
financing term is longer and it's de-risked for the financial
institution.
CHAIR COSTELLO asked Ryan Johnston to walk through the sectional
analysis.
1:10:48 PM
RYAN JOHNSTON, Staff, Representative Calvin Schrage, Alaska
State Legislature, Juneau, Alaska, presented the sectional
analysis for HB 227, version G, that read as follows:
Section 1: Adds "resilience" language to AS
29.10.200(64) to conform with the addition of
resilience projects in AS 29.55.100(a).
Section 2: Adds "resilience" language to AS 29.35.200
(b) to conform with the addition of resilience
projects in AS 29.55.100(a).
Section 3: Adds "resilience" language to AS
29.35.210(a) to conform with the addition of
resilience projects in AS 29.55.100(a).
Section 4: Adds "resilience" language to AS
29.35.210(b) to conform with the addition of
resilience projects in AS 29.55.100(a).
Section 5: Adds new construction and resiliency
projects to the possible projects for a municipal
program. Adds definition of resilience projects.
Section 6: Adds "resilience" language to AS
29.55.100(b) to conform with the addition of
resilience projects in AS 29.55.100(a).
Section 7: Clarifies language allowing for the
municipality to collect fees for the administration of
the program.
1:11:44 PM
Section 8: Adds "resilience" language to AS
29.55.105(a) to conform with the addition of
resilience projects in AS 29.55.100(a).
Section 9: Adds "resilience" language to AS
29.55.105(c) to confirm with the addition of
resilience projects in AS 29.55.100(a). Adds
capitalized interest, interest reserves, escrow for
prepaid property tax or insurance and capitalized
extended manufacturer's warranty or maintenance
agreement costs during the period of the assessment,
to the list of costs that could be repaid by the
assessment.
Section 10: Amends the assessment maximum period from
20 years to 30 years.
Section 11: Amends the total financing for a project
from 20% of the assessed value of the property to 25%
of the market value of the property.
Section 12: Adds language so that an assessment may
repay financing for costs of a project completed
within the past two years.
Section 13: Adds "resilience" language to AS
29.55.110(a) to confirm with the addition of
resilience projects in AS 29.55.100(a). Amends the
ratio between the amount of the assessment and the
value of the property, to use the "Market Value" of
the property instead of the "Assessed Value".
Section 14: Adds "resilience" language to AS 29.55.115
to confirm with the addition of resilience projects in
AS 29.55.100(a). Makes a technical change for the
correction of "days'"
Section 15: Adds "resilience" language to AS 29.55.120
to confirm with the addition of resilience projects in
AS 29.55.100(a).
Section 16: Adds "resilience" language to AS 29.55.125
to confirm with the addition of resilience projects in
AS 29.55.100(a).
Section 17: Adds "or a lien for an assessment" to
ensure that a lien on an assessment is not removed
from a property in the case of foreclosure.
1:13:34 PM
Section 18: Adds "resilience" language to AS 29.55.140
(a) to confirm with the addition of resilience
projects in AS 29.55.100(a).
Section 19: Adds "resilience" language to AS
29.55.140(d) to confirm with the addition of
resilience projects in AS 29.55.100(a).
Section 20: Adds "resilience" language to AS 29.55.150
to confirm with the addition of resilience projects in
AS 29.55.100(a).
Section 21: Adds to the Definitions section, AS
29.55.160, that "finance" and "financing" includes
refinancing of an existing project.
Section 22: Adds "resilience" language to AS 29.55.165
to confirm with the addition of resilience projects in
AS 29.55.100(a).
1:14:03 PM
Section 23: Repeals AS 29.55.105(d)(1) and AS
29.55.105(h).
Section 24: Repeals all statutes and references to
CPACE
Section 25: Adds a new section to the uncodified law
of Alaska. The new section would require any loan
enabled under CPACE statutes before June 30, 2052, to
continue past the repealed date of June 30, 2052. The
new section also allows for a lender and property
owner to convert a lien on a property to a
conventional loan.
Section 26: Gives sections 24 and 25 an effective date
of June 30, 2052.
Section 27: Gives the bill, except for sections 24 and
25, an immediate effective date.
1:15:44 PM
SENATOR COSTELLO asked for examples of projects that have used
the C-PACE program; if there was any opposition to the bill; and
if the property owner who uses the program would be required to
disclose the market value of the property.
REPRESENTATIVE SCHRAGE replied that no projects to date have
utilized this financing. A number of developers have gone
through the application process, but the cumbersome requirements
prevented them from moving forward. Passage of HB 227 will
increase the likelihood of developers using the program.
