EECBG Legal Authority & Administering PACE Financing Programs (Text Version)
Below is a text version of the December 11, 2009 Financing Program Support for ARRA Recipients.
Announcer: Merrian Fuller
Hello and welcome to the next Webinar in a series brought to you by the Department of Energy and our team that is providing financial support to our ___ ____. This Webinar is on PACE Legal Authority and Administration. We have a great line-up speaker today who'll be going over how to set up the legal authority to create Pace programs in your state or county or city. Then some specific examples from folks who are on the ground running these programs about how they administer their programs which is gonna be very important as we start to roll out PACE programs all around the country starting next Year.
My name is Merrian Fuller; I'm with Lawrence Berkley National Laboratory and I'll be moderating the session. As a participant you are muted but we would like to receive questions from you through the box at the lower right hand corner of your screen you can just type in a question, I'll be moderating those as we go and at the end we hope to have some time to answer some of the questions that don't get responded to during this session.
So our first speaker is Sheridan Pauker from Wilson Sonsini Goodrich & Rosati. She'll be going over some of the higher level legal authority that is required to start PACE programs. So Sheridian I'd like to pass it over to you.
Hey Sheridan, are you there? Ohhh. Hmmm.
So Sheridan's phone has gone, it looks like so I think I'll just skip to the next presentation so if you could enable Ann to be able to speak, we'll start there and then we'll go back to Sheridan when she's able to get back online.
Ann is that, are you available now?
Ann Livingston:
Hello?
Merrian Fuller:
Hi Ann.
Ann Livingston:
Hi.
Merrian Fuller:
If you wouldn't mind just going first that would be great.
Ann Livingston:
Yeah, no problem.
Next Slide: ClimateSmart Loan Program
Merrian Fuller:
Thank you. Ann is from Boulder County, Colorado and she runs their Climate Smart Loan program there. Thanks Ann.
Ann Livingston:
Sure, no problem Merrian. If you could advance to the next slide please?
Next Slide: Initial Effort
Ann Livingston:
So our initial efforts really started in November of 2007 when we boldly stole the idea from Berkley California's pilot program and so we wanted to run an expanded version of that program here in Colorado. As many states have discovered we needed to adjust our state legislation to give us authority to do that. We also took that time while we were drafting the legislation to do some analysis of the bond market to figure out what types of bonding structures we'd be most interested in. Ended up going with a revenue bond model prepared by the specialist that's like most other folks. We also did some demand analysis for our residential sector; we launched residential first from a process of completing our commercial programming right now and we will launch that program ____ ____ early in 2010. We did the demand analysis to be imperfect, I think as most communities will but we did base the analysis demographic information as well as penetration rates for existing related programs. Specifically we needed to modify the special improvement and local improvement district sections of our states statue, of course we, political coalition and collaborations in an effort to support the bill.
That last quote there says discussion with utilities and banking lobbies, those weren't always the friendliest discussions. The utility issues were actually a little bit easier to resolve than the, we really got into it, of behind the meter; these are the limiting that pretty much was enough to get them comfortable with it. Banking lobbies is a different issue, in a sense in that they see these programs in a way it's competing with their products and they don't really offer comfortable products, which is sort of the side of the sense the politicians or at least the critical mass of politicians came down on. Nevertheless, it might be something worth distinguishing in your _____ or _____.
I just lost the ____, can you go to the? There we go, ok. Next slide, alright.
Next Slide: House Bill 1350 â€" Major Provisions
Ann Livingston:
Major provisions on House Bill 1350 which can be found on the state legislature's website for 08 included that we give statutory authority to both cities and counties; in Colorado that means ____ ____ cities and counties as well as ____ cities and counties which have different places in the statue in many instances to issue loans secured by a special assessments for both energy efficiency and renewable energy measures. So we left that language very broad and then to find that more distinctly within the program development. We did define energy efficiency renewable energy financing as a public purpose as very important in terms of how those provision relate to mortgages, it is a voluntary option district which is of course none continuous in terms of the actual participating properties but the district covers our entire county. Part of what that meant is municipalities had to opt into the district for the properties within municipal boundaries to become part of the district.
We're working right now to shorten some Colorado provisions that relate to notice and hearings for typical local improvement district because this is an opt-in district and those currently aren't differentiated under Colorado laws.
You can go ahead and skip to the next slide.
Next Slide: Public Purposes Served by Boulder County's Efforts
Ann Livingston:
So some of the things we threw into House Bill 1350 the ____ version were ____ ____ included reducing air pollutions and other emission including green house gas emissions, creating sustainable communities, obviously intervening in capital markets to improve communities; again anything on public ____, promoting local job creation, supporting small businesses and of course creating opportunities for inter-governmental cooperation.
Next slide.
Next Slide: Voter Approach â€" Fall 2008 and 2009
Ann Livingston:
We also in Colorado have to go to voters for any approval for taking on debt as a local government or the state as well so in November of 08 we asked voter's for $40 millions in bonding capacity, had about a 2 to 1 approval on that. That piece of about measure or ____ measure, what was put in there was a 10% interest limitation to provide the voters half on what that interest would be, we've been way under that limit. In this November, three other counties in Colorado passed ____ measures with similar language on it to ___ with these programs. We had a measure on there as well which included $45 million for other counties and we actually did a campaign on the measure at all we narrowly loss largely due to a get out the vote campaign from very conservative constituencies and part of the county and it wasn't a general election so that kind of was a bit of an issue. We actually don't need money till next year so we're referring a _____ measure again this November.
Next slide.
Next Slide: County Roles
Ann Livingston:
Real quick for the county roles we formed a county-wide local improvement district that does not require a vote in Colorado. We referred the ballot measure done by a board of county commissioners, voters then voted on that and we received volume task, allocation assignments from the vast majority of our communities that have allocations. One of our very small communities had already applied that to affordable housing, then we carried that into this year; we'll carry some forward in the next. That part allows us to issue taxes and bonds in addition to typical municipal bonds.
We then did some programs ____ within the municipalities although really the heavy lifting was on the county we market the rooms through our municipalities, through our county outreach program, through our non=profit partner as well as contractors. Well over a dozen contractors aggressively market the program as a financing tool. They have signed on to adhere to our brand usage guidelines and we review their materials but they certainly access the market of potential borrowers that the county doesn't necessarily have the best access to so that's a critical partnership in that regard.
