Senate Research Center
AUTHOR'S / SPONSOR'S STATEMENT OF INTENT
In 2009, the Texas Legislature passed H.B. 1937, which authorized contractual assessments for energy efficiency improvements to residential, commercial, industrial, or other real property; a program referred to as PACE (property assessed clean energy). This statute, found in Chapter 376 of the Local Government Code, authorizes governing bodies of municipalities to determine designated districts within the municipality where officials and property owners can enter into contracts to assess properties for energy efficiency public improvements and arrange financing through the local government.
However, current law does not include certain constitutional language needed in order to enable the use of municipal funds for this purpose, which has prevented local governments from providing the requisite financing mechanism to utilize PACE. Furthermore, current law is not set up to provide guidance for securing private financing or for establishing a financing mechanism suitable for private lenders.
C.S.S.B 385 creates Chapter 399 of the Local Government Code, which authorizes municipalities and counties to provide a financial payment structure enabling commercial, industrial, and multi-family (five or more dwelling units) property owners to improve their existing lots with energy or water efficient retrofits. Under this language, a property owner is required to obtain an energy audit to verify the projected energy savings to be achieved by the retrofit and then secure financing through a private institution. The loan provided by the lender is collateralized through an assessment on property taxes each year. C.S.S.B 385 further authorizes a participating local government to impose fees to offset the costs of administering the PACE program, which can be assessed as a program application fee paid by the property owner requesting to participate in PACE or as a component of the interest rate on the assessment in the contract between the local government and the property owner. C.S.S.B 385 makes other technical and explanatory changes in order to clarify current law.
This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Subtitle C, Title 12, Local Government Code, by adding Chapter 399, as follows:
CHAPTER 399. MUNICIPAL AND COUNTY WATER AND ENERGY IMPROVEMENT DISTRICTS
Sec. 399.001. SHORT TITLE. Authorizes this chapter to be cited as the Property Assessed Clean Energy Act.
Sec. 399.002. DEFINITIONS. Defines "district," "local government," "program," "qualified improvement," "qualified project," "real property," and "renewable energy system" in this chapter.
Sec. 399.003. EXERCISE OF POWERS. Authorizes the governing body of a local government that establishes a program in accordance with the requirements provided by Section 399.008, in addition to the authority provided by Chapter 376 (Contractual Assessments for Energy Efficiency Improvements) for municipalities, to exercise powers granted under this chapter.
Sec. 399.004. AUTHORIZED ASSESSMENTS. (a) Authorizes an assessment under this chapter to be imposed to repay the financing of qualified projects on real property located in a district designated under this chapter.
(b) Prohibits an assessment under this chapter from being imposed to repay the financing of facilities for undeveloped lots or lots undergoing development at the time of the assessment or the purchase or installation of products or devices not permanently fixed to real property.
Sec. 399.005. WRITTEN CONTRACT FOR ASSESSMENT REQUIRED. Authorizes a local government to impose an assessment under this chapter only under a written contract with the record owner of the real property to be assessed.
Sec. 399.006. ESTABLISHMENT OF PROGRAM. (a) Authorizes the governing body of a local government to determine that it is convenient and advantageous to establish a program under this chapter.
(b) Authorizes an authorized official of the local government that establishes a program to enter into a written contract with a record owner of real property in a district designated under this chapter to impose an assessment to repay the owner's financing of a qualified project on the owner's property. Authorizes the financing to be repaid through assessments to be provided by a third party or, if authorized by the program, by the local government.
(c) Requires the authorized official of the local government that enters into a written contract with a property owner under Subsection (b), if the program provides for third-party financing, to also enter into a written contract with the party that provides financing for a qualified project under the program to service the debt through assessments.
(d) Requires that the written contract described by Subsection (b), if the program provides for local government financing, be a contract to finance the qualified project through assessments.
(e) Authorizes the financing for which assessments are imposed to include the cost of materials and labor necessary for installation or modification of a qualified improvement or installation or improvement of a renewable energy system; permit fees; inspection fees; lender's fees; program application and administrative fees; project development and engineering fees; third-party review fees, including verification review fees, under Section 399.011; and any other fees or costs that may be incurred by the property owner incident to the installation, modification, or improvement on a specific or pro rata basis, as determined by the local government.
Sec. 399.007. DESIGNATION OF DISTRICT. (a) Authorizes the governing body of a local government to determine that it is convenient and advantageous to designate an area of the local government as a district within which authorized local government officials and record property owners of real property are authorized to enter into written contracts to impose assessments to repay the financing by owners of qualified projects on the owners' property and, if authorized by the local government program, finance the qualified project.
(b) Provides that an area designated as a district by the governing body of a local government under this section:
(1) is authorized to include the entire local government; and
(2) is required to be located wholly within the local government's jurisdiction.
