Legislature(2015 - 2016)CAPITOL 17
03/17/2015 10:15 AM House ENERGY
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ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
March 17, 2015
10:19 a.m.
MEMBERS PRESENT
Representative Jim Colver, Co-Chair
Representative Benjamin Nageak
Representative David Talerico
Representative Cathy Tilton
Representative Matt Claman
Representative Adam Wool
MEMBERS ABSENT
Representative Liz Vazquez, Co-Chair
COMMITTEE CALENDAR
HOUSE BILL NO. 118
"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."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 118
SHORT TITLE: MUNI ENERGY IMPROVEMNT ASSESSMNTS/BONDS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/18/15 (H) READ THE FIRST TIME - REFERRALS
02/18/15 (H) ENE, CRA, FIN
03/05/15 (H) ENE AT 10:15 AM CAPITOL 106
03/05/15 (H) Heard & Held
03/05/15 (H) MINUTE(ENE)
03/17/15 (H) ENE AT 10:15 AM CAPITOL 17
WITNESS REGISTER
EMILY FORD, Energy Policy and Outreach Manager
Alaska Energy Authority
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Reviewed HB 118 on behalf of the sponsor,
the House Rules Standing Committee at the request of the
governor.
GENE THERRIAULT, Deputy Director for Energy Policy Development
Alaska Energy Authority
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
118.
KATHIE WASSERMAN, Executive Director
Alaska Municipal League
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 118.
LUKE HOPKINS, Mayor
Fairbanks North Star Borough
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 118.
CHRIS ROSE, Executive Director
Renewable Energy Alaska Project
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 118.
DAVID DUNSMORE, Staff
Representative Adam Wool
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Explained Amendment 1 to HB 118.
ACTION NARRATIVE
10:19:25 AM
CO-CHAIR JIM COLVER called the House Special Committee on Energy
meeting to order at 10:19 a.m. Representatives Nageak,
Talerico, Tilton, Claman, and Colver were present at the call to
order. Representative Wool arrived as the meeting was in
progress.
HB 118-MUNI ENERGY IMPROVEMNT ASSESSMNTS/BONDS
10:19:57 AM
CO-CHAIR COLVER announced that the only order of business would
be HOUSE BILL NO. 118, "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."
10:20:13 AM
EMILY FORD, Energy Policy and Outreach Manager, Alaska Energy
Authority (AEA), Department of Commerce, Community & Economic
Development (DCCED), speaking on behalf of the House Rules
Standing Committee at the request of the governor, sponsor,
provided a review of HB 118, which was originally introduced to
the committee on 3/5/15. Ms. Ford said Commercial Property
Assessed Clean Energy (PACE) programs allow property owners to
finance qualifying energy efficiency improvements over time
through a voluntary assessment on their property tax bill. The
proposed bill authorizes the expansion of taxation authorities
of municipalities in order for them to participate in this
optional program. Authorizing legislation would create
statewide consistency while allowing more control at the local
level to implement the program. She noted that local lending
sources can be used, and municipalities can choose to use a
local government-driven process by issuing bonds with a PACE
office administering the program between commercial property
owners and potential lenders, or municipalities can use a
private sector-driven process, with a third-party administrator
under contract. In most states, a hybrid model is used to
provide access to all potential funding sources such as bonds,
revolving loan funds, and private capital. Ms. Ford advised
that smaller local governments which cannot implement the
program on their own can contract with other local governments.
10:22:52 AM
MS. FORD paraphrased from the following written sectional
analysis [original punctuation provided]:
Section 1: Amends AS 29 by adding a new chapter 48.
Municipal Assessed Clean Energy Act and adds: Sec
29.29.010, Exercise of Powers, which allows
municipalities to exercise powers under AS 29.40.060
(Judicial Review). Sec 29.49.020 Authorized
Assessments, allowing for an assessment to be imposed
to repay the financing of qualified projects on real
property in the municipality or local government that
adopts this program. Qualified projects do not include
undeveloped lots or lots undergoing development at the
time of assessment or the purchase of products or
devises that are not a permanent part of the property.
Sec. 29.49.030, Written Contract for Assessment
Required, requires a written contract between the
municipality and record owner of the real property
before the PACE mechanism can be utilized. Sec.