_____ on the county imposes a special assessment and collects the payment through our treasure.
Next slide.
Next Slide: Stakeholder Process
Ann Livingston:
Here's a stakeholder process in develop in the program; it took a lot of community input on our eligible measures list and that's what we have named our prescriptive measures list. We have an eligible measures list for both residential and commercial. On the commercial side we also have a non-conforming task that will run for some projects like combined heat and power that are harder to put on a prescriptive list and project so that these are normal dollar amount cap will be a non-conforming project that we may or may not approve.
Other than have a serious public meetings and public hearings on the program the first to get input from stakeholders in the public and the second to approve the programs ____ a board of county commissioners. We also allowed emails, comments and other forms of comments for those who couldn't or didn't want to attend the meetings or had lengthier comments that they wanted to give us.
We engaged contractors and other partners from the get go in additional to the required homeowner workshop, for each round of residential loans we had 2 contractor workshops for explaining the process's, explain how they could market the program on their own, what they needed to do to comply, all that kind of stuff.
Of course had a, in fairly broad marketing campaign everything from tradition newspaper ads, radio ads, earned media to again working with the contractors ___ ____ ____, spreading information through social networks, doing lots of presentations that type of thing.
Next slide.
Next Slide: How the Program Works
Ann Livingston:
How the program works, I have a list of energy efficiency and renewable energy measures that we allow in the neighborhood of 42 or 43 measures; at this point we are open to adding and revising that list for every round of the ____ as new technologies come online or if we think we need to ___ it up the standards. As an opt-in program no one is required to participate they only place special assessment, repayment, responsibility, in the tax ___ property tax statement just like any other ____ in Colorado.
We will run up to the full upfront cost of projects so 100% financing except for the $75 application fee. There's no cost to property owners of the county who don't opt into the program that not that important selling point. We do link to rebate and incentive programs for all six of our utilities and who ____ rebates and incentives available through the local state and federal government. The only rebate that we don't allow people to take loan money to cover is the ____ solar rewards rebate because it's paid out in 60 days and not been an issue for anybody who applies to get those small system rebates and our solar companies are in the habit of fronting that money. Anyway so, all of the rebates and incentives, people can either take the loan for or front the money themselves, that's at their discretion.
For countywide pool funds obtained through the sale bond, we don't sale our bonds until we have assessed demand so our bonds are specifically sized for projects that we already have in the queue and have already conducted loan origination for.
Next slide.
Next Slide: Consumer Process Chart
Ann Livingston:
Our process here, like I said homeowners have to attend a workshop. At the workshop its sort of a forced education program in a way but what we do there is we talk about the value of the home energy audit with the least of ___. We talk about everything, efficiency measure that's on our list; how it functions in the home and what anticipated savings are every single renewable energy measure that's on the list. We also talk about things we can't loan for like appliances and behavior change. Then we talk about, you know, the loan process itself, how it's a local improvement district, different then a private sector model. We tell folks for a worst case scenario the fees and we explain to them that, you know, for some folks a private sector loan maybe be preferable and they should examine all their options. Then they go out and get their bids, they apply through an online process were they we cross check our assessments and treasures database right there. If folks are bounced out cause of their mobile home they are referred to a weatherization agency. We prequalify homeowners, they go meet face to face with the loan originator, after people have signed those loan documents they are bound to a special assessment. We do a final bond ____, we sell the bonds, once the bonds are sold ____ get a notice to proceed just like under a construction loan. When work is completed we take in a homeowner letter of acknowledgement that work's done, a final copy of the invoice and a copy of any permanent and ____ paperwork and we pay the contractors directly so that money never goes in the homeowners pocket, soon as taxes are due homeowner being the repayment.
Next slide.
Next Slide: Pace: Loan Sizes & Rates
Ann Livingston:
We set minimum and maximum loan sizes; $3,000 is the minimum loan, the maximum size depends on whether they're using income qualified loan or open loan. We set, if you see in the "open" loan category we set a sliding scale of 20% of statutory actual value of property so what the public assessor says the house is worth or $50,000, whatever is less. That's in part cause we have very small for a studio condo up to multi-million dollar houses, we wanted to account for that on both ends.
The rates that we've been able to achieve in those other rates the borrowers pay not what the county paying are on the bottom of that slide.
Next slide please.
This slide simply says the ____ throughout the county. Boulder, city of Boulder has been capturing about 45% of the loan dollars although they are about a 1/3 of our population. I think that their outreach campaign is a bit stronger; they're just a little ahead of our other communities but we've seen loans throughout the entire community.
Next slide.
Next Slide: Applying this to Other Colorado Cities and Counties
Ann Livingston:
I think some of the things we've talk to other Colorado communities about and I think this translates fairly well nationally is the political appetite of local elected officials is key.
Cooperation of constitutional officers is key that includes ___ the assessor, treasure and clerk from a ____.
Assessing your ability to staff the effort is critical, we are in the 2010 budget __ cycle, adding about 2 ½ FT to help manage the program. That's a part of staff who has now been spending all their time on the program, can get back to the desk they were originally hired for. Availability to access that ____ on a timely basis, we can't have staff that only show up on a Monday. They're contractors and residents who want answer for their question with a pretty quick turn-around. Some of that could be handled by a non-profit; we're doing a lot of in-house. Being aware that if your budgets don't come into play like you may have anticipated you may need some general fund support as back-up.
Availability of originators, for our programs because we do loan origination and size of the bond of ___ process, it's a little hard to address with local government staffing cause it's not for the consistent flow.
Next slide.
Next Slide: Contact Information
Ann Livingston:
That is my contact information and I'd be happy to take any calls from anyone after the webinar as well if we don't get to during the webinar.
Thanks Merrian.
Merrian Fuller:
Thanks and Ann, let me just ask you one brief, or a couple of brief questions based on some of the questions that have come in. One is you mentioned 2 FT internal staff coming in next year, is that in additional to other staff or what's the total FT that are working on this within the county administration?
Ann Livingston:
We're going to be at about 2 ½ to 2 ¾ FTA, also spend some of my time, ah, which doesn't count toward that total.
Merrian Fuller:
Mmmm.
