Legislature(2021 - 2022)BELTZ 105 (TSBldg)

04/12/2022 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS

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Audio Topic
03:31:07 PM Start
03:31:48 PM HB227
04:27:14 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
**Streamed live on AKL.tv**
+= HB 227 MUNI ENERGY IMPROVEMNT ASSESSMENT PROGRAM TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
        HB 227-MUNI ENERGY IMPROVEMNT ASSESSMENT PROGRAM                                                                    
                                                                                                                                
3:31:48 PM                                                                                                                    
CHAIR HUGHES  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."                                                                      
                                                                                                                                
3:32:19 PM                                                                                                                    
REPRESENTATIVE CALVIN SCHRAGE,  Alaska State Legislature, Juneau,                                                               
Alaska, sponsor  of HB 227,  introduced the  legislation speaking                                                               
to the sponsor statement that read as follows:                                                                                  
                                                                                                                                
          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.                                                                                                      
                                                                                                                                
3:35:49 PM                                                                                                                    
CHAIR HUGHES asked whether wind resistance would be included                                                                    
under resiliency.                                                                                                               
                                                                                                                                
REPRESENTATIVE SCHRAGE  said he  didn't believe  so but  he would                                                               
check.                                                                                                                          
                                                                                                                                
RYAN  JOHNSTON,  Staff,  Representative  Calvin  Schrage,  Alaska                                                               
State Legislature,  Juneau, Alaska, advised that  Shaina Kilkoyne                                                               
was  the  resident  expert  and   she  had  a  presentation  that                                                               
potentially  would  answer  many   of  the  questions  about  the                                                               
Commercial Property Assessment Clean Energy (C-PACE) program.                                                                   
                                                                                                                                
3:37:16 PM                                                                                                                    
SHAINA KILKOYNE,  Energy and Sustainability Manager,  Solid Waste                                                               
Services;  Co-leader  Alaska   C-PACE  Program;  Municipality  of                                                               
Anchorage, Anchorage,  Alaska, stated  that she could  talk about                                                               
Alaska's existing  C-PACE Program, C-PACE at  the national level,                                                               
and what HB 227 does to improve the program.                                                                                    
                                                                                                                                
MS.  KILCOYNE   began  the   presentation  by   highlighting  the                                                               
important properties of the C-PACE Program.                                                                                     
                                                                                                                                
Businesses  pay  an  administrative  fee  to  participate,  which                                                               
offsets the cost to operate  and administer the program, so there                                                               
is no cost to the taxpayers.                                                                                                    
                                                                                                                                
The program  is voluntary. Tax-assessing cities  and boroughs can                                                               
choose to opt in and businesses can choose to participate.                                                                      
                                                                                                                                
C-PACE  is  not a  subsidy,  tax  credit  or tax  incentive.  All                                                               
financing is private and the  municipality serves as a middle man                                                               
to help reduce the risk of  the project, which serves to activate                                                               
projects and investment                                                                                                         
                                                                                                                                
MS. KILCOYNE advanced  to slide 3 and reviewed the  history of C-                                                               
PACE. It  is a government  policy that supports  commercial clean                                                               
energy projects  as a public benefit  similar to a sewer  or road                                                               
extension  or the  MatSu Borough  switching to  natural gas.  The                                                               
enabling statute  passed in  2017, allowing  taxing jurisdictions                                                               
to  create a  program. The  Alaska Energy  Authority created  the                                                               
PACE Advisory Group  to get the program started.  A Department of                                                               
Energy  grant made  it possible  for the  advisory group  to hire                                                               
both  McKinley  Capital Group  to  do  a  market study  and  PACE                                                               
Financial Servicing to help  with program design, implementation,                                                               
and administration. Together they  worked with municipalities and                                                               
boroughs to  develop the PACE  handbook and  set the stage  for a                                                               
single program statewide.                                                                                                       
                                                                                                                                
3:40:15 PM                                                                                                                    
MS.  KILCOYNE  reviewed the  reasons  that  Alaska needs  a  PACE                                                               
program, as outlined on slide 4:                                                                                                
                                                                                                                                
Priority  Lien:  Existing  mortgage   or  lienholders  must  give                                                             
written consent to  the assessment. Without consent,  there is no                                                               
project.                                                                                                                        
                                                                                                                                
