Vermont Legislature SmartTranscripts:

[Michael Marcotte (Chair)]: Good afternoon, everyone. This is the Vermont House Committee on Commerce and Economic Development. It is Tuesday, 04/14/2026 at 01:02 in the afternoon. So this afternoon, we'll be taking testimony s three twenty seven, but it's the language that we're looking at is actually s one thirty eight that we'll be looking at and inserting into s three twenty seven. We have chair James with us from Energy Technology, and they actually had possession of s one thirty eight and are allowing us to use to put that language into the economic development bill. Madam Chair, welcome.

[Ellen Chittenden (Office of Legislative Counsel)]: Thank you.

[Michael Marcotte (Chair)]: Glad to have you in commerce. You could, I don't give us an overview of CPE's and Sure.

[Megan Sullivan (Vermont Chamber of Commerce)]: A high level overview.

[Chair James (House Energy & Technology Committee)]: So yeah, we were actually, we were excited to get this bill, S-one 138, which I think you guys are gonna pick up and put into the economic development bill. And that is fitting because C PACE is an economic development tool that, and I'm sorry, I don't have all of my notes handy, but I think that at this point, 40 states and the Districts Of Columbia or 39 states in DC or somewhere around that ballpark have authorized C PACE districts in their state statute. So we're trying to catch up here. And basically, PACE is, I should probably say for those in the room who have memories, C PACE is essentially nothing like ARPACE. So we don't need to really dive into ARPACE because they're very different programs. So C PACE is a source of financing for commercial properties. And so that would include anything from like an office building to mixed use project to a warehouse to a hospital. When you think about commercial properties out there putting together their funding stack, the kind of lending that they can add to that stack through a CPAs program is usually very attractive. And it helps cover the cost of, in this bill anyway, or as we're envisioning it, renewable energy projects, energy efficiency projects, and then we took a page from New Hampshire and added resilience projects,

[Megan Sullivan (Vermont Chamber of Commerce)]: which could get to things like storm water management and water conservation. So you've got three kinds of

[Chair James (House Energy & Technology Committee)]: funding that can be covered. You can get help doing energy efficiency work, either a new build or retrofit. So thinking about things like the HVAC system or weatherizing. You can do renewable energy, so that might be something like solar panels. And then as I mentioned, the resiliency project and that we added a definition there, but I think those projects would have to kind of take shape a little bit. But if you think about a big project, a commercial project that's going up and they wanna make sure they're climate resilient, I think that's what we have in mind. So the site and the building. How it works, it's voluntary. Think that's And really it's from a private lender to a commercial property. And so this is not state money, this is not taxpayer finance. These are private lenders who are trying to provide beneficial money, basically, to a commercial property. And what's unique or interesting about it is that the property tax bill is like, I'm thinking of it as the mechanism. I'm gonna talk about that in a minute when I get to my cheat sheet here because is the part that I wanna make sure I try to explain clearly. But what makes them beneficial? Well, typically these are longer term loans. They can be as long as thirty years And usually pretty good rates. We had heard things like 4%, 4.5%. And we took testimony from some national lenders that kind of specialize in doing C PACE lending because it's this sort of burgeoning industry around the country. And I think we said there are like $7,000,000,000 in CPAs loans out right now and they have super low default rate, 1% is what we heard. So how it works, this is where I do wanna get my little PowerPoint. So first of all, so a state has to enact a statute basically authorizing the CPAs program. So that's what this bill does. So Vermont would wanna become the forty first state passing a bill that says, yes, C PACE. Then any interested municipality, local government around the state could set up a C PACE district. So in that sense, it's kind of like TIFF, I guess. So the local select board would say, we wanna be a C PACE town, we wanna be a C PACE district. And the select board would have to vote to approve that. And my understanding is that the boundaries of the C PACE district equal the municipal boundaries. I'm sure I'll see smoke going up if I say anything that's really inaccurate. So let's say that, I don't know, let's say that Manchester wants to be a C PACE town. The select board would adopt this ordinance or resolution saying, Yay, Manchester is a C PACE town, and we've just defined the district by our municipal borders. So then once a town does that because they're interested, because they want to, then any commercial project located in that C PACE district can go out and seek the C PACE loan from a CPACE lender. So I'm sure you guys will be hearing from, we heard from Castle Green. They're a big CPACE lender nationally. I'm sure you'll hear from Vida. Vida is very interested in being a CPACE lender here in Vermont. So you go out and you define your project. There have to be different analyses done to prove different things about the project. And I'm sorry, don't have that page open right now. But you need to have like, pick an engineer or different environmental analysis done. And so you have to say, yeah, this is going to improve the efficiency of the building. It's going

[Megan Sullivan (Vermont Chamber of Commerce)]: to do what we say.

[Unidentified Committee Member]: And this is how it's all going

[Chair James (House Energy & Technology Committee)]: to work. And I can come back to that if you

[Megan Sullivan (Vermont Chamber of Commerce)]: want to once I find where

[Chair James (House Energy & Technology Committee)]: that is. So anyway, the loan, the parameters of the loan have of taken shape, and let's say that it's approved, and the loan is going to go through, that is where the property tax bill comes in. And now I really do want to make sure. So we've defined the project and the portion eligible for C PACE funding. We've negotiated terms between the commercial property owner and the C PACE lender. We've attained the technical analysis of the project's utility savings, then you have to get the consent of every other lender on the project. So whoever the main mortgage is coming from, any other lender on the project has to say, yes, we're okay with this CPA loan being part of our stack and we are on board. That's really important. And then the actual loan flows through the property tax bill. So while it's not a property tax payment, the property tax bill is the mechanism for repayment. So if your project got approved for a C PACE loan, you're gonna get a property tax bill and some portion of that is gonna be your property taxes. And some portion of that is gonna be your quarterly payment to your CPAs lender. And so we're still talking a little bit about who would maybe administer these loans because we don't want like overburdened town clerks trying to figure out how a seat based loan is going to flow. But let's say $1,000 goes to your property taxes and 10 goes to pay down your seat based. And the reason that makes that financing beneficial is that the loan is secured by and attached to the property and there's a lien on it. Am I getting all this generally correct? I can't. That is so great. And so instead of like a personal guarantee of the project guide, it is the property that that loan is attached to. It is kind of secured by that lien on the property. And that is what allows folks to offer these longer terms and lower rates. Now, I can see some eyebrows up around the table. So this may be where I'm gonna say to you guys, and you have really detailed questions, really, I'm gonna ask you to get the good folks in because we are not the lending, banking, financing committee over in energy. So I'm gonna get right back up

[Amanda Samai (CastleGreen Finance)]: onto the high level

[Chair James (House Energy & Technology Committee)]: comfortable and say this is a really popular program in other states. This is not taxpayer money, this is private capital. This is a mechanism to make a commercial property pencil out by getting this beneficial funding for the energy efficiency, renewable energy, or resilience portion of it. And what we did to the bill was really not much from the Senate. We fixed some language about the assessed value of the property that was just wrong. It was basically a massive typo that would have been very problematic. And we fixed that. Added resiliency like New Hampshire has going on because we thought that might be really interesting for projects in water conservation. We clarified a few things that really were sort of almost technical corrections.

[Ellen Chittenden (Office of Legislative Counsel)]: And we voted it out on a straw poll of eight zero one.

[Michael Marcotte (Chair)]: Representative, help

[Jonathan Cooper (Member)]: me understand, I may have missed this. Why the municipality has to be involved? For

[Chair James (House Energy & Technology Committee)]: the property tax mechanism is key to how these things work. And so it's not so much, are you talking about in the administration of the program? The property tax bill is the key thing. That's what allows the loan to be attached to the property. It's what allows the CPAs lender to take, I believe, first position with everybody else's permission. But if you're talking about the actual beleaguered town clerk, I'm not sure that's really messy.

[Jonathan Cooper (Member)]: That's what I'm sort of wondering, it needs to go on properties all the time, how would select boards having to weigh in? Because that's necessary

[Chair James (House Energy & Technology Committee)]: in like tier one. All the select board has to do is decide if they want their town to be a C PACE district and approve the ordinance and then they're out. That's it.

[Michael Marcotte (Chair)]: Yep. That's

[Jonathan Cooper (Member)]: the only thing I was just curious, I wonder why they have to make that choice. And that's something I'm happy to share more about it.

[Chair James (House Energy & Technology Committee)]: Yeah, you can ask Salvi.

[Herb Olson (Member)]: I missed something in the construct. So which property owners would be repaying through their property tax bill?

[Chair James (House Energy & Technology Committee)]: Anybody? No, no, not taxpayers. So I just keep thinking of the property tax bill or the assessment as a pipeline. And the money is the private capital from the lender. So Vita, Castle Green, whatever, whoever's offering these loan products is out raising the money the way lenders always do. They're going out and getting the money and the commercial project is responsible for paying that loan. And the property tax bill is a little pipeline that it flows through in order to receive these beneficial terms. So property taxpayers are not paying back these loans.

[Herb Olson (Member)]: Except the taxpayer who owns the property, the commercial property.

[Chair James (House Energy & Technology Committee)]: Right, the property, yep. It's a private loan basically between a brand new hotel And and a

[Herb Olson (Member)]: what's the advantage of this versus a financing transaction where the commercial property secures a loan and they're gonna pay back on the loan. And it's secured by the property.

[Chair James (House Energy & Technology Committee)]: Longer terms and lower rates is what we consistently heard in our testimony. And you guys will be hearing the same testimony.

[Michael Marcotte (Chair)]: Yeah, and don't get that, but we'll ask other people.

[Chair James (House Energy & Technology Committee)]: Definitely ask other people.

[Megan Sullivan (Vermont Chamber of Commerce)]: Thanks. One

[Michael Marcotte (Chair)]: more question for the chair.

[Megan Sullivan (Vermont Chamber of Commerce)]: Thank you.

[Chair James (House Energy & Technology Committee)]: Great, thanks for having me.

[Ellen Chittenden (Office of Legislative Counsel)]: I appreciate it. I think that you guys will find this really interesting.

[Chair James (House Energy & Technology Committee)]: Mean, for us, obviously the learning curve was and would remain huge. I'm excited that you're taking this language and putting it into the bill where it properly belongs. And we thought the testimony was really interesting. I learned a lot. Okay, thank you so much.

[Michael Marcotte (Chair)]: Thank you.

[Chair James (House Energy & Technology Committee)]: Have a good day.

[Michael Marcotte (Chair)]: You too. Before we walk through the bill, and Michael, I know you have a time crunch. So if you'd like to provide your testimony now, we'll have a walk through the bill.

