HB 227-MUNI ENERGY IMPROVEMNT ASSESSMENT PROGRAM  8:32:03 AM CO-CHAIR HANNAN announced that the next order of business would be HOUSE BILL NO. 227, "An Act relating to municipal energy and resilience improvement assessment programs; and providing for an effective date. 8:32:31 AM CO-CHAIR SCHRAGE, as prime sponsor of HB 227, reminded committee members that [the resilience improvement assessment programs] are a new financing mechanism that has spread throughout the U.S. He noted that HB 227 would expand the property assessed financing mechanism set in place under House Bill 80 [passed during the Thirtieth Alaska State Legislature] and loosen some of the restrictions, which should benefit quite a few communities with taxing authority. CO-CHAIR HANNAN noted that six amendments had been submitted for consideration. 8:33:46 AM REPRESENTATIVE MCCARTY moved to adopt Amendment 1 to HB 227, labeled 32-LS1028\I.3, Dunmire, 3/2/22, which read as follows: Page 1, line 1, following "programs": Insert "for commercial buildings" 8:33:48 AM CO-CHAIR HANNAN objected for the purpose of discussion. 8:34:20 AM The committee took an at-ease from 8:34 a.m. to 8:36 a.m. 8:36:11 AM REPRESENTATIVE MCCARTY spoke to Amendment 1, explaining that it would limit the provisions under HB 227 to commercial buildings. 8:36:59 AM CO-CHAIR SCHRAGE said while he appreciated the intent behind Amendment 1, there are provisions of HB 227 that "apply to other projects than just commercial buildings." He said changing the title of the bill would make it inconsistent with the content of the bill and, thus, constitutionally invalid. He said the proper way to address the issue would be to "amend the corresponding sections of the bill that would need those changes." 8:38:06 AM REPRESENTATIVE MCCABE agreed with the bill sponsor that the corresponding language would need to be changed, and he concurred with Representative McCarty regarding the need to limit the bill to commercial buildings. He questioned how wide open the bill would be. CO-CHAIR SCHRAGE deferred to his staff. 8:39:14 AM RYAN JOHNSTON, Staff, Representative Calvin Schrage, Alaska State Legislature, on behalf of Representative Schrage, prime sponsor of HB 227, pointed out where in statute the provision is limited to industrial and commercial properties only: AS 29.55.100(a)(1), which read as follows: (a) A municipality may establish an energy improvement assessment program under AS 29.55.100 - 29.55.165 to finance the installation or modification of permanent improvements that are (1) fixed to existing privately owned commercial or industrial property; and REPRESENTATIVE MCCABE concluded that Amendment 1 would "more conform" the proposed legislation to statute. CHAIR SCHRAGE responded no. He offered his understanding as follows: The issue is that the amendment specifically deals with sections that also apply to other statutes; ... however, this C-PACE program is limited -- there's a reason it's called C-PACE: "Commercial Property Assessed Clean Energy" is what it was called. We're talking more of the first three letters here, but again, it's restricted just to those commercial and industrial properties. 8:40:34 AM REPRESENTATIVE DRUMMOND remarked on the restrictions in what could be commercial, such as between an apartment building versus a condominium. CO-CHAIR SCHRAGE said he thinks Representative Drummond was correct that it would be "restricted in that way." REPRESENTATIVE DRUMMOND asked whether there is a program that would apply to a condominium project that is similar in structure to a mixed-use development but wherein the apartments are separately owned. CO-CHAIR SCHRAGE offered his understanding that there is not such a program currently. He said there has been initial restriction to those structures "that we have the most confidence in," but other states have expanded beyond that, and that is something that Alaska could consider in the future. 8:42:33 AM REPRESENTATIVE PATKOTAK directed attention to language on page 3, in Section 5, subsection (a), [paragraphs] (1) and (2), and said he thinks "that's where you start to see the scope broaden beyond commercial and industrial property." He offered his understanding that by removing [paragraph] (2) and allowing Legislative Legal Services to make conforming changes, "that's how the title would change." 