Transferable: The  assessment is  tied to  the property,  not the                                                             
property owner. This  reduces the risk for both  the borrower and                                                               
the lender.                                                                                                                     
                                                                                                                                
No  Upfront Project  Cost: A  property owner  may invest  without                                                             
using  money from  out  of pocket.  Hard and  soft  costs may  be                                                               
included in the loan, including engineering and permitting.                                                                     
                                                                                                                                
Requires Project to Pencil Out:  The statute requires the project                                                             
to  have a  savings-to-investment ratio  (SIR) of  at least  one.                                                               
This ensures  that the  investment will pay  for itself  based on                                                               
the  savings on  the energy  bills. Projects  are expected  to be                                                               
cash flow positive from the start.                                                                                              
                                                                                                                                
Increases   Property   Value:  Installing   advanced   technology                                                             
mechanisms improve operations and the value of the building.                                                                    
                                                                                                                                
Long term, fixed-rate, nonrecourse  financing: C-PACE reduces the                                                             
risk for lenders. Better interest  rates are available for longer                                                               
term financing. Longer  term means 20 years or the  length of the                                                               
project, whichever  is shorter.  This can  help a  project pencil                                                               
out. The financing is nonrecourse meaning  it is tied to the real                                                               
asset, not  the property  owner or  their assets.  Interest rates                                                               
are market based,  but typically low due to the  high security of                                                               
repayment  attached to  the  property tax  bill.  The program  is                                                               
intended  to reduce  risk for  all  parties, which  helps to  put                                                               
downward pressure on rates.                                                                                                     
                                                                                                                                
3:42:53 PM                                                                                                                    
MS. KILCOYNE turned to the map of  the US on slide 5 to highlight                                                               
C-PACE  programs  nationwide. She  reported  that  37 states  and                                                               
Washington,  DC  have  C-PACE enabling  legislation.  Nationwide,                                                               
more than $2  billion has been invested in  2,560 Commercial PACE                                                               
projects,  creating  24,000  jobs.   She  acknowledged  that  the                                                               
numbers  were a  little outdated.  Nevertheless, the  programs in                                                               
other  states   have  provided   many  examples   throughout  the                                                               
development process of  Alaska C-PACE. She noted  that the Alaska                                                               
legislation was among the most restrictive in the country.                                                                      
                                                                                                                                
MS. KILCOYNE  advised that the Anchorage  C-PACE program launched                                                               
April 1,  2021. They have been  in touch with Juneau,  Sitka, the                                                               
Kenai Peninsula  Borough, the MatSu  Borough, and  Fairbanks. She                                                               
offered her  understanding that the  MatSu Borough  and Fairbanks                                                               
were  waiting to  move  forward  pending action  on  HB 227.  She                                                               
highlighted  that  the advisory  committee  has  worked from  the                                                               
beginning  to  create a  single  C-PACE  program statewide.  This                                                               
would avoid  a patchwork  of programs  throughout the  state that                                                               
lenders,  contractors, and  engineering companies  would have  to                                                               
learn  about  individually.  When the  Anchorage  advisory  group                                                               
created  their program  guidelines,  the idea  was  to develop  a                                                               
handbook  that could  be replicated  statewide. The  goal was  to                                                               
keep  costs  low and  provide  simple,  standard guidelines.  She                                                               
noted  that Anchorage  C-PACE had  several partial  applications,                                                               
which   is  within   the  expected   range,  based   on  programs                                                               
nationwide.                                                                                                                     
                                                                                                                                
3:45:06 PM                                                                                                                    
MS.  KILCOYNE advanced  to slide  7, Current  C-PACE Eligibility.                                                               
She relayed  that as the  administrator, the  municipality's role                                                               
is to  determine whether  the property  owner, the  property, and                                                               
the  project  are eligible.  She  highlighted  that the  property                                                               
owner and lender would go  through the full underwriting process,                                                               
including  looking  at  debt  coverage  ratio  to  determine  the                                                               
applicant's eligibility  to pay.  In the  near term  the projects                                                               
will  be those  over $300,000,  but the  hope is  to have  C-PACE                                                               
projects that are $40,000 and $50,000.                                                                                          
                                                                                                                                