[Michael Yacke (Petros PACE Finance)]: Thank you very much, Mr. Chair. Michael Yacke, Senior Vice President of Petro's PACE Finance. I am a C PACE capital provider. My specialty is helping states and communities establish CPAs statutes and CPAs programs. It's something that I enjoy doing. I used to be in local government myself, so I appreciate the work that all of you have done. I wanted to just briefly answer the last question posed by one of your colleagues. And that goes to why have this? You can get a loan from a bank, from a credit union, why would you need C PACE? And I think that the best answer to this is that CPASE was developed because of what was seen as a gap in what was commercially available. If you're trying to take an existing property and bring up the code, say for example, you want to raise your construction codes, or because of some natural disasters, whether it's extreme cold or flooding or snow load, what have you, a community wants to up its particular building code to deal with those particular dangers that it affords. There really wasn't any sort of financing that could kind of address that. So this does not just go for new construction, but also to ensure that the older building stock has the ability to adapt and grow as well. So it just doesn't become an obsolete building, a vacant building on the street. And why we always say longer terms and lower rates is because if you think about, if any of you used to be select people in your own communities, which I presume a lot of you were active in your local communities, you know about local bond programs or local assessment districts where you basically try and improve an area and those properties in that area are assessed a portion of the repayment for any bond that a municipality may put out there. Well, C PACE is essentially a single source, for lack of a better word, bond on that property. And what it does is because the assessment is only for that particular property, but because it is secured by a local government lien, and that's sort of the key word here, a local government lien, which has as its nexus what's called super priority, becomes a first and prior lien above any other liens on the property except for local government property tax under this legislation. And it only does so, by the way, with the consent of any existing or colender on the property as chair James pointed out. Because of that, it has the ability and it acts and is structured in a way that's very much like a municipal bond. And because of that, when you think about how a municipal bond works, it's a lower interest rate, but it's very secure and it's over a long period of time. CPAs behaves that same way. Unlike a commercial loan, where if you are late on a payment or, I mean, let's put it in terms that a lot of us understand on our home mortgage, if you're late on a payment, you get a kind of not so nice letter from the bank. Hopefully none of us have ever been in that circumstance, but we probably know people who have been that say, not only is your payment due, but if you don't make that payment, the entire loan becomes due at the same time. That's not how CPAs work. CPAs works on a year by year assessment. So, the entire amount will never ever, excuse me, become due at one time. It is based on being tied to the property, not to the person. It is tied to being repaid over the period of time on that property. So, unlike a commercial bank loan, if you have a delinquency or a default, the entire amount does not become due. It behaves, like I said, more like a municipal bond. Therefore, in being priced and looked at in the capital markets that we all work in and that local governments work in, it behaved looks very much like that. And because of that security and because of the way it behaves, it can be it is over a longer time period and therefore has a has a sort of fixed lower interest rate. And it can do that because it is much more secure. Higher interest rates reflect less security. Lower interest rates reflect very good security. That's why t bonds are low because it's backed by the full faith of credit of the United States government. This is backed by the lien on the property. It's not backed by the local government, but it is backed by a governmental lien on the property that has priority and therefore, can take advantage of that, for having a lower a lower rate over a longer time. It's it's a lot like drinking from a fire hose, I admit.

[Michael Marcotte (Chair)]: Herb, go ahead and I'll

[Herb Olson (Member)]: So I'm just having a hard time understanding the structure of a lane. You know, who's the lien holder, who's the beneficiary, I guess. Yes. And how that ultimately, you know, what the risk is for the municipality. Sure.

[Michael Yacke (Petros PACE Finance)]: So the way that this is structured, and it's structured this way in every other state and local government in the country, is that there's a contract between the property owner and the local government where the property owner voluntarily agrees to have this assessment and lien placed on their property in exchange for being able to take advantage of this financing. However, the local government then puts the lien, records the lien and the assessment on the property, and then assigns the beneficial interest or the actual lien itself to the entity that made the loan in the first place. So, they then get rid of that. Also in this bill, it's very specific language as there is in every other state in this country that says, in no way, shape or form is the local government responsible for any payment of this. 100% of the risk is on the entities like my company, or you'll hear from Amanda Samai from Castle Green. 100% of that financial risk is on us, not on the local government. If they don't pay, local government doesn't have to shell out a dime. It rides there as a null payment to us. And we have to figure out how we're going to deal with it. But there is no Because of the assignment, because of the strong language in the bill, there is no act. There is no liability. There is only simply the act of the property owner accepting the placement of the assessment and the lien on the property. And then it is up to us to undertake the risk and ensure that this is so of a the burden is on us actually on the front end to make sure that you have a creditworthy borrower in order to make sure that this happens. But that's a whole other thing. So that's how it works. Either the beneficial or the actual security itself, the lien, is assigned to the capital provider, and then it's our risk and not the local government. And I would just want to say that in no local government anywhere in the country, in the thousands of jurisdictions that have elected C PACE, has any local government withdrawn a program or been the subject of any kind of action where they were asked to make good on that assessment payment. That's not the deal that is made. That's not what the legislation states. That's not the protections that are afforded the local governments under this act, under this bill, should it become law.

[Unidentified Committee Member]: I was just curious how you deal with situations where there's default. Say for example, commercial business goes and does this, they go out of business. And typically with property tax law, the municipality, that property cannot sell until that property tax is dealt with. With this being treated as a property tax, how does that interplay with how things, my concern would be is that they have a $150,000 loan that's being put on their property taxes. And now this commercial property sits for years because no one can afford to pick up the tab for that.

[Michael Yacke (Petros PACE Finance)]: Okay. Good question. And this is where I talked about how this is financing that does not accelerate. So, if you do an assessment district in your local area, if someone, say for example, a business is not paying their property taxes, isn't paying the assessment district for the park in their area, What has to be cured in order for that property to be sold is you have to pay the back taxes. Well, it's the same here. And by that, I mean, if you did 150,000 financing of that property, it's really only that portion that's ever due a year that has to be paid off in order for that property to essentially be conveyed. I don't want to get This is where it is really like drinking from a fire hose. This is where the idea of that we're not the primary lender becomes very important and why lender consent is very important. Because essentially each property undergoes really triple underwriting. They're underwritten by whoever may have made the loan on an existing building in the first place or your co lenders on the property. They have to underwrite it to see whether it makes sense for them. Then the capital provider like us or Amanda's company, then we have to underwrite it to see whether or not we think it's going to make sense. And then in order for the existing or co lenders to decide whether or not to consent to what we're doing makes any sense, then they have to rerun the numbers to make sure that the payment that they have to make each year, along with the payment to the bank and everything, is all going to pencil out. So that's why the chair mentioned a very, very low default rate in the country. Even with that, the fact is that there's great incentive for the other lenders on the property to cure this because why would you let a property be sold out from underneath you and lose everything that you put on the property in exchange for like one year or a couple of years property taxes? And that's exactly why most local treasurers, if you talk to them, will say there's a very low default rate on commercial properties because lenders will come in and cure it because they don't wanna lose everything that they put into a property based on the property tax. But again, it's only those ones that have not been paid that have to be cured, not the whole thing. And that's one of the reasons why banks and credit unions consent to CPAs because they know that if we lend 150,000 or a half 1,000,000 or 1,000,000 on the property, that whole number is not sitting in front of their interest. It's only the yearly payment that is ever in front of them on an annual basis.

[Michael Marcotte (Chair)]: Jonathan?

[Jonathan Cooper (Member)]: I'm sort of trying to hone in on a previous question. The role of municipality, I guess because municipality is involved, is therefore entitled to become that, to sort of take that first position, I sort of trying to figure out why that happens?

[Michael Yacke (Petros PACE Finance)]: Okay, Under state law, a governmental lien always has what's called superposition, right? So, if you have a mortgage on a property, if the mortgage forecloses, the first thing they have to do is pay off any existing property taxes by the local government. So, local government is always number one. This is part of the local government assessment structure. So it is what's called a first and prior lien. That's the language in this legislation. Within that legislation, however, we make it very clear that the first among equals is the local government. So, before anyone gets any dime from any foreclosure sale, the local government gets paid off first. Whatever's left over gets paid to us. What's left over to that gets paid to the mortgage holder. That's how it works, and that's how it works in the 39 other state jurisdictions in the country.

[Josh Hanford (Vermont League of Cities and Towns)]: And that would be the reason why

[Jonathan Cooper (Member)]: a select board would need to take a vote to come a space.

[Michael Yacke (Petros PACE Finance)]: Exact exactly. Because it is an it is an exercise of a local taxing power. What this does is it creates the power to do this for local governments. And then it is a voluntary decision by a local government to enact a program in which they agree to use that power on behalf of local property owners to enable them to find and utilize this form of financing to help them either retrofit their building or build something new in its stead.

[Jonathan Cooper (Member)]: Questions?

[Michael Yacke (Petros PACE Finance)]: It is a lot. I gotta admit. It is a lot, but the fact is that this legislation is written in a way to try and minimize the burden to the local governments. We have communities with as small as a few 100 to a couple thousand people utilizing this in areas like in rural Idaho. Ensure that, you're not drowning local governments. And again, as I said, having been in local government myself, I'm extremely sensitive to that fact. So anyway, any more questions that you may have, feel free to throw them at me.

[Herb Olson (Member)]: So I'm trying to understand the money flow. Yes. So essentially, as I kind of grasp it, increment on the property tax bill is really part of, is a loan repayment. It's gonna flow to whoever is owed the money.

[Michael Yacke (Petros PACE Finance)]: Yes.

[Herb Olson (Member)]: How does that actually happen? Okay, so it's a property tax payment, they send it to the town or in its salary, right? Or is it?

[Michael Yacke (Petros PACE Finance)]: Yes. It goes to the Well, there are a couple ways to do it. In legislation, it flows through whoever the collector is for that community. And when you look at how money flows within, say, whoever the treasurer or tax collector is, if that treasurer or tax collector serves other things, not just the town, but an assessment district, a school district, anyone who has put out bonds, for example, they're keyed to different accounts. And so the tax collector sends it to the account. In this case, one of those accounts would be the one that would go to the capital provider, but they're under no obligation to fill that account if the person doesn't pay their property, doesn't pay their CPASE assessment. So, if the money is there, if they repay the money, it goes to us. If the money is not there, whatever is there, to the local government and that account is left empty and doesn't go anywhere.

[Megan Sullivan (Vermont Chamber of Commerce)]: Thank you.

[Michael Marcotte (Chair)]: Questions? Okay. Michael, thank you very much.

[Michael Yacke (Petros PACE Finance)]: Thank you so much. I really appreciate it.

[Michael Marcotte (Chair)]: You're up, Ellen.

[Ellen Chittenden (Office of Legislative Counsel)]: Hi. Good afternoon. I don't think I've been here yet. I'm Ellen Chittenden, CHIFC, the Office of Legislative Council. I'm here on S-one Hundred 38 as was voted out by House Energy the other day. So it is draft 2.2 of their strike all amendment. I'm not normally in here, so I wasn't prepared to share my screen, but I can if you'd like me to.

[Michael Marcotte (Chair)]: Yes, please.

[Ellen Chittenden (Office of Legislative Counsel)]: It's posted under my name today. It still has left highlighting from the version they voted out most recently, and so they made a couple of small changes before they voted it out. But to frame the discussion that you've already started, this bill is amending title 24 chapter 87, which is the Special Assessment Authority of Municipalities. And so as we were just discussing, municipalities have this authority to make special assessments, which are often in the form the property tax. And currently it already exists in that chapter as a sub chapter on PACE or as the chair mentioned before, R PACE, and it's only specific to residential properties currently. So Vermont has had this financing option for residential properties for quite a while, I think since 2011, there hasn't been a ton of uptake on that program. But a new sub chapter is being created within that chapter for the commercial PACE program. I'm sorry, I don't actually have the Zoom link, Jonathan. Yeah. And initially, as this bill was as introduced in the Senate, it just amended the existing PACE statute to improve commercial development. However, as has been discussed, the commercial PACE programs that operate in other states are fairly different than the residential program that is in Vermont. So a new subchapter is being created in order to provide a lot more of this flexibility around how much involvement the municipality has to have in order to get this up and running. So we're creating a whole new sub chapter, it will be fairly different than how the residential PACE program will work.