Ann Livingston:
Because one of my core responsibilities is due to wear a green hat; gas emissions. What had happened was we'd hired a brand new outreach communication specialist in March of this year who works for me. She's been spending probably 90-95% of her time on the loan program. So she will now as if we hire the dedicated loan program person with 2010 budget funds, get busy with doing the bulk of the job she was actually hire for. We didn't anticipate quite the staff burden that we ended up seeing; we did have other staff already dedicated to sustainability that we could sort of re-prioritize their project loads. Now we have new staff coming on board that are funded through the loan program so those can get back to other tasks that have been sitting on the back burner.
Merrian Fuller:
And if you found us on the first year running this program that there is a lot of staff needed in the beginning to set everything up and then it's tapered off or is it continued to be pretty active in terms in the amount of staff time that it's taken?
Ann Livingston:
It's been pretty steady, the real crunch point we've seen during the application period and loan origination, as soon as you do the loan origination, there's an article of paper, the phone lines are flooded; the analyst people wanted to know about the next round. It's been fairly steady although the day-to-day task has not been consistent but the work flow has been fairly steady.
I should note we also fund a residential energy action program which used to be an audit program; we started piloting energy counseling through that counseling program this year. Some of that has been referred to that program which is staffed by non-profit but I think in a non-profit model of ___ contractor with the private sector partner may be a good way to go for some locals governments especially if you already have related programs. So what happens is when people come into the REAP and can't afford to do project, can't get private capital so they cross referred to the loan program with people calling the loan program who know they want to do something but don't know what that is and they get cross referred to the REAP. Having some ___ programs can be very helpful.
Merrian Fuller:
Great! Well thank you, I want to take some of the other questions at the end. We're gonna go now to Sheridan Pauker who's gonna talk a bit more about the state level legislation that's needed to set up these programs. So if Sheridan, if you can, there you go. If you can just go right ahead, thank you.
Sheridan Pauker:
Sure, thank you Merrian. I ‘m Sheridan Pauker, I'm an attorney in the clean technology and renewable energy group at Wilson Sonsini Goodrich & Rosati. My firm represent of broad spectrum of companies in the renewable energy and clean tech industry including in the renewable energy finance space. In the interest of full disclosure we work with renewable funding the innovator of PACE financing and administration of PACE program. I began my work on PACE issue through my work for the vote solar initiative; a solar energy advocacy non-profit that had been promoting the PACE model in states around the country.
Next slide please Merrian.
Next Slide: Property Assessed Clean Energy ("Pace") Financing Goals
Sheridan Pauker:
So just stepping back for a moment from some of the detail that Ann just provided, why is this PACE concept and why is it spreading around this country faster than the swine flu, well almost that fast? Well almost that fast, it stand for Property Assessed Clean Energy and the core ____ is embedded right in that name so the clean energy aspect is decreasing our dependence on fossil fuels, reducing greenhouse gas emissions and other harmful pollutants and environmental impacts. Increasing energy efficiency improvements and the spread of distributed renewable energy generation by lowering the up-front costs of these improvements to property owners. The property assessed portion of the name comes from this unique financing mechanism where the life of the loan or financing is closer to the payback period or the period over which an improvement becomes economically favorable to the property owner. It also provides the means of connecting the financing with the property rather than the individual because the loan is secured with a lien on the property so that if the property owner moves the obligation stays with the property which continues to benefit from the improvements. A final purpose and goal for the program is creating a financing mechanism that doesn't increase the general tax or debt burden of the government, local government entity or state government because it's secured but only those property owners who elect to participate by including their home within this assessment district or program. You know of course there are administrative and transaction costs that can be discussed by the program administrators later.
So next slide please.
Next Slide: Key Features of PACE Legal Authority
Sheridan Pauker:
___ ____ ___ ___ I guess almost a couple years ago now to examine how the ___ ___ concept could be implemented in other states. We identified the following key features necessary for the legal authority to implement the PACE concept. Most states already have a structure by which local governments can finance improvements; typically this includes sidewalks, parks, sewers and improvements of that nature. This local government improvement and financing authority typically comes with a mechanism for paying for the improvements by collecting assessments or special taxes from the property that's directly benefited. One issue in determining how this program can be done in other states is finding out whether this authority already exists and whether the state is authorizing legislation is already sufficiently broad to provide the authority for PACE or whether it needs to be amended to provide for this kind of program.
Another key feature that we've identified is whether the types of improvements permitted to be financed by municipality include energy efficiency and renewable energy.
The statutory authority also has to allow for improvements to be made on private property. Some see statues provides that improvements they only be made on government property or public property and so they need to be amended to provide for this kind of program, others are silent after this. If an amended is needed for another reason, it might be a good idea where you have silence as to whether his can be done on public property to explicitly provide the improvements can be made on private property. In other circumstance where overall the authorizing statutory provisions would allow for PACE financing it might not be necessary if there's silence as to whether it can be done on private property. Next consideration is it's important to provide that the improvement district or the assessment area can be created by a local government first and then allow the property owners who wish to participate to opt in. This was a key innovation of the Berkley First program where the district in Berkley was a district that was created consisting only of property that was proposed for inclusion in the district and then interested property owners ___ ___ into the district.
In other jurisdictions where the mechanism is a little bit different, property owners enter into contractors like for example under A.B. 811 in California with the local government in order to be assessed.
Where a state statutory amendment is needed or if state law provides for PACE already a local government ordinance creating a district it's important to include findings of the legislators, city council, or the other local government body that is creating this district that the program have a public purpose and is in the public interest, so these are the legislative findings.
In states where improvements are only allowed for public purpose that I was describing before, this is really necessary for compliance with that law to demonstrate that this is for public purpose, such as I was mentioning increasing the use of renewable energy, increasing energy security in issues such as that.
This also establishes the constitutional support for the governmental action and where constitutional law requirements that loans are financing ___ for a valid purpose.
The last feature but certainly not the least is the bonding authority, in order to finance the upfront capital expense of the improvement local governments need to have the authority to issue bonds that are secured by the revenue stream from the special taxes or assessments. This debt is secured by a tax lien and the lien is ___ to the first mortgage which is very important in attracting the financing.
Recently the White House issued a frame work for the use of federal loans to finance PACE districts, which includes some recommendations that would reduce risk to junior mortgage holders.
The details of this bonding authority should always be analyzed by local bond counsel so that you can ensure that financing can be implemented smoothly.
Next slide please Merrian.
Next Slide: The Berkley FIRST Model
Sheridan Pauker:
So the first question, you know, as I mentioned in figuring out how to implement a PACE program is whether there's already and existing legal structure and I talked about Berkley a little bit and I'll just go over it quickly. The model in Berkley was, there was already the Mellow Roos Community Facilities District Act in California which provided the local government, some local governments the ability to finance improvements and to collect special taxes to pay for the improvements.