MS. KILCOYNE  pointed out that  under the Project column,  one of                                                               
the eligibility  bullets was savings  to investment  ratio (SIR).                                                               
She reiterated that over the  life of the investment, the savings                                                               
to the  property owner must  be more  than the financing  for the                                                               
project. She  noted that  an additional  requirement is  that the                                                               
financing may not exceed 20 percent  of the assessed value of the                                                               
property at the  time of the application. She said  there is also                                                               
a possible  waiver to increase  the financing cap to  50 percent.                                                               
She noted that  the Municipality of Anchorage  supports those two                                                               
provisions.                                                                                                                     
                                                                                                                                
MS. KILCOYNE advanced to slide  8, What Measures Are Eligible For                                                               
C-PACE Financing Today?  She pointed to the  examples of eligible                                                               
improvements and  explained that eligible means  the installation                                                               
or  modification of  permanent  improvements  intended to  reduce                                                               
energy consumption, energy costs,  or emissions that affect local                                                               
air  quality. An  LED lamp,  for example,  would not  be eligible                                                               
because it is not permanent.                                                                                                    
                                                                                                                                
3:47:00 PM                                                                                                                    
MS.  KILCOYNE reviewed  delinquency  and default  as outlined  on                                                               
slide 9.                                                                                                                        
                                                                                                                                
C-PACE  liens are  paramount to  all liens  except municipal  tax                                                               
liens and other existing special assessments.                                                                                   
                                                                                                                                
The  municipality or  borough is  responsible  for recording  the                                                               
benefit assessment once the application  is complete, billing per                                                               
the repayment  schedule, processing  payments from  the borrower,                                                               
and  remitting   payments  to  the   lender  per   the  schedule.                                                               
Municipalities  or boroughs  are not  guaranteeing collection  of                                                               
funds. In the  event of delinquency, the  municipality or borough                                                               
would follow its existing proceedings  and is not required to pay                                                               
the capital  lender. The loan is  sold with the property  and the                                                               
new owner will make any  delinquent payments, payments in arrears                                                               
or interest. This is non-accelerating  so there would only be one                                                               
or two back payments if any.                                                                                                    
                                                                                                                                
Nationally,  there have  been no  foreclosures as  a result  of a                                                               
delinquent C-PACE assessment.                                                                                                   
                                                                                                                                
3:48:21 PM                                                                                                                    
MS. KILCOYNE  stated that the  provisions proposed in HB  227 are                                                               
based  on   best  practices  and   come  directly   from  project                                                               
developers  and  energy  professionals. With  these  changes  the                                                               
Alaska  C-PACE program  will align  with C-PACE  programs in  the                                                               
Lower  48. She  noted that  projects already  have been  excluded                                                               
because  of restrictions  in the  existing program.  HB 227  will                                                               
ensure municipalities  and boroughs start with  the best possible                                                               
program.                                                                                                                        
                                                                                                                                
MS. KILCOYNE advanced to slide  11, New Construction. She advised                                                               
that new  construction is allowed  in 25  states in the  Lower 48                                                               
and has comprised about half  the C-PACE transactions in the last                                                               
two years.  Alaska C-PACE statutes  are based on the  Texas model                                                               
and that  state is working  to change  its statutes to  allow new                                                               
construction. Alaska C-PACE has  had multiple inquiries about new                                                               
construction of very large projects.  This would offer developers                                                               
more  opportunities  for  financing and  facilitate  more  energy                                                               
efficient buildings, which  would provide a host  of benefits for                                                               
decades to come.                                                                                                                
                                                                                                                                
3:50:48 PM                                                                                                                    
MS. KILCOYNE  discussed resiliency  projects that  support public                                                               
policy  goals, speaking  to the  bullet  points on  slide 12.  In                                                               
response  to Chair  Hughes earlier  question, she  confirmed that                                                               
projects  that enhance  wind resistance  are  included. The  list                                                               
read as follows:                                                                                                                
                                                                                                                                
     • 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                                                                                          
                                                                                                                                
MS.  KILCOYNE  noted  that  Alaska will  receive  more  than  $50                                                               
million in the next five years for EV charging infrastructure.                                                                  
                                                                                                                                
3:52:49 PM                                                                                                                    
MS. KILCOYNE reviewed refinancing  C-PACE projects as outlined on                                                               
slide 13:                                                                                                                       
                                                                                                                                