[Michael Marcotte (Chair)]: So,

[Ellen Chittenden (Office of Legislative Counsel)]: one, section one. We're creating this new subchapter, subchapter three of chapter 87. Marshall?

[Michael Marcotte (Chair)]: You're not a part of the subject. Subposts.

[Ellen Chittenden (Office of Legislative Counsel)]: Oh, and I'll also just say that I am the land use, energy, and climate change attorney. I have a suspicion that some of you in this room know a lot more about financing mechanisms than I do. So I will do my best to answer your questions on some of these complex financing things, but there may be other witnesses who could address some of those questions. I don't do a lot in this area of law generally. All right, how's that?

[Michael Marcotte (Chair)]: Good. Great.

[Ellen Chittenden (Office of Legislative Counsel)]: So creating this new subchapter, and so as this is set up, the first few sections are creating new laws specific to subchapter three for PACE. And then the other sections towards the end of the bill are amending the existing R PACE program to just incorporate the R PACE and the C PACE. There's some overlap with the statute's use there. So section one thirty two seventy five, commercial property assessed clean energy districts approval legislative body. The legislative body of a town, city or incorporated village may vote to designate the municipality as a commercial property assessed clean energy district or a C PACE district. I'll stop there quickly. As you've heard, this is a nationwide program, and so there isn't a lot of discussion actually here about clean energy. It's broader than that. So a couple of times it has come up about whether or not the name should change. You could consider that, but this is a program that has been adopted by a lot of other states that is broader than just clean energy. In a district, only those property owners who have entered into written agreements with the municipality under 03/1976 of this title would be subject to a special assessment as set forth at 03/1955. Upon a vote of approval by a majority of the legislative body of the municipality voting at a duly warrant meeting, the municipality shall allow for the imposition of a special assessment to secure private financing for property owners of commercial or industrial buildings within the boundaries of the municipality for renewable energy projects as defined in '30 BSA 8,000 and two-seventeen. That is the Renewable Energy Chapter in Title 30. The energy efficiency projects as defined in 3276 of this title. Water conservation projects and resiliency improvement projects.

[Unidentified Committee Member]: Helen, does that include the March I

[Ellen Chittenden (Office of Legislative Counsel)]: don't know a ton about the three acre rule. As you'll see that House of Energy did add definitions for water conservation improvement and for resiliency improvement. Storm water, snap rate. So that is included in the definition of a resiliency improvement. Oh, there it is. Page

[Michael Marcotte (Chair)]: two of I believe I heard you say 3276.

[Jonathan Cooper (Member)]: Yes.

[Ellen Chittenden (Office of Legislative Counsel)]: No, I'm sorry. So 03/1976 is actually going to be the next section I'm going to walk through and it's for the C PACE program, but there is already in 3267 under R PACE a definition for energy efficiency project. Yeah, sorry. So the definitions here though, as used in this subchapter, commercial or industrial building means any building other than a residential dwelling with fewer than five units. So this contemplates commercial buildings, but also multi unit dwellings with five or more payments. District means a commercial property assessment energy district, which includes the entire municipality. So district is not just a segment of the municipality, it's for the whole municipality. Resilience means the ability of interconnected ecological, social, physical, and economic systems to anticipate, adapt, withstand, respond, and thrive in the face of current and future conditions and disasters. And that definition is used in the definition of resiliency improvement, which means improvements that increase the resilience of a property, including air quality, stormwater infrastructure improvements, snow and flood mitigation, energy storage and microgrids, alternative vehicle charging infrastructure, and fire and wind resistance. Water conservation improvement means measures, equipment, or devices that decrease the consumption of or demand for water, address safe drinking water, or eliminate lead from water used for drinking or cooking. On to page three. So there's a new section 3,276 written agreements, consent of property owners, energy savings analysis, lender consent. Upon an affirmative vote made pursuant to 3,175 and the performance from the analysis pursuant to subsection B, which we'll talk about in a minute, an owner of a commercial or industrial building within the boundaries of a district may enter into a written agreement with the municipality that shall constitute the owner's consent to be subject to a special assessment as set forth in 03/1955. Entry into such an agreement may only occur after 01/01/2027, so this program can't start until January 1. Prior to entering into a written agreement, a property owner shall have an analysis performed that includes the following components: Where energy or water usage improvements are proposed, an energy analysis by a licensed professional engineer or engineering firm stating that the proposed qualified improvements will either result in more efficient use or conservation of energy or water, the reduction of greenhouse gas emissions, or the addition of renewable sources of energy or water. Where renewable energy is proposed, an engineering study showing that the improvements are feasible. Where resiliency improvements are proposed, certification by a licensed professional engineer, seeing if qualified improvements will result in improved resilience. Or on to page four, for new construction, certification by a licensed professional engineer or engineering firm stating that the proposed qualified improvements will enable the project to meet or exceed the energy efficiency or water efficiency or renewable energy or water usage requirements of the current building code and the commercial building energy standards established under the Code Section 43.

[Michael Marcotte (Chair)]: Under the resiliency improvements, is there a specification of how far you want that resiliency to be?

[Ellen Chittenden (Office of Legislative Counsel)]: There isn't. I think the language only just says that it will improve resiliency. Yeah, result in improved resilience. And so I don't think currently we have any specific resilience requirements. House Energy can talk about whether or not this is akin to flood proofing requirements in zoning, but no, there isn't a specific level required here,

[Jonathan Cooper (Member)]: just improved resilience. Jonathan? I had a similar question going back a little bit to the aforementioned section three thousand two and sixty seven for energy efficiency projects, and I was trying to find what that definition is. It seems a little bit I was just wondering if that's commonly known, I just wondered what the contents of that, because it seems to refer to some other statutes. I was getting a little bit beyond the table.

[Ellen Chittenden (Office of Legislative Counsel)]: Believe the definition that's in there right now is that the efficiency Vermont will create a list of projects that will meet the definition of energy efficiency project. And so they previously did that as part of the existing PACE program. And so that is a statutory definition that you can change or require additional specificity. It's in this edition of

[Jonathan Cooper (Member)]: 3209D and there I realized that he was a firm. But I just realized that statute broadly, sure, Bennington is delegating to efficiency from odds, some decision making about I can think so, yes. Okay.

[Michael Marcotte (Chair)]: Yes.

[Ellen Chittenden (Office of Legislative Counsel)]: All right. On page four, subsection C, a written agreement shall provide that the length of time allowed for the property owner to receive the assessment shall not exceed the life expectancy of the project. In instances where multiple projects have been installed, the length of time shall not exceed the average lifetime of all projects weighted by cost.

[Michael Marcotte (Chair)]: That

[Ellen Chittenden (Office of Legislative Counsel)]: I'm not so sure of, but an easier example So the example I think I talked about is solar panels have an average lifespan of between twenty and thirty years. I'm not entirely sure what they weighed it by cost, I suppose a solar panel would be cheaper than flood proofing the entire building.

[Jonathan Cooper (Member)]: So we have ten years in windmill, five years in solar panel, we're also accounting for how much the cost is of those things, so we're not Is that true?

[Ellen Chittenden (Office of Legislative Counsel)]: I think so, I think whichever is the more costly project would be the what you base

[Jonathan Cooper (Member)]: the light time on. Yeah, I see.

[Michael Marcotte (Chair)]: I'm just setting a what do we call it when we say project? Isn't the project wanna install solar panels, I've installed it, the project's done.

[Ellen Chittenden (Office of Legislative Counsel)]: Right. And I think, though, that sometimes because there's a lot of different types of projects that could qualify, I think some of the buildings are doing multiple of those. And so it may be the addition of solar panels on the roof, but it may also be heat pumps also. And especially with new construction, a few different types of projects for a building that's being newly constructed would qualify as a PACE improvement.

[Michael Marcotte (Chair)]: Yeah. But I guess what I'm getting at is that you build a building and you're doing all of these things, and at some point it's finished. You're done with the project. And then it's just the building with all of these things. Are we talking about the length of time, the life expectancy of solar panels or heat pumps or whatever, and not the project? Because I think, you know, it's gonna take me two years to build the building. So the project's over with. So does that mean I have to pay my loan back at the end of when the project is done? See what I'm saying with using the word project?

[Unidentified Committee Member]: Is the word improvement better? The life expectancy of the improvement? Sure.

[Ellen Chittenden (Office of Legislative Counsel)]: Maybe. Yeah. There wasn't a ton of discussion on this previously, so if it needs to be clarified,

[Megan Sullivan (Vermont Chamber of Commerce)]: I'm happy to

[Ellen Chittenden (Office of Legislative Counsel)]: make suggestions. Maybe it's made an improvement.

[Jonathan Cooper (Member)]: Is that where the stabilization is relevant? There's that consideration. So I'm wondering if that's also, when is that stabilization achieved? If that's the same thing we're talking about or something different.

[Michael Marcotte (Chair)]: Yeah, if you're saying that the life expectancy of solar panels is twenty years, and I have twenty years to pay the project pay for it, but it's not a project. Right.

[Megan Sullivan (Vermont Chamber of Commerce)]: Happy to whatever you can make

[Jonathan Cooper (Member)]: it work.

[Unidentified Committee Member]: I see what you're doing,

[Michael Marcotte (Chair)]: and I agree. I think that's proven. It's a much better word.

[Jonathan Cooper (Member)]: Right.

[Michael Marcotte (Chair)]: Then we get into another piece. So if we're doing resiliency, right? And so if we're making it flood resistant, then your improvement is ongoing forever. So how do we zero in on The life expectancy of life expectancy of resiliency.

[Unidentified Committee Member]: So we might have to cap down with it here.

[Ellen Chittenden (Office of Legislative Counsel)]: There is a And I

[Unidentified Committee Member]: Or a maximum of x years.

[Ellen Chittenden (Office of Legislative Counsel)]: There is language on that specifically further in. There is a maximum of thirty year payment, I believe. Yes, there's a maximum time at thirty years. And

[Michael Marcotte (Chair)]: perhaps the long can go, the more in thirty years. Yeah. Okay. So, I think your resiliency question, that's fine. But it's, yeah.

[Ellen Chittenden (Office of Legislative Counsel)]: And so I guess you could consider whether or not you need to make the statement here if there is also a maximum time set later in the show. That's a question. Alright. Subdivision 2, notwithstanding any other provision of law, the lien under this section is a first and prior lien on the property supported only to a lien for property taxes from the date on which the notice of special assessment is reported until the assessment interest or penalty is paid and runs with the land and that the portion of the assessments under the assessment contract that is not yet due shall not be accelerated or extinguished by foreclosure of a property tax lien or any other foreclosure.

[Michael Marcotte (Chair)]: Does that mean that if the property goes after taxing or somebody purchases it, they're taking on

[Unidentified Committee Member]: the loan? Yes. And they only have to

[Ellen Chittenden (Office of Legislative Counsel)]: pay what has already if there's any delinquent there for that portion, it doesn't accelerate the rest

[Michael Marcotte (Chair)]: Okay, of so then they're on same schedule as the previous loan? Yes.

[Unidentified Committee Member]: It's a transferable loan?

[Ellen Chittenden (Office of Legislative Counsel)]: Yes, the loan is on the property, not with the borrower.

[Michael Marcotte (Chair)]: So it makes it a question. And

[Ellen Chittenden (Office of Legislative Counsel)]: so I'm still on that topic. In the event that a foreclosure action, all payments on an assessment under the subchapter that are due and unpaid as of the date of the action is filed, and all payments on the assessment that become due after that date and that accrue up to and including the date titled of the properties transferred to the mortgage holder, the lien holder, or a third party in foreclosure action shall be paid in order for title to transfer. This was my concern.

