CAR Staying Neutral on Energy District Private Financing
SB13-212, Concerning Energy District Private Financing Commercial (C-PACE), by Senator Matt Jones (D-Louisville) and Representative Max Tyler (D-Lakewood), was discussed in LPC last week.
Under Property-Assessed Clean Energy (PACE) financing programs, local governments or financing districts sell bonds to investors, then loan the proceeds to property owners to cover the cost of renewable energy or energy efficiency improvements. The loans are typically repaid over time (15 to 20 years) through an annual assessment on the property owner’s property tax bill.
In May 2008, Colorado enacted HB08-1350 which enabled Colorado counties and cities to propose a local improvement district (LID) specifically for clean energy improvements. Boulder County, Eagle County, Gunnison County and Pitkin County have used this provision to enact PACE financing programs. SB10-100 amended this law to allow multiple counties, even non-contiguous counties, to form a single clean energy improvement district.
HB10-1328 further expanded this authority by creating the Colorado New Energy Improvement District, a clean energy statutory public entity encompassing the entire state of Colorado. The bill authorized the district to issue up to $800 million in bonds to fund PACE financing programs. Local governments wishing to provide PACE financing programs to their citizens may opt to join the statewide district and access this bond revenue for clean energy loans. To date, while several counties have expressed interest in joining the district, none have done so.
This bill makes several modifications to the operation of the Colorado New Energy Improvement District.
- Program Expansion – The district currently allows for the financing of new energy improvements for residential real estate. This bill expands the scope of the program to include commercial property. In addition, the bill repeals the maximum 95 percent loan-to-value requirement for qualified applicants as well as the percentage of value and dollar caps on allowable new energy improvements. The bill also includes fuel cells within the definition of renewable energy improvement.
- District board – The bill directs the Governor to appoint all five voting members to the district board by September 1, 2013, and specifies qualifications. The bill directs the district to develop a program for financing new energy improvements by private third-party financing in addition to district bonds.
- District assessments – Current law includes increased market value and decreased energy bills as factors to be used in the calculation of district assessments. This bill repeals these factors from this calculation and eliminates the requirement that assessments be prepaid. The bill also specifies that if district special assessments are attributable to new energy improvements financed by a private third party, the proceeds from the assessments will be credited to the third party.
- Mortgage Holder Consent – The bill directs the district to develop the processes for ensuring in all cases that consent of existing mortgage holders is obtained to subordinate the priority of their mortgages to the priority of the district’s lien.
- Property Assessment – The bill prohibits county assessors, when assessing the value of real property, from including any increase in market value resulting from a new energy improvement in the market value of that property.
- Repeal – Under current law, the district is repealed on January 1, 2016. This bill eliminates that repeal.
Some in the banking industry oppose this legislation because a lien created under C-PACE should be a junior lien subordinate to the first mortgage and C-PACE financing should be limited to unencumbered real estate. They feel that C-PACE makes no sense in Colorado, where commercial real estate values continue to be impaired.
CAR shared similar concerns with the creation of the original Colorado New Energy Improvement District, which remain with any expansion into commercial properties. This year’s bill does address to some extent the priority of liens by setting up a process to ensure consent by the existing mortgage holder is obtained in order to subordinate the priority of their mortgage to the priority of the district’s lien. However, this does not satisfy all of our concerns.
The LPC has chosen to take a neutral position on this legislation to work with the bill’s sponsor and our industry partners on amendments that will limit C-PACE financing to unencumbered real property, as well as to ensure that any property that has obtained district financing can be paid off before any conveyance.
We are pleased that the bill has been amended to address these issues and we will continue to monitor the bill and work with any and all stakeholders to improve the bill further.
2013 NAR President-Elect Steve Brown recently attended a mortgage forum hosted by the National Association of Home Builders. He made the case for the private sector playing a larger role in bearing risk, while still keeping government involved so mortgages remain available and affordable. He also shared why we’re cautiously optimistic on down payment rules that will be released later this year. For more, check out the latest leadership podcast.
Watch the podcast.
House Introduces Patent Abuse Legislation
On Feb. 27, Reps. Peter A. DeFazio (D-Ore.) and Jason E. Chaffetz (R-Utah) introduced HR 845, known as the SHIELD Act. This legislation intends to reduce litigation by “patent trolls” by making them liable for alleged infringers’ court costs and attorneys’ fees if their patents are found invalid or not infringed. Read more about this legislation here.
Colorado Hill Visits at 2013 MidYear Meeting Registration
Registration for NAR’s annual MidYear Meeting is OPEN. Please make sure you register right away and get your hotel room arranged, as hotels go quite quickly. Click here for more information or to register now!