        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 reviewed slide 14, Refer  to 25% of Market Value. HB
227 amends  the current statute  to base  the loan on  the market                                                               
value instead of the assessed  value and increases the percentage                                                               
to 25  percent the  market value of  the property.  Market values                                                               
tend  to be  higher  than  assessed values  so  this change  will                                                               
provide   more  flexibility   to   capture  the   value  of   the                                                               
improvements. This  is more in  keeping with  industry standards.                                                               
This change is particularly important for new construction.                                                                     
                                                                                                                                
MS.  KILCOYNE reviewed  slide 15,  30 Year  Max and  No SIR.  She                                                               
highlighted the following:                                                                                                      
                                                                                                                                
Extends the  current requirement  that the  loan does  not exceed                                                               
20-30  years. This  is more  in line  with the  industry standard                                                               
because many improvements can have a 30-year useful life.                                                                       
                                                                                                                                
If new  construction and resiliency are  allowed, the government-                                                               
designed savings-to-investment  ratio (SIR) requirements  are not                                                               
appropriate.  They often  generate counterproductive  results and                                                               
the test does not measure a property owner's to pay.                                                                            
                                                                                                                                
Capital providers  are able to  employ more  appropriate measures                                                               
to  assess  credit  worthiness, such  as  debt  service  coverage                                                               
ratio.  Mortgage  lenders already  use  these  metrics to  decide                                                               
whether to lend on a project.                                                                                                   
                                                                                                                                
CHAIR  HUGHES asked  Mr.  Johnston to  go  through the  sectional                                                               
analysis.                                                                                                                       
                                                                                                                                
3:57:35 PM                                                                                                                    
RYAN  JOHNSTON,  Staff,  Representative  Calvin  Schrage,  Alaska                                                               
State  Legislature,  Anchorage,  Alaska  reviewed  the  sectional                                                               
analysis for HB 227. It 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  a                                                                    
     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.                                                                        
                                                                                                                                
     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                                                                    
     [conform] 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.                                                                                                                
                                                                                                                                
3:58:43 PM                                                                                                                    
REPRESENTATIVE SCHRAGE interjected that this section adds                                                                       
clarity so municipalities are assured of cost recovery in the                                                                   
administration of the program.                                                                                                  
                                                                                                                                
3:59:03 PM                                                                                                                    
MR. JOHNSTON resumed paraphrasing the Sectional Analysis:                                                                       
                                                                                                                                
     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.                                                                                                
                                                                                                                                
     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).                                                                                                              
                                                                                                                                
     Section 23:                                                                                                              
     Repeals AS 29.55.105(d)(1) and AS 29.55.105(h).                                                                            
                                                                                                                                
     Section 24:                                                                                                              
     Gives the bill an immediate effective date.                                                                                
                                                                                                                                
4:01:11 PM                                                                                                                    
CHAIR HUGHES asked what Section 23 repeals.                                                                                     
                                                                                                                                
MR.   JOHNSTON   answered   HB  227   proposes   to   repeal   AS                                                               
29.55.105(d)(1)  to conform  with allowing  new construction.  HB
227 proposes  to repeal AS  29.55.105(h) to conform with  the SRI                                                               
change from a 20 percent to 25 percent value.                                                                                   
                                                                                                                                
4:02:21 PM                                                                                                                    
SENATOR MYERS  noted that with the  change from 20 percent  to 25                                                               
percent, there  is also  a change from  assessed value  to market                                                               
value. He asked whether a  market appraisal would be required for                                                               
projects, and  if so, would  that value  have to be  disclosed to                                                               
the municipality.                                                                                                               
                                                                                                                                
REPRESENTATIVE SCHRAGE responded that  there is flexibility as to                                                               
whether an appraisal would be  required. Using the assessed value                                                               
would still  be an option,  but using  the fair market  value for                                                               
new construction would qualify the  project for a higher level of                                                               
financing.  If a  market value  assessment  is done  and used  to                                                               
support  the   financing,  the  information  would   need  to  be                                                               
submitted to  the municipality  because the  municipality manages                                                               
the financing.                                                                                                                  
                                                                                                                                
4:03:37 PM                                                                                                                    
CHAIR  HUGHES asked  Ms. Kilcoyne  if she  would like  to comment                                                               
because the property taxes might go  up if market values are used                                                               
to support the financing.                                                                                                       
                                                                                                                                