[Unidentified Committee Member]: Listen to me. This was my concern is if that's gonna transfer in the property, you have someone, maybe it sat there for three years, all this renewable stuff is completely dilapidated. Yeah. And now I'm responsible for paying the loan that I don't have to

[Michael Marcotte (Chair)]: reap the benefit of, or I won't reap as much benefit from. Well, you probably won't buy it then. I probably won't.

[Ellen Chittenden (Office of Legislative Counsel)]: Line 5, Subdivision 3, a capital provider shall disclose to participating property owners each of the following: the risks associated with participating in the program, including risks related to failure of participating property owners to make payments and the risk of foreclosure and the provisions of subsection H of inspection that pertain to prepayment of the assessment. The notice of an agreement shall include at least each of the following: the name of the property owner as grantor, the name of the municipality as grantee, the date of the agreement, a legal description of the real property against which the assessment is made pursuant to the agreement, the amount of the assessment and period during which the assessment will be made on the property, a statement that the assessment will remain a lien on the property until paid in full or released, and onto page six, the location at which the original agreement may be examined. Prior to entering into the written assessment contract, the property owner shall obtain and furnish to the municipality a written statement executed by each holder of a mortgage or deed of trust on the property securing indebtedness in their sole and absolute discretion that consents to the assessment and indicates that the assessment does not constitute an event of default under the mortgage or deed of trust. So this is the lender consent. So the lenders of any other mortgage about the property have to consent because this lien is going to be a first and prior lien above them. Subsection F, the combined amount of the assessment plus any outstanding mortgage obligations for the property shall not exceed 90% of the appraised real property value of that property as stabilized or as complete. With respect to an agreement under this section, the assessments to be repaid under the agreement when felicitated as if they were the repayment of a loan shall not violate nine BSA sections 41A, 43, 44, and 46 through 50. So these are statutes in Title IX regarding the laws around interest and how interest can be calculated on a loan. I don't know a ton about them, but you can't violate those provisions. And with the exception of some additional language at the end of the period, because CPAs will be exempt from the requirement that there be no prepayment penalties, but we'll talk about that. The contract terms agreed to by the lender may include prepayment penalties. And the maximum length of time for the owner to repay the assessment shall not exceed thirty years. For projects under Subchapter two of this chapter, which is residential PACE, there shall be no penalty or premium for the prepayment of the outstanding balance of assessment under this subchapter if the balance is prepaid in full. Projects under this subchapter three are not subject to these provisions, but shall be determined by the private agreement for financing of improvements. That's what I was just mentioning. There's another section at the end of the bill that also makes that clear that there's an existing law that says you can't have a penalty for prepayment on a loan. Some programs are exempt from that, including residential PACE. This program is not exempt from that, and so it is determined by whatever the lender puts in the financing agreement. On to page seven.

[Unidentified Committee Member]: Allison, do you know if that's a national thing?

[Ellen Chittenden (Office of Legislative Counsel)]: The pre payment test. I do not know. I'm not sure if any of the other witnesses you'll hear from, afraid, no more about that. Because,

[Michael Marcotte (Chair)]: number one, this money is patient, it's lower interest rates that if you prepay,

[Jonathan Cooper (Member)]: My understanding is it's fairly common to have

[Michael Marcotte (Chair)]: prepayment penalties in commercial lending.

[Ellen Chittenden (Office of Legislative Counsel)]: Top of page seven, subsection I. Property must be eligible for financing if otherwise qualified improvements were completed and operational not more than thirty six months prior to submission of the application to the program. Waivers to the thirty six month requirement may be granted in the sole discretion of the program administrator. And so we'll talk about that in the next section, program administrators. There's an option for the municipality to contract with someone else to administer this program for municipality. Or municipality can administer as well? Yes. So section three thousand two seventy seven, program administrators, CFAES program administration. An entity that administers the commercial property assessed clean energy program or CK's program under its subchapter, they'll be referred to as a program administrator. A municipality, a public agency, or a private entity may serve as a program administrator. However, a capital provider or lender shall not serve as a program administrator in a municipality where it is also lending.

[Michael Marcotte (Chair)]: So a capital provider could be? Yes. As long as they're not running in that

[Jonathan Cooper (Member)]: municipality? Yes.

[Ellen Chittenden (Office of Legislative Counsel)]: A municipality that has adopted a C PACE district may enter into a contract with an entity to serve as the program administrator and to administer the functions of the CPAs program for the municipality. Or serve as the program administrator itself to administer the functions of a CPAs program, including entering into CPAs agreements with commercial property owners in its jurisdiction and collecting CPAs assessments. On to page eight. An entity may enter into a contract with a CPAs municipality where the entity shall serve as a program administrator in the municipality and collect fees necessary to administer the CPAs program.

[Michael Marcotte (Chair)]: Are they collecting fees from the municipality?

[Ellen Chittenden (Office of Legislative Counsel)]: Yes, so there's existing authority in the existing PACE program that municipalities are allowed to charge fees to administer that to cover the administration of the CPAs program. This would allow the if the program administrator was another entity, they may also have that authority to collect fees if they need to. So I think it would be just on those entities that they were collecting the special assessment. So just the entities that were participating in the interpretation.

[Michael Marcotte (Chair)]: Would those fees be included in the yearly tax bill?

[Unidentified Committee Member]: I believe so, yes. Sorry, just so a municipality that is administering a C PACE loan in its own municipality can also collect fees for that administration? Yes. And the municipality could do that for other municipalities also, or just collect fees and be that administrator for another municipality?

[Ellen Chittenden (Office of Legislative Counsel)]: I believe the underlying RPA statute does say that. It hasn't been discussed here if a municipality can serve for other municipalities, but I think the language is broad enough for that.

[Michael Marcotte (Chair)]: All right.

[Ellen Chittenden (Office of Legislative Counsel)]: Other than the fulfillment of its obligations specified in the C PACE agreement, neither the program administrator nor a municipality has any liability to a commercial property owner for or related to energy savings or resilience improvements financed under a CPACE program. And then subsection D, this is one of the things that House Energy was just working on. You may want to consider if it should be a session law provision because it is a report back from the Department of Financial Regulation, so it's a one time thing. So the Department of Financial Regulation shall consult with relevant stakeholders, including the Vermont League of Cities and Towns, the Vermont Economic Development Authority, Efficiency Vermont, the Vermont Economic Progress Council, the Regional Development Corporations, and agencies from other states with CPACE programs in order to identify appropriate entities to serve as program administrators. On 12/15/2026, the department shall submit a report on recommended program administrators to the House Committees on Commerce and Economic Development and on Energy and Digital Infrastructure and the Senate Committee on Natural Resources and Energy.

[Michael Marcotte (Chair)]: I'm wondering if this is about

[Jonathan Cooper (Member)]: finances. The Biden's did

[Ellen Chittenden (Office of Legislative Counsel)]: not take possession of this bill on the Senate. They did a drive by.

[Michael Marcotte (Chair)]: But I think they probably will see the report. Okay.

[Ellen Chittenden (Office of Legislative Counsel)]: And so I did just want to flag, there was discussion about whether or not there should be a required approval from the Department of Financial Regulation about someone, some entity becoming a program administrator. But right now, this is just having them report back on appropriate entities to serve as program administrators. But there isn't a statutory requirement that they be from that list, so you may want to consider if that's. Alright, so that ends I'm confused as to why we need to study. We'll we'll talk about that. Yeah. I don't know that

[Michael Marcotte (Chair)]: we Is there a need that we have to name someone in administrator?

[Ellen Chittenden (Office of Legislative Counsel)]: So, as the statute is written right now, no. In the Senate committees, they were going back and forth about whether or not they should either name a single entity or have an approved list of entities. And then they didn't specifically decide, but they did ask for DFR to weigh in. And so as of right now, even if they reported back to you with a list of entities, there's no requirement that it be someone from that list of entities. So there is a little bit of a disconnect there.

[Michael Marcotte (Chair)]: Jonathan?

[Jonathan Cooper (Member)]: Is it common in other states that HC PACE does have an administrator?

[Ellen Chittenden (Office of Legislative Counsel)]: Yes, and I believe there's a couple different ways that states have structured it. Some of them, I believe Connecticut, their green bank serves as the program administrator, and in Maine, I believe it's their efficiency utility serves as the program administrator. And then I believe a few other states have it sort of more ad hoc, as we're kind of talking about here, of different municipalities and other preferred options. But I think maybe we care about that from some of the other witnesses, if there are other models.

[Jonathan Cooper (Member)]: Program that is being administered is keeping track of those payments to proper tax payments. And

[Ellen Chittenden (Office of Legislative Counsel)]: I think you're going hear from Efficiency Vermont today, under the existing PACE program in Vermont, there wasn't necessarily the specific identification of a program administrator required in statute, but Efficiency Vermont did provide guidance to municipalities on what types of projects were eligible and some things like that. So they had an administrative model related to PACE previously.

[Herb Olson (Member)]: This may be for someone else. And maybe I missed it too. So we came to the end of that sub chapter that talks about the program, the new program. And there's a definition that defines district at the beginning, and it's called the district is a commercial property assessed Wind Industry District that includes the entire municipality. I'm trying to figure out how that concept of the entire district and the entire municipality comes to play in the financing scheme. If the assessment is really just on the property, I just don't understand this subject.

[Ellen Chittenden (Office of Legislative Counsel)]: I do think it is a little awkward. I think

[Megan Sullivan (Vermont Chamber of Commerce)]: it may be an extraneous term.

[Ellen Chittenden (Office of Legislative Counsel)]: We might not even need to define it. There is the interest though in making sure it's clear that a legislative body or municipality is voting a town to participate in this program. And so I don't know that the word district is needed.

[Herb Olson (Member)]: Timothy has to.

[Ellen Chittenden (Office of Legislative Counsel)]: And I think what the Senate committee discussed though was they wanted to make sure that it was clear what types of buildings were eligible under this part of it. So that is the way that the use of district is how it is framed in the residential case program. And so it's carried over from

[Jonathan Cooper (Member)]: Oh, other South County.