8:43:36 AM CO-CHAIR SCHRAGE pointed to language on page 3, beginning on line [13], which read: "new construction or existing privately owned commercial or industrial property [;] and that", and he explained that [paragraphs] (1) and (2) ensue. He clarified that [paragraph] (2) expands the types of projects that would qualify for this financing mechanism, but the projects have to be for a commercial or industrial property. REPRESENTATIVE PATKOTAK noted that the last sentence of a memorandum from Legislative Legal Services [included in the committee packet] read, "The scope of [AS]29.55.100(a) is not clearly limited to commercial buildings." 8:44:45 AM CO-CHAIR HANNAN asked for confirmation that [Amendment 1] is specifying the actual physical building, not the property that surrounds it. REPRESENTATIVE MCCARTY answered that's correct. 8:45:29 AM MR. JOHNSTON noted that changing the bill title as proposed in Amendment 1 would "nullify the industrial side of the bill." Regarding the intent to address structures only, he pointed out that commercial construction would be on land zoned for commercial or industrial use. He said, "So, that would also conflict with the intent of the bill to allow new construction to be utilizing C-PACE programs." [AN UNIDENTIFIED SPEAKER] said, "Correct." 8:46:38 AM REPRESENTATIVE MCCABE said he still "sees this as an issue." He opined that "it still needs to be focused on buildings." He said, "If you're going to construct a new building, this would apply, because it's in here; it says construction of new buildings." He expressed concern regarding "the green agenda," and continued as follows: I could have a[n] industrial or commercially zoned property on the corner of 20th and Muldoon, and I could put in a charging farm with nothing but charging stations under this bill, get a huge tax financing break, and make a pile of money on the commuters that are leaving Anchorage that forgot to charge their cars on the way out. REPRESENTATIVE MCCABE said he does not think that is the intent of HB 227; the intent is to provide resilience following earthquakes, floods, and high winds, so that commercial buildings can continue to operate quickly. Resiliency is tightly defined and is not needed for a piece of property, he posited. 8:48:02 AM CO-CHAIR SCHRAGE said Representative McCabe brought forward valid concerns. He then clarified how the bill "might actually work in application." He talked about a co-housing unit in his district. He mentioned solar panels that could be put up in the parking area, not on the building itself. Then he said [the proposed legislation] is not offering a financial break but rather a financial mechanism that allows the obligation to be placed on the property instead of the individual owner, which allows for a more secure line of credit with longer terms and lower interest rates. He specified there is no subsidy from the government. Finally, he said whether or not [committee members] think [the bill] should be limited to commercial buildings, Amendment 1 does not limit the bill "in any way whatsoever." He reiterated that there is a way to make changes to the bill itself, but "this amendment is not that." 8:50:04 AM REPRESENTATIVE DRUMMOND said she could see many places where "storm water management, for example, would be smart to manage for the building that you own on that property." She gave an example. She concluded that she does not see "why it should be limited only to the building." 8:51:11 AM A roll call vote was taken. Representatives McCarty and McCabe voted in favor of Amendment 1 to HB 227. Representatives Drummond, Patkotak, Prax, Schrage, and Hannan voted against it. Therefore, Amendment failed by a vote of 2-5. 8:52:10 AM REPRESENTATIVE MCCARTY moved to adopt Amendment 2 to HB 227, labeled 32-LS1028\I.4, Dunmire, 3/2/22, which read as follows: Page 6, lines 22 - 25: Delete all material. Renumber the following bill sections accordingly. 8:52:12 AM CO-CHAIR HANNAN and REPRESENTATIVE DRUMMOND objected. 8:53:26 AM CO-CHAIR SCHRAGE compared this to refinancing, as this would provide a financing mechanism that is a great benefit to commercial and industrial property owners. He said, "Instead of exchanging a mortgage for a mortgage, they would be exchanging a mortgage for a property." He said this could "free up capital" that then could be invested in the community. REPRESENTATIVE MCCABE asked whether those people who have had to remodel their businesses but did not do any "resiliency" projects would get nothing from this. CO-CHAIR SCHRAGE gave the example of a property owner who has made improvements for a drainage issue and, under the proposed legislation, rather than take on the debt alone, could "attach that lien to the property." That could increase the value of the property. REPRESENTATIVE MCCABE asked about the limit of two years for retroactivity. CO-CHAIR SCHRAGE responded that he would support an amendment extending that period. 