City of La Palma Agenda Item No. 6

Transcription

1 City of La Palma Ageda Item No. 6 MEETING DATE: October 1, 2013 TO: FROM: SUBMITTED BY: CITY COUNCIL CITY MANAGER Douglas D. Dumhart, Commuity Developmet Director AGENDA TITLE: Califoria Home Eergy Reovatio Opportuity (HERO) Program PURPOSE: To cosider participatio i the Califoria Home Eergy Reovatio Opportuity (HERO) program which would eable property owers to fiace reewable eergy sources (solar), eergy ad water efficiecy improvemets (coservatio projects), ad electric vehicle chargig ifrastructure by placig the cost of these improvemets o their property taxes. BACKGROUND: This item was cotiued from September 3, 2013 to the October 1, 2013, meetig to ivestigate the questio whether the Property Assessed Clea Eergy (PACE) assessmets were tax deductable. The followig iformatio has bee gathered to address this questio. DSIRE a olie Database of State Icetives for Reewables ad Efficiecy was established i DSIRE is curretly operated ad fuded by the North Carolia (N.C.) Solar Ceter at N.C. State Uiversity, with support from the Iterstate Reewable Eergy Coucil, Ic. DSIRE is fuded i part by the U.S. Departmet of Eergy. Their web page o PACE Fiacig stated: The beefits of PACE fiacig iclude log-term, fixed-cost fiacig; loas tied to the tax capacity of the property rather tha to the ower s credit stadig; a repaymet obligatio that legally trasfers with the sale of the property; ad potetially a deductio of the repaymet obligatio from federal taxable icome, as part of the local property tax deductio. 1 A fact sheet o fiacig reewable eergy projects produced by the Natioal Reewable Eergy Laboratory, provided as Attachmet 1 to this report, states o the secod page, first paragraph: As with mortgages, the iterest is tax-deductable for homeowers, although the pricipal is ot. 1 Ageda Item 6 HERO Program Page 1 of 2

2 I referecig the Iteral Reveue Service (IRS) Publicatio No. 17, a Tax Guide 2012 for Idividuals we fid o page 151: Taxes for local beefits. Deductible real estate taxes geerally do ot iclude taxes charged for local beefits ad improvemets tedig to icrease the value of your property. These iclude assessmets for streets, sidewalks, water mais, sewer lies, public parkig facilities, ad similar improvemets. You should icrease the basis of your property by the amout of the assessmet. Local beefit taxes are deductible oly if they are for maiteace, repair, or iterest charges related to those beefits. If oly a part of the taxes is for maiteace, repair, or iterest, you must be able to show the amout of that part to claim the deductio. If you caot determie what part of the tax is for maiteace, repair, or iterest, oe of it is deductible. 2 As oe ca see from the IRS guide, it states that local taxes are deductible if they are for maiteace, repair, OR iterest charges. Thomas Hemmigs, Chief Fiacial Officer for Reovate America, Ic. says he has spoke with a umber of CPA s who all agree that the iterest paymet o the HERO assessmets is deductible. Furthermore, Mr. Hemmigs otes that i Califoria, the Frachise Tax Board (the state versio of the IRS) has stated that as with the federal iterpretatio, the iterest portio of the assessmet paymet is deductible. As oted durig the September 3, 2013, City Coucil meetig, each homeower should cosult with their ow tax advisor for their particular circumstaces o whether iterests o HERO assessmets are tax deductable. The City does ot provide tax advice. The September 3, 2013, HERO ageda report is provided as Attachmet 2 to this report for additioal backgroud iformatio. RECOMMENDED ACTION: It is recommeded that the City Coucil adopt a Resolutio, provided as Attachmet 3, approvig a amedmet to the Wester Riverside Coucil of Govermets (WRCOG) Joit Powers Agreemet to add the City of La Palma as a Associate Member i order to authorize the City s participatio i the Califoria HERO Program, which will eable property owers to fiace permaetly fixed reewable eergy, eergy ad water efficiecy improvemets ad electric vehicle chargig ifrastructure o their properties. Attachmets: 1. Natioal Reewable Eergy Laboratory Fact Sheet APPROVED: 2. September 3, 2013, Ageda Report 3. Resolutio approvig iclusio of City ito the HERO Program 4. WRCOG Joit Powers Agreemet Departmet Director Fiace City Maager 2 Ageda Item 6 HERO Program Page 2 of 2

3 Eergy Aalysis Fact Sheet Series o Fiacig Reewable Eergy Projects Property-Assessed Clea Eergy (PACE) Fiacig of Reewables ad Efficiecy The Recovery Through Retrofit report (CEQ 2009) a product of the White House Coucil o Evirometal Quality, 11 federal departmets ad agecies, ad six White House offices idetified property-assessed clea eergy (PACE) fiacig programs as a meas of removig barriers to expasios i the residetial eergy efficiecy ad retrofit market. Uder PACE programs, muicipalities ad couties form special tax districts to help property owers fiace eergy retrofits by allowig a property ower to place a additioal tax assessmet o his or her property. 1 Property owers who ivest i eergy efficiecy (EE) measures ad small reewable eergy (RE) systems repay these assessmets over 15 to 20 years via additioal aual paymets o their property tax bills. State ad local govermets that implemet the PACE model ca address two major roadblocks to clea eergy growth at the residetial level 2 : Lack of Capital: Property owers ofte balk at the up-frot cost of EE/RE improvemets. While a portio of the U.S. populatio is willig to make the ivestmet, most cosumers are cautious about ay ivestmet, especially i the curret ecoomic eviromet. To fiace EE/RE improvemets, property owers have had to self-fiace (e.g., get home equity loas) or rely o small-scale state or local govermet rebates ad other fiacial icetives. Hesitacy to Make Log-Term EE/RE Ivestmets: Because may homeowers move every 5 to 7 years, they might hesitate to make a log-term ivestmet i a reewable eergy system or eergy efficiecy improvemets. However, PACE assessmets are trasferable, which leaves ope the possibility for property owers to recoup their ivestmet upo sale. 3 1 Assessmets are similar to loas i that they allow a property ower to pay off debt i istallatios over a log period of time. However, PACE assessmets are ot legally cosidered as loas. 2 As of this writig, busiesses are oly eligible uder the Sooma Couty program. However, Boulder Couty will be opeig its program to commercial property owers uder the ext roud of fudig i A property buyer may require that all lies be settled before the property is trasferred from the previous ower. This fact sheet outlies the primary beefits of PACE fiacig ad the basics of implemetig these programs with a focus o how they ca be desiged ad fuded. PACE Fiacig Beefits PACE is desiged to address the two roadblocks metioed by: 1. Elimiatig large up-frot costs for eergy retrofits 2. Reducig cocer about ivestmet recovery whe the property is sold, because the fiacig is tied to the property itself rather tha to the ower 3. Covertig a aual or semi-aual paymet ito a et mothly cost similar to that of other persoal expeses (e.g., cable, cell phoe service). Note that these are partially or wholly offset by electric bill savigs. 4. Improvig access to credit at a competitive, fixed iterest rate; i additio, PACE assessmet terms of 15 to 20 years exceed typical home equity loa terms. 5. Reducig the likelihood of a egative impact o the muicipality s credit or obligatio risk, ad thus, ot edagerig other muicipal programs. 6. Providig accessible EE ad RE iformatio ad/or educatioal programs; moreover, the programs are sposored by the muici pality, which could egeder more trust i the accuracy of the iformatio as opposed to cotractorled programs (Bailey 2009). PACE Fiacig Basics The pivotal iovatio of PACE is the creatio of EE/RE assessmets that are tied directly to the house ad repaid via the property ower s tax bill. The assessmet, which is secured by a seior lie o the property, does ot require a up-frot paymet. 4 The lie provides strog debt collateral i the evet the homeower or busiess ower defaults o the assessmet. Because the assessmet ad lie are tied directly to the property, they ca be trasferred upo sale. The basic flow of fiacig activity is show i Figure 1. 4 PACE programs ofte have applicatio, reservatio, ad/or admiistratio fees, some of which may eed to be paid up frot. NREL is a atioal laboratory of the U.S. Departmet of Eergy, Office of Eergy Efficiecy ad Reewable Eergy, operated by the Alliace for Sustaiable Eergy, LLC.