29.49.040 Establishment of Program, authorizes
municipalities to choose to establish a property
assessed clean energy (PACE) program that would
require a written contract with a record owner of real
property. The financing for the PACE mechanism may be
provided by a third party, or if authorized by the
program, by a municipality. Repayment of third-party
or municipal financing must be assured through a
written contract with the property owner to finance
the qualified project through a voluntary property tax
assessment. The financing may include project costs,
materials, labor, permit fees, inspection fees,
lender's fees, program application and administrative
fees, project development and engineering fees, third-
party review fees, including verification review fees
under AS 29.49.090 and any other fees that may be
incurred by the property owner relating to the
installation, modification, or improvement, as
determined by the municipality. Sec. 29.49.050
Designation of Region, allows the municipality to
participate in the program and designate an area of
the municipality for participation. This may include
the entire municipality or more than one region, but
each must be located wholly within the municipality's
jurisdiction. Sec. 29.49.060 Procedure for
Establishment of Program, defines the necessary
actions for a municipality to establish a property
assessed clean energy finance program. These are:
Adopt a resolution of intent that includes: a finding
that financing of qualified projects through
contractual assessments is a valid public purpose, a
statement that the municipality intends to make
contractual assessments to repay financing for
qualified projects available to property owners, a
description of the types of qualified projects, a
description of the region boundaries, a description
of any proposed arrangements for third-party financing
or municipal financing, a description of the
municipal debt servicing procedures if third-party
financing is provided and assessments collected to
service the third-party debt, reference on the
proposed program required by AS 29.49.010 and
identifying where the report is available to the
public, identifying the time and place for a public
hearing, identifying the local official and assessor-
collector for the proposed contractual assessments
with property taxes imposed on the assessed property;
Hold a hearing where the public has the opportunity to
provide comment, including on the report required in
AS 29.49.070. Adopt a resolution establishing and
defining the terms of the program, including: each
item included in the report under AS 29.49.070; a
description of each aspect of the program that may
only be amended after another public hearing. The
resolution may incorporate the report or the amended
version of the report as reference. The program and
terms may be amended by a resolution from the
governing body of the municipality. A municipality
may hire a program administrator and program staff or
contract for professional services to administer the
program. Fees may be assessed as an application fee,
a component of the interest rate or a combination of
both. Sec. 29.49.070 Report Regarding Assessment,
defines the requirements of the municipality's
publicly-available report on the program, as required
by AS 29.49.060. The report must include: a map
showing the boundaries of the proposed region a form
contract between the municipality and property owner
that specifies the terms of the assessment and either
the third-party or municipal financing. If third-
party financing is used, a form contract must be
included regarding the servicing of the debt through
assessments. A description of the types of qualified
projects and a plan for ensuring sufficient capital
for third-party financing. If appropriate and
municipal bond financing is used, the report must
identify: A plan for raising capital for municipal
financing; a maximum aggregate annual dollar amount
for financing to be provided by the municipality; the
method for ranking requests from property owners if
requests will likely exceed the available municipal
funding, and the method for determining the interest
rate and maximum amount of an assessment. A method
for ensuring that the repayment schedule does not
exceed the useful life of the qualified project. A
description of the application process and eligibility
requirements. A method to ensure that property owners
have the capacity to participate and repay the
financing obligations. A statement describing the
assessment and collection process provided by AS
29.49.080. A statement explaining the review
requirement provided by AS 29.49.090. A description
of marketing and educational services to be provided.