MS.  KILCOYNE   agreed  with  Representative  Schrage   that  the                                                               
assessed value  could still be be  used, but if the  market value                                                               
or as-built  value is used it  would have to be  submitted to the                                                               
municipality   to   verify   compliance  with   the   eligibility                                                               
requirements.                                                                                                                   
                                                                                                                                
REPRESENTATIVE SCHRAGE  pointed out  that a property  owner could                                                               
get  a  market  assessment  done  privately  to  determine  which                                                               
valuation to  use for  the financing.  The fair  market valuation                                                               
would not have  to be disclosed unless the owner  decided to base                                                               
the financing  on that valuation. Regardless,  the assessed value                                                               
of the property would also go up once the property is developed.                                                                
                                                                                                                                
4:05:14 PM                                                                                                                    
SENATOR MYERS  voiced support  for the  notion that  the property                                                               
owner would  be able to  make the decision about  which valuation                                                               
to use for financing the  project and therefore what is disclosed                                                               
to the municipality.                                                                                                            
                                                                                                                                
CHAIR HUGHES  questioned the reason that  the municipality, which                                                               
is acting as the middle  man, needed information about the market                                                               
value when it is the private lender that is taking all the risk.                                                                
                                                                                                                                
REPRESENTATIVE  SCHRAGE  said it's  a  good  question because  it                                                               
speaks to the core of what the  bill seeks to achieve. It isn't a                                                               
loan  that  the  property  owner  is  getting  from  the  lending                                                               
institution. It  is a  lien that  is placed  on the  property and                                                               
repaid  through  property  taxes.  That  lien  travels  with  the                                                               
property  not the  property owner  so  the financial  institution                                                               
doesn't  have  to  worry  about default  or  bankruptcy.  If  the                                                               
property is  sold or lost,  the new  owner picks up  the assessed                                                               
property tax payments. That is  part of what allows the financial                                                               
institution  to de-risk  their lien  and provide  the money  at a                                                               
lower interest rate, thus lowering the cost of capital.                                                                         
                                                                                                                                
REPRESENTATIVE  SCHRAGE explained  that  because  the program  is                                                               
using the municipal  property tax authority, it  is important for                                                               
the municipality to be able  to vet the financial arrangements to                                                               
ensure  they  fall  within  the  municipality's  objectives.  The                                                               
reason HB  227 removes the  savings to investment ratio  and some                                                               
of  the   other  restrictions  is  to   give  municipalities  the                                                               
flexibility to  establish sideboards on their  custom programs to                                                               
achieve  their specific  objectives. The  bill doesn't  prevent a                                                               
municipality  from adding  restrictions but  the requirements  in                                                               
the original bill were too restrictive.                                                                                         
                                                                                                                                
4:09:02 PM                                                                                                                    
SENATOR GRAY-JACKSON sought clarity on  how the program works and                                                               
if the lien payment is in addition to the note payment.                                                                         
                                                                                                                                
REPRESENTATIVE  SCHRAGE   confirmed  that   it  is   a  voluntary                                                               
additional property tax  assessment that is added  to the regular                                                               
property tax.  The municipality  remits the  voluntary assessment                                                               
to the financial institution.                                                                                                   
                                                                                                                                
4:10:14 PM                                                                                                                    
SENATOR   GRAY-JACKSON  asked   what  benefit   the  municipality                                                               
receives by collecting a note on behalf of the lender.                                                                          
                                                                                                                                
REPRESENTATIVE SCHRAGE answered  that the financial institution's                                                               
investment is de-risked;  that lowers the cost of  capital in the                                                               
municipality,  which encourages  the  developer  to make  further                                                               
investments.                                                                                                                    
                                                                                                                                
CHAIR   HUGHES    recounted   three   additional    benefits   to                                                               
municipalities:  1)   the  property  values  will   increase,  so                                                               
municipalities  will  be able  to  collect  more taxes;  2)  some                                                               
improvements will also increase safety;  and 3) the savings frees                                                               
money for future  economic growth for a  business, which benefits                                                               
the economy and thus the municipality.                                                                                          
                                                                                                                                
CHAIR  HUGHES  asked  whether  the bills  would  be  combined  or                                                               
separate.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  SCHRAGE said  his understanding  was it  would be                                                               
one bill, but Ms. Kilcoyne might know for certain.                                                                              
                                                                                                                                
MS. KILCOYNE answered that it is  up to the jurisdiction, but the                                                               
Municipality of Anchorage has chosen to separate the bills.                                                                     
                                                                                                                                