4 Figure 1. Basic PACE fiacig Property Ower No/Low up-frot costs Competitive-iterest assessmet Additioal savigs from taxdeductible iterest Up-frot moey for total istallatio cost of EE/RE Additioal property tax paymets City or Local Govermet Creates tax assessmet district Issues bods or uses other fudig sources Places lies o properties Oce the project is complete, the property ower repays the assessmet, usually over 15 to 20 years. However, the property ower will simultaeously experiece reduced electric utility bills resultig from the EE/RE improvemets. As with mortgages, the iterest is tax-deductible for homeowers, although the pricipal is ot. A critical desig elemet of the PACE model is the use of special tax districts kow as clea eergy assessmet districts. These districts are regularly used i the fiacig of traditioal local govermet projects (e.g., sewers ad streetlights), ad they provide two beefits for the localities. First, the special district shields the locality from risk, thereby ideally helpig to protect its overall debt ratig. Secod, the special district allows the additioal assessmet to be placed oly o property whose owers opt to participate i the program. Federal Edorsemet of PACE Recovery Through Retrofit (CEQ 2009) idetified three major market barriers to the widespread deploymet of EE/RE techologies, oe of which is access to affordable fiacig. Figure 2. PACE legislatio ad programs i the Uited States 11 PACE eablig legislatio Existig authority without ew legislatio Source: NREL, LBNL, ad DSIRE (April 2010) # Active PACE Program 1. Aapolis, MD 2. Babylo, NY (hybrid model) 3. Berkeley, CA 4. Boulder Couty,CO 5. Milwaukee, WI 6. Palm Desert, CA 7. Placer Couty, CA 8. Racie, WI 9. Sa Fracisco, CA 10. Sooma Couty, CA 11. Yucaipa, CA The iteragecy workig group resposible for the report recommeded providig program guidace to local govermet fiacig programs to address the fiacig barrier. The U.S. Departmet of Eergy is also supportig PACE fiacig programs through techical assistace, webiars, ad olie resources for America Recovery ad Reivestmet Act gratees that are pursuig log-term fiacig mechaisms for eergy retrofits. 5 The U.S. Departmet of Eergy recetly aouced the release of $452 millio i fuds to 25 commuities that received the grats as part of the competitive solicitatio uder the Eergy Efficiecy Block Grat Program. The fuds ca be used towards iovative fiacig models to make these savigs accessible, for example by offerig low ad o-iterest loas that are repaid through property tax ad utility bills (U.S. DOE 2010), ad ca therefore be used towards implemetig PACE programs. State ad Local Support for PACE Desigig a PACE program ivolves actio at both the state ad local levels. First, a state must establish laws eablig local govermets to create special assessmet districts that recogize EE ad RE as public goods. See Figure 2 for existig state legislatio ad programs. Next, each locality ca pass ordiaces creatig assessmet zoes ad authorizig lie creatio ad project fiacig. Fially, the locality establishes admiistrative ad fudig processes. Optios for Fudig PACE Programs A locality ca choose from a variety of meas to fiace the assessmets 6 : Table 1 summarizes the beefits ad challeges of PACE fudig strategies for curret ad forthcomig programs i Califoria, Colorado, Marylad, ad New York. Each of these localities desiged its fudig program to take advatage of its uique situatio: Boulder Couty, Colorado, leveraged its high geeral obligatio ratig (AAA) to issue muicipal bods directly i public markets rated at A- (ivestmet grade). Berkeley iovated by creatig micro-bods. The city cotracted with a aggregator (Reewable Fudig, LLC) to periodically issue a series of small bods at pre-determied fixed iterest rates. Reewable fudig, i tur, received third-party fiacig based upo the bod portfolios. Sooma Couty ad Palm Desert used available geeral fuds. 5 See for webiars ad iformatio regardig techical assistace. Curretly, there are 20 states with PACE-eablig legislatio ad five localities with active PACE programs, as show i Figure 2. 6 Although PACE programs have bee deployed oly at the muicipal ad couty levels, state govermets could develop similar programs, possibly improvig the ecoomics of the program (i.e., creatig ecoomies of scale, thereby reducig the admiistratio cost per participat).