A description of quality assurance and antifraud
measures. Collection procedures. The method for
ensuring the demonstration of financial ability must
be based on appropriate underwriting factors,
including verification that the property owner is the
legal owner of the property, current on mortgage and
property tax payments and is not insolvent or in
bankruptcy proceedings. An appropriate ration of the
assessment to the assessed value of the property must
be maintained. The municipality shall make the report
publicly available online and at the primary governing
office of the municipality. Sec. 29.49.080, Notice to
Mortgage Holder Required for Participation, sets a
series of requirements for the municipality before it
may enter into a written contract with a record owner
of real property: The holder of any mortgage lien on
the property must be given written notice within 30
days before the contract is executed, and a written
consent from the mortgage lien holder must be
obtained. Sec. 29.49.090, Review Required, requires
the third-party review of baseline energy conditions
in a proposed qualified project and the projected
energy savings. After project completion the
municipality must obtain a third-party verification
that the project was properly completed and is
operating as intended. Sec. 29.49.100, Direct
Acquisition by Owner, the proposed financing
arrangements for a qualified project may authorize the
property owner to directly purchase necessary
equipment and materials, contract directly-including
through lease- power purchase agreement or other
service contract for the installation or modification
of a qualified project. Sec. 29.49.110, Recording of
Notice for Contractual Assessment Required, requires a
municipality that authorizes financing through
contractual assessments to file written notice of each
contractual assessment in the real property records of
the recording district in which the property is
located. This notice must contain the amount of the
assessment, legal description of the property, name of
each property owner and a reference to the statutory
assessment lien. Sec. 29.49.120, Lien, states that
contractual assessments as part of this program and
any interest and penalties are liens on the assessed
property and are prior and paramount to all liens
except municipal tax liens and special assessments.
Contractual assessment liens may be enforced as
provided by AS 29.45.320- 29.45.470. Contractual
assessment liens are attached with the land and
foreclosure of a property tax lien does not eliminate
outstanding assessments. Penalties and interest may
be added to delinquent installments of the
assessments, consistent with AS 29.45.250. A
municipality may recover costs and expenses, including
attorney fees, if a suit is filed to recover
delinquent installment of assessments, consistent with
the delinquent property tax suit process. Sec.
29.49.130, Collection of Assessments, states that the
governing body of a municipality may contract with the
governing body of another taxing unit to collect
assessments as outlined under this chapter. Sec.
29.49.140, Bonds or Notes, authorizes a municipality
to issue bonds or notes to finance qualified projects.
Bonds issued under this section must be secured by one
or more of the following: payments of contractual
assessments on benefited property in one or more
specified regions; reserves established by the
municipality from grants; bonds or net proceeds or
lawfully available funds; municipal bond insurance,
lines of credit, public or private guaranties, standby
bond purchase agreements, collateral assignments,
mortgages or any other available means of providing
credit support or liquidity, and any other funds
lawfully available for purposes consistent with this
chapter. The governing body of the municipality must
include this information in a resolution approving the
bonds or notes. The municipality's contractual
rights in connection with the issuance of bonds or
notes is a first lien on the property, without further
action by the municipality. The lien is valid and
binding against any other person, with or without
notice. Bonds or notes issues under this chapter
further an essential public and governmental purpose,
including the: Improvement of the reliability of
local electrical systems; Reduction of energy costs;
Reduction of energy demand on local utilities;
Economic stimulation and development; Enhancement of
property values, and Enhancement of employment
opportunities. Sec. 29.49.150, Joint Implementation,
any combination of municipalities may agree to jointly
implement or administer a program under this chapter,
or contract with a third-party. If two or more
municipalities jointly administer the program, a
public hearing is to be held by the cooperating
municipalities sufficient to satisfy the requirements
of AS 29.49.060. Sec. 29.49.160, Prohibited Acts,
states that participation in the program must be
voluntary. A municipality that establishes a region
under this chapter may not require a real property
owner in that region to participate in the assessment
program outlined in this chapter in order to issue a
permit, license or other municipal authorization, or
otherwise compel a property owner in the region to
enter into a written contract to repay the financing
of a qualified project through contractual
assessments. Sec. 29.49.900, Definitions, defines
terminology included in the chapter. Sec. 29.49.995,
Short Title, indicates this chapter may be cited as
the Municipal Property Assessment Clean Energy Act.
Section 2 sets an immediate effective date.
10:31:52 AM
REPRESENTATIVE NAGEAK observed that PACE financing places a
primary lien on property, and asked for the consequences if a
property owner defaults on the loan.
MS. FORD responded that if a property tax payment is missed, the
property reverts to the municipality; however, the default rates
on property taxes are very low, thus this is a secure financing
opportunity.
10:33:26 AM
GENE THERRIAULT, Deputy Director for Energy Policy Development,
Alaska Energy Authority (AEA), Department of Commerce, Community
& Economic Development (DCCED), added that if a property owner
takes out a PACE loan, the loan is the senior lien on the
property. If there is a default, the municipality can
foreclose, sell the property, and the PACE loan obligation
passes to the new owner. He advised this is a benefit of PACE
programs because a business can make improvements, amortize the
payments over a long period of time, and then sell to a new
owner who would pay thereafter. Also, PACE rates are generally
lower than market rates.
