Legislature(2017 - 2018)BELTZ 105 (TSBldg)
01/31/2017 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| SB39 | |
| SB9 | |
| SB39 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 9 | TELECONFERENCED | |
| *+ | SB 39 | TELECONFERENCED | |
SB 39-MUNI ENERGY IMPROVEMNT ASSESSMNTS/BONDS
3:36:53 PM
CHAIR BISHOP announced SB 39 to be up for consideration.
SENATOR JOHN COGHILL, Alaska State Legislature, sponsor of SB
39, introduced the legislation speaking to the following sponsor
statement:
Senate Bill 39 would set up a system to allow
municipalities and commercial property owners to
participate in a Commercial Property Assessed
Clean Energy (C PACE) finance program. The Act
allows municipalities to assess a C-PACE fee to a
commercial property owner's annual property tax
bill to repay a PACE loan by a third party such as
a commercial bank or through a program
administered by the borough.
Using a successful program from Texas, this
legislation sets forth a boiler plate system for
creating PACE programs requiring a description of
qualified projects, description of the boundaries
of a region within the borough, a description of
third party programs or municipal funding of
qualified projects, description of fees for
municipal assessments for third party loaners, a
requirement for written contracts, and public
notice and public hearing to establish a PACE
program.
Creating a uniform process and requiring written
contracts between all parties will give credibility
to the program and, as experienced in Texas,
commercial banks are more willing to finance
qualified projects with low interest rates and
more assurance that the loans will be paid.
Municipalities will be allowed to issue bonds or
notes as a funding source for providing loans. A
second-class borough could establish this
program by regions either areawide or non-
areawide.
The bill prohibits a municipality from issuing a
permit, license or other authorization of
property based on a contingency that the person
enter into a PACE contract.
Liens for PACE loans are paramount to all other
liens except municipal tax liens and special
assessments.
SENATOR COGHILL said this is a voluntary program that is set up
primarily for change-out programs in the Fairbanks area, which
is also under a lot of pressure from the particulate matter (PM)
2.5 air quality issue. Getting natural gas into the Interior is
very important just for the air quality issue, let alone for the
quality of life on different fuels. Right now, fuel sources are
very close economically, but by adding the PM 2.5 penalties for
non-compliance, some of the change outs are going to have to
start being implemented.
SENATOR COGHILL said this issue was brought to him by the Alaska
Energy Authority (AEA). It is not a new idea; it went through
the legislature and ended up at the final gate last year.
CHAIR BISHOP set SB 39 aside until later in the meeting.
SB 39-MUNI ENERGY IMPROVEMNT ASSESSMNTS/BONDS
CHAIR BISHOP returned attention to SB 39 and invited Ms. Moss to
review it for the committee.
RYNNIEVA MOSS, staff to Senator Coghill, Alaska State
Legislature, said this bill adds extra powers to home rule
municipalities and first and second class boroughs. It allows
them to establish commercial properties as clean energy
programs. It is completely voluntary. It creates a system that
was modeled after Texas that makes each Commercial Property
Assessed Clean Energy (C-PACE) uniform in the state, making it
more attractive to bonding, federal grants, commercial banks,
and commercial loans.
4:01:01 PM
It allows a commercial facility to borrow money with more
attractive terms to make it more energy efficient. The loan
payments are collected through the tax assessor's office and are
paid to the loan provider whether it be the municipality or the
commercial bank.
She explained that there are written contracts between all
parties and the holder of the mortgage is required to sign off
on approval of the C-PACE loan, because it bumps the mortgage
holder's lien below it, which makes it paramount to all liens
except for municipal tax liens and other special assessments.
MS. MOSS said the encumbrance follows the real estate and not
the owner. When the property is sold the remaining assessments
for the loan go with the property.
4:03:21 PM
At ease
4:04:20 PM
CHAIR BISHOP opened public testimony on SB 39.
4:04:41 PM
SEAN SKALING, Assistant Executive Director and Energy Policy
Director, Alaska Energy Authority (AEA), supported SB 39. He
said that Ms. Moss gave a great introduction and that C-PACE
knocks down barriers that currently exist for commercial
buildings to become more energy efficient. It has voluntary
payment back through the tax assessment.
He said it would be helpful to go through a scenario of how this
would work, and asked them to picture a commercial building in
their community that got a commercial energy audit through the
Alaska Energy Authority some years ago and had hit the wall he
is talking about. This legislation may help them break through.
Using fictitious average numbers, he supposed that some
commercial property owners were uncomfortable with the amount of
money they were putting into their electric and heating bills
and hired an energy auditor to come back with a list of things
to do, what each different measure might cost, and the energy
saved - so, a line-by-line savings and payoff on each energy
measure. This example will save 30 percent on energy bills,
which is a fairly typical number. If this property owner had
cash, he would probably pay for the improvements, because it is
a great return on investment with an average payback period of
six years.