5 Table 1. Beefits ad Challeges of Various Fudig Sources for PACE Programs a Fudig Source Bod Fudig Mechaisms Public Bod Offerigs Other Fudig Mechaisms Micro Bods Bak Loas Geeral Fuds Muicipal CO 2 Waste Revolvig Fud Program example Boulder Couty, CO Berkeley, CA (oly photovoltaic systems) Aapolis, MD, Phase II (program pedig) b Sooma Couty, CA Tow of Babylo, NY (oly EE) Iitial fudig amout Iterest rate Issued $9.75 M authorized $40 M 5.2% (icome-qualified); 6.68% (ope assessmet category) $1.5 M for the pilot phase c $1.5 M d $21.28 M d $3.19 M d 7.75% Ukow 7% e 3% Beefits Local govermet s balace sheet ot used Temporary fiacig from bod aggregator ot eeded Ca be tied to admiistrative role Aggregator serves as a good stagig area for covertig assessmets to commercial bods Does ot affect balace sheet of local govermet Baks have experiece securitizig loas/ assessmets (e.g., mortgages) Access to large pools of capital Faster deploymet, less complexity, ad lower cost compared with issuig bods Third-party fiacier ot ivolved. Fuds easily accessible Quick startup Lies are placed o properties oly if a borrower defaults o paymets Challeges Assessmets are issued before iterest rates are kow Lie placed o property before istallatio (i.e., risk that the istallatio is ot doe) May eed borrowers to fud debt service reserve, which would icrease up-frot costs for program participats Local govermet may eed to offer moral obligatio, which could hurt their credit ratig if they are ot able to meet the obligatio May require boutique ivestor to purchase assessmets i traches (pools) A bak warehouse lie of credit is oly a optio for the third party admiistratio or if the state or local govermet puts up a moral obligatio. Either way, there has to be a party willig to take the risk. Likely that oly big baks might be willig to provide warehouse credit More complex to implemet but easier to scale to demad High iterest expese Requiremets for guaratees ad other coveats ca complicate ad delay program implemetatio Loa term is typically limited to 10 years or less Locality at higher risk by self-fudig Fuds where they exist are iheretly limited Potetial to egatively affect credit ratig May local govermets may ot have sufficiet geeral fuds to lauch a program Need to recostitute waste fud as applyig to carbo emissios or other pollutats tha ca be mitigated through EERE May ot be expadable May ot be replicable a DOE (2009) was the primary source for program characteristics i Table 1. The beefits ad challeges were idetified i part by aalysts with NREL s Strategic Eergy Aalysis Ceter with iput from Fuller (2010) o the etire cotets of the table ad Weaver (2010) o the Aapolis program. b Aapolis will lauch Phase I of the EZ program i 2010, which is fuded at $325k by grat moey from the Marylad Clea Eergy Ceter ad will provide 50 assessmets for homeowers. The iterest rate for Phase I is ukow but is expected to be about 6% to cover admiistratio costs. Phase II will be fuded by bak loas. c Note that $1.5 millio was allocated for the pilot phase to fiace 39 istallatios. However, oly 13 assessmets were completed, ad thus the assessmets did ot exhaust the iitial fudig amout (Berkeley FIRST). d Zimrig, M.; Fuller, M. Existig ad Emergig PACE Programs. Forthcomig Clea Eergy Fiacig Policy Brief. Lawrece Berkeley Natioal Laboratory. e Sooma Couty staff, persoal commuicatio with Bethay Speer, Jauary 2010

6 Babylo took advatage of a existig muicipal waste fudig program by classifyig carbo dioxide as waste to fud EE assessmets. Aapolis, Marylad, is parterig with local baks for fudig for Phase II (program forthcomig). PACE Desig Cosideratios Before adoptig oe of the program examples described here or desigig its ow program, a locality must first cosider its fiacig situatio ad the program s goals ad objectives. Additioal cosideratios iclude iteded program size, muicipal bod ratigs, targeted iterest rates, willigess to work with a aggregator, level of comfort with risk, ad the amout of iterest i parterig with third parties that will eed access to tax records. Aother importat desig elemet is the timig of the costructio, fudig, ad lie assigmet. Boulder issued bods, received fiacig, ad assiged the assessmets ad lies simultaeously with the start of project costructio. Berkeley, o the other had, assiged the lies ad assessmets at the completio of project costructio ad certificatio. Babylo followed Berkeley by assigig the assessmet at the completio of costructio, but they chose to assig the lies oly whe (ad if) a default should occur. Each methodology provides beefits ad challeges i terms of fudig ad admiistratio that should be cosidered i program creatio. PACE programs ca address major barriers to EE/RE deploymet both by providig capital for the up-frot ivestmet ad allowig for the ivestmet to be trasferred upo sale of the property. However, local govermets must cosider the beefits ad challeges associated with alterative desigs. Localities that cosider beforehad all the programmatic elemets metioed from program size to third-party parterig will be better situated both to support EE/RE deploymet to qualifyig home ad busiess owers ad to avoid uwelcome political or fiacial repercussios. Refereces Bailey, M; Broido Johso, C. (Jue 2009). The America Recovery ad Reivestmet Act (ARRA) of 2009: Iovative Eergy Efficiecy Fiacig Approaches. Ed. U.S. Departmet of Eergy Office of Eergy Efficiecy ad Reewable Eergy. gov/dowloads/eecbg_iovative_ee_fiacig_approaches_ Webcast_ pdf. Accessed December 30, Berkeley FIRST. (2009). Berkeley FIRST Web site. Accessed Jauary 6, Coucil o Evirometal Quality (CEQ) Middle Class Task Force. (2009). Recovery Through Retrofit. October Report.pdf. Accessed December 30, Database for Reewables ad Efficiecy (DSIRE) (2009). PACE Summary Maps. idex.cfm?ee=1&re=1. Accessed Jauary 6, Fuller, M. (2010). Persoal commuicatio. Merria Fuller, Lawrece Berkeley Natioal Laboratory, Jauary U.S. Departmet of Eergy (DOE). Vice Presidet Bide Kicks Off Five Days of Earth Day Activities with Aoucemet of Major New Eergy Efficiecy Effort, Press release. U.S. Departmet of Eergy (DOE). (July 30, 2009). Property Assessed Clea Eergy (PACE) Best Practices. Departmet of Eergy Discussio Draft. Weaver, L. (Jauary 2010). Persoal commuicatio. Lotte Weaver, Ediso Wright, Jauary Additioal Resources Berkeley Calculator ( Estimates of cost savigs uder Berkeley s clea eergy fiacig program Boulder ClimateSmart Loa Program ( bocc/cslp/cslpitro.html): Resources for homeowers ad policymakers who are lookig to create PACE programs Database of State Icetives for Reewables ad Efficiecy (DSIRE) ( Property&EE=0&RE=1): State-specific fiacial iformatio for property tax assessed/pace programs Fiacig for Eergy Efficiecy ad Reewable Eergy ( html): PACE resources from the EECBG program Guide to Eergy Efficiecy & Reewable Eergy Fiacig Districts for Local Govermets ( berkeleysolar/howto.pdf): Step-by-step guidace for local govermets that wat to implemet PACE programs Policy Framework for PACE Fiacig Programs ( whitehouse.gov/assets/documets/pace_priciples.pdf): The Obama- Bide admiistratio s course of actio for PACE ad requiremets for receivig federal fudig for PACE Cotacts This fact sheet was writte by Bethay Speer of NREL ad Ro Koeig. For more iformatio, cotact Bethay Speer at Bethay.Speer@rel.gov or Natioal Reewable Eergy Laboratory 1617 Cole Boulevard, Golde, Colorado NREL is a atioal laboratory of the U.S. Departmet of Eergy, Office of Eergy Efficiecy ad Reewable Eergy, operated by the Alliace for Sustaiable Eergy, LLC. NREL/BR-6A July 2010 Prited with a reewable-source ik o paper cotaiig at least 50% wastepaper, icludig 10% post cosumer waste.