8:57:23 AM REPRESENTATIVE MCCARTY spoke about someone getting a loan to purchase property and then flipping the debt on the new owner. He said beyond helping with energy and resiliency in construction, there would also be the ability for owners to use the funding for other purposes, which he said raises a red flag. CO-CHAIR SCHRAGE described a hypothetical situation in which he bought property for $50,000 and then sold it for $100,000. If he used the property lien assessment, then when he sold the property, he would sell it for $50,000, because the buyer would recognize that the property was encumbered by $50,000; therefore, it would not be worth $100,000. He clarified, "All of this is going to be disclosed in the purchase process." Addressing Representative McCarty's red flag concern, he said that if he were to get a conventional loan for $100,000 and an 8 percent interest rate, the value of that loan is going to be higher than if he were to get that same $100,000 loan at a 6 percent interest rate. He described the banks having a higher level of faith that the loan will get repaid on the assessed property; therefore, they can offer the lower interest rate, which frees up capital on the project that could be further invested in the property or community or other developments. He said these proposed transactions would be vetted by the financial institutions. REPRESENTATIVE MCCARTY stated concern about a loan being used for other purposes than originally intended. He mentioned the risk of being a lender. He acknowledged that with the program proposed under HB 227, the risk to the lender is reduced "because property is seized." With the retroactive proposal of Amendment 2, there could be properties that have already gone through the loan process, "and now we're going to come in and allow them to ... seize money," and he said he is concerned if that "goes back to 1964." 9:02:19 AM CO-CHAIR SCHRAGE explained that if he took out a loan for improvement of property, only those improvements that fit the definition of HB 227 could be refinanced through the commercially assessed property mechanism. He said with refinancing, it is likely the money has already been invested in the projects, and when refinancing as a property lien, the lender and municipality would make sure that the money is associated with clean energy projects. He pointed out that both commercial property owners and lenders have sent letters of support for HB 227. He concluded, "It's a good way for us to ... make more secure loans, ... on a longer term, at a lower cost of capital for the property owner, and allows them to further invest in their community." 9:03:35 AM REPRESENTATIVE PATKOTAK asked about taxing and the possibility of there being a higher rate on the assessed value. CO-CHAIR SCHRAGE responded that someone who made the investment to his/her property would likely have a higher assessed value and thus be paying higher property taxes. He offered his understanding that anyone who made an investment would be made aware of the tax implications. 9:05:43 AM REPRESENTATIVE DRUMMOND maintained her objection to the motion to adopt Amendment 2. 9:05:49 AM A roll call vote was taken. Representatives Patkotak, McCarty, and McCabe voted in favor of Amendment 2. Representatives Drummond, Schrage, and Hannan voted against it. Therefore, Amendment 2 failed by a vote of 3-3. 9:07:02 AM REPRESENTATIVE MCCARTY moved to adopt Amendment 3 to HB 227, labeled 32-LS1028\I.5, Dunmire, 3/2/22, which read as follows: Page 7, line 8, following "of": Insert "commercial building" 9:07:06 AM CO-CHAIR HANNAN objected and noted there was a legal memorandum ("memo") to distribute [from Andrew Dunmire, Legal Counsel, Legislative Legal Services, dated 3/2/22, subsequently included in the committee packet]. 9:07:15 AM The committee took a brief at-ease at 9:07 a.m. to distribute the memo. 9:07:58 AM REPRESENTATIVE MCCARTY spoke to Amendment 3, which he said would specify the type of construction being done as pertaining to commercial buildings. 