Legislature(2015 - 2016)SENATE FINANCE 532
04/09/2015 01:30 PM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB56 | |
| SCR1 | |
| SJR2 | |
| SB22 | |
| SB26 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | SB 56 | TELECONFERENCED | |
| += | SCR 1 | TELECONFERENCED | |
| += | SJR 2 | TELECONFERENCED | |
| + | SB 22 | TELECONFERENCED | |
| SB 50 | |||
| = | SB 26 | ||
SENATE BILL NO. 56
"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."
1:56:43 PM
GENE THERRIAULT, DEPUTY DIRECTOR, STATEWIDE ENERGY POLICY
DEVELOPMENT, ALASKA ENERGY AUTHORITY (AEA), DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (DCCED),
discussed SB 56, and explained that the bill would offer a
new mechanism to municipal governments to work with the
commercial property owners to implement energy improvements
to their facilities. He recounted that in 2010, the
legislature set a goal for a 15 percent increase in energy
efficiency in the state by the year 2020. He shared that
AEA had been tracking the progress towards the goal, and
evaluating areas in which the state was moving forward or
not. He explained that AEA operated a program that assisted
commercial property owners with energy audits of their
properties. He recounted that AEA had done about 170 of the
audits through the program across the state, and for
properties that had subsequently moved forward with
improvements they generally saw yearly energy savings of
about 30 percent. He remarked on the sizable possible
savings and expressed a desire that more businesses would
do the audits and follow through with the improvements.
Through a survey of energy audit participants, AEA had
concluded that financing was one of the primary impediments
for businesses to complete the improvements.
1:59:27 PM
Mr. Therriault related that through his interaction with a
national energy association, he met with the participants
from different states and looked at mechanisms other states
were using in the same scenario. He identified that
Property Assessed Clean Energy (PACE) financing was
currently being used in about 31 other states. He directed
attention to the presentation "SB 56 Property Assessed
Clean Energy (PACE)" (copy on file), and emphasized the
concept of "property assessed" within the financing
mechanism.
Mr. Therriault detailed that by using PACE, a local
government that assessed property tax could voluntarily
engage a program under which they (through a revenue bond)
would collect a pool of money or work with local lenders to
lend to private business owners. The repayment of the loans
was made by a voluntary assessment that was added to the
individual property owner's yearly tax bill. Because the
loan had the enforcement and collection power of the local
government, the default rate was very low. He furthered
that because of the low default rate, the loans were low-
risk, could lead to lowered interest rates, and could allow
the property owner to stretch the payments over a longer
period of between 10 and 20 years.
Mr. Therriault stated that AEA's goal was to offer a low-
cost source of capital with a long repayment period, so
that on a yearly basis individual property owners could
have net-positive cash flow through lowering their energy
cost by more than the yearly loan repayment amount. He
noted that the legislation was modelled after a bill passed
in Texas a year previously, and SB 56 contained a number of
protections that were offered in the Texas statute.
Mr. Therriault agreed to point out the various protections
as the committee was viewing the remaining presentation,
including those that pertained to local government, local
business, and existing banks. He continued that he had
worked with the Alaska Banking Association, and they were
supportive of the legislation pending inclusion of a
specific provision in the bill. Other supporters included
the Alaska Municipal League and the Alaska Statewide
Chamber of Commerce. He characterized PACE as a "common
sense tool" for local governments to use in moving towards
the goal of energy efficiency.
2:02:43 PM
EMILY FORD, ENERGY POLICY AND OUTREACH MANAGER, ALASKA
ENERGY AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND
ECONOMIC DEVELOPMENT, presented slide 2, "What is
Commercial PACE?"
· PACE was named one of the top 20 "world-changing ideas
by Scientific American magazine."
· Commercial Property Assessed Clean Energy programs
(PACE) allows property owners to finance qualifying
energy efficiency improvements overtime through a
voluntary assessment on the property tax bill.
