There is no fiscal impact to the County associated with this item.
California law allows cities, counties, and other authorized public agencies to establish voluntary financing districts to facilitate energy and water efficiency improvements to existing residential and commercial properties. Such financing is commonly referred to as Property Assessed Clean Energy (PACE) financing. Once established, property owners within the boundaries of such a district can voluntarily choose to enter into a contractual assessment and borrow funds from the district to make energy efficiency improvements. The assessment is then repaid in installments on the property tax bill. If the property owner were to default on their property taxes, the Treasurer-Tax Collector would have the authority to foreclose on the property to collect payment.
Several PACE financing providers have expressed interest in establishing PACE financing districts and offering PACE loans to property owners in Contra Costa County. Such financing districts would not be formed or operated by the County, but the establishment of such financing districts requires a resolution of approval by the Board of Supervisors. For most current PACE programs, the sponsoring public agency is a joint powers authority (JPA), which forms the financing district and is responsible for its administration. In such cases, the County would need to be a member of the JPA in order for the PACE program to operate within the County.
PACE financing has the potential to generate both environmental and economic benefits to County residents, and is consistent with County policy objectives to improve energy efficiency and reduce greenhouse gas emissions. Improved energy efficiency on private property reduces greenhouse gas emissions and the associated negative impacts of climate change, consistent with the County’s Climate Action Plan. Construction of energy and water efficiency improvements on private property also stimulates the local economy, expanding employment and increasing tax revenue for the County.
However, due to regulatory intervention by the federal government to discourage the use of PACE financing, such programs carry potential risks and costs to the County and to property owners that should be mitigated to the greatest degree possible.
On June 16, 2015, the Board of Supervisors approved the recommendation of the Internal Operations Committee to direct the Department of Conservation and Development (DCD) to establish an application process and accept applications from PACE providers to operate within the unincorporated area of the County. The Board also approved the form of an Operating Agreement the County would require PACE providers to enter into with the County as a condition of operations. The purpose of the Operating Agreement is to protect the County and the general public from the potential costs and risk of PACE programs. The Operating Agreement requires PACE providers to participate in the State PACE Loss Reserve Program, disclose financial costs and risks to participating property owners, and indemnify the County from legal claims arising from the operation of PACE programs.
In July 2015, DCD received applications from two PACE providers: CaliforniaFirst and California HERO. CaliforniaFirst is a PACE financing program established by the California Statewide Communities Development Authority (CSCDA), a joint powers authority. Contra Costa County is already a member of CSCDA. California HERO is a PACE financing program established by the Western Riverside Council of Governments (WRCOG), a joint powers authority. Contra Costa County will be an Associate Member of WRCOG if the Board approves joining the California HERO program.
Consistent with direction received from the Board, staff began review of the application materials submitted by these two PACE providers.
On September 14, 2015, the Internal Operations Committee, at the Board's direction, discussed changes to the Operating Agreement that the PACE providers had proposed. As an outcome of this meeting, the IO Committee recommends that the following changes be made to the form of the Operating Agreement approved by the Board on June 16, 2015:
- Assessed vs. Fair Market Value: The Committee recommends that the greater of assessed value or fair market value, rather than assessed value only, be used as the basis for calculating maximum PACE assessment amounts (consistent with the formulas in 5. below) and that fair market value be determined using automated valuation supplied to the PACE providers through a third party vendor, or using a certified appraisal if preferred by the property owner.
- Contractors Indemnifying the County: The Committee recommends revising the requirement requiring contractors to indemnify the County so that the language in the Operating Agreement is consistent with the contractor indemnification language in the Contractor Participation Agreement, to which all participating contractors have agreed.
- Contractor General Liability Insurance & Additional Insured Requirements: The Committee recommends requiring contractors to carry the industry standard amount of $1M (vs. $2M) per occurrence for commercial general liability insurance, strike the requirement for a Builder's Risk policy, and strike the requirement for contractors to add the County as an additional insured.
