Exhibit CC 02-07-2017 Item No. 8 PACE pragramsOFFICE OF THE CITY MANAGER
CITY HALL
10 10300 TORRE AVENUE • CUPERTINO, CA 95014-3255
TELEPHONE: (408) 777-3212 www.cupertino.org
CITY COUNCIL STAFF REPORT
Meeting: February 7, 20176
Subject
Approval of Association of Bay Area Governments (ABAG) Regional Collaborative Services
Agreement with Property Assessed Clean Energy ( PACE) Providers and Adoption of
Resolutions Authorizing Membership in the California Enterprise Development Authority,
Golden State Finance Authority, Western Riverside Council of Governments, and the California
Statewide Community Development Authorities and to participate in PACE Programs.
Recommended Action
Staff recommends that Council:
1.Adopt Resolutions to join the following joint power agencies and participate in their
PACE programs:
a.California Enterprise Development Authority (Figtree PACE Program);
b.Golden State Finance Authority (Ygrene PACE Program);
c.Western Riverside Council of Governments (California HERO PACE Program);
and
d.California Statewide Communities Development Authority (Open PACE
Program).
2.Authorize the City Manager to approve and sign the acknowledgement addendums of
the Association of Bay Area Governments (ABAG) Regional Collaborative Services
Agreement, as executed between ABAG and Residential PACE Providers, and execute
any other document necessary to carry out the City’s membership in each of the PACE
Providers listed above.
Executive Summary
Property Assessed Clean Energy (PACE) programs allow local property owners to finance
energy efficiency, water conservation, and renewable energy improvements on their property.
Property owners borrow funds for the improvements and repay the loan via a special
voluntary property tax assessment.
CC 2/7/17 Item #8
Date correction
The intent of PACE is to provide an affordable and accessible means of financing energy
upgrades to existing homes and businesses, ultimately making the City’s existing building
stock more sustainable and lowering greenhouse gas emissions. This allows the property
owner to benefit from the energy and water savings for these improvements without having to
make a large financial investment up front, and they can pay for the improvements overtime
with 5‐20 year terms.
To date there is one PACE program serving Cupertino, CaliforniaFIRST, which was approved
by Council on January 19, 2010. Since then, several PACE lenders have approached the City in
recent months requesting that the City take the necessary actions to allow them to also offer
PACE loans in Cupertino. To help Cupertino and other cities to evaluate the requests, the
Association of Bay Area Governments (ABAG) worked with PACE providers to develop and
agree to follow a set of best practices, called an “Agreement for Collaborative Services for
Property Energy Financing (Collaborative Services Agreement)”, that will ensure that the
programs meet certain basic quality and reporting standards.
The Sustainability Commission studied the issue of PACE in 2016, during its May, June, and
December meetings. At the December 15th meeting the Sustainability Commission
recommended that the Council approve PACE vendors that have signed onto ABAG’s
Collaborative Services Agreement, as this agreement held the vendors to a higher standard,
ensure consistency among all PACE providers that serve the city, helps to mitigate risk, and
provide for a unified voice among all Bay Area regional cities in negotiating key programmatic
elements at one time.
Background:
PACE financing can be set up and administered under one of two different pieces of legislation,
which enable PACE programs in California and several additional laws clarify and expand this
legislation:
1. California AB 811 (July 21, 2008) amended the Improvement Act of 1911, part of the
Streets and Highways Code, to include renewable energy sources and energy efficiency
upgrades in the list of public improvements that can be financed through an
assessment district. California AB 474 (January 1, 2010) and California SB 1340
(September 30, 2010) expanded AB 811 to include water efficiency improvements and
the installation of charging stations for electric vehicles.
2. California SB 555 (October 5, 2011) amended the Mello‐Roos Community Facilities Act
of 1982 to allow for the creation of Community Facilities Districts (CFDs) for the purpose
of financing or refinancing the acquisition, installation and improvement of energy
efficiency, water conservation, renewable energy and electric vehicle charging
infrastructure. Individual properties can be annexed into the district and be subject to a
special tax that is imposed to repay project financing if the City Council adopts a
resolution consenting to the inclusion of parcels in the incorporated areas of the City
within the CFD and each participating owner provides its unanimous written approval
for annexation of this property into the PACE CFD.
Both the AB 811 and SB 555 type of PACE programs, are voluntary contractual agreements
for financing between an authorized entity and the property owner, they use available
funding from any source including existing bond issuing statutes and attach the assessment
for payment of the assessment to the property.