Berkley innovated the concept of the PACE program by amending this authority to provide that energy efficiency and renewable energy were permissible, to provide that the improvements could be made on private property, to provide the opt in mechanism that I described before and included the legislative findings that this was in the public interest.
A small technical point here for Berkley was that because Berkley was a charter city in California, it had the ability to ___ the Mello Roos Act. Other non charter cities in California don't have that authority; legislation's been introduced in order to do that but those other jurisdictions have the ability to use contractual assessments under A.B. 811.
Next slide please.
Next Slide: States that have Passed PACE Legislation
Sheridan Pauker:
In other states the question is whether there's an existing structure or whether it needs to be amended to provide for PACE. Over the past year and a half 16 states around the country have passes state-wide legislation that would provide for PACE authority. Most of them have amended or tweaked existing assessment or improvement district structure to provide for the key features of PACE. Some like for example ___ have provided stand alone authority that didn't really amend existing improvement district concepts but created their own authority for that.
I would recommend, you know, this sort of, I won't go through all this states and their legislation the database of state incentives for renewable energy DESIREUSA.org provides ____ on all of the states statues and it's a tremendous resource and I would definitely recommend that.
Next slide please.
Next Slide: States Identified: Legislation Likely Necessary to Provide PACE Authority (Partial List)
Sheridan Pauker:
So through our research we've identified several states that would likely require a state law amendment in order to provide local governments with the authority to adopt PACE programs. So those states, a few of them, it's not a comprehensive list are listed here; Arizona, Connecticut, Massachusetts, Michigan, New Jersey, Pennsylvania and Utah. This is just a partial list; we've not reviewed all of the states in terms of what their existing authority is and what amendments would be necessary, they're probably about 30 states where that analysis hasn't been done. Vote Solar and local energy efficiency and renewable energy advocates around the country are working on drafting and passing legislation to provide this authority.
Next slide please.
Next Slide: States Identified: Likely Existing Authority to Implement PACE
Sheridan Pauker:
We've also identified at least one and possibly two states with existing authority to provide for PACE without unnecessary state-wide amendment. In Florida chapter 189 of the code provides for special districts and it looks like that includes the key features of PACE authority. Hawaii is another state where it looks like the state law would provide for PACE authority but whether this is permissible depends on the particular county and in particular program there are special improvement districts which I believe in Hawaii county, the city of Honolulu I think the structure is already in place but it would need to, you would need an amended in Maui county.
Next slide please.
Next Slide: Other Considerations for PACE Authority
Sheridan Pauker:
These are just some general consideration for PACE authority that I thought I'd mention, we've talked about the issue of existing authority versus stand-alone authority, it's easier to implement this where there's already an existing structure that's familiar to local governments but in some states the authorization for assessing, for making an improvement and paying for those ___ assessment is sort of ___ and broken up through various aspects of the state code for example in Michigan, it may be easier to use a stand-alone piece of legislation in order to provide this authority where it would be overly complex to do that by amending various pieces of this state code.
Another question that comes up are constitutional issues, I mentioned it a little bit before about many states have provisions in their state constitutions that prohibit the state or certain local government entities from providing government funds or loans to individuals and so for each state there needs to be a close constitutional review. Here although there is a benefit from these programs to individuals the programs is fundamentally public in nature which is a prevention of global climate change and environmental harm and the promotion of energy security in this country. There is a valid public purpose and it's important that local governments and the state if amending the state code provide legislative findings that demonstrate the public purpose. In addition this, these programs aren't the lending of the state's credit because they're not general obligation bonds; they are secured by the individual property so that's another aspect of that question.
As I mentioned before it's important to consult with local bond council when drafting legislation to make sure that this is done correctly from the financing perspective. Some other general considerations in working on this legislation are design features. For example if state wide legislation defines renewable energy or defines energy efficiency in a way that's too narrow it could have a limiting effect so for the state legislation it's probably better to have broad definitions and then allow local governments that are implementing these programs to tailor that to the local area. It's also easier to amend at the local level rather than through the state law amendment which is much more difficult with a state legislature than an amendment at the local level.
Other design considerations that have been suggested by the White House is framework for PACE financing where there's federal money involved this concept of an assessment paying for itself or the assessment's themselves are no greater than the benefit to the home from the improvement. Other design features involve the use of American Recovery and Reinvestment, the stimulus bill funds and how the programs can be deigned to use those. I wanted to note, I'm sure others will mention it that there is a funding opportunity announcement out now for energy efficiency and conservation block grants that you would permit states and some local governments depending on funding formulas to apply for funds that can be used to pay for the administrative or transaction costs or potentially reserve funds for PACE programs and I believe that these, this is due Monday December 14th.
Finally there are creative approaches; Dorian will be discussing the Babylon's approach but the town basically uses existing authority but creatively defines solid waste to include the carbon ___ content of waste in order to provide for this authority. Sometimes those are some creative approaches, similarly in the state of Washington H.B. 1007 authorizes the Washington state housing finance authority to finance loans for energy efficiency and renewable energy projects on private property. It's not quite the PACE context because it doesn't really include the assessment mechanism where it's secured by the property so there's a little bit of a different approach. But there are some other ways of doing this as well. So, umm.
Merrian Fuller:
Sheridan, let me just interrupt with one question.
Sheridan Pauker:
Sure.
Merrian Fuller:
You mentioned the public purpose findings being very important, we have a question here. Can that overcome a constitutional prohibition or requirement of equal taxation rate?
Sheridan Pauker:
I think that really depends on the state, the state law, and the constitutional law in that particular state. In some states the public purpose is a part of, you know a court's approach to determining whether this is constitutional and there's ____ to the legislature or to the local government in their determination that an action that they take is in the public interest.
Merrian Fuller:
Ok.
Sheridan Pauker:
But it would depend on the particular state law.
Merrian Fuller:
And you know in the Florida case has the Florida AG reviewed the state constitution fro constitutionality of the financing and lien mechanism? Do you know anything about that case?
Sheridan Pauker:
I'm not; no I'm not aware of that case.
Merrian Fuller:
Ok. Ok, it's ok; it's just one of the questions on the board.
Sheridan Pauker:
Yeah,___ ___ more about it.
