Overview and History of PACE Jared Asch 10/8/14

What is PACE? Property Assessed Clean Energy (PACE)is a financing tool Based on land-secured financing districts used to pay for improvements (i.e. street improvements, lighting, etc.), funded by bonds Finance energy efficiency, renewable energy, water efficiency upgrades, and electric vehicle charging stations Property owners agree to an assessment on their tax bill. They repay the financed amount as a line item on their property tax bill Interest rates range from 5.25-8%

Benefits of PACE For Property Owners For Local Governments Voluntary Allows for transfer of repayment obligations Eliminates upfront costs Long-term repayment (~20 years) Decreases utility bills/operating costs May be used for energy efficiency, renewable energy, water upgrades, and electric vehicle charging stations For Local Governments Stimulates local economy with jobs Achieve greenhouse gas reductions, reduce water use No liability to general fund

Commercial PACE Opportunity: 2012 study showed commercial buildings consumed 37% of California’s electricity Eligible properties: Commercial Industrial Multi-Family (5+ units) Greater flexibility in project cost, measures implemented, and payback terms Using Energy Efficiency to Meet State and Federal Carbon Pollution Reduction Goals, National Governors Association State Workshop on Innovations in Energy Efficiency Policy: West and Midwest, January 29, 2104

BayREN and Commercial PACE The Bay Area Regional Energy Network (BayREN) is a collaboration of the 9 Bay Area counties, led by ABAG, working together for a sustainable energy future BayREN currently has funding through the CPUC for counties to do outreach and marketing on Commercial PACE Developing market segmentation tools, such as a building inventory profile of good PACE candidates Will coordinate with PACE administrators

History of Residential PACE 2008: First PACE program implemented by City of Berkeley 2010: Federal Housing Finance Agency raises concerns about effects of PACE liens on mortgages held by Fannie Mae and Freddie Mac 2010: Fannie Mae and Freddie Mac will not buy home mortgages with senior PACE liens Some PACE administrators suspend residential PACE programs 2013/2014: Governor Brown proposes solution Senate Bill 96 authorizes PACE Loss Reserve Program (2013) Make FHFA whole in the event of foreclosure of PACE property $10 million Loss Reserve through California Alternative Energy and Advanced Transportation Financing Authority (CAEAFTA) FHFA statement in 2010 directed Fannie Mae and Freddie Mac to “protect safe and sound operations,” possibility of tightening borrow debt-to-income or loan-to-value ratios in jurisdictions with PACE programs. Risk to homeowners that Fannie/Freddie find they have breached their mortgage

Challenges for Residential PACE - FHFA In 2010, the Federal Housing Finance Agency (FHFA) raised concerns regarding the effect of residential PACE lien priority on mortgages backed by federal mortgage enterprises FHFA instructed federal mortgage enterprises to adjust lending criteria and require PACE assessments to be extinguished before purchasing or issuing a mortgage In response, most PACE programs halted their residential financing The State and several other parties sued FHFA but the 9th Circuit Court of Appeals ruled in FHFA’s favor in March 2013

The Reserve Fund

SB 96 - PACE Loss Reserve Program In response to FHFA’s concerns Senate Bill 96 (Committee on Budget and Fiscal Review, Chapter 356, Statutes of 2013) authorized CAEATFA to create: “a PACE risk mitigation program for PACE loans to increase their acceptance in the marketplace and protect against the risk of default and foreclosure.” This program became known as the PACE Loss Reserve Program The Budget Act of 2013 allocated $10 million for the implementation of this program

Program Description The PACE Loss Reserve Program will compensate first mortgage lenders for losses resulting from the existence of a PACE lien in a foreclosure or forced sale. The reserve will cover: PACE payments made during a foreclosure (while the first mortgage lender is in possession of the property) Any losses to a first mortgage lender up to the amount of outstanding PACE payments when a county conducts a forced sale on a home for unpaid taxes This program is designed to put first mortgage lenders in the same position they would have been in without a PACE lien on the property. In essence, to address FHFA’s concern by taking away the first mortgage lenders risks. EXAMPLES - FORECLOSURE This provision is intended to allow reimbursement of the first mortgage lender for the portion of property tax payments attributable to the PACE lien actually made by the lender while in possession of the property. For example, if the property tax obligation is $4,600 annually, including a PACE obligation of $600 per year, and the lender makes both semi-annual tax payments, the program would then reimburse the lender for the $600. Forced Sale For example, assume: 1) a property subject to an outstanding mortgage of $400,000; 2) unpaid taxes of $60,000; 3) a PACE lien $10,000 in arrears at the time of sale; and, 4) a forced sale resulting in a sales price of $410,000. Based on this scenario, the first mortgage lender would see a loss of $50,000. The program would reimburse first mortgage lender for $10,000 (the amount of the PACE arrearage).

Covered Losses Scenario 1: First mortgage lender forecloses on a home Once the mortgage lender takes possession of the home, it would make regular property tax payments Loss reserve can then be used to reimburse the first mortgage lender for the PACE payment portion of the property tax paid Scenario 2: County auctions a property for unpaid taxes If the sale price does not cover the unpaid taxes and the first mortgage, the reserve can be used to cover losses on the mortgage up to the amount of unpaid PACE assessments In both cases, normal PACE payments would resume when a third party purchases the home

Program Description PACE assessments are enrolled for their full terms PACE programs will pay a small administrative fee (0.25%) based on loan volume and report semi- annually The fee will not be assessed on outstanding loans at the time of enrollment CAEATFA expects the $10 million allocated for the reserve to last beyond ten years

Low Expected Liability to Reserve Homeowners rarely default on property tax payments Subset of homeowners Screened for mortgage and tax delinquency, equity, etc. PACE improvements often give homeowners more discretionary income Losses that do occur will be for relatively small amounts Only cover payments during period of foreclosure ownership Normal PACE payments resume when a third party purchases the foreclosed home

Consumer choice 11/16/2018

It’s Happening now Nearly $450 million plus in projects $300 million in project pipeline 25,000 plus homes on residential California expansion Stronger Programs Private Capital Zero capital for cities Reserve Fund 11/16/2018