TO: TONY RAMOS, CITY MANAGER
FROM: BRIAN DESATNIK, DIRECTOR OF COMMUNITY DEVELOPMENT
DATE: JULY 26, 2016
Reviewed by:
City Manager: TR
Finance Director: AP
SUBJECT:
Title
APPROVAL OF RESOLUTIONS AUTHORIZING LOCAL PARTICIPATION IN FOUR, NEW PROPERTY ASSESSED CLEAN ENERGY (PACE) LENDING PROGRAMS, WHICH WILL ALLOW CLAREMONT PROPERTY OWNERS NEW OPTIONS FOR FINANCING RENEWABLE ENERGY, ENERGY EFFICIENCY, SEISMIC SAFETY, AND WATER EFFICIENCY IMPROVEMENTS
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SUMMARY
The City Council originally considered this item at its June 28, 2016 meeting, and requested additional information and revisions by staff. At that time, staff recommended City Council authorization of two programs, but did not recommend authorization of a third provider, Ygrene Energy. Based on testimony and discussion at that meeting, the City Council directed staff to approve all programs currently requesting approval in Claremont. Since the meeting, staff received a request for City Council authorization from a fourth program funded by California Municipal Finance Authority (CMFA). Based on previous City Council direction, staff has provided five resolutions (Ygrene Energy requires approval of two resolutions) that would authorize all four of the providers currently requesting City Council authorization in Claremont. Adoption of the resolutions will allow Claremont property owners to finance energy-related projects through any of these new programs, as well as two additional programs that are currently authorized in the City.
The programs currently seeking approval in Claremont are Figtree Energy Financing, CSCDA Open PACE, Ygrene Energy Fund, and CMFA Open PACE. Each is classified as a Property Assessed Clean Energy (PACE) lending program; which, in California, are enabled by Assembly Bill 811 (AB 811) or Senate Bill 555 (SB 555). The programs are designed to allow property owners to finance qualifying energy efficiency, renewable energy, and water efficiency improvements for their properties through amortized annual assessments that are included on their property tax bills. Approval of these programs is expected to provide new financing options for energy contractors and their customers, help the City achieve its sustainability goals, and increase construction jobs in the City.
RECOMMENDATION
Recommended Action
Staff recommends that the City Council adopt the resolutions authorizing local participation in the Figtree Energy Financing, CSCDA Open PACE, Ygrene Energy Fund, and CMFA Open PACE Programs.
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ALTERNATIVES TO RECOMMENDATION
In addition to the recommendation, there are the following alternatives:
A. Continue the item for additional information.
B. Approve some, but not all of the resolutions.
C. Deny all of the requests, recommending that each provider work with the County of Los Angeles to become authorized in Claremont, as well as 79 other cities, that are currently participating in the County’s PACE program.
FINANCIAL REVIEW
On-going staffing requirements will be minimal; limited to annual updates on the status of the program and occasional questions from the public that can be redirected to staff from each of the programs. No additional costs are expected as all programs are “turn-key” operations with no City funding or staffing requirements. All administrative costs for the program are covered through fees included in the property owner’s voluntary assessments. The City is not responsible for financing or bond issuance and is not obligated to repay any bonds or assessments levied on participating properties.
The staff cost to research each of the programs and prepare this report are estimated to be $2,500, and are covered under the normal work program for the City Sustainability Coordinator.
ANALYSIS
Background
PACE lending programs are being adopted nationwide as a way to enable property owners to finance energy efficiency and renewable energy improvements. In California, these programs can also be used to finance water conservation projects, including conversion to water efficient landscaping due to the high energy footprint of water, and retrofits to improve the seismic safety of older buildings. PACE financing programs allow property owners to pay for high, up-front costs over the life of the improvements. Ideally, the loan payments are covered by savings generated on utility bills. PACE loans are funded using private financing or issuance of bonds by the associated finance authority or facilities district. A detailed list of the benefits of PACE for property owners and the City were detailed in the previous staff report (Attachment A).
Enabling Legislation
In California, PACE programs are enabled under one or both of the following pieces of legislation.
AB 811 Contractual Assessment Programs
In California, PACE programs are generally enabled under AB 811. Enacted into law in 2008, the bill added Chapter 29 to the Improvement Bond Act of 1911 (Division 7 of the California Streets and Highways Code) to authorize cities and counties to establish voluntary contractual assessment programs for the purpose of financing private property improvements that promote renewable energy generation, energy and water efficiency, electric vehicle charging infrastructure, and seismic improvements. Under AB 811 programs, loans are repaid over time through voluntary assessments to the property tax bills of participating property owners.
Individual properties can be annexed into an AB 811 program and be subject to the property tax assessment that is imposed to repay project financing only if: (i) the City Council adopts a resolution consenting to the inclusion of parcels in the incorporated areas of the City within the program; and, (ii) the owner of the individual property provides its written approval to annex its property into the program.