Merrian Fuller:
Yep. Ok. Great.
Sheridan Pauker:
Great, so yeah, I've included some resources that I find to be particularly helpful collections including the renewable an appropriate energy labs collection and Vote Solars links, DESIRE as well as renewable funding links to information on PACE. So I have those links at the back of my presentations and, you know, I'm happy to answer questions or offline, feel free to contact me.
Merrian Fuller:
Great, thanks so much Sheridan.
Sheridan Pauker:
Sure.
Merrian Fuller:
We're now going to go to Dorian Dale in Babylon, New York. He will talk about some of the efforts that he's been ___ hitting on the ground in New York and some of the coalition that he's forming about in getting more stimulus funded support for new programs on his island. So go ahead Dorian.
Dorian Dale:
Well I proceed with the understanding that my two predecessors; Ann and Sheri have done a phenomenal job in really covering I think a lot of the basis so with that as my starting point I'll come out of the dugout.
Babylon just as a quick lead in stumbled into becoming a PACE program before there was an acronym to describe it. Essentially we came up with various components to our program really by trial and error. As has been indicted we originally had to identify financing for the program and in our case we have a large waste reserve but to access that waste reserve our first step was to change a town code which enhanced our, or ___ code by saying that energy waste was now going to be considered a solid waste by dense carbon components because carbon dioxide is 28% carbon ___ solid a source. Then subsequently since the option of assigning the billing to utility billings was not open to us. We went back to our solid waste billing systems and as you probably know, most waste collection is in many municipalities a side as a benefit assessment. And that's how we came to the benefit assessment and subsequently discovered that low and behold, you know, when the benefit assessment obligation is not met in a timely fashion it gets assigned to the property tax which gives us senior lien status and we're now living happily ever after.
Next Slide: GREEN HOMES Pilot
Dorian Dale:
We just finished the first year of our pilot program; we've exceeded our original target of 250 homes, we now have 295 homes audited or in the queue awaiting audit. You should note that if we charge $250 upfront for the audit which is thorough ___ ___ with a combusting safety tests and ___ ___ ___ determine where the leaks are in the house that once that, once the homeowner proceeds that amount gets folded into the overall cost of the job but it means in our program which is I believe unprecedented we're actually ___ from 80% to deep retrofits from completed audits. As you can see the average job at this point is costing about $8200 in change. We have a really subscribed prescription of measures that we adhere to based upon the savings to investment ratio and effectively that means that we're at this point running an SIR that's the acronym for Savings to Investment Ratio of over 2. We believe this is part of the explanation for why when we structure the payments for the homeowner they generally are less on a monthly basis than the actual savings they realize. Over the course of the year as you can see here the average savings to the homeowner does exceed a $1000, the average payback is a fairly modest length of time 8 1/2 years as per the typical property assessed program that the homeowner does move before the term of the obligation the balance of the obligation is assigned to the property and picked up by the subsequent homeowner. The good news, it should be noted is that we have nine participating contractors and they have enhanced their employment roles by close to __ 25%.
Next.
Next Slide: Program Overview
Dorian Dale:
Ok, just quick run through of how this works, the property owner calls up, we get an inventory of how their house is configured in terms of windows, boilers, furnace, square footage and so on and so forth. We also require to __ the historical building data from their electric gas and heat and we assess whether the appropriate candidate and if so we sign a private contractor who is BPI certified, that's Building Performance Institute also licensed in the county itself. Also subject to the criteria of the program performance and they in turn go out to the house, perform the blower door test and come up with a work scope, which the homeowner will approve either by subtracting or adding to the measures. The contractor proceeds to do the work, once the work is completed the town actually is now going to be providing a two party check that the homeowner will then provide to a contractor and then there is the contract between the town and the homeowner that covers the obligation. As you can see the; as I said before the monthly payment is generally somewhat south of the actual savings.
Next.
Next Slide: Why GREEN HOMES is the Right Model
Dorian Dale:
You know there's a lot of talk about various components of how to deliver energy efficiency to existing building ___ and we believe at least experientially that we've upon the idea model. We're in effect providing a one stop retrofit from what is an ineffective ___ broker. The same source that provides the waste pick up, the paving of the roads, the cleaning up and beautification of parks. We really just bring it all to the homeowner in a way that really makes it easy for them to make their house more comfortable and affordable. It's not as you move forward and try to put your own programs together simply a matter of getting attractive financing for the projects but really we would suggest a holistic package that really brings it all together and just eliminates the hassles and minimizes the cost in the long run. We think that, as you can see by the bullet pointed principles here, that it also leverages contractor compliance effectively because if you're a single homeowner and you've got an issue with a contractor it can take you conceivably forever in small claims courts to get whatever issues that you have remediated but when a contractor is listening through the source of considerable amount of work there I can assure you, very inclined to respond very quickly to any difficulties. Furthermore, the other beauty about this particular service because it is a consumer service to the homeowner is if they're not pleased with the results this is probably the only setting in which they can walk into a polling booth on election day and fire the CEO of the operation.
Next.
Next Slide: Regional Context
Dorian Dale:
Ok, so you can see Babylon is situated on the border of Suffix and Nassau County on the south shore of Long Island. We are now, thanks to the success of the ___ ____ of the program seeing other townships follow suit. I should note that from our original booklet that we provided with, to folks on the program that the question was answered, "Why is it called the Long Island Green Homes program". I solved this quote from the booklet by telling you that although the program is starting in Babylon it is our expectation that it will be replicated throughout Long Island and New York State; so in fact it is.
Next Slide: Policy Primers
I mentioned that we started out by changing our own definition of solid waste. As we were evolving in our neighboring town Brookhaven was evaluating, they're the largest town in Suffix County whether and how to proceed with a comparable program the issue was raised about whether in fact our, our program was constitutional. ____ Section 1 of the New York State constitution you can not provide a public ____ ___ provide either a loan or a gift to a private entity unless it's for a public purpose. As Sheri I think earlier indicated it was our interpretation that what we were in fact doing was a public purpose but that still remains bone of contention and fortunately this past Summer our democratic assembly men and our republican senator co-sponsored legislation at the state level which affirms the Babylon carbon law. Now and municipality in New York can create a waste district to reduce energy waste; if in fact they do not have an existing waste district.
More over just a couple weeks ago there was PACE legislation champion by our local congressmen that added another layer and it will I think become effective from a bonding stand point if and when we are good enough or lucky enough to receive federal support in terms of bond price there, bonds loan support.