4:13:42 PM                                                                                                                    
CHAIR HUGHES asked whether HB  227 covers improvements to prevent                                                               
a roof from collapsing due to snow load.                                                                                        
                                                                                                                                
MS.  KILCOYNE  answered  that  is  not  explicitly  listed  under                                                               
resiliency,  but  it  could  be   added.  She  relayed  that  her                                                               
understanding is that the definition  of resiliency in statute is                                                               
not limited  to the items  listed. She  thought that it  would be                                                               
covered  if  the   improvement  was  within  the   scope  of  the                                                               
resiliency definition. It would be  up to the jurisdiction to add                                                               
that.                                                                                                                           
                                                                                                                                
REPRESENTATIVE  SCHRAGE highlighted  that the  last bullet  about                                                               
resiliency on  slide 12 was taken  directly from page 3,  line 26                                                               
of the bill. It read:                                                                                                           
                                                                                                                                
     ...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.                                                                                                       
                                                                                                                                
REPRESENTATIVE SCHRAGE  stated that  improving a  roof to  hold a                                                               
snow  load  is absolutely  within  the  scope  of  HB 227  and  a                                                               
municipality that stands up this  program could include that as a                                                               
resiliency project.                                                                                                             
                                                                                                                                
4:15:13 PM                                                                                                                    
SENATOR  GRAY-JACKSON   asked  whether  the  note   includes  the                                                               
interest and  whether the client  receives a lower  interest rate                                                               
than through traditional financing.                                                                                             
                                                                                                                                
REPRESENTATIVE  SCHRAGE  answered  yes,  that is  the  intent.  A                                                               
person may get  either a larger loan or the  same amount of money                                                               
at a lower interest rate.                                                                                                       
                                                                                                                                
SENATOR GRAY-JACKSON asked for the basis of the interest rate.                                                                  
                                                                                                                                
REPRESENTATIVE SCHRAGE  answered that it  is up to  the financial                                                               
institution  to determine  the  parameters of  a  given loan.  It                                                               
would depend on a number of  factors like the cost of capital and                                                               
federal interest  rates. He pointed  out that if the  same lender                                                               
and the same property owner  were looking at a conventional loan,                                                               
the interest rate would be  lower with the property assessed lien                                                               
nearly every time.                                                                                                              
                                                                                                                                
4:16:46 PM                                                                                                                    
SENATOR  MYERS commented  that based  on  Alaska's history,  this                                                               
program   could  prove   helpful  to   avoid  the   boom-and-bust                                                               
construction cycles  of the past. Especially  during the pipeline                                                               
boom buildings  were constructed with  speed in mind,  not energy                                                               
efficiency and resiliency. It seems  the idea behind this program                                                               
is largely to  increase confidence among lenders.  He asked about                                                               
adding a 20-30 year sunset date to  HB 227 on the theory that the                                                               
private  sector will  have taken  it over  by then  so government                                                               
involvement would not be required.                                                                                              
                                                                                                                                
REPRESENTATIVE  SCHRAGE  pointed  out  that  the  program  simply                                                               
establishes a new financing mechanism  that eventually may become                                                               
the   conventional   mechanism   with   the   municipality   just                                                               
facilitating the transaction. He said  he didn't believe that the                                                               
bill  introduced much  risk,  but  he was  open  to discussing  a                                                               
sunset date if it helped build consensus about the bill.                                                                        
                                                                                                                                
4:20:38 PM                                                                                                                    
SENATOR   GRAY-JACKSON    asked   whether    the   municipality's                                                               
administrative fees would be attached to the note.                                                                              
                                                                                                                                
CHAIR HUGHES  commented that it could  be a little tricky  if the                                                               
sunset date  is in 30 years  and somebody takes advantage  of the                                                               
program 15 years from now and the  term of the loan is set for 20                                                               
years.                                                                                                                          
                                                                                                                                
CHAIR  HUGHES  asked  whether  a property  owner  who  has  taken                                                               
advantage  of  the program  would  be  required to  disclose  the                                                               
voluntary tax lien if they decided to sell the property.                                                                        
                                                                                                                                
REPRESENTATIVE  SCHRAGE answered  yes, the  seller would  have to                                                               
disclose the lien on the property.                                                                                              
                                                                                                                                
