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