[Ellen Chittenden (Office of Legislative Counsel)]: Yeah. So it may not be necessary to the understanding, but that is how it is intended to work is to cover the entire municipality. Probably. Would you otherwise have to have an affirmative vote for the select board for every instance of your organization you see face otherwise? No, and I'm not sure if any other states have framed it that way, but as was created with the initial PACE program for residential properties, the whole town had to vote and consent to create the town as a district eligible for this financing mechanism. So that's, it's a holdover. I'm not sure if it's entirely So the rest of the sections here are amending the existing residential piece program. So first, four VSA 3263, Cost of operation of the district, I mentioned this before. They have the authority to collect these. So the owners of real property who have entered into written agreements with the municipality under 3,262, which is the residential PACE program, shall be obligated to cover the costs of operating the district. The municipality may use other available funds to operate the district. That's the existing statute. The municipality may charge fees to cover the operation of the CPAs program under subchapter three of this chapter. And so I already mentioned that before, there's authority also in subchapter three for these. Sorry, just

[Megan Sullivan (Vermont Chamber of Commerce)]: to confirm, those fees would

[Ellen Chittenden (Office of Legislative Counsel)]: be assessed on the road records certificate? Yes. Section three. Just clarify that. I believe that is the intent, if it is not clear, happy to include more specific language if it's not. Section three, twenty four BSA three thousand two and sixty four, so still in the residential case program, rate of property owners of a property owner who has entered into a written agreement with a municipality under 3,262 Residential Case or three thousand two and fifty six C Case may enter into a private agreement for the installation of construction of a project relating to renewable energy as defined in August or relating to energy efficiency as defined in 3276. You may want to consider if this is unnecessary because the first part was amended to also include resiliency project, which was currently part of residential PACE. You could maybe get rid of this section. Might be redundant or end conflict slightly. Section four is amending 24 VSA three thousand two and sixty five liability in municipality. A municipality that incurs indebtedness or otherwise finances, projects under the sub chapter, shall not be liable for the failure of the performance of a project. A municipality that has incurred indebtedness for bonding under this sub chapter shall pledge the full faith and credit of the municipality. And so those two subsections are specific to our PACE and their existing law. Subsection C is touted, A municipality that enters into a written agreement with a property owner under subchapter three of this chapter shall not incur any indebtedness for otherwise financed projects under this chapter, nor shall be liable for the failure of the performance of a project or pledge the full faith and credit of the municipality. So I think this statute captures the primary differences, which are pretty big between residential case and commercial case. The municipality is a lot more involved on the hook for the indebtedness for residential case. That is not true for commercial case. Section five, twenty four BSA three thousand two and sixty eight, Release of Lien. A municipality shall release a participating property owner of the lien on the property against which the assessment under this subchapter or subchapter three is made upon full payment of the value of the assessment. Notice of a release of a lien for an assessment under this subchapter or subchapter three C PACE shall be filed with the clerk of the applicable municipality for reporting and the land record of that municipality. Section six, twenty four DSA three thousand two and fifty five, collection of assessments, liens. Special assessments under this chapter shall constitute a lien on the property against which the assessment is made in the same manner and to the same extent as taxes assessed on the grant list of the municipality, and all procedures and remedies for the collection of taxes shall apply to special assessments. Notwithstanding Subchapter A of a lien for an assessment under Subchapter two, residential case, She'll be subordinate to all other liens on the property in existence at the time as a lien for the assessment is filed on the land records. She'll be subordinate to a first mortgage on the property reported after such filing and shall be superior to any other lien on the property reported after such filing. In no way shall this subsection affect the status or priority of any municipal lien other than a lien for assessment under subchapter two, which is residential case. However, the new language for Subchapter three, A lien for an assessment under Subchapter three of this chapter shall be exempt from the provisions of this section and a pogracy to consent from lenders pursuant to 3276E of this title shall not be subordinate to all other liens on the property and exists at the time the lien for the assessment is filed to the land records. So this is another way that residential PACE is different than C PACE. As you've heard before, it is the first C PACE is a first and prior lien on the property. It requires consent for the other lenders so that the other mortgages or liens on the property are subordinate to C PACE, which is different than how residential PACE works. And then finally, as was mentioned before, section seven is amending 96, section 46, which is related to these prepayment penalties. So section 43 of this title relating to deposit requirements and section 45 of this title related to prepayment penalties shall not apply and parties may contract for a rate of interest in excess of the rate provided in section 41A of this title for the following types. So section 41A says states with interest rate cannot It establishes what interest rates cannot exceed unless otherwise stated in law. And then there's this language regarding a prohibition on prepayment penalties as well as deposit requirements. And it's adding to the list of exceptions to these laws the commercial PACE program. So this is consistent with the language that's been added in the new subchapter three that obligations incurred for commercial property such as the energy projects do not have to comply with the requirements for the interest requirements, the deposit requirements, or the prepayment penalties. The parties are allowed to contract those terms between the lender and the party taking the loan. So it's exempt from those requirements in Chapter nine. And then the effective date here is July 1926.

[Michael Marcotte (Chair)]: The fees that the administrator can charge, is that would those be determined through contract negotiations with the municipality?

[Ellen Chittenden (Office of Legislative Counsel)]: There isn't any specificity on that. It just says the municipality has the authority to cover the costs incurred for operating the district. So you can add detail there. It isn't specific right now. It's about how that is specifically calculated other than the hand municipality against the authority to do that.

[Michael Marcotte (Chair)]: Is there a requirement that the administrator depends the municipality, not the administrator, they have to contract with the administrator, The

[Ellen Chittenden (Office of Legislative Counsel)]: municipality does not have to hire a programming administrator.

[Michael Marcotte (Chair)]: Right, but if they chose, if they choose to, they don't want to do it. Do we have language in there that says it has to be in the contract? Yes,

[Ellen Chittenden (Office of Legislative Counsel)]: I think it says entering to a

[Jonathan Cooper (Member)]: grant. So

[Michael Marcotte (Chair)]: I think in those cases then, it would be a discussion between whoever is about who's providing services with the municipality on what they would charge. But is there and there's no discussion with the property owner to make sure that those fees are fees are not overstated?

[Ellen Chittenden (Office of Legislative Counsel)]: No. There's nothing else specific to that.

[Michael Marcotte (Chair)]: Any questions ready? Thank you very much. She feels okay.

[Megan Sullivan (Vermont Chamber of Commerce)]: Good afternoon, committee. Megan Sullivan, Vice President of Government Affairs for the Vermont Chamber of Commerce. I am excited to be back with you today. I think the last time I was sitting here, I was going right from here to rush into house, energy so I could testify on this bill. Now I'm back before you all testified, which is great. So we're excited about the opportunity for the state to, adopt CPIC legislation. As chair, James mentioned, this is a tool that, 38 to 40 other states currently have in place and we think, has opportunity to be used in Vermont. We find this to be really timely right now given what's happening at the federal level. Federal energy efficiency and renewable energy incentives that have historically played an important role in helping property owners offset the cost of important energy upgrades are scaling back or ending in 2025, and that creates a financing gap for commercial property owners and businesses seeking to invest in these efficiencies and renewable energy and resiliency improvements. So as federal support becomes less available, this state enabled financing tool becomes increasingly important. And CPASE creates a practical tool for any voluntary mechanism that helps address the gap. And I think it's important that this is voluntary for all involved. It's voluntary for the towns to adopt becoming a district. It's voluntary for the property owners and for the lenders involved. So it's a tool in the toolbox that people can use if they so choose. This language and the intent behind it aligns closely with the goals of the Vermont Economic Action Plan, which I know I've talked to you all about before, emphasizing efficiency, economic vitality, and a competitive business climate essential to the state's long term economic success. By enabling long term financing for efficiency and clean energy investments, it supports cost reductions for businesses, encourages private investment, and strengthens commercial infrastructure to improve overall business competitiveness in the state. So it's, I think, a real win win of both. Reducing costs to operate a business, improving long term competitiveness, helping us meet our own self-service goals. So you've heard a little bit or a lot of it about how this mechanically works. So I will skip a little bit of that, but I am gonna give you some examples from what we've seen in other states that have seed face currently in place. So some projects have helped small commercial properties, including, a thrift store in Good Thunder, Minnesota that used CPASE financing to install LED lighting and generated for that small business meaningful annual energy savings and a stronger turnover times. Similarly, in Worthington, Minnesota, they financed lighting and HVAC upgrades through C PACE and identified significant long term savings for that small business. We've seen C PACE support larger commercial and mixed use. In Colorado, statewide C PACE program facilitated more than 120 projects across 39 counties, leveraging over $250,000,000 in profit and private capital for clean energy and efficiency improvements. It's been used for transformative redevelopment and sustainability projects in Omaha, Nebraska, A $205,000,000 mixed use downtown redevelopment incorporated nearly $25,000,000 in CPA's financing for energy upgrades across residential, hotel, and retail space. In Chattanooga, Tennessee, they relied on CPA's financing as part of a historic renovation that included energy and sustainability improvements. And in Newhouse, Connecticut, Hotel Marcel became the nation's first net zero hotel for C PACE financing investments for an all electric system and high performance building design. And then we've also seen it used for community and institutional buildings. YMCA in Connecticut installed a combination of heat and power systems and lighting upgrades, resulting in positive cash flow for the first year of operation. So taken together, I think these are examples of how seed paste can be used across the economy to reduce operating costs and attract private capital, support job creation, and improve building performance. There's been a lot of work from when the bill was initially introduced to how it's coming to you to incorporate concerns that have been raised both by potential users and by lenders to make sure that this is a program that meets everyone's objectives. Other lending CPA states, including California, New York, and Connecticut. Oh, sorry. I'm going to leave it there in terms of just our general support for integrating new economic development tools for our state to use, especially right now when reducing the use of energy as both a climate and business imperative for competitiveness. Appreciate the committee's consideration of this bill, and I'm excited to see it hopefully be added to the economic top

[Ellen Chittenden (Office of Legislative Counsel)]: of the for when I'll be here. Questions for Megan?

[Megan Sullivan (Vermont Chamber of Commerce)]: One other thing I actually will add is that since C PACE has started to be under consideration, we have heard from folks who are doing major redevelopment projects in the state that are excited about the opportunity for this, as well as folks operating in the manufacturing and tourism sector who are looking at opportunities, to do efficiency work and see this as a really valuable tool that could be added for their ability to do those projects. So I think there is excitement growing in Vermont. I want to see this as a possibility.

[Unidentified Committee Member]: Go ahead.

[Michael Marcotte (Chair)]: Thanks, Megan.

[Jonathan Cooper (Member)]: I'm curious about the evaluation of the stabilized value of the property and how that That seems optimistic, which is a good thing, that we will restore this valuation to kind of work from there, which that seems a little bit unique to me in terms of actually build off of

[Megan Sullivan (Vermont Chamber of Commerce)]: that value as opposed to appraised value. And this was an important piece that came up because if you were talking about the appraised value of a piece of blank land, 90% of that is almost nothing. And so you're really not going to be able to have much to lend off of. So this is standard in other states that it's eitheror. I assume my dear friends that are here can talk a little

[Unidentified Committee Member]: bit about

[Ellen Chittenden (Office of Legislative Counsel)]: Nope. They'll be up next.

[Megan Sullivan (Vermont Chamber of Commerce)]: Yeah. How that works out. But that's the biggest standard practice because the freeze body could be on a blank piece of land.

[Unidentified Committee Member]: Curious, are you aware how or if this overlaps with Efficiency

[Megan Sullivan (Vermont Chamber of Commerce)]: So Efficiency Vermont? Vermont, I know, was involved in the R PACE program as the administrator, I believe. So I don't know if in this case they could be the lender or maybe they would be the organization who's doing the improvements that are getting financed. Oh,

[Joe Valenti (Department of Financial Regulation)]: I

[Unidentified Committee Member]: guess I was more asking about funding for Efficiency Vermont provides some funding or rebates for resilience and efficiency planning, those type of things. It might not be the right place for me to ask.

[Megan Sullivan (Vermont Chamber of Commerce)]: In those commercial and industrial, especially these highly complicated capital stacks, they may need both. You're going to be working through efficiency Vermont that is getting some rebates as well as needing to finance the rest. So efficiency Vermont can certainly speak much more to this than I can. But in the House Energy meeting that happened in October to really talk about what's going on with federal funding for efficiency projects, it's pretty dire. So having this tool now seems like a good opportunity to help keep moving the needle.

[Unidentified Committee Member]: Thank you. Anyone else? Okay, thanks, Megan D. Chris,

[Ellen Chittenden (Office of Legislative Counsel)]: do you want

[Megan Sullivan (Vermont Chamber of Commerce)]: to join us next? Sure.