9:08:29 AM CO-CHAIR SCHRAGE again noted that the underlying statute, as well as HB 227, are already restricted to commercial and industrial properties. He referred to the legal memo, which notes that [Amendment 3] would be inconsistent in that it does not reference industrial properties. He said the limitation to only buildings could be problematic. He said this section addresses reports required, not types of investments that qualify; therefore, it seems inconsistent to allow a wider scope for the types of investments allowed while restricting the reporting to just investments on commercial buildings and not commercial or industrial properties. 9:09:59 AM A roll call vote was taken. Representatives McCarty and McCabe voted in favor of Amendment 3. Representatives Drummond, Patkotak, Schrage, and Hannan voted against it. Therefore, Amendment 3 failed by a vote of 2-3. 9:10:55 AM REPRESENTATIVE MCCARTY moved to adopt Amendment 4 to HB 227, labeled 32-LS1028\I.6, Dunmire, 3/2/22, which read as follows: Page 9, lines 2 - 3: Delete "[FROM AN INDEPENDENT, THIRD-PARTY QUALIFIED ENERGY AUDITOR THE FOLLOWING:]" Insert "from an independent, third-party qualified energy auditor the following:" 9:10:59 AM REPRESENTATIVE DRUMMOND objected. 9:11:21 AM REPRESENTATIVE MCCARTY spoke to Amendment 4. He said he did not know why the third-party auditor was being removed, and Amendment 4 would reinstate that language in HB 227. 9:12:05 AM CO-CHAIR SCHRAGE responded that the reason the third-party auditor is being removed is because there has been the addition of projects to the scope of the financing mechanism that do not have anything to do with energy, for example, seismic or storm water improvements. Further, he said he does not know anyone that would loan money without vetting the proposed project. 9:13:31 AM CO-CHAIR HANNAN stated her understanding that HB 227 expands existing [statute], thus an auditor can direct for construction of "XYZ," and improvements on which financing is based can be met. However, with new construction, "you couldn't audit something that does not exist, but you could design it to be more energy efficient." She added, "So, requiring audit of it sort of is contrary to allowing new construction." CO-CHAIR SCHRAGE confirmed Co-Chair Hannan is correct. The property assessed financing mechanisms were introduced only for projects that would result in a positive cash flow via energy savings. However, some projects may not result in savings of money but may increase the value of the property, he said. 9:15:36 AM REPRESENTATIVE MCCABE moved to adopt Conceptual Amendment 1 to Amendment 4, to insert "appraiser, or licensed home inspector," following "auditor". 9:16:17 AM REPRESENTATIVE DRUMMOND objected to question the use of "home" when this is commercial property. She then pointed out that there are already companies dedicated to doing "construction estimating." REPRESENTATIVE MCCABE explained that his intent was "to expand the definition from energy auditors," and he expressed willingness to change the language to "architect" or "construction estimator". He explained his concern that "there's too much opportunity for nefarious activity ... between banks and good buddy commercial property owners," and he opined there needs to be a third party to verify the work is being done. 9:18:41 AM CO-CHAIR HANNAN suggested Representative McCabe withdraw Conceptual Amendment 1 to Amendment 4. 9:18:53 AM CO-CHAIR SCHRAGE suggested that if an amendment were necessary, it could be to require an independent third party, but he said he is struggling to come up with the right language and is concerned about legislating "on the fly." 9:19:57 AM CO-CHAIR HANNAN noted those on line, who could weigh in on the issue. 9:20:54 AM SHAINA KILCOYNE, Energy and Sustainability Manager, Solid Waste Services, Municipality of Anchorage, said it is difficult to pinpoint which kind of auditor to require, and typically other states' statutes are "leaving that up to the handbook where we have all of the details of the program within it." 9:22:18 AM REPRESENTATIVE MCCABE withdrew the motion to adopt Conceptual Amendment 1 to Amendment 4. 9:22:36 AM CO-CHAIR HANNAN noted that the lenders could speak to the issue but were not currently available on line. 9:22:55 AM REPRESENTATIVE MCCABE said he would discuss the issue with a former testifier for the purpose of offering an amendment on the House floor. 