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HomeMy WebLinkAbout08/17/2010, C8 - STATUS OF CALIFORNIAFIRST PILOT PROGRAM AND ADOPTION OF RESOLUTION IN SUPPORT OF IMMEDIATE CONGRESS L co Un C l l Meeting Date j acEnoA Pepoat ItemN..hecr C I TYOF SAN LUIS OBISPO FROM: John Mandeville,Community Development Directo Prepared By: Kim Murry, Deputy Director, Long Range Planning SUBJECT: STATUS OF CALIFORNIAFIRST PILOT PROGRAM AND ADOPTION OF RESOLUTION IN SUPPORT OF IMMEDIATE CONGRESSIONAL ACTION TO AUTHORIZE LEGISLATION ALLOWING PROPERTY ASSESSED CLEAN ENERGY PROGRAMS. RECOMMENDATION Adopt the resolution in support of immediate Congressional action to authorize legislation allowing Property Assessed Clean Energy(PACE)programs. DISCUSSION Background On December 1, 2009, the City Council adopted a resolution to participate with the County in the CaliforniaFIRST energy efficiency improvement financing pilot program. The effort was developed by the California Statewide Communities Development Authority (California Communities) to establish a statewide program, administered through counties, to allow private property owners to finance renewable energy and energy efficiency improvements on their properties. In April 2010 the CalifomiaFIRST pilot program (which includes 14 counties and 145 cities) was approved for implementation by the-California Energy Commission (CEC) and was awarded $16.5 million in State Energy Program (SEP) grant funds to assist with district set- up and program marketing:. The participating pilot counties, including San Luis Obispo County, were each awarded $575,000 for implementation activities. However, recent decisions by the Federal Housing Finance Agency (FHFA) over concerns of first lien priority of PACE assessments have prevented the pilot program from going forward and have virtually stopped PACE programs throughout the nation. On May 5, 2010, the FHFA (regulator of Fannie Mae and Freddie Mac) issued lender letters that stated, "PACE loans generally have automatic first lien priority over previously recorded mortgages. The terms of the Fannie Mae/Freddie Mac Uniform Security Instruments prohibit loans that have senior lien status to the mortgage." Since more than half of all residential mortgages in the country are held by Fannie or Freddie, this decision had an enormous impact on the ability of PACE programs to be used successfully. The lender letter did not direct any action, however, it did indicate that PACE participants could be in violation of their existing mortgage contracts. Since that time, the House Committee on Energy and Commerce issued a letter to FHFA requesting clarification and support for PACE programs across the country. On July 6, 2010, the FHFA posted a statement reaffirming that a senior PACE lien is in violation of any Fannie Mae Council Agenda Report PACE/AB 811 update Page 2 or Freddie Mac mortgage contract. As a result, residential PACE financing cannot move forward at this time. Current Situation A nation-wide PACE coalition is working to support legislation (HR 5766) recently introduced by Representative Mike Thompson of California's First District that will hopefully restore the program while ensuring that both the taxpayer and private mortgage investments are protected. In addition, the State of California has sued the FHFA seeking judicial relief on numerous grounds. The PACE coalition has asked all jurisdictions to request local elected officials and decision-making bodies sign letters to their Congressional representatives and pass resolutions in support of PACE. A related casualty of the FHFA position is that the SEP funds allocated to the counties developing PACE programs now have to be reprogrammed. Since there are strict deadlines associated with these Recovery Act funds, the Energy Commission had to encumber the federal stimulus finds in a different way to ensure the funds were not lost. The County and participating cities will need to determine how best to finance implementation of the program at the point lien priority concerns are addressed. Next Steps City staff will continue to monitor the situation in conjunction with the County Energy Programs Coordinator. The San Luis Obispo County PACE program was intended to be available to property owners in Fall 2010. Recent events will delay the program start and may require the County and participating cities to wait until a legislative approach has been adopted, and financing to assist with implementation has been identified. CONCURRENCES The County Board of Supervisors adopted an ordinance supporting immediate Congressional Action on August 3, 2010. FISCAL IMPACT There is no immediate financial impact to the City. However, property owners who wish to make energy efficiency improvements to their properties will be restricted to traditional financing mechanisms until a PACE program can be implemented. In addition, if SEP funds are not available at the time the PACE lien issues are resolved, alternatives to that implementation funding will need to be identified. ALTERNATIVES 1. The City Council can opt not to sign the resolution. This is not recommended because there will be a greater impact if more jurisdictions participate in the push for immediate action and because it would not further previous Council actions supporting PACE, energy conservation and greenhouse gas reduction. 