[Ellen Chittenden (Office of Legislative Counsel)]: Oh, I have a question. Oh, that's on the main.

[Megan Sullivan (Vermont Chamber of Commerce)]: Do have a sense of, in the other 38 to 40 states that have this, what's the uptake? I think it depends on the state, on how much you get used. I've heard anecdotally and the CPAs lender who's speaking later might think they'll talk more, but Connecticut has been really successful in this. Colorado has been successful in using this program. So I think there are states where it works very well, and it's a popular tool. So not to keep beating this drum, but also it's about how we let people know the tools that are available to them so that they take advantage of all these things is always part of. Thank you.

[Chris D'Elia (Vermont Bankers Association)]: Sea Paint, you've had a great walk through. Heard from David Dave, I'm happy to answer any questions that you have, but I'll focus on the learning component of this. So as you read in the bill, the mechanism for repayment of the loan between whoever's going put the money up and the borrower is the property tax mechanism. That means it's gonna sit out there like a first priority lien. Even if you go to foreclosures, you were alluding to and expressing some concerns, I'll share a thought on that in a minute, It's still gonna hang out there as a priority is on with the land. That's different than a commercial loan or mortgage where property tax sale occurs or foreclosure occurs, the lender recovers whatever they can out of the deal, they pay off that mortgage and then they buy it. I think you've probably heard me say numerous times, we don't like anybody sitting in front of our mortgage however, we're used to property taxes, and in the case of residential, so secondary market, I would sell through, but this is So good for in looking at this, and looking at the fact that 38, 39 of the states have this, the lender consent piece is really critical because if I'm the lender and Representative Olson is the business that wants to borrow and my loan with Representative Olson is $500,000 or a million dollars, there's no way in hell I'm consenting. I am not putting our loan at risk for what he may like to do. That's just not gonna happen. However, each borrower is gonna be different. Each circumstance is gonna be different. Maybe representative Olson has a $100,000 loan or something less than that. The risk is much lower in those cases and we may want to consent. So that lender can piece is really critical because even though it's running with the land, I'm underwriting representative fulsome. A piece of property is not repaying, it is the entity that is borrowed that is repaying, you're just using the property tax, the mechanism or collection system as a way to collect it. So you still have to underwrite representative Olson, and we're gonna make sure that if I'm gonna do anything that's gonna jeopardize our interests, that's alike. It doesn't mean it closes the door completely, but that lender consent was really critical and that's why it exists in 39 other states. The foreclosure piece, again, it's going to depend on the circumstances. Let's say lender consent has been given. Let's say the borrower is not making the payment, they're absolutely correct, only that year's delinquency is what's due. A lender is gonna sit there and think, is there enough of an incentive for me to preserve my collateral similar to a mortgage where I was mentioned where I step in and I pay it and then I gotta find a borrower to come along and buy it. I think the challenges you were going to Tony, is I think that pool of potential buyers is gonna be smaller in the case of PACE, because there may be some businesses or entities out there that say, don't take on this base loan or lien for the ten years that it exists, or as you alluded to, for the handful of years that exist, and the asset has been depleted or is close to its end of life cycle. So given all of the discussion that happened in the Senate and the changes that were made in the Senate, we are supportive of the PACE program moving forward in Vermont. It's very different than residential PACE, you're talking apples and oranges. We're very supportive of it because of that lender consent language that's in there that quite frankly protects our position if we've got that large amount of representative. It accounts for each circumstance is going to be unique. You've had questions about the municipalities. I think the Senate did a good job. If you can say that on the House side, the Senate did a good job in protecting the municipality. They did not want any municipality to be on the hook for repaying any PACE loan that was made to a business in their district. That's not their responsibility. They think that they're not a The question I think ultimately that the Senate across the hall struggle with is who wants to administer the program. And at this point, nobody wants to administer the program. You need to, to your questions, you need to have a municipality create the district because you're using that property tax mechanism that's the collection. But if the municipalities have to run a CPAs program, you probably have one or two in a state that could do it quite frankly, and that's not gonna really be helpful. So it's critical to find that third party administrator, whether they're the ones that put the money up or not, you can have that discussion, if it needs to be separated, it can be separated. As you saw the head list of parties that will come to the table and have the discussion about the study, nobody really wants it at this point. But the towns need to find somebody to administer the program for it. Jonathan? Is that because there's Is there a known semen on what that fee could be? Is there like a market? Yeah, there was no, I didn't hear every hearing, there was limited discussion on what those fees would be. There was more of the discussion, and you'll hear from Joan and others, was it right for VIDA? VIDA would like, in my words only, not Jones, in my words, of slow walk into this and maybe make some loans before they see how it plays out. There was discussion, should it be the Vermont Economic Progress Council? In my opinion, the council is not in the business of underwriting, they're in the business of reviewing tax credit applications, TIF applications. Underwriting is quite different, it's to get familiar with. So it's just a question of who's the right enemy, maybe one of the entities that will be testifying outside of Vermont is the right entity. Maybe they won't step up and do it. So I think that's kind of where it's at now. And this enabling legislation seems to be a good approach to move it along. Just to follow then, program administration is to be understood as underwriting. Not, well, no, not necessarily because somebody needs to come up with the program itself. They need to develop the guidelines, the material that's gonna go out to the municipalities, maybe provide some assistance to the municipalities and any efforts that they do to create the district. If that to me is one thing, the underwriting is what the entity that's gonna put up the money They to do the may be the same, they may not be the same. The bill, I don't think contemplated that they would be the same, but I don't see why they could, Couldn't, excuse me. So I've seen them as two different points.

[Michael Marcotte (Chair)]: Sure, it's Emily first.

[Megan Sullivan (Vermont Chamber of Commerce)]: This may not be a professional, it might be a DLC2 question. But in other scenes, sort of thing is administered, are there typically Is there a county apparatus that is used to help administer them, or is it always down to the local level?

[Chris D'Elia (Vermont Bankers Association)]: No, it's not always down to the local level. For example, there are states, as legislative council alluded to, and actually you should go to the energy's committee's website, because they have an intern who filed a study with them, she's an intern through UVM, and she looked at some other states and how they administer this. Some of it is done through their energy efficiency utilities, some of it's done through the quote Green Bank. They work with the municipality, but it's not at the municipal level from the industry.

[Herb Olson (Member)]: Yes, I'm trying to understand why would the traditional financer want to consent to this arrangement? And maybe that's related to what's the benefit of this arrangement terms of, before terms and length of work, whatever. And maybe it has something to do with first priority as the payment, the payment of basically access,

[Chris D'Elia (Vermont Bankers Association)]: the loan repayment. When you say benefit, benefit to the borrower? I'm trying

[Herb Olson (Member)]: to figure out, yeah, well, I suppose both, but first of all, why would a traditional lender wanna So that's one benefit. And then I'm trying to understand how the program as a whole results in lower, more advantageous terms. Yep, okay.

[Chris D'Elia (Vermont Bankers Association)]: So first of all, if we're developing a new project and the borrower comes in, I could assure you whether it's a credit union or a bank, they're gonna look at the total project with the energy efficiency and say, hey, we can do that for you. Or maybe we can't do that for you. I think those discussions will certainly go on. Again, I'll go back to each project is gonna be unique. And if the risks are too high to the existing lienholder, and I should say that can be in a bank or credit community as a standalone, but also could include VIDA because we do a lot of partnership with VIDA and without that lender consent, if we go recession, VIDA goes to third. That's even more risky for them. So each project is gonna be unique and that's why if the money that's linked out there to the business is so great that the bank doesn't wanna put that at risk, they're not gonna consent. But then again, it may be a de minimis amount. There may be no loan on the property and the borrower could go look at C PACE as an option for that. And it's only for the specific activity that's allowed under the statute. So you're not putting up buildings with this money. We're making energy efficiency improvements, doing resiliency, etcetera. So it's a slice of the project, not the whole project. Now the benefit is, again, you'll hear from some of the CPASE financial groups out there. Depending on what their cost of capital is, they can put money on the table at a lower interest rate because this is almost like a guaranteed loan because you'd be using priority. The property tax mechanism as the vehicle and whether it's the borrower that's paying or whether it's the lender paying if there's a small loan out on the lender or whether it's the future buyer who's gonna come in and pay on it, you're not closing out that loan. Okay. Therefore, it's more advantageous because you can spread it out over the life of the improvements that you're making to it or capped it thirty years. But you gotta, again, you gotta find the right buyer in those circumstances because I may not wanna take on $150,000 loan if I'm looking at buying a piece of property, not every borrower, or every buyer is gonna wanna do that. Thank you.

[Megan Sullivan (Vermont Chamber of Commerce)]: To follow-up on this question, does this allow audits to have access to other funding mechanisms like you can give them of your sense? The Craigs to Panicakes situation. Yeah, I mean,

[Chris D'Elia (Vermont Bankers Association)]: again, those other sources of capital, if they're lending, going to be looking at the underwriting, going to be looking at the credit risk and may or may not want to do it. There may be other sources that are grant funds that this could be beneficial perhaps in saying, look, I've got PACE and we're going to leverage that loan with some grant funds that are out there, but we heard those are kind of slimming down these days. So, you know, I think the idea would be you want to leverage other sources of capital. Is this a novel? Are there any other examples of utilizing municipalities right to that positionality? Been your leader for a new week. I am not aware of any. C PACE and residential PACE were the two that over the last decade and a half were the ones that popped up that I'm For aware using the property tax menus. And then just in thinking about the language, stating that the stabilized value of charitable to get the value after permits you made, so as a comparison, is that also the way that legislation should evaluate? I've sat at a lot of commercial lending and community meetings and I can't say that I've heard stabilized value, it was used a lot. What I hear is what's the appraised value and what it's going to come in at to make sure that this project meets the loan to value ratios that the lender is gonna be looking at. I can't say that I've been in conversations where stabilized values have been discussed. What the Senate had a conversation about, or at least, yeah, the Senate had a conversation about, and I also had a conversation with the sponsor of the bill and the Senate was, as you know, assessed value is very different than appraised value. And assessed value is usually something lower. And if your community hasn't gone through a reassessment, it's really not representative of what the assessed value might be in the marketplace. That's interesting, I guess, just raised it about other thoughts for me that we are ascribing a stabilized value spiritual connect at a fixed point in time, you know, that becomes different over easier. I think it's good to have our eyes open about the distinction. That was just a different way of evaluating the project. Yep. That's yeah.

[Michael Marcotte (Chair)]: This may I don't know that you can answer this, and I probably should have asked it at Ellen when I just started it. Yeah. The so if somebody is delinquent on their taxes Yes. Is and it goes up for tax sale, is it the or let me phrase that differently. So people the property owner pays their property tax, but they don't pay the new assessment. Correct. How long can the municipality still put that as per tax sale?