(c) Authorizes the municipality's extraterritorial jurisdiction, for purposes of determining a municipality's jurisdiction under Subsection (b)(2), to be included.
(d) Authorizes a local government to designate more than one district. Authorizes the districts, if multiple districts are designated, to be separate, overlapping, or coterminous.
Sec. 399.008. PROCEDURE FOR ESTABLISHMENT OF PROGRAM. (a) Requires the governing body of a local government, to establish a program under this chapter, to take the following actions in the following order:
(1) adopt a resolution of intent that includes:
(A) a finding that, if appropriate, financing qualified projects through contractual assessments is a valid public purpose;
(B) a statement that the local government intends to make contractual assessments to repay financing for qualified projects available to property owners;
(C) a description of the types of qualified projects that may be subject to contractual assessments;
(D) a description of the boundaries of the district;
(E) a description of any proposed arrangements for third-party financing to be available or any local government financing to be provided for qualified projects;
(F) a description of local government debt servicing procedures if third-party financing will be provided and assessments will be collected to service a third-party debt;
(G) a reference to the report on the proposed program prepared as provided by Section 399.009 and a statement identifying the location where the report is available for public inspection;
(H) a statement of the time and place for a public hearing on the proposed program; and
(I) a statement identifying the appropriate local official and the appropriate assessor-collector for purposes of consulting regarding collecting the proposed contractual assessments with property taxes imposed on the assessed property;
(2) hold a public hearing at which the public may comment on the proposed program including the report required by Section 399.009; and
(3) adopt a resolution establishing the program and the terms of the program, including:
(A) each item included in the report under Section 399.009; and
(B) a description of each aspect of the program that may be amended only after another public hearing is held.
(b) Authorizes the resolution, for purposes of Subsection (a)(3)(A), to incorporate the report or the amended version of the report, as appropriate, by reference.
(c) Authorizes the governing body of a local government, subject to the terms of the resolution establishing the program as referenced by Subsection (a)(3)(B), to amend a program by resolution.
(d) Authorizes a local government to hire and set the compensation of a program administrator and program staff or contract for professional services necessary to administer a program.
(e) Authorizes a local government to impose fees to offset the costs of administering a program. Authorizes the fees authorized by this subsection to be assessed as:
(1) a program application fee paid by the property owner requesting to participate in the program;
(2) a component of the interest rate on the assessment in the written contract between the local government and the property owner; or
(3) a combination of Subdivisions (1) and (2).
Sec. 399.009. REPORT REGARDING ASSESSMENT. (a) Requires that a report for a proposed program required by Section 399.008 include:
(1) a map showing the boundaries of the proposed district;
(2) a form contract between the local government and the property owner specifying the terms of:
(A) assessment under the program; and
(B) financing provided by a third party or the local government, as appropriate;
(3) if the proposed program provides for third-party financing, a form contract between the local government and the third party regarding the servicing of the debt through assessments;
(4) a description of types of qualified projects that may be subject to contractual assessments;
(5) a statement identifying a local government official authorized to enter into written contracts on behalf of the local government;
(6) a plan for ensuring sufficient capital for third-party financing and, if appropriate, raising capital for local government financing for qualified projects;
(7) if bonds will be issued to provide capital to finance qualified projects as part of the program as provided by Section 399.015:
(A) a maximum aggregate annual dollar amount for financing through contractual assessments to be provided by the local government under the program;
(B) a method for ranking requests from property owners for financing through contractual assessments in priority order if requests appear likely to exceed the authorization amount; and
(C) a method for determining the interest rate and period during which contracting owners would pay an assessment and the maximum amount of an assessment;
(8) a method for ensuring that the period of the contractual assessment does not exceed the useful life of the qualified project that is the basis for the assessment;
(9) a description of the application process and eligibility requirements for financing qualified projects to be repaid through contractual assessments under the program;
(10) a method as prescribed by Subsection (b) for ensuring that property owners requesting to participate in the program demonstrate the financial ability to fulfill financial obligations to be repaid through contractual assessments;
(11) a statement explaining the manner in which property will be assessed and assessments will be collected;
(12) a statement explaining the lender notice requirement provided by Section 399.010;
(13) a statement explaining the review requirement provided by Section 399.011;
(14) a description of marketing and participant education services to be provided for the program;
(15) a description of quality assurance and antifraud measures to be instituted for the program; and
(16) the procedures for collecting the proposed contractual assessments.
(b) Requires that the method for ensuring a demonstration of financial ability under Subsection (a)(10) be based on appropriate underwriting factors, including:
(1) providing for verification that:
(A) the property owner requesting to participate under the program is the legal owner of the benefitted property, is current on mortgage and property tax payments, and is not insolvent or in bankruptcy proceedings; and
(B) the title of the benefited property is not in dispute; and
(2) requiring an appropriate ratio of the amount of the assessment to the assessed value of the property.