Next.
Next Slide: Retrofits w/LI's Formula Grants
Dorian Dale:
As Merrian indicated virtually every major town in Long Island is now prepared to proceed with their own program. Most of them who are now participating or planning to participate have committed the 20% from their formula grant to start up retrofit pilot programs. You can see that there's a large amount of old buildings ___ on Long Island, nearly three quarters of a million detached homes that were mostly built 40, 50, 60 years ago and if they can all be retrofitted in the same fashion that the houses so far the original pilot program and Babylon had been retrofitted, you're looking at very, very substantial savings where at this juncture running a ___ of air infiltration on the order of 28% and you can see that that translates into both carbon savings and dollar savings on the build.
Thanks. Next.
Next Slide: The Babylon Project
Dorian Dale:
We've been pretty vigorous in getting the word out about this program but at the same time I would suggest we ___, certainly aided and embedded by the very enhanced interest that has been coming out of Washington that in turn has translated into a consider a low amount of media attention. We've appeared in all these different sources but we've also had to really ___ the marketing aspect of it on our local level so when we first announce the program we did it by ___ a compact florescent light bulb to virtually every house in our town which is about 60,000 detached houses. We included coupons for additional _ _ _'s, announcement of details of the program and in our case we were lucky because the realtor for a new local box store actually ___ the bill for the bulbs and we persuaded our ____ to actually distribute those bulbs, at the end of the day it didn't cost us very much if anything at all. As an example I believe of the ingenuity we've engaged to do as much effective promotion as little of cost to the taxpayer as is conceivable. We had for example an numerable Summer seasonal because we're on the water, we have a lot of nice parks, and we've had tables set up at those various locations and that's brought in a lot of interest over the course of the Summer when nobody according to our contractors is ever ____ up to ask for this kind of work. We had actually 100 sign of surge July and August so that's a pretty impressive proposition. As a municipality we're always mailing to folks so our recycling calendar had the Green Homes program on the cover and went out to the entire community.
Next.
Next Slide: Replicating the Model
Dorian Dale:
In terms of how we actually now replicate the programs to other or rather I should say, the program is replicated in adjoining communities. We are bordered by Huntington which is about to start a program, Brookhaven as I mentioned, Ice __, Smithtown, they're each trying to determine how these programs will be staffed. What I do at this juncture is suggest that they look at the approach we took when we were looking to staff up our program.
What we did first was to identify somebody we felt had the characteristics to actually be the operational leader. So we went the Department of Public Works, we found a fellow was running a crew of upwards to 100 men. He was a licensed electrician, he was a union member and he'd worked with contractors, worked with homeowners, __ ____ smart and he's had to deal with the typical issues you can imagine when you're dealing with ___ numbers of homeowners and subsequent to his positioning we've then brought in an intake person who is still there doing a great job. Then we got a young man who just graduated from the local University Stoney Brook, he's now BPI certified and he does our measurement and verification because in our program the audit, the contractor does the work, ___ ___ does the audit. We have done that for work processes purposes and we find out it's working very well and since we are able to do the measurement verification on ____ by our own independent personnel, we've been finding that the results are pretty good. As we already had an existing billing system we made the appropriate adjustments and again I would suggest that these kinds of modifications and resources based upon resources that are in house municipalities can be done. First and foremost you have to approach this work with the attitude of how do I get it done rather than how doesn't it get done.
Next slide.
Dorian Dale:
If the township of Long Island move forward which we think they will, over the course of the next 3 years we anticipate based upon a progression of work ____ upon the original pilot, 5% of Long Island's ___, of Long Island homes that are within the participating townships can retrofit close to 30,000 homes; which effectively equates to about 135,000 tons of carbon dioxide ___ ___ and most importantly particularly in this time something on the order of 2400 new jobs created. We're running close to 20% on employment of the trades and they more than anyone are keen to see this. I shouldn't say more than anyone because the contractors are as well and many of them who've been conventional builders up until this point have now gone back and gotten BPI certified to participate in this program. At the end of the day you've got all these homeowners who are going to be saving all this money and the municipalities are going to be getting it back so it really is a little or no cost and that's a very particular point.
As we move nationally and all you folks out there get up comparable programs you see the number as are numerated there, you're looking at immense amounts of reduced carbon dioxide, you're looking at 40,000 clean energy jobs and $3, close to $4 billion saved annually by homeowners. All was just 5% of Americans homes are retrofitted. So go for it!
Merrian Fuller:
Great, thank you Dorian. Our next presentation is going to be by Annie Henderson. She is from Renewable Funding and is Administrator for the California First Program. So Annie I will turn it over to you.
Annie Henderson:
Sure, thank you Merrian.
Good morning or afternoon everyone depending on where you are, as Merrian just stated my name is Annie Henderson. I work for Renewable Funding and we are the program Administrator for an upcoming still under development program called the California First Program.
Next Slide: CaliforniaFirst Program Team
Annie Henderson:
I wanted to first start by describing who the program team is on this state-wide municipal financing program that is allowable under the legislation that Sheridan mentioned H.B.811 and now the new ___474. So the program is sponsored by a state-wide joint powers authority called the California State-wide Communities Development Authority, what we also call CSCDA or California Communities. As I noted there JPA and they have issued more than 44 billion in municipal debt since they began in 1988.
Renewable funding will participate as the lead Administrator as well as handle some of the financing and additionally the Royal Bank of Canada Capital Markets will also provide financing and bonds underwriting for the program. We have a great team of legal counsel and Jones Hall and Orrick, Herrington & Sutcliffe and then we have some local partners that were part of the initial proposal and I anticipate that this group could also expand but right now the California Center for Sustainable Energy down in San Diego and EcoMotion are 2 local partners who will be assisting in some customer service and technical assistance.
There are a couple of basic programs points that I also want to mention before we get into the rest of the presentation is not, unlike the Boulder County program or the Babylon Program, California First is still in the development stage. It plans to finance renewable energy; energy efficiency and also water efficiency projects for both residential and commercial properties from the beginning of the program.
Currently counties and cities are passing resolutions to opt into the program which we anticipate to launch in the Summer of 2010, at which point it will then extend to all members of the CSCDA which include all counties and nearly 500 cities in California.
