COUNTY ADMINISTRATION OFFICE- R. ESPINOSA

Accept informational presentation on the Property Assessed Clean Energy (PACE) program to finance a wide range of energy and water efficiency, renewable energy, and hazard mitigation improvements permanently attached to residential and commercial properties for residents and provide staff direction. 

SBC FILE NUMBER: 865

Introduction

Property Assessed Clean Energy (PACE) is a way to finance a wide range of energy and water efficiency, renewable energy, and hazard mitigation improvements permanently attached to residential and commercial properties. Established by state statutes and enabled by local governments, PACE financing, unlike traditional alternatives, is structured as an assessment to the property and not the property owner. PACE provides one hundred percent of the cost of qualified structural improvements, which the property owner repays annually or semi-annually through a special assessment added to the property tax bill. PACE is a mechanism for local residential and commercial property owners to finance renewable energy, energy efficiency, water conservation, seismic retrofitting, electric vehicle charging and most recently fire resiliency projects on their properties. Property owners meeting eligibility requirements can leverage funds from the equity in their property to voluntarily participate in the program, which is administered by a PACE provider and sponsored by a Joint Powers authority (JPA).  Participating property owners to repay the cost of the project via a voluntary special assessment added to their annual property tax bill.

Several pieces of legislation passed in recent years significantly strengthened the disclosures and consumer protections applicable to the PACE industry. AB 2693, passed in 2016, implemented standardized financial disclosure requirements. Two additional bills (AB 1284 and SB 242) were signed into law September 2017 and further enhanced consumer protection measures and best practices for contractor oversight.  An additional PACE bill was signed into law September 2018 (SB 465) expand PACE eligible measures to include fire hardening.

In order to promote choice and competition and provide the County of San Benito property owners with more financing options, staff is recommending that the Board of Supervisors take the actions outlined in the report below to allow an additional commercial and residential PACE program to operate in the County of San Benito.

The direct benefits of PACE financing are rather straightforward—reduction in energy and water use, reduction in pollutants associated with this use, and reduction in hazard vulnerability. However, the financing also generates economic co-benefits directly and indirectly. These include direct impacts of PACE financing expenditures on site and economic ripple effects throughout the rest of the economy. They also include energy and water cost savings that stimulate spending on consumer goods and enhance business profits. At the same time, the efficiency improvements reduce the production of conventional energy and water services and affect their prices. Hazard mitigation improvements help prevent the need to dip into savings to repair damaged structures, prevent business interruption and temporary relocation costs, and also result in insurance premium reductions that stimulate further spending on regional goods and services. The stimulus effects are also enhanced by solar investment tax credits and are counterbalanced somewhat by the reduction in the production of centralized electricity and water services and the need of those receiving PACE financing to repay it over time. 

FINANCIAL STATEMENT

Adoption of the resolutions and actions contained herein will not result in any costs to the County of San Benito. All costs of marketing, financial, and program administration are borne by the program administrator.

Surrounding jurisdictions near San Benito County who have opted  in to PACE:
 
Monterey: Salinas, Seaside
Fresno: Clovis, Coalinga, Firebaugh, Fowler, Fresno, Huron, Kingsburg, Reedley, Sanger, Selma, Unincorporated
Merced: Atwater, Dos Palos, Gustine, Livingston, Los Banos
Stanislaus: Ceres, Hughson, Modesto, Riverbank, Waterford, Unincorporated
Santa Clara: Campbell, Cupertino, Gilroy, Milpitas, Morgan Hill, Mountain View, San Jose, Santa Clara
Santa Cruz: Santa Cruz, Watsonville, Unincorporated

Cities and counties that have approved the Ygrene program to date have adopted both resolutions and are listed here. Authorizing both programs ensures that no matter the market or legislative environment for PACE, the Ygrene program will be established and able to operate successfully in your County without the need for additional review or the need for the County Council to consider approving another resolution thereby saving valuable staff time and resources.

BACKGROUND

State law authorizes charter and general law cities and counties to provide financing for renewable energy, energy efficiency, water conservation, seismic retrofitting, electric vehicle charging and fire resiliency improvements to eligible and willing property owners. Property owners wishing to make qualifying improvements voluntarily enter into a contractual agreement securing a lien on their property and agreeing to repay the financing as a special assessment or tax on their annual property tax bill. This mechanism is referred to as Property Assessed Clean Energy (PACE) financing.

PACE Financing

PACE financing can be set up and administered under one of two different pieces of legislation which enable PACE programs in California.

AB 811 (2008) allows renewable energy sources and energy efficiency upgrades to be financed through an assessment district. Additional legislation expanded projects eligible for financing to include water efficiency improvements, electric vehicle charging stations, and seismic improvements.

SB 555 (2011) amended the Mello-Roos Community Facilities Act to allow for the creation of Community Facility Districts (CFDs) for the purpose of financing or refinancing the acquisition, installation, and improvement of energy efficiency, water conservation, renewable energy, seismic improvements, and electric vehicle charging infrastructure.

As noted above additional laws expanded the original PACE legislation and provide for additional consumer protections:

AB 2693 (2016) enhanced disclosures to homeowners participating in PACE programs and requires all PACE providers to feature consistent contractual language on interest rates, terms, fees, and special tax/assessment amounts.  AB2693 guarantees the right to cancel PACE financing within three business days of execution. AB 2693 also prohibits marketing promises of monetary or percentage representations of increased value to a property owner regarding the effect the financed improvements will have on the market value of the property unless the market value is estimated using a specified method.