9:23:05 AM REPRESENTATIVE MCCARTY concluded that more information was needed to make an informed decision; therefore, he withdrew the motion to adopt Amendment 4. 9:24:43 AM REPRESENTATIVE MCCABE moved to adopt Amendment 5 to HB 227, labeled 32-LS1028\I.2, Dunmire, 3/2/22, which read as follows: Page 6, line 16: Delete "market" Page 6, lines 17 - 18: Delete "or completion of the proposed energy or  resilience improvement project" 9:24:49 AM CO-CHAIR HANNAN objected for the purpose of discussion. REPRESENTATIVE MCCABE spoke to Amendment 5. He expressed concern that without Amendment 5, the legislation would allow people "to overreach." 9:26:28 AM CO-CHAIR SCHRAGE said he understood Representative McCabe's concern. He highlighted that the changes proposed under HB 227 are modeled after programs in other states, and lenders are supporting these changes because they do not result in high risk. He talked again about opening markets and infusing communities with investments made. 9:28:16 AM REPRESENTATIVE DRUMMOND noted that the bill would remove the word "assess", which she said makes sense. She pointed out that it is more difficult to assess a commercial property, as compared to a home; therefore, she does not think the word "market" needs to be deleted from the bill. She added that she does not agree with the second part of Amendment 5. 9:29:44 AM REPRESENTATIVE PATKOTAK said he is inclined to support Amendment 5 based on the intent of the maker of the amendment; however, he questioned what the benchmark of value would be if "market" was removed. REPRESENTATIVE MCCABE explained the intent was to "remove the change that inserts 'market' instead of 'assessed'," thus leaving "assessed value" in the bill language. REPRESENTATIVE PATKOTAK suggested adding "assessed" back through a conceptual amendment to Amendment 5. 9:31:45 AM The committee took an at-ease from 9:31 a.m. to 9:32 a.m. 9:32:51 AM REPRESENTATIVE MCCABE moved Conceptual Amendment 1 to Amendment 5 to insert "assessed" where "market" had been removed. REPRESENTATIVE DRUMMOND objected, and she referred to her previous comment about assessed valuations of commercial property. 9:34:15 AM CO-CHAIR SCHRAGE said either "assessed" or "market" needed to be left in the bill. He said the Municipality of Anchorage would prefer "market value" as a better metric to use in terms of "what the market is going to pay for the property." He said it would be "a tremendous limitation" on developers or those who want to invest in communities by "putting in a development" if they are allowed to utilize only existing assets for the lien, and "the value that would be created by the loan has no consideration by the lender." He added, "If we are to remove the ability to take in that future value that would be created, 'market' would be the preferable phrase." REPRESENTATIVE MCCABE stated his problem with "market value" is that it is a nebulous term because "it's not defined who sets the market value." He suggested it could be set by a licensed commercial property appraiser. He concluded, "And with that, I think I'll withdraw this and do it on the floor." 9:37:13 AM REPRESENTATIVE PRAX proffered that the municipally assessed value is supposed to be the market value, and "that is the official determination on other property tax payments or assessments, and this is kind of attached to the tax." He added, "So, it would seem like we should stick with what is legally in there." 9:38:06 AM CO-CHAIR SCHRAGE asked for clarification as to whether Representative McCabe had withdrawn just Conceptual Amendment 1 to Amendment 5 or the underlying Amendment [5]. REPRESENTATIVE MCCABE responded, "I withdraw both the conceptual amendment and Amendment 5." In response to Co-Chair Hannan, he noted that he would not be offering Amendment 6, as previously planned, at this time. 9:39:13 AM REPRESENTATIVE DRUMMOND moved to report HB 227, as amended, out of committee with individual recommendations and the accompanying fiscal notes. CO-CHAIR HANNAN noted there had been no amendments adopted; therefore, she asked Representative Drummond to restate the motion. 9:39:36 AM REPRESENTATIVE DRUMMOND moved to report HB 227 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HB 227 was reported out of the House Community and Regional Affairs Standing Committee.