7 City of La Palma Ageda Item No. 9 MEETING DATE: September 3, 2013 TO: FROM: SUBMITTED BY: CITY COUNCIL CITY MANAGER Douglas D. Dumhart, Commuity Developmet Director AGENDA TITLE: Califoria Home Eergy Reovatio Opportuity (HERO) Program PURPOSE: To cosider participatio i the Califoria Home Eergy Reovatio Opportuity (HERO) program which would eable property owers to fiace reewable eergy sources (solar), eergy ad water efficiecy improvemets (coservatio projects), ad electric vehicle chargig ifrastructure by placig the cost of these improvemets o their property taxes. BACKGROUND: Assembly Bill (AB) 811 was siged ito law o July 21, 2008, ad AB 474, effective Jauary 1, 2010, ameded Chapter 29 of Part 3 of Divisio 7 of the Streets ad Highways Code of the State of Califoria ( Chapter 29 ) ad authorizes a legislative body to desigate a area withi which authorized public officials ad property owers may eter ito volutary cotractual assessmets to fiace the istallatio of distributed geeratio reewable eergy sources, eergy efficiecy, ad/or water coservatio improvemets that are permaetly fixed to real property, as specified i the statutes. The fiacig for these improvemets has come to be kow as PACE, which stads for Property Assessed Clea Eergy. The Califoria HERO Program (for PACE fiacig) has bee very successful i Wester Riverside Couty sice its lauch i late The Program has approved over $130 millio i applicatios ad has fuded over $30 millio i projects. The Califoria HERO Program provides additioal Califoria cities ad couties with a turkey program to save time, cost, ad local resources. The Califoria HERO Program would allow property owers i the City of La Palma to fiace reewable eergy, eergy ad water efficiecy improvemets, ad electric vehicle chargig ifrastructure o their property. If a property ower chooses to participate, the istalled improvemets will be fiaced by the issuace of bods by a joit powers authority, Wester Riverside Coucil of Govermets (WRCOG). The bods are secured by a volutary cotractual assessmet levied o such ower s property, with o recourse to the City of La Palma. Participatio i the Program is completely volutary. Property owers who wish to participate i the Program agree to repay the amout borrowed through the volutary Ageda Item 9 HERO Program Page 1 of 6

8 cotractual assessmet collected together with their property taxes. This fiacig is available for eligible improvemets o both residetial ad o-residetial properties. I order for La Palma property owers to participate i HERO to fiace PACE improvemets, the City Coucil would eed to adopt a Resolutio provided as Attachmet No. 1 to this report. The Resolutio approves a Amedmet to the WRCOG Joit Powers Agreemet to add the City of La Palma as a Associate Member i order to eable the Califoria HERO Program to be offered to the owers of property located withi the City who wish to participate i the Califoria HERO Program. A copy of WRCOG Joit Powers Agreemet is provided as Attachmet No. 2 to this report. ANALYSIS: The beefits of joiig the HERO Program for property owers iclude: Eligibility. I today s ecoomic eviromet, alteratives for property owers to fiace reewable eergy ad water/eergy efficiecy projects may be limited. As such, if the City Coucil were to adopt the Resolutio, may property owers will have fiacig optios available to them that would provide fudig for improvemets that lower their utility bills. Savigs. Selectig eergy efficiet, water efficiet, ad reewable eergy improvemets reduces utility bills. Volutary program. Property owers ca choose to participate i the Program at their discretio, as it is 100% volutary. Improvemets ad properties must meet eligibility criteria i order to qualify for fiacig. Paymet obligatio stays with the property. A volutary cotractual assessmet stays with the property upo trasfer of owership. Certai residetial coformig mortgage providers may, however, require the assessmet be paid off at the time the property is refiaced or sold. Prepaymet optio. The property ower ca choose to pay off the assessmets at ay time, subject to applicable prepaymet pealties. Customer orieted. Part of the success of the Program is the prompt customer service. Committed fudig parters provide fudig promptly upo project completio resultig i both property ower ad cotactor satisfactio. The Beefits to the City of joiig the HERO Program iclude: Icrease i local jobs. A icrease i property values (eergy efficiet homes ad buildigs are worth more moey). A icrease i sales ad property tax reveue Ageda Item 9 HERO Program Page 2 of 6