SB 242 (2017) requires a recorded telephone call to residential consumers to confirm key terms of the agreement in plain language. This call and contractual documents must be available in one of five enumerated non-English languages, as necessary. SB 242 also prohibits incentives paid to contractors for steering consumers into a particular program and prohibits any representation as to tax deductibility of a PACE assessment contract. Lastly, PACE providers are prevented from disclosing to contractors the amount of funds the property is eligible to secure with a PACE assessment.

AB 1284 (2017) establishes state regulatory oversight for California's PACE program through the Department of Financial Protection and Innovation (DFPI) and requires PACE administrators to obtain a license under California Financing Law. They are also held accountable for screening, training, and monitoring the contractors and sales representatives enrolled in their programs. Lastly, PACE providers have to determine a consumer’s ability to repay, including income verification, before entering into a PACE assessment.

SB 465 (2018) allows homeowners in certain jurisdictions designated by CalFire as Very High Fire Severity Zones to use PACE financing to make wildfire resilience and fire hardening improvements to their homes.

As a result of the first priority lien status of residential PACE financing, which means that PACE assessments or special taxes have the same priority as property taxes and are repaid ahead of traditional mortgages, the California Legislature created a $10 million PACE Loss Reserve fund designated to keep first mortgage lenders whole during a foreclosure or forced sale of a property with a PACE assessment. To date, zero claims have been submitted to the Loss Reserve fund administered by CAEAFTA.

PACE financing offers an alternative to traditional credit-based options for financing property improvements such as paying cash, taking out a home equity line of credit (HELOC), or using credit cards. PACE financing eligibility is primarily based on property equity rather than the credit worthiness of the applicant in addition to their ability to repay the increase in annual property taxes. PACE financing has fixed, long-term interest rates with terms generally longer than other options but bound by maximum term to the useful life of the improvements being completed. Because a PACE assessment or special tax is filed as a lien on the property, it is designed to transfer with the property upon sale, potentially removing a barrier to making long-term investments in one’s property. Some other advantages of PACE financing include 100% financing for eligible improvements, the strongest consumer protection and contractor oversight of any other finance option, robust customer service and resolution support and the reliability of pre-approved contractors. As with other forms of financing, participation in PACE financing programs is voluntary.

Because privately funded PACE financing involves no taxpayer dollars or staff obligation for program administration and the transactions are between program administrators and building owners, the County will incur no cost or risk associated with program activities. Additionally, the County is not obligated to provide any administrative support or marketing for the programs, which are administered by the program administrators.

Approving both PACE providers will create a competitive market that enables a better overall consumer experience for residential and commercial property owners. Doing so would also incentivize more property owners to undertake improvements, resulting in the creation of more renewable energy and local jobs, reduction in energy use, greenhouse gas emissions and water consumption, increase use of electric vehicle charging, seismic retrofitting and fire protection, which supports the County’s Climate Action Plan (CAP), Disaster Preparedness and Economic Development goals.

Ygrene Energy PACE Program

Ygrene Energy Fund serves both residential and commercial property owners throughout the state by partnering with Golden State Finance Authority as the Joint Powers Authority (JPA).

GSFA, which was formerly known as the California Home Finance Authority, is a joint exercise of powers authority established pursuant to Chapter 5 of Division 7, Title 1 of the Government Code of the State of California (Section 6500 and following) (the “Act”) and the Joint Power Agreement entered into on July 1, 1993, as amended from time to time (the “Authority JPA”).

GSFA established PACE programs under the legislative authority of two separate California PACE laws described above, SB 555 and AB 811.  For both programs, individual properties can be annexed into the district and be subject to the special tax assessment that is imposed to repay project financing only if (i) the Council adopts a resolution consenting to the inclusion of parcels in the incorporated areas of the County within the programs and (ii) each participating owner provides its unanimous written approval for annexation of its property into the PACE program. To participate in the PACE programs, the County must become an Associate Member of GSFA (JPA Agreement attached). Associate membership requires no dues or other costs to the County but permits participation in all GSFA programs including the PACE program. The attached resolutions approve joining the JPA as an Associate Member.

GSFA completed the process of validation for both the SB 555 and the AB 811 programs in the Superior Court for the County of Sacramento. The GSFA SB 555 PACE program has been fully operational since August 25, 2015.  Although GSFA has implemented only the SB 555 PACE program, GSFA chose to form, validate, and maintain both the SB 555 and AB 811 programs offerings to ensure that, should market conditions, consumer demand and/or legislative changes affect one PACE program more that another, GSFA has the flexibility to use the program that best supports GSFA’s vision of service without any interruption to participating counties and cities and their property owners.  In support of this approach, if the Board wished to implement the program, the Board would pass two resolutions that would approve the following actions:

The first resolution authorizes the County to permit property owners within the incorporated areas of the County to participate in the GSFA SB 555 Community Facilities District. The second resolution authorizes the County to permit property owners within the incorporated areas of the County to participate in the GSFA AB 811 Authority PACE Program. Each resolution authorizes GSFA (1) to accept applications from property owners within the County’s incorporated area to finance authorized improvements; and (2) to conduct proceedings and levy special taxes or contractual assessments, as applicable, on the property of participating owners.