But if they want to get a loan, they go to the bank and get a
four-year term. Once the efficiency measures are conducted the
building is saving 30 percent on energy every day, but the
payback time of four years adds up to more than what he was
paying originally. So, there is a benefit to stretching out the
loan payback time in that the measure could make the cash flow
positive immediately.
Following the scenario through, the owners of the building also
think they might be growing out of their space within three
years, and for that and a couple of other reasons they aren't
comfortable making the energy efficiency improvements. So they
continue paying the higher energy bills for three years, sell
the building, and the new owner comes in; and he is still paying
the higher bills. That money is going out of that building and
essentially out of the community to pay for the fuel and energy
costs.
MR. SKALING explained that C-PACE will allow banks to be more
comfortable in making loans because they go through a set
process and they can be comfortable enough with the energy
savings that can be used to pay back the loan. So, they can
offer more attractive loan terms that will stretch out the loan
period and make the cash flow positive on day-one after the
energy efficiency improvements are completed.
Another concern was moving out of the building in three years,
but now both the benefits of the efficiency and the payment is
connected to the building. So, the next property owner will own
the building and continue paying the loan through his property
tax bill. But they will also be getting the benefits and
probably have only a couple more years of payments before being
able to get all of the energy savings benefits.
MR. SKALING said energy efficiency and alternative energy are
available and it must be affixed to the building and therefore
be sold with the building. HVAC heating and cooling systems are
one of the more common and more expensive measures that offers a
lot of savings along with lighting controls and more efficient
motors.
The most common alternative energy systems are air or ground
source heat pumps, solar, and fuel switching. Those industries
employ a lot of local folks in the energy supply community. The
debt gets paid through the local city assessor's office, which
then pays the investor or bank back.
4:10:20 PM
C-PACE programs have been enabled in 33 states; Alaska's is
modeled after Texas', which has been very successful with about
a dozen municipalities exercising PACE. It is a win-win all the
way around. Property owners will pay lower utility bills; the
property is improved with a better work environment; there is
less risk, and lenders will issue new loans that they may have
not issued otherwise; and the process is consistent statewide
once this is enabled. Contractors and vendors do more local
hiring and are "schooled-up" on best practices and new
technologies.
4:11:25 PM
GENE THERRIAULT, Alaska Energy Authority (AEA), Fairbanks,
Alaska, said he looked into programs that allowed states to help
their constituents with energy improvements and financing
options for them. He identified a couple of funding sources at
the Rural Utilities Services (RUS), a division at the U.S.
Department of Agriculture. He said a lot of utilities in Alaska
have been in the past or are currently RUS-eligible. One is
called the Energy Efficiency and Conservation Loan Program
(EECLP). The source of money available through this program has
an interest rate of 2.5 percent for 10-years. Lending that money
out to commercial property makes the interest rate go up to 2.8
percent. This is relatively low interest money that can be made
available to businesses in Alaska to make these improvements.
4:13:06 PM
One thing the EECLP Program is looking for in their regulations
is a mechanism that helps assure that default rates are low, and
the C-PACE Program is one such mechanism. Last year when AEA was
working this piece of legislation they corresponded with the RUS
and told them about the specifics of the proposed legislation
and got a letter from them basically saying that they understood
the PACE mechanism and it would be attractive to them as far as
someone making application to get access to the EECLP source of
money. The EECLP program is part of RUS's ongoing yearly budget,
so if the federal budget gets refreshed it gets about $250
million per year. From discussions with RUS personnel he has
found that the fund is under-utilized, and they are interested
in working with states to help constituent groups tap into it as
a funding source.
4:14:24 PM
MR. THERRIAULT said he became aware of a second program that was
just funded in CY16, although it had been on the RUS books for
several years and that is the Rural Energy Savings Program
(RESP). Unlike EECLP it requires a congressional appropriation.
An appropriation was passed in December 2015, ultimately about
$50 million was made available nationwide. The interest rate on
that source of funding is very attractive. For qualifying state
entities and utilities, the interest rate is zero. When it gets
lent out to the commercial property owner through the local
government a little bit can be added to cover the local
expenses. The regulations for that specific program talk about
any additional repayment mechanisms that demonstrate or have
demonstrated appropriate risk mitigation features. Because the
local government uses its full collection power that it applies
to its property taxes and general government assessments to
collect the PACE obligation, default rates nationwide are under
1 percent.
4:17:10 PM
At ease
4:17:34 PM
BRITTANY SMART, Special Assistant to Fairbanks North Star
Borough Mayor, Fairbanks, Alaska, said Fairbanks continues its
support for SB 39 and is very eager to use it as a tool to help
with their natural gas conversions to help mitigate its air
quality issues.
CHAIR BISHOP closed public comment on SB 39 and held the bill
for a future hearing.