9 As i covetioal assessmet fiacig, the City is ot obligated to repay the bods or to pay ay deliquet assessmets levied o the participatig properties. All Califoria HERO Program assessmet admiistratio, bod issuace, ad bod admiistratio fuctios are hadled by Califoria HERO. Little, if ay, City staff time is eeded to participate i the Califoria HERO Program. By leveragig the already successful HERO Program i Riverside Couty, the City ca offer fiacig to property owers more quickly, easily, ad much less iexpesively tha establishmet of a ew local Program. Curretly, cotractors may apply for PACE fiacig by completig a applicatio form from a fiacig compay that has joied the CEDA (Califoria Eterprise Developmet Authority)/CALED (Califoria Associatio for Local Ecoomic Developmet) program. Both local govermet ad private compaies may apply with CEDA but local jurisdictios must choose to act as the issuer if desired (refer to CEDA Policy ad Procedure documet.) The HERO Program would make the fiacig process for PACE much easier. Terms are 5/10/15/20 years ad iterest rates rage from 5.95% to 8.25% as follows: 5.95% is for 5 year assessmet 6.95% is for 10 year assessmet 7.95% is for 15 year assessmet 8.25% is for 20 year assessmet Commercial is a flat 7% The term is based o the useful life of the product, as well as, the optio of the Property Ower (i.e. a solar project ca be doe as a 20 year assessmet, but the property ower ca opt to just pay over 5, 10, or 15 years if they wish to.) The umber of solar voltaic projects permitted i La Palma has icreased sigificatly to the rate of about oe per week. Staff has surveyed other muicipalities that have adopted the HERO Program, several of which geerate User Utility Tax (UUT) reveue. Theoretically, the HERO Program s adoptio may decrease UUT reveue due to property owers reducig electricity ad water cosumptio with gree retrofits. Based o ivestigatio of cities that geerate UUT reveue ad have adopted the HERO Program, o impacts have bee oticed or are expected i correlatio to the HERO Program s adoptio. Should sigificat UUT reveue losses be of cocer, a fee may be a optio. Sa Gabriel Valley Coucil of Govermets has established a participatio fee that is applied to every HERO retrofit project coducted i the jurisdictio. No sigificat or oticeable chage to UUT reveues is expected i relatio to the HERO Program s adoptio. Federal Housig Fiace Agecy (FHFA), Faie Mae ad Freddie Mac PACE eablig legislatio was adopted by the State of Califoria to ecourage the adoptio of eergy efficiecy, reewable eergy, ad water efficiecy measures o homes ad busiesses. Whe the legislatio was eacted, may people believed PACE fiacig was a attractive fiacig optio due to its ability to automatically trasfer paymets to a ew ower if the property sold. Ageda Item 9 HERO Program Page 3 of 6

10 I respose to the Directive issued by the FHFA o July 6, 2010, ad implemeted, i part, by Faie ad Freddie (Govermet Sposored Etities, GSEs) o August 31, 2010, mortgage origiators were iformed that the GSEs would ot be purchasig ay mortgages with PACE lies. I respose to this, the State of Califoria ad other etities filed lawsuits agaist FHFA. The origial itet of the lawsuit was to amed or dismiss the Directive by requirig that FHFA follow the rulemakig procedures as set forth uder the Admiistrative Procedure Act. O October 16, 2010, the District Court issued a judgmet which required FHFA to go through the rulemakig procedures. However, the District Court ruled that the FHFA s Directive would cotiue i effect. FHFA filed a appeal with the Nith Circuit Court of Appeals, seekig to overtur the judgmet requirig the FHFA to go through the rulemakig procedures. O March 19, 2013, the Nith Circuit Court of Appeals ruled that the FHFA did ot have to follow the rulemakig procedures i order to issue the Directive ad dismissed the case. Thus, the FHFA does ot eed to go through the rulemakig procedures. I the July 6, 2010, statemet issuig the Directive, FHFA supported PACE programs whose assessmets are juior/subordiate to Faie/Freddie s mortgage iterests. The statemet also directed Faie/Freddie to implemet the followig additioal actios: Adjustig loa-to-value ratios to reflect the maximum permissible PACE loa amout available to borrowers i PACE jurisdictios; Esurig that loa coveats require approval/coset for ay PACE loa; Tighteig borrower debt-to-icome ratios to accout for additioal obligatios associated with possible future PACE loas; Esurig that mortgages o properties i a jurisdictio offerig PACE-like programs satisfy all applicable federal ad state ledig regulatios ad guidace. FHFA stated that Nothig i this Statemet affects the ormal uderwritig programs of the regulated etities or their dealigs with PACE programs that do ot have a seior lie priority. To date, either Faie or Freddie has take actio to implemet ay of the above-listed additioal actios cotaied i the Directive. The PACE eablig legislatio i Califoria provides that PACE assessmets, like traditioal assessmets levied by public agecies i Califoria, are equal i priority to geeral property taxes. As such, they are seior to private debt o the property ad thus have first lies/seior lies priority. However, the Nith Circuit Court of Appeals held i Rust v. Johso (9 th Circuit (1979) 597 F.2d 174) that local govermet caot collect paymet of assessmets if they impair loas isured or owed by Freddie/Faie ( Coformig Loas ). The Court ruled that if a federal govermet etity has a mortgage iterest o a parcel subject to assessmets or special taxes, the property caot be sold at a foreclosure sale uless it ca be sold for a amout sufficiet to preserve the federal govermet mortgage iterest. Thus uder federal law, as set forth i the opiio uder Rust v. Johso, assessmets, icludig PACE assessmets, placed o a property are ot first lies or seior lies with respect to Coformig Loas. Disclosure of the decisio i Rust v. Johso has bee provided for i Official Statemets of Muicipal Bod issuaces for traditioal assessmet district ad commuity facilities district bod issues sice 1979, i a form similar to the followig: Ageda Item 9 HERO Program Page 4 of 6