Next Slide: California First Services-Program Administration
Annie Henderson:
So, as part of a broad program I feel it's important to create clarity on what services will be centralized within the program and then what services or responsibilities would be held at the local level. So the first service to mention under California First is the Program Administration. The first portion is designed and as part of this the Stakeholder Coordination and the pilot ___ is very key. Right now have 14 counties and 146 cities that are intending to participate under the program with actually of those 146 cities we have about 115 that are looking to move forward within the program and all 14 counties. As part of this we will also design and develop the policies and terms and we're using the DOE policy framework for PACE programs that many of you are very familiar with to develop the underwriting criteria and additional policies to support this program in order to protect both the borrower, the pre-existing lender and the bond purchaser who will all be participating in this program.
The final component of program design is of course to connect to local goals and this is one of the components that I'll get to greater detail later in the presentation. Being a broad state-wide program connecting to local goals is essential to the program success at the local level but also a challenge because you are trying to standardize the process as well.
The next component of Program Administration is the Technology and Operations. The first portion of which is the application processing and approving. What we have done is created some back end software, developed and customized from standard mortgage loan origination software. This will support the processing of a high volume of applications from across the state. Just to give you a little bit of perspective of those 14 counties that'll be part of the initial pilot stage it represents the population of 12 million people and 2.4 owner occupied units. So with a fairly low penetration of for example, 0.5% we have the potential to reach 12,000 properties in a very short time frame so obviously we need strong technical support to process those applications. So as part of that technology and operations we'll also be providing a front and web portal so this acts both to educate the consumer, provide men with decision making tools and then also provide access to an application where they can log on, they can start entering information, they can save it, they can come back later and then eventually submit that application for financing directly to the program. Of course we will provide some additional training for local government staff as necessary.
The final component to the Program Administration is the Marketing. Again there is certain marketing that we will be doing from a broader state-wide level and we're calling this the Marketing Tool Kit so we provide some ___ and branding information, a framework brochure on the California First Program which will have sections that can be customized by local jurisdictions, cities and counties to represent their local goals; perhaps local programs that are associated with this or would be supportive of a financing program. We'll have a press release; we'll have some content for a property tax bill insert which I think is a fantastic way to reach the target communities who could access this financing and then we'll do some PowerPoint presentation to customize the web portal as I'd mentioned before. For the customer service we'll provide a toll-free line as well as email and the website. There is a limitation to the state-wide aspect in that an actual physical store front would be the responsibility of the local entity.
Next Slide: California FIRST Services - Legal
Annie Henderson:
So the next section of services that would be provided by this broad state program are the Legal services which as many as you know, as we've been discussing today are substantial. So the legal process that I'll lay out here is based on ___11 and __474. __474 is actually technically not a law yet, it will be adopted next year but I'd like to walk through the process including the requirements under __474.
So the first section is Program Adoption and this happens at the local level and it authorizes the ___, CSCDA to provide financing within that jurisdiction based on the voluntary contract with local residents. So what we provide through the program is the public notice, the sample of the staff report as well as the resolution to join the program. For the current California First pilot program we anticipate or have asked that cities pass this; cities and counties pass this resolution by mid January and we have already received several counties and cities adoption of the resolution to join which we are very excited about and we're moving forward. So once those cities and counties have passed that resolution to join we'll move into the program formation process as part of the legal component and that will happen by the CSCDA, so they will pass their own series of resolutions, the first ___ resolution of attention to form the program which is therefore forming the financing district and that will be done on a county by county basis. By doing this by county basis it does include all the incorporated cities which opt into the program within that county.
Then under ___11 it is beneficial to do a legal validation proceeding and that will be handled by the state-wide program and it will, by doing this by on a county to county basis again it will eliminate the need to do this for each individual city on a repetitive basis so there you get an economy of scale by doing it at a county level rather than a city level. Then we will provide bond and denture documents in order to issue bonds to finance projects and include the bond disclosure and issuers counsel for the program.
Go to the next slide.
Next Slide: California FIRST Services - Finance
Annie Henderson:
So the final component of the services provided under the state wide program is the Finance. This is broken down into, again 2 components; the Bond Issuance and under that you have the local obligation and that local obligation is in the form of a contractual assessment between the CSCDA and the property owner directly. This removes the local jurisdiction from the equation there and makes them they are not responsible for that local obligation however, the reason CSCDA is able to enter into this local obligation is part of the allowances under the resolution to join which was adopted by the local jurisdictions, that then allows them to generate a revenue bond through bond underwriting and that bond is created and issued by the CSCDA and underwriting by the Royal Bank of Canada. Once that is available there is bond financing, in a micro-bond structure there will be interim financing, this will be handled by renewable funding. Again the local jurisdiction is removed from the risk here because they're not providing their own general fund or other resources to provide this interim financing. At that point we can aggregate the micro-bonds or if similar to the Bolder County approach we do a pool bond approach where you collect all of the applications and then go to the bond sale that will be placed on the market by RBC and underwritten again by RBC.
So the final portion of the bond finance component of the California First Services is the tax roll preparation and that would be handled by a tax administrator, contracted under the CSCDA. That component would provide for the repayment of assessments. The tax administrator would work with the counties to prepare the tax roll provided to the counties in the format that they require. As a note here on the tax roll preparation sort of a lesson learned that I'll incorporate at this point is that we've had a lot of requests from counties and cities to incorporate some of their local costs, the cost for tax collection is already built into the financing and that is standard for other tax assessments. The tax collector will take approximately 1/4 of a % or a dollar per collection and we've incorporated that into the financing so that their costs are covered. Cities and counties have asked can we also include in that our local marketing and staffing costs, we feel that this is not the best mechanism for collecting those costs because their short term cost with a long term revenue stream. So then the alternative is to include those costs as part of an application fee but I noted here is just to keep in mind that that any additional costs placed within the program financing or fees will of course impact the property owner and if there is a delicate balance between meeting the needs of the local jurisdiction and ___ their costs as well as making certain there is adequate demand for the program.
So we can go to the next slide.
Next Slide: Local Responsibilities-Local Efforts
Merrian Fuller:
So Annie, just 3 more minutes.
Annie Henderson:
Ok.
So that highlights what the services are under the program and then we have local efforts that are required from the local jurisdictions, so we have minimal local efforts really to identifying local contact person working with the lager group to customize the web portal, some local customer service, of course the municipalities, the trusted source and it is a given that some residents will contact them directly and then optionally they can do additional marketing beyond that marketing tool kit that I mentioned earlier. A lot of organizations are opting to do this as part of their block grant for their state energy program and in fact we are working with local jurisdictions on a state energy program grant request to support local coordination and marketing efforts, so we can go to the next slide.