2. The City Council can direct staff to return with additional information at a future date. C g` 2- Council Agenda Report PACE/AB 811 update Page 3 ATTACHMENTS: Attachment 1: PACE Information Sheet Attachment 2: California Energy Commission News Release Attachment 3: Resolution to support immediate Congressional action to authorize legislation allowing PACE programs. TACouncil Agenda Reports\Community Development CAR\2010TACECAR8-I7-IO.doc 'Attachment 1 PACE Finance Summary Sheet _ Energy Efficiency& Renewable Energy Financing for Property Owners What is PACE Property Assessed Clean Energy (PACE), is a local government program that allows property owners to finance energy efficiency and renewable energy improvements using low-interest bonds that generally have no recourse to the municipality. Interested residential and commercial property owners opt-in to receive long term financing (up to 20 years) for these improvements, which is repaid through an assessment on their property taxes. This arrangement spreads the cost of clean energy improvements — such as energy efficient boilers, upgraded insulation, new windows, solar installations,etc— over the expected life of the measure and allows for the repayment obligation to automatically transfer to the next property owner if the property is, sold. Why is PACE so innovative? High upfront cost is the single largest barrier to increased adoption of energy efficiency and small-scale renewable energy. The second barrier is the uncertainty as to whether property buyers will pay more for efficiency improved properties. PACE removes the upfront cost barrier and removes the uncertainty barrier as the new buyer inherits the annual tax surcharges. Historical precedent PACE is a type of land-secured financing district, which has a 100+ year history in the U.S. to pay for improvements in the public interest. Over 37,000 land secured districts already exist and are a familiar tool of municipal finance. They are used to finance projects which serve a public purpose, including street paving, parks, open space,water and sewer systems,street lighting, and seismic strengthening,among others. Strong appeal of PACE&early concerns raised and cured In less than two years, PACE enabling legislation has been adopted in 17 states with strong bipartisan support (see PACE Endorser List for supporters). Some initial concerns were raised by the mortgage industry about PACE which were addressed late last year with the White House's Best Practice Policy Framework that was announced by Vice President Biden at his Recovery Through Retrofit hearing (this framework was developed as a collaboration between HUD, the Dept of Energy, and the National Economic Council-see White House Report and Biden YouTube clip). States and municipalities are now incorporating these best practices into their PACE programs. What are the benefits to participating property owners? • No Upfront Cost — Removes the upfront cost barrier of energy efficiency and renewable energy improvements. Most programs only charge a small fee to property owners. • Improved Cash Flow— Owner's cash flow position is improved as PACE programs are designed to have annual energy savings exceed the annual PACE assessment payments. • Less Investment Risk- Removes the uncertainty of recovering the cost of improvements if the property is sold, because the financing runs with the property via the tax assessment. cry C • Attachment 1 Benefits to Municipalities • Local Job Growth — PACE has the ability to stimulate local job creation through the installation of efficiency and energy improvements. It is estimated that for every $1mm spent on clean energy improvements, 10 jobs are created. For every 100,000 homes that are retrofitted, with an average expenditure of$10,000, more than 10.000 jobs would be created. • No Credit or General Obligation Risk — PACE bonds are typically not general obligation or appropriation bonds, so the municipality's credit is not placed on the line. The obligation resides exclusively with the property owner. • Oat-in Assessments—The assessments are only placed on those properties where the owner voluntarily "opts-in"to the financing program. • Meet Carbon Reduction Goals — Counties, Cities, Towns and Villages can use this tool to move quickly toward achieving their carbon reduction and energy independence goals. Benefits to Existing Lenders • Lower Default Risk — Owner's cash flow position is improved as PACE programs are designed to have annual energy savings exceed the annual PACE assessment payments. Owner is now in a better position to make mortgage payments. • Better Loan-to-Value Ratio —Since PACE improvements have a positive net present value, they increase the lender's collateral which improves the loan-to-value ratio. • Best Practice Framework Adopted - The White House PACE Best Practice Framework is now being incorporated into PACE programs nationwide to help ensure that PACE programs benefit existing lenders. • PACE Senior lien status is immaterial. (less than -$200 per home) & more than offset by .value. enhancement— PACE assessments are treated as senior liens which is critical for the success of the programs but the seniority amount is immaterial due to the per property size limits of PACE finance and other best practice measures (PACE Lien Immateriality). For more information visit www.pacenow.org Attachment 2 Home ...>>releases .»2010 releases »2010-07-29 clean energy finanacing For Immediate Release: July 29,2010 Media Contact' Susanne Garfield-916-654-4989 MEDIA ADVISORY Energy Commission Acts to Protect and Expand Property-Assessed Clean Energy Financing Options Strongly Rejects FHFA Faulty Logic ......................... SACRAMENTO—The California Energy Commission canceled a $30 million solicitation that would have supported PACE programs in 23 counties and 184 cities.The Commission action,which responded to roadblocks created by recent actions of the Federal Housing Financing Authority(FHFA), ended awards to five local govemments and jurisdictions that were using Property-Assessed Clean Energy(PACE)financing as the cornerstone of their county and statewide energy investment programs. "PACE is an essential and necessary tool to help Californians invest in energy efficiency retrofits for their homes and achieve our state's energy and environmental goals while adding clean energy jobs," commented Karen Douglas, Chairman California Energy Commission. "Unfortunately, FHFA has undermined California's job creation and environmental initiatives by creating significant new regulatory hurdles for PACE programs at the eleventh hour. 