Legislature(2021 - 2022)ADAMS 519
01/20/2022 10:15 AM House ENERGY
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| Audio | Topic |
|---|---|
| Start | |
| HB227 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 227 | TELECONFERENCED | |
HB 227-MUNI ENERGY IMPROVEMNT ASSESSMENT PROGRAM
10:17:09 AM
CHAIR SCHRAGE announced that the only order of business would be
HOUSE BILL NO. 227, "An Act relating to municipal energy and
resilience improvement assessment programs; and providing for an
effective date."
The committee took a brief at-ease at 10:17 a.m.
[During the at-ease, Chair Schrage passed the gavel to
Representative Claman.]
10:18:07 AM
CHAIR SCHRAGE, as prime sponsor, presented HB 227. He
paraphrased the sponsor statement [included in the committee
packet], which read as follows [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 one.
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.
10:20:48 AM
The committee took an at-ease from 10:20 a.m. to 10:21 a.m.
[During the at-ease Representative Claman passed the gavel back
to Chair Schrage.]
10:21:06 AM
SHAINA KILCOYNE, Energy and Sustainability Manager, Solid Waste
Services, co-presented a PowerPoint [hardcopy included in the
committee packet], titled "Alaska C-PACE." She stated that
commercial property assessed clean energy (C-PACE) is a
government policy which supports commercial energy efficiency
and renewable energy projects as a public benefit. She
explained that the state statute passed in 2017 allowed the
program to be created. The C-PACE program is led by an advisory
committee headed by the Alaska Energy Authority. She stated
that local municipalities had a difficult time implementing the
program until a substantial loan was received from the federal
government. The federal funding helped hire firms [listed on
slide 2] to create a market study and program design, and since
2019 C-PACE in Alaska has made advancements.
10:23:33 AM
MELANIE LUCAS-CONWELL, Portfolio Manager, 49th State Angel Fund,
co-presented the PowerPoint, titled "Alaska C-PACE." She
addressed slide 3, titled "What makes C-PACE special?" She
explained the six points listed on the slide: (1) C-PACE helps
avoid upfront costs and barriers, as an investment can be made
without any upfront money, and hard and soft costs can be rolled
into the loan; (2) C-PACE creates long-term, fixed-rate,
nonrecourse financing which aligns with the main goal of
reducing the risks to all parties involved; (3) C-PACE funding
is tied to the property and the liens are transferable, which
helps avoid an uncertainty barrier and risks to lenders; (4) C-
PACE is a priority lien, and other lien holders must consent to
the assessment in writing; (5) C-PACE increases the property
value over the long term with [clean energy] upgrades and
improvements; (6) C-PACE requires projects to "pencil out" and
be cashflow positive from day one.
10:28:02 AM
MS. LUCAS-CONWELL stated that C-PACE is not a new program,
noting 37 states plus Washington DC have adopted similar
programs, [as seen on slide 4]. She highlighted nationwide
statistics from 2019 which show the program has resulted in over
$2 billion in investments, 25,000 commercial projects, and over
24,000 jobs. She noted that this [activity] has created various
examples and resources for new programs. She continued that C-
PACE is an important source of [financing] for improvements,
deferred maintenance, and projects which may have run out of
funding.
10:29:33 AM
MS. LUCAS-CONWELL, moving to [slide 5], explained that since C-
PACE was launched in Anchorage there have been ongoing talks
with other municipalities, including the Matanuska-Susitna
Borough, which has passed a resolution of intent for C-PACE. To
facilitate the creation of the program in Alaska the advisory
committee has helped with market information and other
challenges. She referenced the ongoing effort to standardize
the program to simplify the process and create lower costs. She
explained that a completed application has not been received
from a property owner yet because the program is new, and "it
takes time for people to learn about the program and understand
it." From observations in the Lower 48, she speculated there
would not be a big influx of [participation] within the first
two years. She pointed out that there are six-to-seven projects
"in the pipeline" for the Anchorage area.
MS. LUCAS-CONWELL, moving to [slide 6], outlined eligibility
requirements. She explained that, per statute, the role of the
program administrators is to ensure the property and its owner
are eligible. To be eligible the property owner must be the
legal record holder, have up-to-date mortgage and property
taxes, and not be in bankruptcy proceedings. She added that the
property must be an existing commercial or industrial property
and privately owned. She continued that the project must
"pencil out" with SIR, which includes a 20 percent loan-to-value
ratio.