CHAIR HUGHES mentioned the possibility  of a waiver for the total                                                               
financing to  be up  to 50  percent. She asked  if that  would be                                                               
based on  assessed or  market value of  the property  and whether                                                               
that would be  the private lender's decision or  a joint decision                                                               
between  the municipality  and the  lender. She  also asked  what                                                               
factors would be considered to grant that high percentage.                                                                      
                                                                                                                                
REPRESENTATIVE SCHRAGE said  he believes that it's  50 percent of                                                               
the assessed value, but he would defer to Ms. Kilcoyne.                                                                         
                                                                                                                                
4:22:23 PM                                                                                                                    
MS. KILCOYNE  answered that she  didn't see the  waiver mentioned                                                               
in the bill,  but it wouldn't be needed if  market value is used.                                                               
She said  she would get back  to the committee with  a definitive                                                               
answer or defer to Ms. Lucas-Conwell.                                                                                           
                                                                                                                                
REPRESENTATIVE  SCHRAGE  clarified  that Section  23  repeals  AS                                                               
29.55.105(h), and that removes the 50 percent waiver.                                                                           
                                                                                                                                
CHAIR HUGHES asked  Ms. Lucas-Conwell if she  had any information                                                               
that the committee should know.                                                                                                 
                                                                                                                                
4:23:43 PM                                                                                                                    
MELANIE   LUCAS-CONWELL,   Manager,   49th  State   Angel   Fund,                                                               
Municipality  of Anchorage,  Anchorage, Alaska,  stated that  she                                                               
and Shaina  Kilkoyne were the  co-leaders of the  C-PACE Program.                                                               
She  said she  was  taking  notes as  Ms.  Kilkoyne answered  the                                                               
committee's questions  so that they  could be added to  the FAQs.                                                               
She added that the municipality  had been in discussions with the                                                               
representatives  from programs  nationwide  and that  it was  her                                                               
hope  that  passage of  HB  227  would  result in  C-PACE  having                                                               
increased impact in Alaska.                                                                                                     
                                                                                                                                
4:24:40 PM                                                                                                                    
CHAIR HUGHES asked  whether the word "resilience"  was defined in                                                               
statute.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  SCHRAGE   directed  attention  to   the  language                                                               
[starting on]  page 3, line 21  of the bill that  defines what is                                                               
included under "building resilience."                                                                                           
                                                                                                                                
4:25:21 PM                                                                                                                    
CHAIR  HUGHES   acknowledged  that  the   resilience  improvement                                                               
projects  listed  in the  bill  included  the phrase  "any  other                                                               
improvement project"  but she wondered about  specifically adding                                                               
language about  the weight of  snow being a bona  fide resilience                                                               
improvement project.                                                                                                            
                                                                                                                                
CHAIR HUGHES asked  Representative Schrage if he  had any closing                                                               
remarks.                                                                                                                        
                                                                                                                                
REPRESENTATIVE SCHRAGE  said his  office would  be happy  to work                                                               
with  the committee  to  ensure that  snow  weight resiliency  is                                                               
included in  the bill. He  thanked the chair for  the opportunity                                                               
to present  the bill,  which enhances  the existing  program that                                                               
has broad support.                                                                                                              
                                                                                                                                
4:26:49 PM                                                                                                                    
CHAIR HUGHES held HB 227 in committee.                                                                                          

Document Name Date/Time Subjects
HB 227 Sponsor Statement 3.23.22.pdf SCRA 4/12/2022 3:30:00 PM
HB 227
HB 227 Sectional Analysis version I 3.23.22.pdf SCRA 4/12/2022 3:30:00 PM
HB 227
HB 227 Fiscal Note - DCCED 3.23.22.pdf SCRA 4/12/2022 3:30:00 PM
HB 227
HB 227 Presentation - MOA CPACE.pdf SCRA 4/12/2022 3:30:00 PM
HB 227
HB 227 Supporting Document - Matsu-Susitna Borough Ordinance 2022-OR-008 3.23.22.pdf SCRA 4/12/2022 3:30:00 PM
HB 227
HB 227 Supporting Document - MOA White Paper 3.23.22.pdf SCRA 4/12/2022 3:30:00 PM
HB 227
HB 227 Testimony - Letters of Support received as 3.23.22.pdf SCRA 4/12/2022 3:30:00 PM
HB 227