- Lender Consent: The Committee recommends requiring Program Participants who own non-residential properties to obtain written consent to participate in the PACE Program from lenders who have made loans to the Program Participant only where the property in question serves as security for the loan.
- Loan Limits for Residential and Non-Residential Properties: The Committee recommends the Operating Agreement mirror the residential loan limitation language in the States PACE Loss Reserve regulations, which state "The Financing is for less than fifteen percent (15%) of the value of the property, up to the first seven hundred thousand dollars ($700,000) of the value of the property, and is for less than ten percent (10%) of the remaining value of the property above seven hundred thousand dollars ($700,000)." The Committee also decided to remove the 20% of value cap on non-residential PACE loans, modify the limitation in the County's Operating Agreement that a PACE assessment cannot result in property taxes exceeding 5% of market (vs. assessed) value, and stipulate in the Operating Agreement that the PACE assessment plus the mortgage related debt on a residential property must not exceed 95% of market value of the property.
- Definition of Residential vs. Non-Residential Properties: The Committee recommends adding the following definition to the Operating Agreement: “Non-residential property” is any property that is a multi-family property containing five or more units of housing, or any commercial, agricultural, or industrial property that would otherwise be eligible for PACE financing. It was acknowledged that there is a discrepancy between the State's definition of residential property and the PACE law definition of residential property as "one to three units" and multi-family as "five or more units", leaving properties of four or more units in limbo. The Committee preferred to treat properties of four or less units as residential property for the purpose of the County's PACE Operating Agreement.
- Tax Deductibility Disclaimer: The Committee decided to provide in the County's Operating Agreement that PACE providers may recommend that property owners consult with a tax professional prior to claiming any tax deductions associated with the project, and shall not recommend or indicate that homeowners take any particular filing position regarding their annual or semi-annual PACE assessment payments.
Following the Internal Operations Committee meeting on September 14, staff completed its review of the application materials submitted by CaliforniaFirst and California HERO. Staff finds that the applications submitted by these two PACE providers satisfy the County’s requirements. Staff recommends today that the Board authorize the Conservation and Development Director, or designee, to execute an Operating Agreement with California HERO to operate a PACE financing program within the unincorporated area of the County and to adopt Resolution No. 2014/442 required for the PACE program to operate within the County’s jurisdiction. The Operating Agreement reflects the changes recommended by the Internal Operations Committee.
CaliforniaFirst and CSCDA are currently reviewing the Operating Agreement, and staff expects to bring that application to the Board in December.
If the Board of Supervisors does not approve the recommended actions, the California HERO PACE financing program will not be able to provide property owners in the unincorporated area of the County with financing for energy and water efficiency improvements to their property.
Jason Crapo, Department of Conservation and Development (DCD), presented the staff report.
Mr. Crapo directed the Board's attention to the background information in the Boardorder regarding the September 14, 2015 meeting of the Internal Operations Committee. The agreement providers requested a revision to the operating agreement to reflect that the combined amount of any pre-existing loans plus the PACE lien of a property not exceed 95% of the value of the property. The Internal Operations Committee recommends this revision be adopted.
Additionally it was noted that Exhibit A to Resolution 2015/442 was not attached at the time of publication, and staff requested a motion to enter the exhibit into the record.
By unanimous vote with all Supervisors present, the Board WAIVED the Better Government Ordinance (BGO) 96-Hour Time Limit to allow inclusion of the exhibit.
The Board ACCEPTED the staff report; ADOPTED Resolution No. 2015/442 and exhibits to become an Associate Member of the Western Riverside Council of Governments (WRCOG), a joint powers authority, and to join the California HERO PACE financing program established by WRCOG; and AUTHORIZED the DCD Director, or designee, to executed an operating agreement, as revised today, with WRCOPG authorizing WRCOG to operate the California HERO PACE financing Program in the unincorporated area of Contra Costa County.