10:33:55 AM
MS. LUCAS-CONWELL, advancing to [slide 7], pointed out the
various types of improvements which are eligible for C-PACE
financing. Improvements considered are those which reduce
energy costs and help repay the loan. She stated that according
to the recent Anchorage Energy Landscape and Opportunities
Analysis, a conservative estimate for cost-effective retrofits
for private commercial and industrial facilities could result in
savings of 20 percent, with an operation and maintenance savings
of 5 percent. She noted that in terms of the investment these
loans would be paid back within an estimated seven years.
10:35:32 AM
MS. KILCOYNE moved to slide 8, which addressed delinquency and
default of C-PACE liens. She stated that C-PACE liens are prior
and paramount to all liens except municipal tax liens and
special assessments. Municipalities are responsible for
reporting the assessment, billing, and remitting the correct
portion of the payment to the lender, but municipalities would
not be guaranteeing the collection of funds. In the event of
delinquency, the municipalities would follow existing
proceedings and not be required to repay the lender. Once the
property is sold, the loan, penalties, and interest would be
sold with it. She noted that nationally there have been no
foreclosures as a result of a delinquent C-PACE assessment.
MS. KILCOYNE advanced to slide 9. In reference to HB 227, she
pointed out that changes over the past 10 years reinforce the
need for the proposed amendments. She noted many states are
reporting statutory changes in their programs. She expressed
the belief that the changes in the amendments would bring Alaska
in alignment with other states. Continuing to slide 10, she
related that in 25 states C-PACE now makes loans on new
construction, which represents around half of the transactions
in the last two years. She said Alaska replicated Texas'
statute, and Texas is working to include new construction in its
program. She indicated there have been inquiries [in Alaska]
about the new construction of "very large projects." She argued
that allowing loans for new construction would offer developers
opportunities for financing beyond traditional debt. Loans for
new construction would facilitate more energy efficient
buildings and align with the intent of [HB 227] by reducing
energy consumption, costs, and emissions. She added that
expanding the program to include new construction would offer
new tax revenue. She provided some examples of program changes
to include new construction. She stated that, consistent with
the current program, only certain energy saving measures would
be allowed for C-PACE financing. She noted that these details
are still being worked out.
10:39:54 AM
MS. KILCOYNE pointed out that current market trends use C-PACE
financing for resiliency projects, such as seismic improvements,
fire hardening, [and other projects listed on slide 11]. She
maintained that impacts from the climate, earthquakes, and other
disasters could be mitigated by improving building resiliency.
She conceded these types of projects could have significant
upfront costs, but they could prevent major property damage
during disasters, helping communities rebound quicker. She
expressed the belief that Alaska could benefit from a broad
application and authorization of resiliency retrofits, giving
individual jurisdictions the ability to offer retrofits relevant
to their regions.
MS. KILCOYNE stated that the language change shown on slide 12
would define "finances" and "financing" to explicitly include
refinancing throughout the statute. She pointed out that [the
expanded definitions] would enable an eligible property owner,
who previously used C-PACE, to refinance an outstanding
assessment lien. This would also allow a property owner to
refinance the cost if the improvements have already begun or
have been completed. She expressed the belief that the change
would support the intent of the original legislation.
10:42:38 AM
REPRESENTATIVE RAUSCHER questioned whether the [proposed]
legislation would give Alaska [C-PACE] the ability to
retroactively fund projects, or whether this can be done without
[new amendments]. He noticed Alaska is not included in the
eight states listed. He questioned whether the legislation
being discussed would put Alaska on the list.
10:44:31 AM
CHAIR SCHRAGE, clarifying Representative Rauscher's question,
requested that Ms. Kilcoyne explain the reason Alaska currently
does not allow retroactive financing.
MS. KILCOYNE responded that [retroactive financing] is not
explicit in the original statute. She stated that the [program
administrators] are seeking more direction with updated
language, and [retroactive financing] is viewed as the "best
practice" in the Lower 48.
CHAIR SCHRAGE shared the understanding that this would free up
additional capital for further investments in these types of
properties.
REPRESENTATIVE RAUSCHER asked for confirmation that the
legislation would allow Alaska "to be part of the list."
CHAIR SCHRAGE responded that that is his understanding.
MS. KILCOYNE offered her opinion that the amendments could be
even more explicit.
10:46:27 AM
REPRESENTATIVE CLAMAN requested an explanation of the 49th State
Angel Fund's active involvement with the legislation.