Regarding the types of projects, he said one proposal was for a
parking garage that had electric vehicle charging stations. He
deferred to Mr. Johnston to describe additional examples of
projects.
MR. JOHNSTON provided context for the Anchorage C-PACE program,
explaining that the statute passed in 2017, the regulations were
adopted in 2019, and the municipality didn't implement the
program until 2020, [about the time that the World Health
Organization (WHO) declared the COVID-19 outbreak a pandemic].
He said the municipality received three applications the first
year and is confident it will be able to grow the program if the
constraints are removed, as outlined in HB 227.
MR. JOHNSTON described putting solar panels on a commercial
building and installing a system to better regulate electrical
output as additional examples of how the program could be used.
1:18:38 PM
REPRESENTATIVE SCHRAGE stated that he was not aware of any
opposition to the bill. Regarding the question about reporting
the market value of a property, he explained that a developer
who applies for financing through the municipality for the C-
PACE program would be required to report the market value of the
property just the same as for conventional financing from a
financial institution. However, a developer who gets an
appraisal of the property to help in the decision of whether or
not to move forward is not required to automatically report that
to the municipality. Disclosure is only required if the
developer decides to move forward on the project through the
municipality.
1:20:00 PM
SENATOR COSTELLO opened invited testimony on HB 227.
1:20:16 PM
MELANIE LUCAS-CONWELL, Manager, 49th State Angel Fund,
Municipality of Anchorage (MOA), Anchorage, Alaska, stated that
she had co-managed the C-PACE program for MOA for the last year.
She voiced support for the amendments to the program proposed in
HB 227 with the exception of the sunset clause that might
negatively affect the program.
1:21:10 PM
SHAINA KILCOYNE, Energy & Sustainability Manager, Solid Waste
Services, Municipality of Anchorage, Anchorage, Alaska, stated
that she and Ms. Lucas-Conwell co-administer the C-PACE program
for MOA. She asked if it was appropriate to present a slide show
that describes the C-PACE.
1:21:48 PM
At ease.
1:22:32 PM
CHAIR COSTELLO reconvened the meeting and asked Ms. Kilcoyne to
proceed with the slide show.
MS. KILCOYNE stated her intention to describe Alaska's existing
C-PACE program, C-PACE on the national scale, and what HB 227
means for the program.
She explained that C-PACE is a financing tool that allows owners
of commercial and industrial properties to obtain low cost and
long term financing for efficiency and renewable energy
projects. The loan is paid back over time through a voluntary
assessment on the property tax.
MS. KILCOYNE highlighted important features of the C-PACE
program:
• Businesses pay an administrative fee to participate, which
is meant to offset the cost of operating and administering
the program. There is no cost to taxpayers.
• The program is voluntary. Cities and boroughs that assess
taxes may opt in and businesses may choose to participate.
• This financing tool is not a subsidy, tax credit, or tax
incentive. The financing is private; the municipality
serves as a middleman to help de-risk the project.
• The intention is to activate projects and investment. The
tax assessment provide security that strengthens the case
for businesses to invest in longer payback and deeper
building retrofits than is seen with conventional
financing.
MS. KILCOYNE reported that MOA is aware of property owners that
are interested in applying to finance large projects, primarily
for new construction, if HB 227 were to pass.
1:24:35 PM
MS. KILCOYNE turned to slide 3 to discuss the history of C-PACE
in Alaska. She explained Alaska C-Pace embodies government
policy that commercial, clean energy projects are a public
benefit similar to a sewer or public road extension. She noted
that the MatSu Borough uses the program for a natural gas
changeover. When initially passed in 2017, the Alaska Energy
Authority coordinated a PACE advisory committee to get the
program started. With a grant from the U.S. Department of
Energy, the committee was able to hire McKinley Research Group
and PACE Financial Servicing to design and implement the program
and work on administration. She said MOA worked with the PACE
advisory committee and other communities throughout the process.
They developed a handbook and supporting documents to set the
stage for one statewide program.
1:25:26 PM
KILCOYNE displayed the matrix on slide 4 that lays out the "what
and why" of C-Pace. She recounted the benefits of C-PACE in
reducing risk.
• Priority Lien: Existing lienholders must consent in writing
to the additional assessment because they are taking a
subordinated lien position. She acknowledged that mortgage
holders are generally reluctant to accept this subordinate
position.
• Transferable: The lien is tied to the property and not the
owner. The loan goes with the building if it is sold. This
reduces risk for both the lender and borrower.
• No Upfront Project Cost: A property owner can invest with
no out-of-pocket money; they can roll in hard and soft
costs, including the required energy audit and energy and
permitting.