After PACE programs started gaining traction in California in 2009, residential programs soon
encountered a significant hurdle. The Federal Housing Finance Agency (FHFA) was concerned
that residential PACE assessments had a first priority lien status superior to that of existing
mortgages underwritten by Fannie Mae and Freddie Mac. In 2010, Fannie Mae and Freddie Mac
stated that they would no longer purchase mortgage loans secured by properties with
outstanding PACE loans. This effectively stopped residential PACE programs, with the
exception of a few pilot programs. In response, in 2013, Governor Brown signed SB 96, which
directed the California Alternative Energy and Advanced Transportation Financing Authority
(CAEATFA) to develop a $10 million PACE Loss Reserve Program to mitigate the potential risk
to mortgage lenders associated with residential PACE financing. While FHFA has not changed
its position to date, the California PACE market has rapidly grown with the assurance of the
state reserve. To date, CAEATFA has not received any claims on the loss reserve from any of
the existing PACE programs enrolled.
Additionally in September 2016, Governor Brown signed AB2693, which provides additional
consumer protections for property owners requiring that prior to entering into a PACE loan, a
homeowner must be provided a financing estimate and disclosure document. This disclosure
document will notify homeowners that they may not be able to sell or refinance their home
unless the PACE loan is paid off in its entirety, as well as, annual percentage rates, product
costs, closing costs, and fees. Overall, helping customers better understand the terms of
PACE financing.
Analysis:
PACE programs provide an additional means of financing to make sustainable property
improvements more affordable and accessible to property owners. It provides capital for
renewable energy systems and a range of energy and water efficiency improvements to
buildings. A few PACE programs also include seismic upgrades as an eligible improvement.
PACE financing advantages include 100% financing for eligible improvements, a repayment
period of up to twenty years, and the reliability of pre‐approved contractors.
PACE can be seen as one of the many options that a property owner has to finance an
energy/water improvement project. This offering differs from a traditional home equity line of
credit in that eligibility is based on property equity rather than the credit worthiness of the
applicant. The repayment structure is also different than traditional financing. Debt obligations
run with the property rather than the applicant, since the repayment is generated from the
utility savings associated with the improvements. Thus, whoever owns the building is
responsible for repayment per the conditions of the agreement with the program administrator.
Terms vary by program, but are generally considered in line with market rate options for
similar improvements. As with other forms of private lending all transactions are voluntary and
no property owner is required to participate in any program.
Because the capital for the program is from private sources and transactions are between the
program administers and building owners, the City will incur no cost or risk associated with the
program activities. The City will not provide administrative support or marketing for the
programs, which are conducted by the programs administrators. Authorization by the City
Council is necessary for the programs to conduct business in the City of Cupertino, per the
requirements of AB811 and SB555.
As was directed by the Sustainability Commission, the Sustainability Division will make all the
information about the various vendors is made available to the public on the Sustainability
website, so residents and businesses can access the information they need to make an informed
decision on the PACE providers and their financing options for home energy and water
efficiency projects.
Benefits of PACE programs for City of Cupertino
Staff has identified the following benefits in allowing more than one PACE provider to serve
Cupertino property owners:
100% voluntary program, residents utilize this source of financing if they want to.
Creates competition in the marketplace and allows residents and business owners to
have a choice in their PACE provider.
Each provider has different interest rate and terms allowing owners to choose what
works for them and their specific energy efficiency/water/ solar project and financial
circumstances.
Each provider covers a different range of energy, water and seismic upgrades‐ so more
options means more types of projects can be eligible.
Little, if any staff, time is needed to participate, all program assessment and
administration is handled by the third party PACE service provider.
Saving money: energy and water prices continue to rise, and allowing energy and
water upgrades to existing buildings now saves money in the future.
No down payment or credit checks needed‐ property owners pay for upgrades overtime
when they pay their property tax bill and the interest can be tax deductible
Helps us reach our climate goals and CAP implementation
o Specifically CAP measure C‐E‐2 Retrofit Financing, which identifies PACE as a
way of reducing GHG and achieving our retrofit goals in existing buildings.
PACE Program Comparison
As was recommended by the Sustainability Commission, the PACE providers to be authorized
in the attached resolutions represent PACE programs operating in California that have signed
onto the ABAG Regional Collaborative Services Agreement.
While the PACE providers are similar in nature, specific program has developed certain
expertise in certain areas, which is why it is essential to allow more than one vendor to service
our property owners. Each provider offers various interest rates, payback periods and terms,
but all provide a similar service of lending capital for energy and water upgrades to existing
buildings. Eligible products that can be financed with PACE may vary between individual
PACE providers and administrators.