[Chris D'Elia (Vermont Bankers Association)]: Good question. Delinquency is not on the property taxes. But it's all linked to the It is linked, but the deficiency is with the lender, not with, you're using the property tax vehicle to collect the payments. Under Vermont statute, you folks changed this, say, the last year. If a property owner is delinquent on property taxes, you as municipality, Josh, please correct me if I'm wrong, have to offer a repayment mechanism for that property owner. They have to be delinquent of one year and it has to be for some, I think over $1,500 If they are delinquent and they can't make the payment or agree to the terms of the repayment plan, it's gonna go to a tax sale. And then it's up to whoever shows up at the tax sale. And that buyer is gonna have to make good on the property taxes, they're gonna have to make good on their delinquency for the PACE loan, any fees or penalties associated with it, then there's a one year redemption period after that. So they are not pretty clear until that redemption period is over and chances are there's some investment going on with property may sit there or whatever the case may be. I think, and again, you can clarify this with the right to counsel, I'm not sure if the property taxes are current, whether the town may go to a tax sale, to me it falls more into a foreclosure process between the lender and the entity that borrows the money. That has its own unique circumstances with mediation, timeframes, judicial process, because all foreclosures for all intents and purposes go to court now. In Vermont, it's a much longer process and in of residential property can take upwards of three years. But it's commercial. Right.

[Michael Marcotte (Chair)]: Just kind of play this out. So if it's in a stag and CPASE loan is in first position, so they can sell the property, get their money back, and everybody else is having their hand out, hopefully they get some of it. Correct.

[Chris D'Elia (Vermont Bankers Association)]: A significant part of the risk and why only your consent is important there. The bank, I'm not putting myself in that position. I don't think Vito would want to be in that position, that's the need to further down road. So this is all about underwriting credit risk and even though it stays with the property, the property is not the entity that's generating income every day long, it's represented the folks in the business sense to me.

[Michael Marcotte (Chair)]: Good job. It's risky, possibly. It could also help in the CHIP program as well. It could. I

[Chris D'Elia (Vermont Bankers Association)]: would agree with Megan Settlement's comments. It is another tool that under the right circumstances can benefit the entity that's taking advantage of the case handling. And again, it's part of the reason why we're not objecting to it with the lender consent language. If it's a de minimis loan that we have, or there's no loans altogether, why not have another tool that somebody could take advantage? And again, it's working thirty thirty nine other states that all have that letter of consent.

[Michael Marcotte (Chair)]: But if it's a project, and it winds up in the energy efficiency resiliency,

[Jonathan Cooper (Member)]: small piece of that project. Yep. See where it probably goes. I think those bigger projects are that energy efficiency or resiliency is probably gonna be baked into that loan. And you are talking about the potential for very large loans unlike residential. Residential when we looked at it, maybe you're talking $15.20000 depending on the system that you're putting in. Here you could be talking about hundreds of thousands of dollars. On the resiliency piece, I'll give you a really good example, in the town of Johnson, they have a supermarket with an eight zero two liquor store at the post office. Eight zero two and the supermarket have gone. There was consideration at one point about building a barrier around that building, not raising the building, but building a barrier that would eliminate the potential flood impact. To me, that's a resiliency project. I don't have a stormwater pond on my property, my property is susceptible to flooding given these every now year events that

[Michael Marcotte (Chair)]: we have in Vermont not

[Jonathan Cooper (Member)]: 100. I dig a flood pond on my property, that's a resiliency problem.

[Michael Marcotte (Chair)]: Yep. We'll ahead, Jones.

[Josh Hanford (Vermont League of Cities and Towns)]: Director Josh Hanford from Long Lake of Cities and Towns. I agree with everything all about the witnesses have said about this. We did not work with the sponsor of the bill or work at the request of the municipality to put this forward, but we're happy to support it. I'm not an attorney or a banker, but our attorneys have reviewed this and feel that municipalities are adequately protected in all ways that you've heard about, and it's a choice for them to participate on. You've heard about the banking risks and what they need to consider. The administrator question, think is an open question. We're not sure how many municipalities will want to take this on, what level of interest there'll be. I suspect a rather important large business in a few communities will make this question happen and be brought to them and maybe there are the right entities out there that could be both the lender and an administrator. Don't have an opinion on that per se. It is somewhat reassuring that there's so many other states that have this and maybe Vermont's late to it because we have done so many other investments in energy efficiency and other mechanisms, efficiency from what we have, other tools that and below market loan interest programs and initiatives that have helped both residential and businesses take advantage of sort of having more energy efficient buildings. And so maybe that's why we're coming late later to this than some of those other states. I could see examples just from my previous work of projects that are maybe largely grant funded, but the grants aren't enough to cover this sort of additional work they wanna do. And so if it's got no debt on it, it's fully owned, this is where they may go. I think those sort of the questions you asked about the tax sale and those concerns, I don't have answers what Chris said was exactly right. There was changes to the municipal tax sale process years ago, which adds a full year of full delinquency, plus there's another year to redeem, plus there's a minimal amount. And I don't know how if a business pays its property taxes in full, why the municipality would take the PACE assessment that's not paid to tax sale. There's nothing they gain from that and that process would seem kind of cumbersome and odd if in fact a representative Olson's business was paying all their municipal property taxes, but we're paying the PACE assessment, how that would play out. I don't have that answer for you. And I don't see the benefit to a municipality stepping into that fray, that may be an area to explore. That's all I have.

[Herb Olson (Member)]: I mean, I think someone mentioned a multi municipality, few municipalities are hiring a administrator. Is language clear enough? Maybe it's somewhere else in statutes.

[Josh Hanford (Vermont League of Cities and Towns)]: I think it's silent on whether that is something that could be pursued or not.

[Herb Olson (Member)]: Because I would think even a medium sized town might not have the whereabouts of, know, handle that program just itself.

[Josh Hanford (Vermont League of Cities and Towns)]: Just working with municipalities, I feel like there need to be a real good reason for one municipality to take on the obligation of other districts management, if something went wrong and what sort of contracting may happen, it could be a possibility and wouldn't wanna take that off then.

[Herb Olson (Member)]: Yeah, because even if they don't actually pay anything, the municipality isn't responsible for what they're funding, they gotta oversee it. Right. And there

[Josh Hanford (Vermont League of Cities and Towns)]: are existing title 24 statutes that made clear that municipalities, the fees they charge for things have to cover what it costs. They can't be making money off of administrative fees. So there wouldn't be an incentive there, I would see, for a municipality be like, oh, we'll do it for all of Chittenden County because it could be a revenue source for us that there are specific statutes that sort of limit that to it has to be related to

[Michael Marcotte (Chair)]: the actual cost to implement a service. But if you're hiring a third party and you're desperate, I could see where you might contract with someone say it's gonna cost you $10 or $20 to administer it every year for a loan that's maybe 50,000. I mean That's not gonna work either.

[Josh Hanford (Vermont League of Cities and Towns)]: Right, right, yeah. And obviously the business is looking to get this C PACE, know, wanna I think know what those fees are and what they're, I don't have answers for those on that.

[Michael Marcotte (Chair)]: Is there any particular education that's been administrative with me? We don't know that's siren of what their qualifications are.

[Josh Hanford (Vermont League of Cities and Towns)]: I honestly don't know. We're new to this. This isn't been something that we have been really hearing our municipalities come to us and say they want. We're in the midst of trying to educate them on chip and deeply in that right now. And so we were approached at one point where we, the league being want to be involved in sort of this administration, we just can't contemplate that. Maybe we'll ask Ellen to see what other jurisdictions are doing as far as what are

[Michael Marcotte (Chair)]: the qualifications they're looking for and administrative. Jonathan? Something about this has been on

[Jonathan Cooper (Member)]: my mind is that if we had read the legislation and there was nothing in it about program administration, I don't think I'd wonder anything about it. It probably wouldn't even have crossed my mind, like, well, who's gonna administer it? So it really does seem like it could be huge or it could be not huge at all. Seems either way, if you know. I do want a clarification, and I think just the chair of committee made

[Michael Marcotte (Chair)]: this point.

[Jonathan Cooper (Member)]: He describes a simple section that prevents them from profiting administrative costs. That obligation, that requirement would not go along with if there's an administrator who is a third party, they would not be bound by the same service.

[Josh Hanford (Vermont League of Cities and Towns)]: That's my understanding. Yeah, if someone's contracting to operate this service outside of the municipal government operating it, I do not believe they're bound to that same.

[Michael Marcotte (Chair)]: Good

[Joe Valenti (Department of Financial Regulation)]: afternoon. For the record, Joe Valenti, Director of Policy, PFR. I will agree largely with statements other witnesses have made. I will say that we have no concerns with the bill, and we've had recurring conversations from the time that the process started this year with Chair Watson and Natural Resources. Deputy Commissioner Ferrence has testified in multiple committees on this. Just a few things that are worth highlighting. I think first off, one of the things that we had emphasized to natural resources right from the start that is in this bill is really separating out commercial PACE from residential PACE. We know the residential PACE program here has been quite small. We also know that the residential program has a number of important consumer protections that other states had not had that had seen abuses in their residential PACE programs. We didn't want any of that to be weakened, we had specifically suggested that commercial PACE be in its own subchapter, which is what was done, and to make sure that there's no changes and no weakening to what we do on the residential side. We don't have ton of expertise with this type of lending, there are two things that do give us comfort here. One of them is the lender consent that Chris Delia mentioned, because I think it's an important protection that it's not likely that a commercial borrower is going to undertake a risky commercial PACE loan and their lender or mortgage holder, etcetera, is going to consent to this additional risk being stacked on. And so that gives us comfort. The other thing that does give us comfort is to the extent that these loans are made by entities that are not banks or credit unions. If their commercial loans are under $1,000,000, they are required to be a licensed lender in the state of Vermont. And so our understanding is as long as these loans are under $1,000,000, they would be made by licensed entities and our exam authority and all of that would still apply. And that gives us important visibility into how these lenders are performing. Commercial loans are different from residential. And the larger ones, if it's over $1,000,000 these are probably larger projects, more sophisticated borrowers. We're a little bit less concerned. But it does make sure that for the loans under 1,000,000, there is some oversight going on. Now onto the question of the program administrator, and this is something that we've been wrangling with throughout. When this process started in the Senate, there was a concern about DFR having some oversight into this market, whether it was on the lender side or the administrator side. Like I said, we don't have particular expertise here, and we didn't consider it appropriate to add it as another category where we might want to license. Particularly, like I said, the loans under $1,000,000 would already fall under our licensed lender provisions. But there was a concern about a lack of guardrails, and that included the administrator side of things. We see I know we were debating earlier what the administrator does. As we see it, a lot of it is really taking on the role of loan servicer. It's processing the payments. It's doing that day to day component. There may also be a marketing component. From what we had heard in previous testimony, there might be entities that are interested in being a program administrator, but who also would want to be the lender. And there was language added in this bill concerned about conflicts of interest and steering borrowers, etcetera, that said that you can't be both the administrator and the lender in the same municipality. Now, that doesn't mean that a company that is acting as a lender may decide to be a lender in one municipality, and they may be willing to be an administrator in another municipality, even though it means that they can't lend there. Presumably, they're getting some fee revenue on those transactions. But it was really hard to figure out who would fill that role. We don't have a green bank unlike Connecticut, so that route is out. A lot of the public should I say, public interest entities are also interested in lending under this program. And so what the other committees had worked out was that we would convene the different stakeholders to identify potential program administrators. And I think part of that was really figuring out criteria and recommended guidelines, etcetera. I will say we do not again, we don't have specific expertise in this market. And we are not sure that this study requirement is necessary to that end. But if there is a desire to convene stakeholders to try to figure out the program administrator problem and the qualifications, we're happy to.

[Jonathan Cooper (Member)]: Take that. I can stop there and take any questions. I have a couple of questions.

[Unidentified Committee Member]: It sounded like you said that the prohibition from the lender being the administrator was added in.