Next Slide: Comparison
Annie Henderson:
So there's of course a comparison between a state program and a city program and very briefly essentially what you're trading off is customization, you get broad economy the scale for state program especially in the financing and stream life administration, what you're losing is some of the customization at the local level of a city program you can of course customize but you're not going to have a broad bond pool in this case for California First, we can do a ___ bond though we're gathering projects from across the state and able to get a larger volume and diversity in our bond issuance.
Next Slide: Local "Prius" Approach
Annie Henderson:
Essentially we call this our Prius approach. You can have a black Prius, blue Prius, red Prius but under the hood they all have to be a Prius and that's how we think about through the broad program and how it adapts to local jurisdictions.
Next Slide: Lessons Learned in Early Stage
Annie Henderson:
So my final slide is the quick lessons learned from this early stage program, there is a need for a strong central team doing this through all hands meetings and regular working groups particularly with some of the sub groups, this is a broad inter-disciplinary approach or program that I think touches the finance, the legal, the debt advisory within local governments and so it's important to address all of those stakeholder group. Stakeholder coordination is key, not only are you dealing with local governments but as well as industry stakeholders and then additionally non-profit partners and other advocates that have been working to promote PACE programs in the region, now a broad wide state program comes in and it's important to coordinate with those local efforts on the ground. Consistency and program design is critical to maintaining economy a scale essentially that's the Prius approach that I mentioned in order to have a ___ bonds you need to have consistent and standardized underwriting criteria and in order to have a centralized administration you need to have the technology that supports it. Be consistent so it does minimize the customization you can have at the local level.
Information management will stream line the process again you get these various groups that all have their questions, if you can compile those questions, provide feedback in the form of FAQ's, specific conference calls for these unique groups it really helps to stream line in the process and get the message out.
Finally flexibility should be incorporated into the program design, this will allow you both to apply the lessons learned along the way as well as adapting to market changes and new federal and state local policies.
So with that I hope I met my 3 minutes limit.
Merrian Fuller:
Great, that was perfect Annie. Thank you very much.
Next Slide: Resources
Merrian Fuller:
Here is a list of resources for folks on the call to access. Really quickly if there have been questions that have not been addressed in this call please email Bret whenever you can. We will try to get you direct responses as quickly as possible. There is going to be a call on Legal questions next week on Tuesday, December 15th and you can sign up for that in the same place you signed up for this webinar, it's that last link on the list. T hat will be a good resource especially for some of the questions that are coming in about the response of mortgage holders, a few questions around that, we will discuss those issues in greater depth then.
I actually, we have 4 minutes left, and I just want to have one question that will go to Dorian and to Ann and that is a question about the cost of the administration of these programs. Either as a percentage you know, the assessment amount that is going out or as a cost per assessment depending on how you look at it. There's a few questions that have been about that, how do you really, how do people who are planning for these programs, what should they expect in terms of administrative costs relative to the total amount of money that are going out.
So Dorian do you want to start with that?
Dorian Dale:
Yeah. We just actually did an assessment of that and we're running at 12% per unit, per cost.
Merrian Fuller:
12%, that seems somewhat high is it because of pilot?
Dorian Dale:
Yeah well that's part of the explanation and of course when we go to larger numbers that will be minimized but we did that rather in our hard-nosed way and the fact is in our program we did not assign those costs to the cost of doing the work. We assigned it, so fold it into that for example is my time factory. As you know my mission has been pre-existing the Green Homes Program and it's to minimize the carbon footprint of the town.
So, I would suggest that that number reflects a fairly vigorous and hard-nosed call on all the different cost factors and mostly of the staff variety.
Merrian Fuller:
And Ann, just some cost estimates from Boulder County.
Ann Livingston:
You can look at it 2 different ways; we've pushed out the door about $10 million in our first 6 months of operations. We're budgeting of 300,000 or so to be at scale for a full year. About a 1/3 of that is some contracted out work that we think we're gonna have so I guess you can put that number somewhere between 200 and $300,000 for a full scale operation. What the borrowers paid second round was sort of 12% administrative cost, but the vast majority of that was their pre-paid interest since our tax cycles always ___ when we issue a loan and the debt services are fine. So that actually fees are much, much lower but I think one critical point with Dorian kind of hit on is, some of the things you have to pay to run program or to sell a batch of bonds are the same no matter what the dollar amount, or number of loans are so getting up to scale and getting a high volume program creates some economies of scale. So one thing we are working on here in Colorado is ____ state legislations to allow us to regionalize the program so run program on a multi county scale and issue bonds for multiple counties at once. That's something seeking approval for this year but the ____ of scale is definitely something we need to think about when you're ___ the program.
Merrian Fuller:
Great, thank you.
So I'm gonna close it there and just point out a few of these resources that Department of Energy does now have a new resource portal for financing programs. The link is there, that second link, it's under the Solutions Center page. It's called Financial Products and there's a page on PACE that links to several different documents that may be helpful including the How to Guide for PACE programs at the renewable and appropriate energy laboratory put out that I should say I'm a co-author on so I'm not ___ being open about that so that has links to a bunch of different examples of contracts, information about, sampled budgets of how much some of these things might cost. Examples from several different case studies and other links and resources just in terms of how to think about starting up one of these programs in your community.
Also that website that Sheridan mentioned earlier DESIREUSA.org, they do track all the legislation and the different states so those 16 states legislation are linked on the DESIREUSA website and then the upcoming and past webinars are online. We do have the Power Points and audio available for all of our webcasts a few weeks; usually right away the Power Point is available, then a week or two later the audio is available so we encourage you to look at that and to let other folks know about it. And again I want to underscore that we really encourage you to contact our financing rapid response emails that's Bret Kadison that goes out to a team of people including myself, Matthew Brown at ____ Brown and a few other folks are on a financial technical assistance team. We'd be happy to get information out to you, have a call with you, whatever is kind of needed based on your questions. I encourage you to use that and also we're taking feedback on future technical assistance like this webinar that might be useful as your going forward so thank you very much everyone for being on the call today. Thanks in particularly to our panelists for taking time to do this. I look forward to seeing some of you on the call on Tuesday. Thanks.
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