CO-CHAIR COLVER questioned whether the default is added to an
owner's property taxes.
MR. THERRIAULT explained that the PACE loan repayment becomes an
additional assessment on the owner's property tax bill, which is
a contractual arrangement between the property owner and the
local government.
CO-CHAIR COLVER asked whether PACE financing could be used to
finance consumers' conversions to natural gas in the North Pole
area. He suggested this could be a vehicle to pay for an
assessment to cover the costs of extending the main gas line to
each house.
MR. THERRIAULT said it could be, although PACE is a statewide
program for any municipality that has property tax powers.
Also, this program applies only to businesses, but conversions
from fuel oil to natural gas do qualify as energy efficient
improvements.
CO-CHAIR COLVER inquired as to the availability of provisions
for the cost of residential conversions to natural gas, and
asked whether the program can be broadened.
10:37:24 AM
MR. THERRIAULT said when PACE was first considered there were
two programs, commercial and residential; however, the Federal
National Mortgage Association and the Federal Home Loan Mortgage
Corporation opposed the residential program because the PACE
loan becomes the superior lien. He noted that residential
programs are possible, although with lesser impact, more
governmental support, higher interest rates, and more reserves.
In addition, the PACE loan must be cashed out if the property is
sold. Mr. Therriault cautioned against adding a residential
program to HB 118. The Fairbanks North Star Borough seeks to
provide a residential financing program.
CO-CHAIR COLVER commented on the senior position of the
assessment, which is not required to be paid at closing of the
sale of a property.
MR. THERRIAULT pointed out that a buyer is provided with notice
of the lien.
REPRESENTATIVE WOOL asked for the length of the PACE loan.
MR. THERRIAULT responded the term is generally 10-20 years,
which is beneficial to business owners. In further response to
Representative Wool, he said if there is an existing mortgage on
a property, the lender must give permission to move to a
secondary lien position behind the PACE financing. Experience
has shown that lenders are willing to agree because the
collateral for their loan is improved.
10:42:53 AM
REPRESENTATIVE CLAMAN asked whether municipalities would use
cash reserves, or create new bonding for the necessary funds to
make the loans.
MR. THERRIAULT explained that local governments can bond to
create a pool of money to lend, but cannot use general
obligation (GO) bonds. Municipalities can also use local
lenders that may use low-cost capital because the loans are
attractive to lenders. Finally, many municipalities blend bond
funds with funds from local lenders.
REPRESENTATIVE CLAMAN surmised municipalities would look at
ways, without using GO bonds, to secure a source of funds to
loan to the eligible businesses.
MR. THERRIAULT said correct. He advised that revenue bonds are
based on the revenue from the "repayment stream" of the loans
that is pledged to secure the bond.
REPRESENTATIVE CLAMAN understood that the municipality would be
signing on to guarantee the loan; however, the municipality is
assured by a loan secured by the business, and in first position
for repayment.
MR. THERRIAULT said correct. The bill directs the local
government to collect any fees required, but the local
government does not actually guarantee the loan because is it a
revenue bond based on the repayment revenue stream, unlike a GO
bond. In fact, after default, the municipalities do not have to
"step in," but they may want to establish a loan loss pool.
REPRESENTATIVE CLAMAN opined the municipality may be at some
risk, but it is low, and municipal tax liens and special
assessments also are placed superior to prior lenders.
MR. THERRIAULT said correct.
10:48:13 AM
CO-CHAIR COLVER opened public testimony on HB 118.
10:48:37 AM
KATHIE WASSERMAN, Executive Director, Alaska Municipal League,
informed the committee that AML is in support of HB 118. The
bill is voluntary and provides municipalities tools in order to
benefit businesses and, hopefully, municipalities. She
acknowledged there are some risks; however, the bill is of value
to first class cities and boroughs with taxing authority, and
allows for a public process. Ms. Wasserman opined the bill is
not a detriment to the state or to municipalities. In response
to Co-Chair Colver, she said second class cities do not levy a
property tax.