MS. LUCAS-CONWELL responded that she and Ms. Kilcoyne work
jointly at C-PACE as part of their regular jobs. Based on her
experience with private capital providers, she explained she was
asked by the municipality to help with the effort. She stated
that this is a staff-time management issue.
REPRESENTATIVE CLAMAN, with a follow-up question, expressed the
understanding that the 49th State Angel Fund is involved with
start-up enterprises based in Alaska, and federal funding
enables it to pick investments. He questioned whether the fund
has been investing in C-PACE.
MS. LUCAS-CONWELL responded that the 49th State Angel Fund
investments are completely separate from C-PACE financing. The
49th State Angel Fund makes equity venture investments, and,
from that aspect, it is completely separate. She stated that C-
PACE programs collaborate mostly with private capital lenders,
such as the Northrim Bank and other nationwide lenders. She
stated that, as opposed to investing activities, she is lending
her time to C-PACE from a staffing perspective. In response to
a follow-up question, she reiterated that she is only lending
her expertise to the program.
10:49:33 AM
REPRESENTATIVE KAUFMAN suggested that a flow diagram of the [C-
PACE] process would be helpful. He related the understanding
that the financing would be connected to the building structure
as opposed to the owner. He questioned the default process.
MS. KILCOYNE, in terms of a [C-PACE] default, responded that the
property owner would be at risk, not the municipality. She went
on to explain that the financing is private and would be between
the lender and the property owner. She stated that if there
were a default, the municipality would go through its "typical
processes" and, if the building is sold, whoever buys the
building would be buying the lien and be responsible for
arrears.
MS. KILCOYNE, in response to a follow-up question, reiterated
that the municipality would not be at risk. She stated that the
entire process is to de-risk the loan.
10:52:36 AM
MS. KILCOYNE, referencing slide 13, reiterated that the current
maximum financing may not exceed 20 percent of the assessed
value of the property at the time of the application. She
argued this [restriction] limits large projects which could
ultimately increase the assessed value. She gave the example
that the cap for a building assessed at $10 million would be $2
million for C-PACE financing. She stated that this financing
may not work for a large project. She explained that the tax-
assessed value tends to be less than the market price of a
property; thus, using the market value allows for more
flexibility in capturing the value of improvements. She
continued that upgrades would be better captured using the "as
built" value, and a 25 percent maximum financing would better
align with industry standard.
MS. KILCOYNE, advancing to slide 14, stated that the maximum
length of an assessment is currently 20 years. She explained
that many financed improvements have at least a 30-year life
expectancy, which is the industry standard. She stated that, in
general, SIR does not capture all the program's benefits to
property owners, and she gave examples. She expressed the
opinion that the metric used by capital writers to measure a
property owner's credit worthiness would be a better test than
SIR. She added that if new construction and resiliency were
allowed in C-PACE, SIR would not be applicable. She offered her
opinion that lengthening the assessment to 30 years and removing
SIR would be positive changes.
MS. KILCOYNE, in conclusion, moved to slide 15 which listed C-
PACE's website, links to presentations, and contact information.
10:56:33 AM
The committee took a brief at-ease at 10:56 a.m.
10:56:52 AM
REPRESENTATIVE KAUFMAN questioned how C-PACE would be better
than the lending process outside of the program.
MS. KILCOYNE responded that C-PACE offers benefits which include
long-term financing, fixed rates, and prioritized liens. She
explained that C-PACE loans come "above" other loans, and, once
taxes and assessments are paid, risks would be eliminated. She
added that because the loan is transferable, the lender would
know that the future property owner would take over the
payments.
MS. LUCAS-CONWELL, in further response, expressed the opinion
that there are risks with these types of loans, but having the
municipalities facilitate the process reinforces the value. She
expressed the opinion that adding new construction, per the
proposed amendments, would increase the visibility of building
improvements to the capital providers that are not currently
participating in the program. She stated that the programs have
been successful because of energy savings and energy efficiency,
which is especially relevant with Alaska's high energy costs.
She concluded that the program offers capital providers more
security when underwriting these type loans.
REPRESENTATIVE KAUFMAN questioned whether procuring a loan
through C-PACE would transfer risk to the original lender. He
speculated that since the original loan would be "bumped behind"
the C-PACE loan, the original lender would write clauses to
prevent this from happening.