· Voluntary participation by municipalities AND
commercial property owners
· Mortgage holder consent is required before
applications are approved and assessments are placed
· Improvements can include lighting upgrades, renewable
energy, conversion to natural gas, high-efficiency
boilers, and additional energy efficiency improvements
· The repayment obligation transfers with the sale of
property
Ms. Ford discussed slide 3, "Benefits":
· Energy efficiency upgrades are financed with capital
secured by a primary lien on the property, lower-
interest capital and favorable repayment terms can
be raised from the private sector
· Allows for longer repayment periods allowing the
building owner to recognize immediate operating
savings while repaying the debt
· Can use traditional lending sources
· In Alaska, provides consistency with state energy
policy, energy efficiency and renewable energy goals
Ms. Ford presented slide 4, "Creating a PACE Program":
· 31 states have authorized PACE programs
· State legislatures must provide authority for local
governments to establish and operate commercial PACE
programs
· Municipalities to create the program and select
financing models
· Resources: U.S. Department of Energy, PaceNow.org,
C-Pace.com
Ms. Ford noted that there were multiple resources online
for municipalities and businesses, including marketing
tools and sample contracts.
Ms. Ford presented slide 5, "Potential PACE Models,"
detailing the wide spectrum of PACE programs that could be
implemented on the local level:
· Local-government driven
o Either property assessment office or a PACE
office used as interface with commercial
property owners and potential lenders
o Bond financing
· Private-sector driven
o Third-party administrator under contract with
local government
o Private financing
· Hybrid model
o Smaller local governments can contract with
other communities or regional organizations to
administer the program
o Identify all potential funding sources (bonds,
revolving loan funds, private capital)
Ms. Ford discussed that the local-government-driven models
for states with many energy efficiency programs and efforts
had separate PACE offices and the government was
responsible for the marketing and interfacing with the
community. The private-driven or "main street" model was
developed so the work was absorbed by the existing
assessor's office and was reliant on the private sector to
market the program. She related that most often there was a
hybrid model where all sources of funding were used.
2:04:41 PM
Ms. Ford addressed slide 7, explaining that the subsequent
slides would consist of a sectional analysis of the bill.
She read from slide 7:
· Section 1 amends AS 29 by adding a new chapter: AS
29.49: Municipal Property Assessed Clean Energy Act
· AS 29.49.020 Would allow for a property tax
assessment to be added for financing of qualified
projects on real property.
o Improvements may not be made to vacant lots or
property undergoing development at the time of
assessment
o Not to finance purchase of temporary products
or anything not permanently fixed to real
property
· AS 29.49.30 Would require a written contract between
the local government and record owner of the real
property
Ms. Ford continued on slide 8:
· AS 29.49.040 Establishes the program
o Local government may enter into a contract with
a property owner to impose an assessment.
Financing can be provided by the municipality
or a third-party
o If third-party financing is used, the
municipality, third-party financer and real
property owner must all enter into a contract
o The assessment imposed may cover some costs for
the commercial property owner, including permit
and lenders fees, administration, and project
development and engineering costs
· AS 29.49.050 Designates the Eligible Region
o The municipality's governing body may designate
one or more area(s) of the municipality (within
its jurisdiction) as a PACE-eligible region(s)
Ms. Ford commented that the provision for designating the
eligible region was consistent with land use policies, and
was a tool for incentivizing commercial districts.
2:06:04 PM
Ms. Ford explained went over slide 9:
· AS 29.49.060 Defines the Procedure to Create the
Program
o If the municipality chooses to create a PACE
program the governing body of a municipality
must (in order):
1) Adopt a resolution of intent that
ƒ shows that providing the PACE program
serves a valid public purpose
ƒ includes a statement the municipality
intents to make PACE available to
commercial property owners
ƒ includes a description of qualified
projects
ƒ describes the boundaries of the region
ƒ describes the available financing for
qualified projects (i.e. bonds, local
lenders, etc.)