11 Portios of the property withi the Assessmet District may ow or i the future secure loas. Ay such loa is subordiate to the lie of the Assessmets. However, (a) i the evet that ay of the fiacial istitutios makig the loa that is secured by real property withi the Assessmet District is take by the Federal Deposit Isurace Corporatio ( FDIC ), (b) the FDIC or aother federal etity acquires a parcel subject to the Assessmet lie, (c) the Federal Natioal Mortgage Associatio, the Federal Home Loa Mortgage Corporatio or similar federal agecy or istrumetality has a mortgage iterest i a loa o property subject to the Assessmet lie, ad, prior thereto or thereafter, the loa or loas go ito default, the ability of the City to collect the iterest ad pealties specified by State law ad to foreclose the lie of a deliquet upaid assessmet may be limited. Additioally, uder federal law, subordiate lies to mortgages are permitted ad caot be blocked (See U.S. Code Title 12, Baks ad Bakig, Sectio 1701j-3). Thus, the impact of a PACE assessmet beig subordiate i effect to the iterests of Faie/Freddie by virtue of the rulig i Rust v. Johso, ad the iability to prevet a perso from puttig a subordiate lie o their property, may make it difficult for FHFA/Faie/Freddie to impose additioal Directives adversely affectig the property ower s mortgage. ENVIRONMENTAL REVIEW: This actio is ot subject to the Califoria Evirometal Quality Act (CEQA) pursuat to Sectio 15060(c)(2) [the activity will ot result i direct or reasoably foreseeable idirect physical chage i the eviromet] ad Sectio 15060(c)(3) [the activity is ot a project as defied i Sectio 15378] of the CEQA Guidelies, Califoria Code of Regulatios, Title 14, Chapter 3, because it has o potetial for resultig i physical chage to the eviromet, directly or idirectly. ALTERNATIVES: Staff has idetified the followig available optios: Optio 1. Optio 2. Optio 3. Adopt a Resolutio icorporatig the City of La Palma ito the HERO Program which will eable property owers to access fiacig optios to provide fudig for eergy efficiet, water efficiet ad reewable eergy improvemets so that they may reduce their utility bills. Do ot adopt the Resolutio ad do ot allow the HERO fiacig Program to assist La Palma property owers with fudig for eergy efficiet, water efficiet ad reewable eergy improvemets. Refer to staff to obtai additioal iformatio. CONCLUSIONS: La Palma property owers may improve their properties with gree improvemet projects with the assistace of the HERO Program. This fiacig program to fud eergy efficiet, water Ageda Item 9 HERO Program Page 5 of 6

12 efficiet ad reewable eergy improvemets to La Palma properties is repaid through property taxes. The proposed Resolutio approvig a Amedmet to the WRCOG Joit Powers Agreemet would add the City as a Associate Member, makig the HERO program available to La Palma residets. The City of La Palma is free to opt out ad withdraw from the HERO Program ad the WRCOG Joit Powers Agreemet for ay reaso, upo 30 days writte otice, should it choose to do so. FISCAL IMPACT: No egative fiscal impact to the City s Geeral Fud will be icurred by cosetig to the iclusio of properties withi the City limits i the Califoria HERO Program. All Califoria HERO Program admiistrative costs are covered through a iitial admiistrative fee which is icluded i the property ower s volutary cotractual assessmet ad a aual admiistrative fee which is also collected o the property ower s tax bill. RECOMMENDED ACTION: It is recommeded that the City Coucil adopt a Resolutio approvig a amedmet to the Wester Riverside Coucil of Govermets (WRCOG) Joit Powers Agreemet to add the City of La Palma as a Associate Member i order to authorize the City s participatio i the Califoria HERO Program, which will eable property owers to fiace permaetly fixed reewable eergy, eergy ad water efficiecy improvemets ad electric vehicle chargig ifrastructure o their properties. Attachmets: 1. Resolutio approvig iclusio of City ito the HERO Program 2. WRCOG Joit Powers Agreemet Report Prepared by: Bejami Je, Admiistrative Iter APPROVED: Departmet Director Fiace City Maager Ageda Item 9 HERO Program Page 6 of 6

13 RESOLUTION NO RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LA PALMA, CONSENTING TO THE INCLUSION OF PROPERTIES WITHIN THE CITY S JURISDICTION IN THE CALIFORNIA HERO PROGRAM TO FINANCE DISTRIBUTED GENERATION RENEWABLE ENERGY SOURCES, ENERGY AND WATER EFFICIENCY IMPROVEMENTS AND ELECTRIC VEHICLE CHARGING INFRASTRUCTURE AND REQUESTING AN AMENDMENT TO A CERTAIN JOINT POWERS AGREEMENT RELATED THERETO WHEREAS, the Wester Riverside Coucil of Govermets ( Authority ) is a joit exercise of powers authority established pursuat to Chapter 5 of Divisio 7, Title 1 of the Govermet Code of the State of Califoria (Sectio 6500 ad followig) (the Act ) ad is govered by the Joit Powers Agreemet etered ito o April 1, 1991, as ameded from time to time (the Authority JPA ); ad WHEREAS, Authority has established itself as the admiistrator of the Califoria HERO Program to provide for the fiacig of reewable eergy distributed geeratio sources, eergy ad water efficiecy improvemets ad electric vehicle chargig ifrastructure (the Improvemets ) pursuat to Chapter 29 of Part 3 of Divisio 7 of the Califoria Streets ad Highways Code ( Chapter 29 ) withi couties ad cities throughout the State of Califoria that elect to participate i such program; ad WHEREAS, the City of La Palma is committed to the developmet of reewable eergy sources, eergy ad water efficiecy improvemets, reductio of greehouse gases, protectio of the eviromet, ad reversal of climate chage; ad WHEREAS, i Chapter 29, the Legislature has authorized cities ad couties to assist property owers i fiacig the cost of istallig Improvemets through a volutary cotractual assessmet program; ad WHEREAS, istallatio of such Improvemets by property owers withi the jurisdictioal boudaries of the couties ad cities that are participatig i the Califoria HERO Program would promote the purposes cited above; ad WHEREAS, the City wishes to provide iovative solutios to its property owers to achieve eergy ad water efficiecy ad idepedece, ad i doig so desires to cooperate with Authority i order to efficietly ad ecoomically assist property owers i the City i fiacig such Improvemets; ad WHEREAS, Authority has established itself as a local provider of the Califoria HERO Program, which is a volutary cotractual assessmet program, as permitted by Chapter 29, the Authority JPA, as ameded to date; October 1, 2013 Page 1 of 10 Resolutio No.