• Requires Project to Pencil Out: Per the statute, projects
must have a savings to investment ratio (SIR) of at least
one. The investment must pay for itself through the savings
on the energy bills. The projects are expected to be
cashflow positive from the start and they are structured so
the savings are greater than the loan payment.
• Increases Property Value: Installing advanced technology
mechanisms improves operation and thus value.
• Long Term, Fixed-rate Nonrecourse Financing: Better
interest rates are generally available when the loan is
longer term. This helps a project pencil out and reduces
risk for lenders. The term of the project currently may
extend 20 years. The loan is nonrecourse so the assessment
is tied to the asset, not the property owner and their
other assets. The rates are typically better than
conventional financing or mezzanine debt.
1:27:53 PM
MS. KILCOYNE reported that as of 2020, 37 states and the
District of Columbia had enabled C-PACE legislation. Nationwide,
just over $2 billion was invested in 2,560 commercial projects,
creating 24,000 jobs. This has made it possible for MOA to look
at a lot of examples throughout the development process. She
noted that Alaska statutes governing C-PACE are among the most
restrictive of any state.
She advised that MOA implemented C-PACE in 2021 and she
understands that both the Kenai Borough and MatSu Borough are
waiting to see if HB 227 passes before moving forward to
implement a program. MOA has also been in contact with Juneau,
Sitka, and Fairbanks with the intention of creating a single
statewide program.
1:29:30 PM
MS. KILCOYNE moved to slide 7 and explained that the role of the
administrator is to determine whether the property owner, the
property, and the project are eligible. She clarified that once
eligibility has been determined, the property owner and lender
will still go through the underwriting process to determine the
ability to pay. She relayed that in the near term the projects
likely would be over $300,000 and those currently under review
were multi-million dollar projects.
MS. KILCOYNE highlighted that MOA hopes to improve some of the
project eligibility provisions in HB 227. This includes the
requirement that the projected savings over the life of the
assessment must be more than the financed project, and that the
maximum financing may not exceed 20 percent of the assessed
value of the property at the time of the application.
1:30:50 PM
MS. KILCOYNE turned to slide 8 that provides examples of
improvements that would be eligible For C-PACE financing. For a
project to be eligible, it means the installation or
modification of permanent improvements intend to reduce energy
consumption or demand, energy costs or emissions affecting local
air quality.
MS. KILCOYNE provided the following explanation of the
delinquency or default provisions.
C-PACE liens are prior and paramount to all liens
except municipal tax liens and other special
assessments. Like other special assessments, a lien
for a delinquent C-PACE assessment is on par with
property taxes. The municipality is responsible for
recording the benefit assessment once the application
is complete and accepted. We would bill per the
repayment schedule, much like a tax bill, and then we
would process those payments from the borrower and
remit the correct funds to the lender, keeping an
administrative fee.
Municipalities are not at any point guaranteeing the
collection of those funds. So that means that in the
event of a delinquency, the municipality follows its
existing proceedings and we're not required to pay the
capital if the owner is delinquent. So then once that
property is sold, the loan is sold with it and the new
owner would make any payments, pay any penalties and
interest, or payments in arears.
I'll note again that this is non-accelerating so if
there is a default, only the past due part of the
financing is senior to a mortgage lender's claim. And
I'll add that there've been no foreclosures as a
result of a delinquent C-PACE assessment nationally.
1:32:37 PM
MS. KILCOYNE highlighted that HB 227 is based on best practices
and the changes to the C-PACE program in the last five to ten
years. MOA believes that the amendments in HB 227 will bring the
program in line with how it's used nationally. Slide 10 lists
these best practice changes:
1. Include New Construction
2. Allow Resiliency Projects
3. Allow Refinancing
4. Refer to 25 % of Market Value
5. Max 30 year, Eliminate the Savings-to-Investment
Ratio (SIR)
MS. KILCOYNE described the addition of new construction as the
largest change to the C-PACE program. This is allowed in 25
state programs and the District of Columbia. These comprise
about half of the C-PACE transactions in the last two years. It
offers developers more opportunity for financing beyond
mezzanine debt and it facilitates more energy efficient
buildings. She said she sees C-PACE as a standard part of the
capital stack for new construction. This means better quality
and more efficient buildings, which aligns with the intent of
the legislation.