ƒ describes the municipal debt servicing
procedures if third-party financing is
used
ƒ describes how the public can access the
program report required by AS 29.49.070
ƒ identifies public contacts regarding the
collection of the proposed contractual
assessments
Ms. Ford continued on slide 10:
· AS 29.49.060 Defines the Procedure to Create the
Program
o The governing body of a municipality must:
2) hold a public hearing with opportunity for
public comment
3) adopt a resolution establishing the program,
including terms consistent with the publicly-
available program report required by AS 29.49.070
o the description of each aspect of the
program can only be amended after another
public hearing
o The program can only be amended by resolution
o A municipality may hire and set compensation for
a program administrator, staff or contract for
professional services
o A municipality may impose fees to offset the
costs of administering the program, to include an
application fee and/or a component of the
interest rate
Ms. Ford turned to slide 11:
· AS 29.49.070 Requires a Publicly-Available Program
Report
o The report must include:
ƒ a map of the program region boundaries
ƒ a form contract between the municipality
and the property owner that specifies the
terms of the assessment and any financing,
including third-party and municipal
ƒ if appropriate a form contract between the
municipalities and the third-party
financer regarding the servicing of the
debt through assessments
ƒ a description of qualified projects
ƒ a plan for ensuring sufficient capital
ƒ if bonds are used the report must include:
· a maximum aggregate annual dollar
amount for financing
· a method for ranking requests from
property owners
· a method for determining the interest
rate and maximum amount of an
assessment
ƒ a method for ensuring the repayment period
does not exceed the useful life of the
qualified project
2:07:54 PM
Ms. Ford continued on slide 12:
· AS 29.49.070 Requires a Publicly-Available Program
Report (continued)
o The report must include:
ƒ a description of the application process and
eligibility requirements
ƒ a method for ensuring qualified applicants
can demonstrate financial ability to fulfill
financial obligations and verify the
applicant is the legal owner of the
property, is current on mortgage and
property taxes and is not insolvent or in
bankruptcy
ƒ an explanation of the assessment and
collection process
ƒ an explanation of the lender notice
requirement provided by AS 29.49.080
ƒ an explanation of the review requirement
provided by AS 29.49.090
ƒ a description of the marketing and education
services to be provided
ƒ a description of quality assurance and
antifraud measures
ƒ collection procedures
ƒ a requirement for an appropriate ratio
between the assessment and property value
o The report must be available online and at the
municipal offices
Ms. Ford explained slide 13:
· AS 29.49.080 Notice to Mortgage Holder Required
· AS 29.49.090 Review Required
o A third-party baseline energy audit and projected
energy savings are required
o Once a qualified project is complete, the
municipality shall obtain third-party verification
that the project was properly completed and
operating as intended
· AS 29.49.100 Direct Acquisition by Owner
o The property owner may be authorized to purchase
directly the related equipment and materials or
contract directly, including through lease, power
purchase agreement or other service contract for
the installation or modification of a qualified
improvement
Mr. Therriault clarified that the required notice to the
mortgage holder (AS 29.49.080) was one of the protections
he had mentioned earlier. He discussed working with the
Alaska Bankers Association, and noted that if a commercial
business had a mortgage to a local bank, permission from
the mortgage holder was required before initiating PACE
financing. He explained that the PACE financing appearing
on the property tax bill would become a superior lien and
relegate the mortgage to a secondary position. He furthered
that more banks across the nation were willing to do so, as
the PACE financing was collateralizing the mortgages and
making the associated businesses more financially viable.
With the provision included, the bankers association
supported the legislation.
Mr. Ford read from slide 14:
· AS 29.49.110 Contractual Assessment must be Noticed
o Written notice of each contractual assessment
shall be filed by the municipality in the real
property records, including the assessment
amount, legal description of the property, name
of each property owner and the reference to the
statutory assessment lien provided under this
chapter
· AS 29.49.120 Contractual Assessments and any Interest
or Penalties are Primary Liens on the Property
o exceptions are municipal tax liens and special
assessments
o enforcement provided in AS 29.45.320-470
o contractual assessment liens stay with the land
and not eliminated by foreclosure
o penalties and interest may be added to delinquent
installments, as provided in AS. 29.45.250
o municipalities may recover cost and expenses,
including attorney fees to collect a delinquent
installment
· AS 29.49.130 Collection of Assessments
o Municipalities may contract with another
governing body of another taxing unit to perform
assessments collections
Ms. Ford noted that AS 29.49.130 was important to smaller
communities that might not have the internal capacity to be
able to administer a PACE program.