10:51:19 AM
LUKE HOPKINS, Mayor, Fairbanks North Star Borough, stated that
HB 118 works for the Fairbanks North Star Borough in that first
class cities within the borough have the local option to
participate. For commercial properties to convert to another
energy source is expensive, and he expressed his support for
businesses to have a mechanism to provide financing to convert
to lower-cost and more efficient energy. Furthermore,
conversion to more efficient energy will help with the poor air
quality in Fairbanks. The Fairbanks North Star Borough has a
three-year process for the collection of property taxes, which
allows for general discussions with property owners prior to
foreclosure. Mayor Hopkins concluded that the bill is well-
conceived, and provides extensive guidelines. He spoke in
support of the bill and for a residential PACE program in the
future.
CO-CHAIR COLVER asked Mayor Hopkins to address the proposed
amendments.
MAYOR HOPKINS stated he was unaware of any problems with the
amendments, although he had not reviewed the amendments in
detail. He asked for the committee's support of amendments
presented by the agency.
10:55:29 AM
CHRIS ROSE, Executive Director, Renewable Energy Alaska Project
(REAP), said REAP is a statewide education and advocacy group
for renewables and energy efficiency - made up of a coalition of
over 80 organizations - which has promoted the PACE concept for
two years. He expressed REAP's support for HB 118 and the
Alaska Energy Authority's efforts to provide a solution for
business owners who want to make their buildings more energy
efficient. Mr. Rose acknowledged there are excellent programs
for residential weatherization, and a public building loan fund;
however, these programs are not available to owners of
commercial buildings.
10:57:10 AM
CO-CHAIR COLVER, after determining no one further wished to
testify, closed public testimony.
10:57:43 AM
REPRESENTATIVE WOOL made a motion to adopt two amendments,
labeled 29-GH1021\A.1, Shutts, 3/11/15, and 29-GH1021\A.3,
Shutts, 3/16/15, which at the direction of Co-Chair Colver, were
combined as Amendment 1, and read:
Amendment labeled 29-GH1021\A.1,
Page 1, following line 5:
Insert a new bill section to read:
"* Section 1. AS 29.10.200 is amended by adding a
new paragraph to read:
(65) AS 29.49 (energy improvement assessment
programs)."
Page 1, line 6:
Delete "Section 1"
Insert "Sec. 2"
Renumber the following bill section accordingly.
Page 10, following line 12:
Insert a new section to read:
"Sec. 29.49.890. Application of chapter. This chapter
applies to home rule and general law municipalities.
Amendment labeled 29-GH1021\A.3,
Page 4, lines 9 - 10:
Delete "as provided by"
Insert "required under"
Page 4, line 14, following "(I)":
Delete "a"
Page 4, line 19:
Delete ", including the report required by"
Insert "and the report required under"
Page 4, line 20:
Delete "a resolution"
Insert "an ordinance"
Page 4, line 22:
Following "report":
Insert "required"
Following "AS 29.49.070":
Insert ", which may be incorporated by reference"
Page 4, lines 25 - 29:
Delete all material.
Reletter the following subsections accordingly.
10:58:30 AM
CO-CHAIR COLVER objected for the purposes of discussion.
REPRESENTATIVE WOOL explained Amendment 1 changes the language
in the bill from "resolution" to "ordinance" in order to comply
with Alaska legal conventions and more easily adapt to use by
municipalities.
10:59:22 AM
DAVID DUNSMORE, Staff, Representative Adam Wool, explained the
portion of Amendment 1 labeled A.1 [text previously provided]
expands HB 118 to apply to home rule municipalities as advised
by AEA. The portion of Amendment 1 labeled A.3 [text previously
provided] would streamline the process for municipalities to
adopt the program directed by HB 118. As advised by AEA and the
Department of Law, this change is necessary for municipalities
to implement the PACE program, without changing the intent of
the bill.
REPRESENTATIVE NAGEAK asked for clarification on the amendments.
MR. DUNSMORE said the amendments labeled A.1 and A.3 are
combined into Amendment 1.
11:02:18 AM
CO-CHAIR COLVER removed his objection. There being no further
objection, Amendment 1 was adopted.
REPRESENTATIVE TILTON disclosed that a family member provides
energy ratings related to HB 118.
11:03:58 AM
HB 118 was held over.
11:04:10 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 11:04 a.m.
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