A brief overview of each of the proposed PACE programs follows:
OPEN PACE
HERO Ygrene
Alliance
NRG
PACE
Funding
Group Figtree
Administrator
Renovate
America
Ygrene
Energy Fund
Counter Point
Energy
Solutions
PACE
Funding
Group
Figtree
Financing
JPA Sponsor
Western
Riverside
Council of
Governments
(WRCOG)
Golden State
Finance
Authority
(formerly CA
Home
Finance
Authority)
California Statewide
Communities Development
Authority ( CSCDA)
California
Enterprise
Development
Authority
(CEDA)
Enrolled in
CAEATFA
PACE Loan
Los Reserve
Program Yes Yes Yes Yes Yes
Legislative
Orgin AB 811
SB 555 &
AB811 AB811 AB811 AB811
Year Started 2011 2010 2014 2015 2010
Cities in
Santa Clara
County that
have adopted
In CA 383
cities
including, San
Jose, Morgan
Hill,
Campbell,
Mountain
View, Santa
Clara & Gilroy
In CA 175
cities,
including
Campbell,
San Jose and
Santa Clara
In CA 40 cities have joined
including Campbell and
Gilroy
In CA, 149
cities and
counties in
CA including
San Jose and
Gilroy
ABAG Regional Collaborative Services Agreement
To help with the process of evaluating all the different PACE providers and JPA models, the
Association of Bay Area Governments (ABAG) has created a Regional Collaborative Services
Agreement which is modeled after successful agreements in Sonoma and Marin Counties and
is intended to ensure consistent application of key programmatic elements (“best practices”)
considered to be critically important for local government partners. These elements include
consumer protections and disclosures, local government risk mitigation and indemnification,
co‐marketing complementary energy efficiency programs, contractor and project quality
assurance, and performance tracking, data, and reporting.
This will help the City of Cupertino ensure consistency among all PACE providers that serve
the city, mitigate risk, and provide for a unified voice among all Bay Area regional cities in
negotiating key programmatic elements at one time. To date, ABAG has signed agreements
with five active PACE administrators which include; HERO, FigTree, Ygrene and Open PACE
(which consolidates, Alliance NRG and PACE Funding). The Agreement for Collaborative
Services requires that PACE providers are licensed, bonded, and maintain insurance, which
minimizes risk to the City.
Sustainability Impact
The City’s 2010 GHG inventory identifies energy consumption as the largest contributor to
greenhouse gas emissions in the City at 55%. Access to financing capital for property owners to
complete energy upgrades is a critical component of Cupertino’s Climate Action Plan (CAP).
CAP measure C‐E‐2 Retrofit Financing, specifically identifies Property Assessed Clean Energy
(PACE) as a way of reducing GHG and achieving our retrofit goals.
CEQA
The City’s action is not a project under the California Environmental Quality Act (CEQA)
because joining joint powers agencies is not an activity that is likely to cause a direct or
reasonably foreseeable indirect change in the physical environment; or is exempt from CEQA
because this action can be seen with reasonable certainty that there is no possibility that it will
have a significant effect on the environment. [14. Cal. Code Regs. §15061(b)(3).] Moreover, the
purpose of the PACE programs is to benefit or protect the environment, and exempt from
CEQA. . [14. Cal. Code Regs. §15308.]
Fiscal Impact
Participation in PACE programs does not impact the General Fund or any City funds. PACE
programs use private sector capital to provide property owners with funding. Joining any of
the existing PACE programs will not expose the City to financial liability.
_____________________________________
Prepared by: Misty Mersich, Sustainability Manager
Reviewed by: Jaqui Guzmán, Deputy City Manager
Approved for Submission by: David Brandt, City Manager
Attachments:
A‐ Draft Resolution Figtree Program
B‐ Draft Resolution Ygrene for SB 555 & JPA Agreement
C‐ Draft Resolution Ygrene for AB 811 & JPA Agreement
D‐ Draft Resolution HERO Program & WRCOG JPA Agreement
E‐ Draft Resolution CSCDA Open PACE
F‐ Figtree Fully Executed RCSA Agreement
G‐ ABAG Member Acknowledgement Form_ Figtree
H‐ Ygrene Fully Executed RCSA
I‐ ABAG Member Acknowledgement Form_ Ygrene
J‐ WRCOG Fully Executed RCSA
K‐ ABAG Member Acknowledgement Form_ WRCOG
L‐ CounterPoint Energy Solutions (Alliance NRG) Fully Executed RCSA Agreement
M‐ ABAG Member Acknowledgement Form_ CounterPoint Energy Solutions (Alliance
NRG)
N‐ PACE Funding Fully Executed RCSA Agreement
O‐ ABAG Member Acknowledgement Form_ PACE Funding