MS. KILCOYNE responded that the initial lender will often
perceive the loan as a risk and be resistant to signing a
consent which "bumps" its loan down; however, she speculated
that the initial lender would see the benefits once it is
observed that projects are happening, the value of properties
are increasing, and the borrower, with more tenants and less
cost, is in a better position with immediate revenue. She
asserted that patience is needed because "they eventually come
around and see that." She conceded this will be a problem until
"we get this going."
11:02:36 AM
CHAIR SCHRAGE asked whether a commercial property owner would
have to have consent from the original lender before taking
advantage of C-PACE financing.
MS. KILCOYNE responded that the original lender would get
"bumped" in the lien position because C-PACE would be the
"higher" lien, and the borrower would have to have consent from
the original lender.
MS. LUCAS-CONWELL added that this is the case only if there is
an active mortgage. If the mortgage has been repaid on the
property, the original mortgage holder would not need to
consent.
11:03:24 AM
REPRESENTATIVE KAUFMAN, with a follow-up request, asked that the
committee be supplied with a linear sequence of the program.
11:03:55 AM
REPRESENTATIVE CLAMAN commented that, in terms of the risk, if a
property owner wants a C-PACE loan, the property owner cannot
force the original lender to take this on. He reiterated that
the original lender would have to consent to the loan.
MS. KILCOYNE responded in the affirmative, explaining the
importance of the benefits being shared to both the property
owner and the original lender.
REPRESENTATIVE CLAMAN speculated that the mortgage holder would
need to analyze whether the value of the property would be
strengthened and whether the mortgage would be paid.
MS. KILCOYNE responded in the affirmative.
11:05:11 AM
REPRESENTATIVE RAUSCHER questioned whether it is in the statute
that the original mortgage holder has rights [concerning the
borrower's access to C-PACE financing].
MS. KILCOYNE expressed the belief that this is in statute. She
continued that this is the [mortgage] industry's practice and
has not heard of any program that does not include the
[mortgage] industry's consent. She stated that she would
further research the answer.
11:05:55 AM
REPRESENTATIVE FIELDS questioned which investors participate in
the programs in the country. He questioned whether local banks,
large institutional investors, or private equity firms would be
participating.
MS. LUCAS-CONWELL responded that there are private lenders
nationwide which have a specialty in C-PACE loans. These
lenders are familiar with the process and often will have their
own services, such as energy audits for potential customers and
guidance through the program. She noted that, while there is no
stipulation on the firms that can participate, no private equity
firms have come forward.
MS. KILCOYNE added that the local banks are slower to show
interest, but Northrim Bank is an "exciting" addition. She
stated that there is a list of institutions in the Lower 48
which follow C-PACE markets.
11:08:27 AM
REPRESENTATIVE FIELDS questioned whether public entities, such
as school districts, could benefit from the program.
MS. KILCOYNE responded that, per statute, the loan would need to
be to a private recipient.
REPRESENTATIVE FIELDS, with a follow-up question, asked why a
public entity could not participate.
MS. KILCOYNE responded that she had not heard of public entities
being a part of C-PACE, but the topic could be investigated.
MS. LUCAS-CONWELL, adding to the response, stated that the tax
assessment on the property would be complicated for public
institutions. She advised that there would be questions about
the current lien holders and the financing.
REPRESENTATIVE FIELDS expressed understanding concerning the tax
issue. He added that the Anchorage School District is falling
behind by $30 million every year for deferred maintenance for
schools.
11:10:42 AM
CHAIR SCHRAGE thanked the speakers. He announced that HB 227
was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 227 MOA CPACE Presentation 1.20.22.pdf |
HCRA 3/3/2022 8:00:00 AM HENE 1/20/2022 10:15:00 AM |
HB 227 |
| HB 227 Sponsor Statement 1.20.22.pdf |
HCRA 3/3/2022 8:00:00 AM HENE 1/20/2022 10:15:00 AM |
HB 227 |
| HB 227 Version I.PDF |
HCRA 3/3/2022 8:00:00 AM HENE 1/20/2022 10:15:00 AM |
HB 227 |
| HB 227 CPACE Sectional 1.20.22.pdf |
HCRA 3/3/2022 8:00:00 AM HENE 1/20/2022 10:15:00 AM |
HB 227 |
| HB 227 DCCED CRA Fiscal Note.pdf |
HCRA 3/3/2022 8:00:00 AM HENE 1/20/2022 10:15:00 AM |
HB 227 |