2:10:24 PM
Ms. Ford presented slide 15:
· AS 29.49.140 Municipalities may Issue Bonds or Notes
to Finance Qualified Projects
o These may not be general obligations bonds and
must be secured by one or more of the following:
ƒ payments of the contractual assessments
ƒ municipal reserves from grants, bonds, or
net proceeds and other lawfully available
funds
ƒ municipal bond insurance, lines of credit,
public or private guarantees, standby bond
purchase agreements, collateral assignments,
mortgages, or available means of providing
credit support or liquidity
ƒ any other funds lawfully available for
purposes consistent with this chapter
o A municipal pledge of assessments, funds, or
contractual rights in connection with the
issuance of bonds is a first lien valid and
binding against any other person, with or without
notice
o Bonds or notes issued must further an essential
public and governmental purpose, including
reducing energy costs, improving electrical
reliability, reduction of energy demand on
utilities, economic development, employment and
enhancement of property values
Mr. Therriault pointed out that the section contained
another of the aforementioned protections; general
obligation bonds could not be utilized, and PACE could be a
sub-unit of the borough. A revenue bond would entail money
loaned out and paid back by the specific property owners
that used the funds.
Ms. Ford moved to slide 16.
· AS 29.49.150 Joint Implementation
o Any combination of municipalities may agree to
jointly implement or administer a program or
contract with a third party. A public hearing
as outlined in AS 29.49.060 is required.
· AS 29.49.160 Prohibited Acts
o A municipality that establishes a PACE region
may not compel a property owner to use PACE or,
make any permit, license, or authorization
contingent on a property owner using PACE.
· AS 29.49.900 Adds Definitions of Program, Qualified
Improvement, Qualified Project, Real Property and
Region.
· AS 29.49.995 Adds the Short Title "Municipal
Property Assessed Clean Energy Act."
· Section 2 Establishes an Immediate Effective Date
Mr. Therriault spoke to AS 29.49.160 of the bill, and
stated that it was an important protection; if the local
government chose to offer PACE, they could not coerce any
business owner to use the mechanism. They could not
withhold any license or permit, and it needed to be used by
the business owner on a completely voluntary basis.
2:12:02 PM
Co-Chair MacKinnon thanked the testifiers for their concise
and clear overview.
Senator Bishop asked if Sections 29.49.130 and 29.49.150
helped the hybrid model be conforming. He referenced the
potential PACE models listed on slide 5 and thought that
those sections of the bill made the hybrid model work. Ms.
Ford agreed, stating that it pertained to the collection
aspect of the model.
Co-Chair MacKinnon OPENED public testimony for SB 56.
2:13:31 PM
KATHY WASSERMAN, ALASKA MUNICIPAL LEAGUE, JUNEAU, testified
in support of the bill. She stated that the municipal
league was in favor of the bill, and related that she had
talked at length with Mr. Therriault about the legislation.
She supported the fact that the program was optional. She
discussed cities and boroughs that might participate, and
thought that the legislation could benefit the business
owners as well as the municipalities. She stressed the
importance that the bill allowed for a public process, so
that the members of the community would know what the city
was doing with the funds.
2:15:01 PM
CHRIS ROSE, EXECUTIVE DIRECTOR, REAP, ANCHORAGE (via
teleconference), testified in support of the bill. He
related that REAP was a statewide education and advocacy
group for renewable energy and energy efficiency. The
project had been promoting the idea of property-assessed
clean energy for a couple of years. He considered it to fill
a gap in the state to incentivize commercial building owners
to do energy retrofits. He echoed Mr. Therriault's comments
regarding the 30 percent increase in efficiency. He pointed
out the advantage to communities of having more funds stay
locally rather than being exported for energy costs without
the increased efficiencies.
