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Supervisor Karen Mitchoff, Chair
Supervisor Candace Andersen, Vice Chair |
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| 1. | Introductions | ||||||||||
| 2. | Public comment on any item under the jurisdiction of the Committee and not on this agenda (speakers may be limited to three minutes). | ||||||||||
| No public comment was offered. | |||||||||||
| 3. | Staff recommends approval of the Record of Action for the September 8, 2014 IOC meeting. | ||||||||||
| The Record of Action for the September 8, 2014 IOC meeting was approved as presented. | |||||||||||
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| 4. | APPROVE nomination of Jack Bean for appointment to the Business # 2 Alternate - Industrial Association seat on the Hazardous Materials Commission to complete the unexpired term ending on December 31, 2017. | ||||||||||
| The Committee approved the nomination of Jack Bean for appointment to the Business #2 Alternate - Industrial Association seat on the Hazardous Materials Commission. | |||||||||||
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| 5. | The potentially significant environmental and economic benefits of PACE financing suggest the County may want to consider participating in such programs. However, ongoing efforts by FHFA to discourage mortgage lending on residential properties with PACE loans requires that the County act prudently in considering the formation and operation of PACE financing districts. Should the Board decide to permit PACE financing within the county unincorporated area, each proposal to form a PACE district should be evaluated by County staff to ensure the benefits of PACE financing can be made available while also protecting the interests of the County and the public. Factors such as a PACE program's participation in the State's Loss Reserve Program, disclosure of potential negative impacts to participating property owners resulting from federal regulatory action, and agreement to release the County from liability associated with operation of the program should all be considered as preferred program elements. To this end, we recommend that entities interested in forming PACE financing districts within the unincorporated area of the county submit an application with their proposal to the Department of Conservation and Development (DCD), which will serve as the central point of contact for applicants and would work closely with other County departments, including County Counsel, the County Auditor-Controller and the County Treasurer Tax-Collector, in the review of applications. DCD proposes to collect an initial deposit of $5,000 from each applicant to pay for County staff time and other costs incurred by the County to review an application. Any portion of this deposit not spent will be returned to the applicant at the conclusion of the application process. Staff will then make appropriate recommendations to the Board of Supervisors once review of an application is completed. |
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Supervisor Mitchoff provided the context of the Board referral. Jason Crapo presented the staff report and recommendations. The Committee asked for the input of the Auditor-Controller and Treasurer-Tax Collector, specifically with regard to any impacts that PACE would have on administrative obligations and costs. It was clarified that the County's participation in PACE financing would pertain only to property owners in the unincorporated area of the county but regardless of the County implementing PACE programs or not, as the tax administration agency the County would have obligations related to any Contra Costa city that chose to implement a PACE program. It was noted that the cities of Walnut Creek and Concord have already implemented PACE, and that the cities of Lafayette, Richmond, and Martinez intend to participate. It was also understood that the interest on a PACE loan might be tax deductible but the County would make no representation on that point other than to advise applicants to consult their tax advisors. PACE industry representatives reported that PACE is currently operating within 27 counties, with 14 counties actually having opted into it. Jason Crapo explained that, in order to address the objections of the FHFA, the State of California established a $10 million PACE loss reserve program as a kind of insurance policy against potential defaults that would undermine the credit value of first mortgages. However, the FHFA responded that the PACE loss reserve is not a sufficient response to its concerns. Supervisor Andersen pointed out that if a person held a 10% equity in his property, the first mortgage lender is also relying on that 10% equity if the owner should default, yet the PACE lien would receive priority for that 10% equity, illustrating the concern of the FHFA. Supervisor Mitchoff also pointed out that the loan loss reserve is subject to the annual State budgeting process and could not be guaranteed to continue indefinitely or at the current budgeted level. Eva Perez explained that the first mortgage lender would not be impacted by a default because the State loan loss reserve would serve as a backstop on the default and the value of the PACE default would be, at most, two years' annual payments, not the entire PACE loan balance. The remaining loan balance would remain as a property lien for the new property owner to assume. However, Nick Solis later pointed