SB 555 PACE Community Facilities Districts
Senate Bill 555 amended the Mello-Roos Community Facilities Act, set forth in Sections 53311 through 53368.3 of the California Government Code, to add Sections 53313.5(l) and 53328.1(a) to allow for the creation of Community Facilities Districts (CFD’s) for the purpose of financing or refinancing the acquisition, installation, and improvement of energy efficiency, water conservation, renewable energy, and electric vehicle charging infrastructure improvements permanently affixed to private or publicly-owned real property.
Individual properties can be annexed into a CFD and be subject to the special tax that is imposed to repay project financing only if: (i) the City Council adopts a resolution consenting to the inclusion of parcels in the incorporated areas of the City within the CFD; and, (ii) the owner of the individual property provides written approval to annex its property into the CFD.
Program Descriptions
Each of the PACE programs seeking approval offer “turnkey” services; all application procedures, origination, underwriting, funding, loan servicing, legislative compliance responsibilities, and costs lie with the joint powers authorities that formed the programs and with authority staff. No services are provided by the City; however, City staff will request regular reporting from all providers not currently involved in the Los Angeles County Energy Program to ensure that these programs are following similar consumer protection policies.
Ygrene Energy Program
The Ygrene Energy program is offered through the California Home Finance Authority (CHF). CHF, which recently changed its name to Golden State Finance Authority, is a Joint Powers Authority established pursuant to Government Code Section 6500 et seq. A copy of CHF’s Joint Exercise of Powers Agreement, as originally entered into on July 1, 1993, and amended various times over the years, is attached as Exhibit A to the SB 555 PACE Program Resolution (Attachment B). The SB 555 resolution authorizes the City to join CHF as an Associate Member. There is no cost or obligation to the City of becoming an Associate Member of the JPA.
CHF formed and validated both SB 555 and AB 811 PACE programs, which have received final validation judgments in the Sacramento Superior Court finding that they are legal, valid and binding programs. The CHF SB 555 PACE program has been fully operational since August 25, 2015, and provides financing for all property types including commercial, multi-family, and non-profits, such as churches. Although CHF is not actively implementing its AB 811 PACE program at this time, it is available for financing seismic strengthening improvements (currently, the SB 555 program cannot finance such improvements), and will be made operational as needed. The resolution approving the AB 811 component of the Ygrene Energy program is Attachment C.
Having both programs available allows CHF to maximize the benefits of both program offerings. Should market conditions, consumer demand, and/or legislative changes affect one PACE program more than the other, CHF has the flexibility to offer the program that best supports the CHF vision of service without any interruption to participating counties, cities, and their property owners.
Figtree Energy Financing
The Figtree Energy Financing Program is enabled under AB 811. Qualifying projects are funded through the California Enterprise Development Authority (CEDA), which was created by the California Association for Local Economic Development (CALED) to assist property owners in obtaining financing for projects and purposes serving a public interest. Figtree is one of the largest PACE financing companies operating in the United States today. Over 100 municipalities throughout California have already enabled the Figtree program by signing on as associate members of CEDA. Unlike the Ygrene and HERO programs, which focus on residential properties, and the Los Angeles County Energy Program, which focuses on very-large commercial projects, the Figtree program is designed for small- to medium-sized commercial properties. Currently, there is no PACE program available to the vast majority of Claremont businesses, which are small and medium in size.
Adopting the proposed resolution (Attachment D) authorizes the City to join CEDA as an Associate Member and authorizes CEDA, through Figtree Financing, to offer their program and levy assessments within the City of Claremont. The resolution authorizes the City Manager to execute an indemnification agreement between the City of Claremont and Figtree Company. This agreement will be adopted by resolution by CEDA following the City Council's adoption of the resolution. During the previous meeting, Councilmember Nasiali indicated concern regarding language in the indemnification agreement. After a long discussion, it appeared that changes to the language could potentially be negotiated, but that it was not likely by authority staff. City staff has since followed up with CEDA staff. They have respectfully asked to retain the language as it is reasonable to request indemnification for liability resulting from the “sole negligence or willful misconduct of the City.”
CSCDA Open PACE
The CSCDA Open PACE program is also enabled under AB 811. Qualifying projects are funded through the California Statewide Communities Development Authority (CSCDA), the largest Joint Powers Authority in California, founded and sponsored by the League of California Cities and the California State Association of Counties. The proposed draft resolution (Attachment E) makes the CSCDA Open PACE program available to both residential and commercial property owners within the city. Because the City of Claremont has been a member of CSCDA since 1993, the resolution does not include an additional exhibit required for becoming an associate member of the authority.
The CSCDA is focused on providing an “Open PACE” platform that offers member agencies access to a variety of pre-qualified PACE programs. Under the program, property owners are offered a choice among PACE financing providers, creating competition on financing terms, service, and interest rates. Currently, CSCDA Open PACE providers include CaliforniaFirst Efficiency Financing, Alliance|NRG Program, Spruce, PACE Funding, and Cleanfund Commercial PACE Capital.