'This action is necessary to expand the financial options available to local governments to achieve residential energy efficiency retrofits. It is vital that energy financing programs, including PACE, are offered so building owners can overcome one of the biggest obstacles to investing in energy efficiency and renewable energy projects-lack of access to long term, low-interest financing,"she continued. PACE financing has been recognized throughout the nation as a potential breakthrough financing option that allows building owners to fund permanent energy efficiency and on-site renewable energy improvements through a voluntary assessments paid with their property taxes. On July 6, 2010,the FHFA reversed their earlier position and damaged the authority of local governments to issue priority lien tax assessments by directing Fannie Mae and Freddie Mac to take punitive actions against homeowners who live in communities that participate in PACE financing programs.The FHFA had originally stated that lenders should treat PACE assessments as any tax or assessment that may take priority over Fannie Mae's lien. California has been an early leader and innovator in developing and implementing the PACE financing concept.The City of Berkeley, City of Palm Desert and County of Sonoma piloted the first PACE programs beginning in 2008. With strong federal encouragement and recognizing the potential of PACE, the Energy Commission invested$110 million of its federal stimulus State Energy Program funding in pursuing three competitive program solicitations for: 1. PACE municipal financing. 2. Municipal and commercial building targeted retrofits. 3. Comprehensive residential building retrofits. Five local governments that would have established PACE programs in 23 counties and 184 cities received $30 million of this total under the Municipal Financing Program.These entities were expected to leverage$370 million, create 4,353 jobs, save more than 336 million kilowatt-hours of energy, and avoid the emissions of 187,264 tons of greenhouse gasses for the first two years of the program. Attachment 2 The Energy Commission strongly supports the authority for California local governments to provide PACE financing through property assessments, and the extensive efforts at the local level over the past year plus to develop this innovative approach.The FHFA, however, should not be in the business of interfering with municipal discretion to use their taxing authority for the general welfare to upgrade their infrastructure and local resources. "The Governor, California's Congressional delegation, the State Legislature, the Attorney General and 21 states recognize the crucial value PACE financing offers and is working with the White House to address the FHFA PACE financing issues.We are optimistic that this issue will be resolved,"said Douglas. "Given, however, the strict deadlines for expanding Recovery Act funds, the Energy Commission must act quickly to encumber the federal stimulus funds under the Municipal Financing Program in a way that supports and allows additional financing options, including PACE, to ensure that the benefits of this program are protected." Staff recommendation paper on canceling the SEP Municipal financing solicitation is available at: www.energy.ca.gov/2010publications/CEC-400-2010-009/CEC-400-2010-009.PDF(PDF file, 258 kb) More information regarding the SEP municipal financing program is available at: www.energy.ca.gov/recovery/sep. tr) I#efficiency NNNRMOUM� .®- � - • ® • • -e.s- Accessibility i Contact Us Copyright©1994-2010 California Energy Commission,All Rights Reserved. State of California,Arnold Schwarzenegger, Governor Last Modified: 07/29/10 C Attachment 3 RESOLUTION NO. (2010 Series) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO IN SUPPORT OF IMMEDIATE CONGRESSIONAL ACTION TO AUTHORIZE LEGISLATION ALLOWING PROPERTY ASSESSED CLEAN ENERGY PROGRAMS WHEREAS, utility bills represent a major portion of operating costs for home and business owners; and WHEREAS, economic development opportunities, particularly in the construction industry, continues to be needed in our community, and WHEREAS, reliance on fossil fuels continues to threaten public health and the environment; and WHEREAS, residential and commercial buildings consume nearly 40% of all electricity and are responsible for 40% of U.S. annual carbon dioxide emissions; and WHEREAS, investing in cost-effective energy efficiency and renewable energy improvements to homes and businesses can save energy, cut utility bills, create local jobs, reduce reliance on fossil fuels and reduce greenhouse gas emissions; and WHEREAS, the upfront cost and potentially long payback periods prevent property owners from making otherwise cost-effective clean energy improvements; and WHEREAS, Property Assessed Clean Energy (PACE) financing programs are an innovative local government solution to help property owners finance energy efficiency and renewable energy improvements — such as upgraded insulation, new wiondows, solar installations, etc. to their homes and businesses; and WHEREAS, twenty-two states have passed laws enabling local governments to develop PACE programs; and WHEREAS, White House and the U.S. Department of Energy strongly support PACE, have dedicated $150 million to develop local PACE programs and issued guidelines to ensure that PACE programs meet safety and soundness requirements and adequately protect both bond buyers and property owners; and WHEREAS, despite PACE's great promise, the Federal Housing Finance Agency and the Office of the Comptroller of the Currency on July 6°i issued statements that immediately forced existing PACE programs to halt operations and froze the development of dozens of PACE programs nationwide. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo to urge the California Congressional delegation to support legislation that clearly guarantees local governments the right to assess property-owner initiated special taxes for clean energy programs and restore the promise of PACE. �t �� d s Attachment 3 Resolution No. (200x Series) Page 2 Upon motion of seconded by and on the following vote: AYES: NOES: ABSENT The foregoing resolution was adopted this day of 2010. Mayor David F. Romero ATTEST: Elaina Cano City Clerk APPROVED AS TO FO J hristine Dietrick City Attorney