14 WHEREAS, the proposed Amedmet to Joit Powers Agreemet Addig the City of La Palma as a Associate Member of the Wester Riverside Coucil of Govermets to Permit the Provisio of Property Assessed Clea Eergy (PACE) Program Services withi the City (the JPA Amedmet ), to be etered ito by ad betwee Authority ad the City, a copy of which is attached as Exhibit A hereto, will assist property owers withi the icorporated area of the City i fiacig the cost of istallig Improvemets; ad WHEREAS, the City will ot be resposible for the coduct of ay assessmet proceedigs, the levy ad collectio of assessmets or ay required remedial actio i the case of deliquecies i the paymet of ay assessmets; or the issuace, sale or admiistratio of ay bods issued i coectio with the Califoria HERO Program. NOW, THEREFORE, BE IT RESOLVED THAT, the City Coucil of the City of La Palma fids as follows: SECTION 1. This City Coucil fids ad declares that properties i the City s icorporated area will be beefited by the availability of the Califoria HERO Program to fiace the istallatio of Improvemets. SECTION 2. This City Coucil cosets to iclusio i the Califoria HERO Program of all of the properties i the icorporated area withi the City ad to the Improvemets, upo the request by ad volutary agreemet of owers of such properties, i compliace with the laws, rules ad regulatios applicable to such Program. SECTION 3. The City Coucil further cosets to the assumptio of jurisdictio by Authority for all purposes of the Califoria HERO Program ad authorizes Authority, upo satisfactio of the coditios imposed i this Resolutio, to take each ad every step required for or suitable for fiacig the Improvemets, icludig the levyig, collectig ad eforcemet of the cotractual assessmets to fiace the Improvemets ad the issuace ad eforcemet of bods to represet ad be secured by such cotractual assessmets. SECTION 4. This City Coucil hereby approves the JPA Amedmet ad authorizes the executio thereof by appropriate City officials. SECTION 5. City staff is authorized ad directed to coordiate with Authority staff to facilitate operatio of the Califoria HERO Program withi the City, ad report back periodically to this City Coucil o the success of such Program. SECTION 6. This Resolutio shall take effect immediately upo its adoptio. The City Clerk is directed to sed a certified copy of this Resolutio to the Secretary of the Authority Executive Committee. October 1, 2013 Page 2 of 10 Resolutio No.

15 APPROVED AND ADOPTED by the City Coucil of the City of La Palma at a regular meetig held o the 1st day of October Steve Hwagbo, Mayor ATTEST: Laurie A. Murray, CMC City Clerk October 1, 2013 Page 3 of 10 Resolutio No.

16 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) SS. CITY OF LA PALMA ) I, LAURIE A. MURRAY, City Clerk of the City of La Palma, Califoria, DO HEREBY CERTIFY that the foregoig Ordiace was adopted by the City Coucil of said City at a regular meetig of said City Coucil held o the 1st day of October 2013, ad that it was so adopted by called vote as follows: AYES: NOES: Laurie A. Murray, CMC City Clerk October 1, 2013 Page 4 of 10 Resolutio No.

17 THE EXHIBIT A AMENDMENT TO THE WESTERN RIVERSIDE COUNCIL OF GOVERNMENTS JOINT POWERS AGREEMENT ADDING CITY OF LA PALMA AS AN ASSOCIATE MEMBER OF THE WESTERN RIVERSIDE COUNCIL OF GOVERNMENTS TO PERMIT THE PROVISION OF THE CALIFORNIA HERO PROGRAM SERVICES TO LA PALMA RESIDENTS This Amedmet to the Wester Riverside Coucil of Govermets Joit Powers Agreemet ( JPA Amedmet ) is made ad etered ito o the 3rd day of September, 2013, by City of La Palma ( City ) ad the Wester Riverside Coucil of Govermets ( Authority ) (collectively the Parties ). RECITALS WHEREAS, Authority is a joit exercise of powers authority established pursuat to Chapter 5 of Divisio 7, Title 1 of the Govermet Code of the State of Califoria (Sectio 6500 ad followig) (the Joit Exercise of Powers Act ) ad the Joit Power Agreemet etered ito o April 1, 1991, as ameded from time to time (the Authority JPA ); ad WHEREAS, as of October 1, 2012, Authority had 18 member etities (the Regular Members ). WHEREAS, Chapter 29 of the Improvemet Bod Act of 1911, i Divisio 7 of the Califoria Streets ad Highways Code ( Chapter 29 ), authorizes cities ad couties to establish volutary cotractual assessmet programs, commoly referred to as a Property Assessed Clea Eergy ( PACE ) program, to fud various reewable eergy sources, eergy ad water efficiecy improvemets, ad electric vehicle chargig ifrastructure (the Improvemets ) that are permaetly fixed to residetial, commercial, idustrial, agricultural or other real property; ad WHEREAS, Authority, pursuat to Chapter 29, has established a PACE program kow as the Califoria HERO Program, which provides a PACE fiacig program for cities ad couty throughout the state; ad WHEREAS, the City of La Palma desires to allow owers of property withi its jurisdictio to participate i the Califoria HERO Program ad to allow Authority to coduct proceedigs uder Chapter 29 to fiace Improvemets to be istalled o such properties; ad WHEREAS, this JPA Amedmet will permit the City of La Palma to become a associate member of Authority ad to participate i Califoria HERO Program for the purpose of facilitatig the implemetatio of such Program withi the jurisdictio of the City; ad October 1, 2013 Page 5 of 10 Resolutio No.

18 WHEREAS, pursuat to Govermet Code sectios 6500 et seq., the Parties are approvig this JPA Amedmet to allow for the provisio of PACE services, icludig the operatio of a PACE fiacig program, withi the icorporated territory of City; ad WHEREAS, the JPA Amedmet sets forth the rights, obligatios ad duties of City ad Authority with respect to the implemetatio of the Califoria HERO Program withi the icorporated territory of City. MUTUAL UNDERSTANDINGS NOW, THEREFORE, for ad i cosideratio of the mutual coveats ad coditios hereiafter stated, the Parties hereto agree as follows: A. JPA Amedmet. 1. The Authority JPA. City agrees to the terms ad coditios of the Authority JPA, which is attached hereto. 2. Associate Membership. By adoptio of this JPA Amedmet, City shall become Associate Member of Authority, o the terms ad coditios set forth herei ad i the Authority JPA ad cosistet with the requiremets of the Joit Exercise of Powers Act. The rights ad obligatios of City as a Associate Member are limited solely to those terms ad coditios expressly set forth i this JPA Amedmet for the purposes of implemetig the Califoria HERO Program withi the icorporated territory of City. Except as expressly provided for by the this JPA Amedmet, City shall ot have ay rights otherwise grated to Authority s Regular Members by the Authority JPA, icludig but ot limited to the right to vote o matters before the Executive Committee or the Geeral Assembly, right to amed or vote o amedmets to the Authority JPA, ad right to sit o committees or boards established uder the Authority JPA or by actio of the Executive Committee or the Geeral Assembly, icludig, without limitatio, the Geeral Assembly ad the Executive Committee. City shall ot be cosidered a member for purposes of Sectio 9.1 of the Authority JPA. City shall ot be boud by ay subsequet amedmets of the Authority JPA ot expressly agreed to by City. 3. Rights of Authority. This JPA Amedmet shall ot be iterpreted as limitig or restrictig the rights of Authority uder the Authority JPA. Nothig i this JPA Amedmet is iteded to alter or modify Authority Trasportatio Uiform Mitigatio Fee (TUMF) Program, the PACE Program admiistered by Authority withi the jurisdictios of its Regular Members, or ay other programs admiistered ow or i the future by Authority, all as curretly structured or subsequetly ameded. 4. Rights of City. This JPA Amedmet shall be ot iterpreted as limitig or restrictig the rights of City to establish parameters or limitatios o the HERO Program as it is coducted withi City s jurisdictio. October 1, 2013 Page 6 of 10 Resolutio No.