out PACE-financed upgrades increase the asking price for a property, making it harder to afford and sell when combined with the additional tax obligation of the new owner. Jason Crapo suggested two approaches to implementing PACE in our County if the Board chose to do so: (1) issuing a Request for Proposals to select one or more providers or (2) consider PACE providers on a case-by-case basis as they apply to operate within the county. Eva Perez explained that PACE financing, while more expensive than some conventional mortgage financing, has generated consumer demand because it is based on equity in the property rather than a FICO (credit scoring model) score and, consequently, may be easier to secure. Moreover, a PACE loan does not appear as a debt on a credit report so it does not impact a borrower's debt to income ratio. The underwriting standards for a PACE loan are less stringent than for a conventional loan, so more property owners can qualify for a PACE loan. Also, a PACE loan term may be longer than other energy efficiency financing, allowing the property owner to make smaller payments over a longer term. Perez also stated that her HERO program has funded 20,000 loans since 2011 with zero defaults, and that Sonoma County has had six defaults. Jonathan Kevles noted that the average PACE loan amount is $18,000 but that loans can range from $5,000 to $200,000. Nick Solis pointed out that the main reason so many PACE loans have been made is that private lenders have the backstop of the the State of California, in the form of a loan loss reserve, to make "risky" loans. The sufficiency and reliability of that backstop during an economic downturn is uncertain. Moreover, since PACE financing is still relatively new, how banks and other mortgage lenders will respond to perceived threats to the value of their loan portfolios remains to be seen. Solis also stated that the rapid growth of PACE financing has been driven less by consumer demand and benefit and more by private lenders wanting to make money with the benefit of State and local government sponsorship. Jonathan Kevles commented that in Sonoma County, 56% of properties having a PACE lien were able to carry the lien forward and/or refinance their mortgages without having to repay the entire PACE loan balance; it was unclear as to how many of those mortgages were FHFA loans. However, in those cases, neither the borrower nor the lender took issue with the PACE lien. Kevles stated that, in practice, concerns about how the mortgage industry would react to FHFA warnings have not borne out. Nick Solis later contended that the reason mortgage lenders have not taken issue with the PACE liens is because they may not be aware of them. Since the PACE lien does not appear as a debt on a credit report, it is up to the borrower to disclose the PACE lien to the lender. The only independent way for the lender to become aware of a PACE lien is through a title search, which may not clearly identify a PACE encumbrance since it is an optional tax bill payment and not a tax. Another speaker commented that PACE programs are broader than solar panel projects but also include weatherization, water and earthquake upgrades, which are equally important. Kevles stated that all city/county costs for PACE administration are covered through fees assessed to the PACE borrower. A county's liability exposure can be addressed with an indemnification agreement but it is unclear, in the case of a Joint Powers Authority, just who is providing the indemnity. Russell Watts commented that the Committee's studied and cautious approach to PACE financing is appropriate as the programs are still relatively new and issues with the FHFA are still unresolved. He indicated that operationally, the programs would not require significant changes to his current business practices. Yet he advised to proceed with caution and examine all of the alternatives before making a decision. He suggested the Committee consider what might happen if a PACE lender/institution backs out or bankrupts? What would happen to advance distributions made by the County under the Teeter Plan? Nick Solis commented that in the event of a foreclosure, the only party that doesn't lose anything is the PACE lender (the property owner, the mortgage lien holder, the State/taxpayers and potentially, the County lose) . Solis added that a PACE lien will inflate the selling price of a property with no guarantee of a commensurate increase in assessed or appraised value. Bob Campbell reminded the committee that as a Teeter county, the County would be fronting the tax proceeds whether or not the loan payment was paid or not. A foreclosure process will need to be determined and a decision made as to whether or not the loan must be stripped from the tax roll in order to foreclose on the property. It is generally the responsibility of the lender to monitor the payment of the loan through the tax bill and begin foreclosure proceedings in the event of a deliquency or default. The Committee, acknowledging that PACE Programs are relatively new and that empirical evidence may yet be lacking, requested the following information from industry and staff for a follow-up meeting in March 2015:
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| 6. | The next meeting is currently scheduled for December 1, 2014. | ||||||||||
| 7. | Adjourn | ||||||||||
| The Chair adjourned the meeting at 11:55 a.m. | |||||||||||
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