(c) Requires the local government to make the report available for public inspection on the local government's Internet website and at the office of the official designated to enter into written contracts on behalf of the local government under the program.
Sec. 399.010. NOTICE TO MORTGAGE HOLDER REQUIRED FOR PARTICIPATION. Requires that before a local government is authorized to enter into a written contract with a record owner of real property to impose an assessment to repay the financing of a qualified project under this chapter:
(1) the holder of any mortgage lien on the property be given written notice of the owner's intention to participate in a program under this chapter on or before the 30th day before the date the written contract for assessment between the owner and the local government is executed; and
(2) a written consent from the holder of the mortgage lien on the property be obtained.
Sec. 399.011. REVIEW REQUIRED. (a) Requires that a program established under this chapter require for each proposed qualified project a review of water or energy baseline conditions and the projected water or energy savings to establish the projected water or energy savings.
(b) Requires a local government, after a qualified project is completed, to obtain verification that the qualified project was properly completed and is operating as intended.
(c) Requires that a baseline water or energy review or verification review under this section be conducted by an independent third party.
Sec. 399.012. DIRECT ACQUISITION BY OWNER. Authorizes the proposed arrangements for financing a qualified project to authorize a property owner to purchase directly the related equipment and materials for the installation or modification of a qualified improvement or the installation or modification of a renewable energy system and contact directly, including through lease, power purchase agreement, or other service contract, for the installation or modification of a qualified improvement or the installation or modification of a renewable energy system.
Sec. 399.013. LIEN. (a) Provides that a contractual assessment under this chapter and any interest or penalties on the assessment is a first and prior lien against the real property on which the assessment is imposed until the assessment, interest, or penalty is paid and has the same priority status as a lien for any other ad valorem tax.
(b) Provides that the lien runs with the land, and that portion of the assessment under the assessment contract that has not yet become due is not eliminated by foreclosure of a property tax lien.
(c) Authorizes the assessment lien to be enforced by the local government in the same manner that a property tax lien against real property is authorized to be enforced by the local government to the extent the enforcement is consistent with Section 50 (Homestead; Protection from Forced Sale; Mortgages, Trust Deeds, and Liens), Article XVI, Texas Constitution.
(d) Provides that delinquent installments of the assessments incur interest and penalties in the same manner as delinquent property taxes.
(e) Authorizes a local government to recover costs and expenses, including attorney's fees, in a suit to collect a delinquent installment of an assessment in the same manner as in a suit to collect a delinquent property tax.
Sec. 399.014. COLLECTION OF ASSESSMENTS. Authorizes the governing body of a local government to contract with the governing body of another taxing unit, as defined by Section 1.04 (Definitions), Tax Code, or another entity, including a county assessor-collector, to perform the duties of the local government relating to collection of assessments imposed by the local government under this chapter.
Sec. 399.015. BONDS OR NOTES. (a) Authorizes a local government to issue bonds or notes to finance qualified projects through contractual assessments under this chapter.
(b) Prohibits bonds or notes issued under this section from being general obligations of the local government. Requires that the bonds or notes be secured by one or more of the following as provided by the governing body of the local government in the resolution or ordinance approving the bonds or notes:
(1) payments of contractual assessments on benefited property in one or more specified districts designated under this chapter;
(2) reserves established by the local government from grants, bonds, or net proceeds or other lawfully available funds;
(3) municipal bond insurance, lines of credit, public or private guaranties, standby bond purchase agreements, collateral assignments, mortgages, or any other available means of providing credit support or liquidity;
(4) tax increment revenues that are lawfully available for purposes consistent with this chapter; and
(5) any other funds lawfully available for purposes consistent with this chapter.
(c) Provides that a local government pledge of assessments, funds, or contractual rights in connection with the issuance of bonds or notes by the local government under this chapter is a first lien on the assessments, funds, or contractual rights pledged in favor of the person to whom the pledge is given, without further action by the local government. Provides that the lien is valid and binding against any other person, with or without notice.
(d) Provides that bonds or notes issued under this chapter further an essential public and governmental purpose, including:
(1) improvement of the reliability of the state electrical system;
(2) conservation of state water resources consistent with the state water plan;
(3) reduction of energy costs;
(4) economic stimulation and development;
(5) enhancement of property values;
(6) enhancement of employment opportunities; and
(7) reduction in greenhouse gas emissions.
Sec. 399.016. JOINT IMPLEMENTATION. (a) Authorizes any combination of local governments to agree to jointly implement or administer a program under this chapter.
(b) Provides that if two or more local governments implement a program jointly, a single public hearing held jointly by the cooperating local governments is sufficient to satisfy the requirement of Section 399.008(a)(2).
(c) Authorizes one of more local governments to contract with a third party, including another local government, to administer a program.
SECTION 2. Effective date: upon passage or September 1, 2013.