19 B. Implemetatio of Califoria HERO Program withi City Jurisdictio. 1. Boudaries of the Califoria HERO Program withi City Jurisdictio. City shall determie ad otify Authority of the boudaries of the icorporated territory withi City s jurisdictio withi which cotractual assessmets may be etered ito uder the Califoria HERO Program (the Program Boudaries ), which boudaries may iclude the etire icorporated territory of City or a lesser portio thereof, upo approval of same by City Coucil. 2. Determiatio of Eligible Improvemets. Subject to ay parameters or limitatios provided i the resolutio of City approvig the coduct of the HERO Program withi City s jurisdictio, Authority shall determie the types of distributed geeratio reewable eergy sources, eergy efficiecy or water coservatio improvemets, electric vehicle chargig ifrastructure or such other improvemets as may be authorized pursuat to Chapter 29 (the Eligible Improvemets ) that will be eligible to be fiaced uder the Califoria HERO Program. 3. Establishmet of Califoria HERO Program. Authority will udertake such proceedigs pursuat to Chapter 29 as shall be legally ecessary to eable Authority to make cotractual fiacig of Eligible Improvemets available to eligible property owers with the Califoria HERO Program Boudaries ad will be solely resposible for the coduct of such proceedigs. 4. Fiacig the Istallatio of Eligible Improvemets. Upo approval of the coduct of the HERO Program withi City s jurisdictio, Authority shall be solely resposible to develop ad implemet a pla for the fiacig of the purchase ad istallatio of the Eligible Improvemets uder the Califoria HERO Program. 5. Ogoig Admiistratio. Authority shall be resposible for the ogoig admiistratio of the Califoria HERO Program, icludig but ot limited to producig educatio plas to raise public awareess of the Califoria HERO Program, solicitig, reviewig ad approvig applicatios from residetial ad commercial property owers who wish to participate i the Califoria HERO Program, establishig cotracts for residetial, commercial ad other property owers participatig i such Program, establishig ad collectig assessmets due uder the Califoria HERO Program, adoptig ad implemetig ay rules or regulatios for the Program, ad providig reports as required by Chapter 29. City will ot be resposible for the coduct of ay proceedigs required to be take uder Chapter 29; the levy or collectio of assessmets or ay required remedial actio i the case of deliquecies i such assessmet paymets; or the issuace, sale or admiistratio of the Bods or ay other bods issued i coectio with the Califoria HERO Program. 6. Phased Implemetatio. The Parties recogize ad agree that implemetatio of the Califoria HERO Program as a whole ca ad may be phased as additioal other cities ad couties execute similar agreemets. By eterig ito this JPA Amedmet, City will obtai the beefits of ad icur the obligatios imposed by October 1, 2013 Page 7 of 10 Resolutio No.

20 this JPA Amedmet i its jurisdictioal area, irrespective of whether other cities or couties eter ito similar agreemets with WRCOG. C. Miscellaeous Provisios. 1. Withdrawal. Authority may withdraw from this JPA Amedmet upo six (6) moths writte otice to City; provided, however, there is o outstadig idebtedess of Authority withi City. The provisios of Sectio 6.2 of the Authority JPA shall ot apply to City uder this JPA Amedmet. City may withdraw approval for coduct of the HERO Program withi the jurisdictioal limits of City upo thirty (30) days writte otice to WRCOG without liability to the Authority or ay affiliated etity. City s withdrawal shall ot affect the validity of ay volutary assessmet cotracts (a) etered ito prior to the date of such withdrawal or (b) etered ito after the date of such withdrawal, so log as the applicatios for such volutary assessmet cotracts were submitted to ad approved by WRCOG prior to the date of City s otice of withdrawal. 2. Idemificatio ad Liability. Authority shall defed, idemify ad hold City ad its directors, officials, officers, employees ad agets free ad harmless from ay ad all claims, demads, causes of actio, costs, expeses, liabilities, losses, damages or ijuries of ay kid, i law or equity, to property or persos, icludig wrogful death, to the extet arisig out of the acts, errors or omissios of Authority or its directors, officials, officers, employees ad agets i coectio with the Califoria HERO Program admiistered uder this JPA Amedmet, icludig without limitatio the paymet of expert witess fees ad attoreys fees ad other related costs ad expeses, but excludig paymet of cosequetial damages, provided that the Authority shall ot be required to defed or idemify City ad its directors, officials, officers, employees ad agets for City s sole egligece or willful miscoduct. Without limitig the foregoig, Sectio 5.2 of the Authority JPA shall ot apply to this JPA Amedmet. I o evet shall ay of Authority s Regular Members or their officials, officers or employees be held directly liable for ay damages or liability resultig out of this JPA Amedmet. 3. Evirometal Review. Authority shall be the lead agecy uder the Califoria Evirometal Quality Act for ay evirometal review that may required i implemetig or admiisterig the Califoria HERO Program uder this JPA Amedmet. 4. Cooperative Effort. City shall cooperate with Authority by providig iformatio ad other assistace i order for Authority to meet its obligatios hereuder. City recogizes that oe of its resposibilities related to the Califoria HERO Program will iclude ay permittig or ispectio requiremets as established by City. City s cooperatio shall ot be iterpreted to require ay approvals without appropriate review or that ay discretioary authority of City be exercised other tha as provided by law. 5. Notice. Ay ad all commuicatios ad/or otices i coectio with this JPA Amedmet shall be either had-delivered or set by Uited States first class mail, postage prepaid, ad addressed as follows: October 1, 2013 Page 8 of 10 Resolutio No.