MS. KILCOYNE advised that the market trend is for greater use of
C-PACE financing for resiliency projects. HB 227 authorizes
resiliency projects that support the following:
• seismic improvements
• fire hardening, fire or wind resistance
• stormwater management, flood mitigation and
protection
• erosion management
• water or wastewater efficiency including
reuse and energy recovery
• microgrids for energy storage and backup
power generation
• electric vehicle charging infrastructure
• retrofitting that improves the envelope,
structure, or systems of the building, and
any other improvement project approved by a
municipality as a resilience improvement
project
She highlighted that the state will receive about $50 million
for EV charging infrastructure in the next five years.
1:36:36 PM
MS. KILCOYNE reviewed the provisions on slide 13 for refinancing
C-PACE projects:
AS 29.5.160 defines "finance" and "financing" to
include "refinancing" throughout AS 29.55.100 -
29.55.165.
• Explicitly allows traditional refinancing of
loans
• Allows refinancing of completed eligible projects
MS. KILCOYNE displayed slide 14 and noted that the sponsor
clearly explained that moving from assessment to a market value
makes sense.
MS. KILCOYNE briefly reviewed slide 15, 30 Year Max and No SIR:
• Extends the current requirement that the loan
does not exceed 20 years
• If new construction and resiliency are allowed,
SIR requirements are not relevant
• Capital Providers decide what they will and won't
finance
1:37:56 PM
CHAIR COSTELLO asked what the acronym C-PACE stands for.
MR. JOHNSTON answered that it stands for Commercial Property
Assessed Clean Energy assessments.
1:38:30 PM
TOM BENKERT, Business Development Manager, KI Energy, Wasilla,
Alaska, stated that many KI customers are interested in taking
advantage of C-PACE as it appears in HB 227. The bill clarifies,
improves, and expands eligible use of C-PACE and provides
flexibility for financing to improve the performance of
commercial buildings through alternative energy, energy
efficiency, and energy storage, all of which will reduce
operating costs over the long term. The bill also supports
microgrid development, which is important because of the number
of microgrids in Alaska. The resiliency measures also greatly
improve the bill. He said it's important for his clients that
the bill authorizes new construction projects for C-PACE
financing.
1:41:37 PM
MR. BENKERT continued to recount the additions in HB 227 that
improve the existing law for the benefit of commercial property
owners and developers. The energy improvements represent a long-
term reduction in utility costs for commercial building owners
which will increase net operating income. Lenders like C-PACE
because it reduces risk.
MR. BENKERT stated that the improvements to C-PACE by passage of
SB 227 will: create jobs; put energy contractors to work;
benefit businesses and local governments by increasing economic
activity; and reduce the cost and risk of building projects.
CHAIR COSTELLO thanked him for the thorough review of the bill.
1:45:31 PM
CHAIR COSTELLO moved the Senate committee substitute (SCS) for
HB 227, work order 32-LS1028\W, as the working document.
1:45:46 PM
SENATOR REVAK objected for purposes of discussion.
1:45:59 PM
At ease.
1:46:11 PM
CHAIR COSTELLO reconvened the meeting and asked Ms. McCall to go
through the changes between version G and version W of HB 227.
1:46:15 PM
KATIE MCCALL, Staff, Senator Mia Costello, Alaska State
Legislature, Juneau, Alaska, advised that version W of HB 227
removes some sunset provisions that were added in the previous
committee of referral. The sponsor requested the committee
remove the sunsets because they potentially jeopardize the loan
program.
Version W removes Sections 24-26 that appear in version G.
1:47:00 PM
SENATOR REVAK removed his objection.
CHAIR COSTELLO found no further objection and version W was
adopted. She asked Representative Schrage to provide his view of
the Senate committee substitute, version W.
1:47:16 PM
REPRESENTATIVE SCHRAGE stated that he supports version W of HB
227.
1:47:41 PM
CHAIR COSTELLO opened public testimony on HB 227.
1:47:59 PM
TOM NEUKRANZ, CEO, Global Pacific Capital (GPC), Sausalito,
California, stated that GPC has experience with businesses in
other states using C-PACE, and they have been working closely
with the sponsor's staff. He related that GPC's clients
primarily use C-PACE for new construction, so he is very pleased
to see this is included in HB 227. It accounts for about 90
percent of the demand today. He reported that their clients are
spending 100 percent of the capital GPC can provide to finance
energy reduction, to build renewable energy, to reduce the use
of water, and to seismically harden buildings. He noted that GPC
currently is engaged in several projects in Anchorage and they
look forward to passage of the bill.
1:49:42 PM
CHAIR COSTELLO closed public testimony on HB 227 and solicited a
motion.
1:49:52 PM
SENATOR MICCICHE stated he had an amendment.
1:49:56 PM
At ease.
1:50:11 PM
CHAIR COSTELLO reconvened the meeting and stated she would hold
HB 227 for further consideration.