CMFA Open PACE
A fourth program that requested City Council authorization on July 12, 2016, is offered through the California Municipal Finance Authority (CMFA). The CMFA is a Joint Powers Authority formed to assist local governments, non-profit organizations, and businesses by promoting economic, cultural and community development, with the financing of economic development and charitable activities throughout California. To date, over 230 municipalities, including the City of Claremont, have become members of the CMFA.
As part of its economic and community development, the CMFA along with its current Program Administrators, Energy Efficient Equity (E3), BlueFlame PACE Services, Structured Finance Associates, offer PACE financing for residential and commercial property owners in its member territories. The CMFA is expected to issue limited obligation bonds, notes, or other forms of indebtedness to fund PACE-eligible residential and commercial projects in Claremont. The proposed draft resolution (Attachment F) makes CMFA Open PACE programs available to both residential and commercial property owners within the City. Because the City of Claremont has been a member of the CMFA since April 14, 2009, the resolution does not include an additional exhibit required for becoming an associate member of the authority. The CMFA Open PACE program is very similar to the open competition model of CSCDA and their intent is to provide a variety of PACE administrators that will compete for customer’s business; potentially lowering costs and improving service to customers.
Termination of Programs by City
At the June 28, 2016 meeting, the City Council directed staff to research the process for terminating local authorization for PACE programs that fail to comply with lending regulations or live up to the strict consumer protection standards of the PACE industry. The City Attorney researched the issue and determined that there was no prescribed method for termination; therefore, the remedy would be for the City Council to revoke its previous authorization of a program by simply passing a new resolution reversing its previous determination of public convenience for that program. This generally confirms the claims made by lenders that were present at the meeting.
RELATIONSHIP TO CITY PLANNING DOCUMENTS
Staff has evaluated this agenda item in relationship to the City’s strategic and visioning documents and finds the following:
Council Priorities - This item is related to the current Council Priorities, which call for the on-going implementation of the Sustainable City Plan.
Sustainability Plan - This item helps to implement goal 4.4 of the updated Sustainable City Plan, which calls for promoting sustainable residential development. Action 4.4.2 of the updated plan calls on the City to, “Authorize a PACE-style financing program to help property owners finance energy efficiency improvements with repayment on property tax bills.”
Economic Sustainability Plan - This item does not relate to the recommendations outlined in the Economic Sustainability Plan.
General Plan - This item addresses General Plan Implementation Measure IV-1, which calls for encouraging green building and energy conservation requirements in Claremont buildings. The program will help homeowners and developers finance the types of improvements required to address this measure.
2016-18 Budget - This item meets the Community Development Department, Planning Division, Sustainability Work Plan, including Goal CP-2, which calls for implementing applicable actions from the Sustainable City Plan.
Youth and Family Master Plan - This item does not relate to objectives in the Youth and Family Master Plan.
CEQA REVIEW
The Director of Community Development has determined that the proposed project, adoption of resolutions authorizing participation in California PACE financing programs, is exempt from review under the California Environmental Quality Act (CEQA) (California Public Resources Code Section 21000 et seq.), pursuant to State CEQA Guideline Regulation 15308 (14 Cal. Code Regs., § 15308). Section 15308 exempts actions taken by regulatory agencies, as authorized by State law, to assure the maintenance, restoration, enhancement, or protection of the environment where the regulatory process involves procedures for protection of the environment. The adoption of this resolution would authorize local participation in a voluntary contractual assessment program to finance the installation of renewable energy systems, energy and water efficiency improvements, and electric vehicle charging infrastructure. The program is designed to reduce the environmental impacts of existing structures and will not result in negative impacts to the environment. It is therefore exempt from the provisions of CEQA, and no further environmental review is necessary.
In addition, the improvements to structures in Claremont that could result from participation in PACE-style loan programs are anticipated to be categorically exempt from CEQA, pursuant to State CEQA Guideline 15301, as they are generally limited to the operation, repair, maintenance, and minor alteration of existing private structures, and will not involve expansion of existing uses. Typical projects include insulation, efficient appliances, efficient lighting upgrades, duct and HVAC optimization, pool pump replacement, weatherization, efficient irrigation, and solar energy systems.
PUBLIC NOTICE PROCESS
This item has been noticed through the regular agenda notification process. Copies are available at the City Hall public counter, the Youth Activity Center, the Alexander Hughes Community Center, the City website, and the Claremont Public Library.
Submitted by: Prepared by:
Brian Desatnik Christopher Veirs
Director of Community Development Principal Planner
Attachments:
A - 6-28-16 CC Staff Report and Minutes
B - Resolution Ygrene Energy PACE Program (SB 555)
C - Resolution Ygrene Energy PACE Program (AB 811)
D - Resolution Figtree Financing PACE Program (AB 811)
E - Resolution CSCDA Open PACE Program (AB 811)
F - Resolution CMFA Open PACE Program (AB 811)