Senator Dunleavy asked Mr. Rose if his group would benefit
from the legislation, and in what way. Mr. Rose responded
that the project would not benefit from the bill.
Co-Chair MacKinnon CLOSED public testimony for the bill.
2:17:01 PM
Co-Chair MacKinnon asked about Section 29.49.070 of the
bill, and whether community members were required to be in
good standing with regard to their credit rating. She had
observed there were some parameters, but did not notice one
in relation to credit rating. Mr. Therriault did not think
there was a specific requirement related to credit rating,
and inquired if Co-Chair MacKinnon's concern pertained to
securing a source of funds in the bond market or related to
the credit rating of the individual property owner.
Co-Chair MacKinnon commented that there was no language
pertaining to good standing, and expected that a business
owner should be in good credit standing in order to enter
into a relationship with the municipality. She discussed
other funds she had reviewed while chairing the Legislative
Budget and Audit Committee, and wondered if there should be
good standing language in the bill in order to be assured a
business was handling its finances well. Mr. Therriault
thought that there was language somewhere in the bill
intended to make sure that businesses were in good standing
and not in arrears, delinquent, or in bankruptcy; but was
unable to point it out at the moment. He agreed to work
with Co-Chair MacKinnon's staff to point out the relevant
text in the bill.
2:18:48 PM
Co-Chair MacKinnon asked about AS 29.49.090, dealing with
review requirements of the loan; and wondered whether there
was a savings requirement or specific efficiency for a
business to project in order to qualify. Mr. Therriault
relayed that there was a requirement that a business get an
energy audit, then show a plan demonstrating estimated
savings after improvements. He highlighted the importance
of a business showing it was capable of repayment through
the savings.
Co-Chair MacKinnon elaborated that PACE was an optional
program; and observed that in the "green" programs she had
reviewed, it had been beneficial to set a minimum energy
efficiency level. She thought people could start borrowing
funds for improvements at a lower cost than was provided
through the bill, resulting in increased debt for
municipalities. She hoped that after the municipality
incurred debt through the program, the goal of energy-
efficient buildings would be met.
Mr. Therriault remarked that the bond owners would evaluate
the savings achieved through the program to assess that the
funds would pay back the revenue bond. He pointed out that
the bill language specifically prohibited the funds from
becoming a general obligation of the government, and the
repayment stream for the loans were actually the repayment
for the bonds.
2:21:16 PM
Senator Olson found it unusual that a mortgage holder would
agree to be listed as a secondary. He thought that most
banks wanted to retain the primary position, and wondered
what would happen in the eventuality of a downturn in the
economy. Mr. Therriault stated that individual banks would
have to consider the factors, and would have the decision-
making power to deny requests if the economy was not
favorable. He clarified that PACE would still be available
to any business that had no outstanding mortgage.
Mr. Therriault referred back to Co-Chair MacKinnon's
question regarding the verification of good standing of the
property owner, and pointed out the relevant text on the
bottom of page 6 and the top of page 7 of the bill:
(b) The method for ensuring a demonstration of
financial ability under (a)(9) of this section must be
based on appropriate underwriting factors, including
(1) providing for verification that
(A) the property owner requesting to
participate under the program is
(i) the legal owner of the benefited
property;
(ii) current on mortgage and property
tax payments; and
(iii) not insolvent or in bankruptcy
proceedings; and
Ms. Ford added that bill also required an appropriate ratio
between the assessed value of the property and the proposed
improvements.
Co-Chair MacKinnon asked about AS 29.49.140 regarding bonds
under notes. She inquired if municipalities would access
the state municipal bond bank to provide backing for the
loans. Mr. Therriault did not believe so, and clarified
that the revenue bonds were backed by the program they were
operating, rather than being a general obligation of the
municipality.
Mr. Therriault relayed that the bill sponsors had worked
with members of the other body on "small tweaks" to the
bill, and advised that he would be amenable to working with
Co-Chair MacKinnon's staff to make recommendations as she
considered any changes to the bill. He agreed to provide
the changes in writing.
SB 56 was HEARD and HELD in committee for further
consideration.