[Joe Valenti (Department of Financial Regulation)]: Yes. So

[Unidentified Committee Member]: it wasn't part of the original bill?

[Joe Valenti (Department of Financial Regulation)]: I don't believe it was in the original bill. Can't recall where in the process it was added in. Because I know it was debated both in the Senate and in the House, so it may have been that it was added in across the hall here. I think there is value in having that, again, from a steering and conflict of interest and competition perspective. But there is that risk that it may make it more difficult to identify entities interested in being program administrators if you can't find anyone who really is willing to do it as a disinterested partner.

[Unidentified Committee Member]: And Again, administrator's job is to process the loan payments and set up the program? Set up the They're taking on They're

[Joe Valenti (Department of Financial Regulation)]: effectively taking on the role that the town clerk for the individual is how we'd be doing in terms of reporting the obligations that can't be. And with the possibility, I could see, in some circumstances, there may also be a marketing role there. If you want someone to be able to promote the program to businesses who is not actually looking for customers to make loans.

[Unidentified Committee Member]: So there could be a municipality that is the administrator for loans in their municipality.

[Joe Valenti (Department of Financial Regulation)]: Think absolutely. I think the concern was really thinking a larger municipality may be perfectly willing and able to take this on. It's a smaller municipality that would like to have this program, but just doesn't see how to add additional responsibilities when they're already thinly staffed as it is.

[Unidentified Committee Member]: And you probably don't know, but you've been involved with this for most of the session now. Do other states have this prohibition against the lender being the administrator? I'm not sure I'm seeing a conflict there for this. And so I'm just trying to understand, is that a key part of this bill or is it an

[Megan Sullivan (Vermont Chamber of Commerce)]: That I don't know. Think if you

[Joe Valenti (Department of Financial Regulation)]: And this is just a guess on my part. If you can readily find an administrator that does not have a direct stake in this and I'm, again, making assumptions based on, for example, the Green Bank or the Connecticut or the efficiency body in Maine, where they're if they're not directly involved in the transaction, then that's ideal, I think. And then you don't have to worry about the potential for a conflict. It's just if there's really no one who is disinterested in the transaction who's able to step up that you run into this challenge.

[Megan Sullivan (Vermont Chamber of Commerce)]: Yeah, I guess I don't 100% get the challenge of somebody. What is conflict?

[Ellen Chittenden (Office of Legislative Counsel)]: If you administer it and good luck under,

[Megan Sullivan (Vermont Chamber of Commerce)]: what is the potential for abuse?

[Joe Valenti (Department of Financial Regulation)]: So here's a hypothetical. So let's say there are three lenders who decide to operate in Vermont offering commercial PACE loans. And I don't know what the true number would be. It might be more, it might be less. Let's say there are three of them, and one of them also has program administrator contracts with a number of towns, then that lender could be seen as town endorsed or preferred having a market advantage over the same. That makes sense. That's not to say. I mean, you could have three lenders and each of them decide to enter into contracts with different municipalities. And and it may still be competitive on those grounds, but it would raise this potential that you could have an if you have the one that the town is contracting with and there are a couple of other competitors, and the one that's contracting with the town might also be promoting the program, And that may not be a level playing field for the other lenders looking to participate. That's the theory of how this would play out of practice. Don't know.

[Unidentified Committee Member]: Right. It's probably more about rates and fees than anything else more likely.

[Michael Marcotte (Chair)]: Okay, John, thank you. Sure, thank you. Amanda.

[Amanda Samai (CastleGreen Finance)]: Good afternoon, everyone. Hi, thanks. Amanda Samai, I'm managing director at CastleGreens Finance. We're a PACE lender across The United States, wherever PACE is active. And I appreciate, I've listened to the whole afternoon and I know there's probably a lot of questions. We're supportive of the sub chapter three because it really does modernize the statute that's in existence currently and allow specific uses for the commercial property side, which as you noted, a little bit different in terms of the complexity of the deals and also the sophistication of the borrowers. So, I'm available to answer any questions that come up. I've taken notes on a few, if I can lend any assistance to walking through some of the scenarios that were raised, I'm happy to do so. We in house have a sister company that is a USDA lender, we see a lot of deals in rural areas, PACE works very well alongside USDA product. And, you know, we have a number of interested property owners with these types of projects that are waiting in the wings and anxiously emailing me to see the status of legislation at the state level. So we think it could be a great opportunity for economic development throughout the state and at each local municipality. So I'm happy to answer again, any questions I think I think my fellow speakers have gotten a lot of it very correct. In terms of the voluntary nature of it, the fact that the municipalities are not lending balance sheet and will not stand to make any credit have any credit implications for the use of PACE at all falls to lenders such as my firm, and Michael, who you spoke with earlier. So if there's any questions, I know there's a lot of questions on administration, I know there's a stabilized value question, why it works, please feel free to ask any questions that I can be helpful with.

[Jonathan Cooper (Member)]: So one of the big elements, thank you Amanda for joining us, is the reluctance of existing lenders occupying second, third, etcetera position to consent. How often do you encounter that refusal to consent from existing lenders?

[Amanda Samai (CastleGreen Finance)]: So I've been active in the PACE market for over ten years. It used to be a bigger concern than it is today. And what we're finding is that as property owners are using PACE, $10,000,000,000 has been done across The US in multiple states, as you know, approximately 40 have approved, 38 have approved. It's starting to really catch on with borrowers who like it, they want to use it, and they will actively petition the lenders that they have lined up for their projects or the lenders that already exist in those projects. And we can facilitate those conversations to help those lenders understand what it means. If we think about it in the pure sense, if it is a new construction property, a new lender and a PACE lender, we work with that senior lender or the mortgage lender as closely as possible. We underwrite, we try and share the same appraisals, we try and minimize the friction for the property owner, for the borrower, and work together because that lender consent is so imperative and required. And even there are very few states that don't require lender consent, but all of the PACE origination firms require, I'm gonna say, I can't speak to all of them, but it's common practice and accepted practice that the PACE lenders look for this consent because there is no situation where we want a property owner to sort of not be in lockstep with their senior lender.

[Jonathan Cooper (Member)]: Okay, so I'd like to

[Michael Marcotte (Chair)]: now learn a little bit

[Jonathan Cooper (Member)]: more about your standards, not standard, who's participating in these programs? Are we seeing, are they to hear about whether these are firms that specialize in certain types of development Greenfield, etcetera, nationwide that utilizing it, that your clients, or are you seeing a lot of these smaller scale redevelopments in Vermont are gonna have a lot of structures that are owned by or initiatives that are coming from smaller fish than some large scale development corporations. So I'd like to hear who you're, a little bit more about your client base.

[Amanda Samai (CastleGreen Finance)]: Sure, it's sort of soup to nuts. I mean, if you think about a like for like replacement property owner needs a new HVAC system, they need new lighting. There are PACE lenders who will lend into those projects, work with the existing lenders. They, we obviously encourage property owners to avail themselves of all incentives, rebates, whatever is available to them in the market, right to lessen the amount of money that they actually have to borrow. So if they do have a gap that they need to borrow, and their lender who exists in the project or that they're contemplating, their mortgage lender, is not able to fulfill all the financing needs that they have, they can turn to another type of lender, such as PACE. And we see that from property owners. Our calls come in directly from property owners, they sometimes come in from the municipalities where they have entities that are looking to use C PACE, but those municipalities are not lenders. So those municipalities can put them in touch with us. We have brokers, so the national brokers, the JLLs, everybody, the Bercadias that exist out there, they're looking for capital for projects. And if they know PACE is available to a property owner in a certain jurisdiction, they will try and formulate a capital stack for that property owner that makes sense, that helps the property get built. And PACE can be, as for all the reasons that were sort of listed before in terms of the term and the rates, can be very helpful in making that work.

[Megan Sullivan (Vermont Chamber of Commerce)]: Hi, I'm Monique Priestley, Washington, Windham Halifax. Just to follow-up on that question, in the cycle of building those capital stacks, do you find that piece as sort of at the front end, or is it sort of a last resort situation after all of those other opportunities have been exhausted?

[Amanda Samai (CastleGreen Finance)]: We do find that property owners that have discovered PACE would like to get it lined up very early. And it's helpful because of the lender consent. So if a property owner has a mortgage lender, and then they say, hey, we're going to use PACE, that process can sometimes just take a little bit longer in terms of educating the lender as to the points we discussed previously, what PACE is, how doesn't accelerate in a default, how it's only over the annual amount. We have become far more successful in helping property owners get those consents in recent years. And that has seen through market acceptance of the PACE product. And annual originations have increased sort of over the past few years. And a lot of that is driven by market conditions. You've had periods of extraordinary inflation, where projects were stalled previously, cost overruns, where property owners had to come out of pocket with more equity. So you're seeing PACE being used as a refinancing tool, or also to help projects that were previously stalled if interest rates have stabilized, and property owners are now ready to move forward. So it it just depends, but it is easier to find mortgage lenders who are willing to work with PACE if a property owner knows they wanna use it upfront and are open upfront. Not to say it doesn't work the other way around, it's just how we tend to see projects.

[Unidentified Committee Member]: Thank you. Well, I'm just wondering if you could, one of the things that's been a big thing to talk about here is administration and what has been your experience with how this program has been administered among other places where you've worked with people?

[Amanda Samai (CastleGreen Finance)]: Sure, so administration is meant to help municipalities ease a potential burden. And it was discussed previously, the municipalities are not technically underwriting. Inherent within this statute are a number of criteria that have to be met. We as lenders will be underwriting and the mortgage lenders will also be underwriting as Chris spoke about previously. So there's multiple sets of underwriting eyes. You talked about TIF application approval, other types of approvals that happen. The documentation of the PACE follows more of an application approval process. The administration of the annual payment or the quarterly payments that come in, again, what we hope is that we're not reinventing the wheel here. Municipalities collect property taxes, they administer special assessments, they coordinate the payment of those to the appropriate parties. This, we sort of hope is something that they know and understand how to do. The application side, C PACE Alliance of which Michael is one of the key members, the firms in the industry have an industry trade group. That group is able to provide a form set of documents that would adhere to the statute, but also to any certain criterias that are instituted at the municipal level. So each municipality will pass an ordinance, opting that municipality in under the state. The states give the municipalities the option to create a district, they probably pass an ordinance or a resolution that would create that district that would allow property owners within that municipality, again, it's municipality or district because of the tax implications of the property tax and the billing and collecting of those. So it tends to fall within these districts, which are taxing districts. That ordinance would allow the municipality to layer in any incremental issues that they've think about or that come up in discussions. And then the administrator who could be either the municipality themselves, again, would sort of collect the documents and the form set of documents we hope as an industry group would be uniform throughout the state. It makes it very difficult to enter into bespoke lending platforms in each individual municipality. I honestly don't know I should know how many there are, or we could contemplate there would be within Vermont. There are a lot in Connecticut, because that also is done at the town level. And there's uniform documentation for the entire state with a few caveats here and there at the local level, if a local municipality had a concern that they wanted to address. So that application process is, you've received the energy audit sort of, and it meets the energy code as all the standards that are laid out directly within the statute. So the application becomes more of a check the box versus an underwriting. And municipalities would have the ability. And there are many administrators, I can sort of say to you, there are third parties that do this across other states that have grown that practice. There are programs within as was indicated previously, such as the Connecticut Green Bank within Connecticut and Energy Efficiency Group within Maine, it can be a Vermont organization, the flexibility really resides within the municipality as to how much they'd like to take on with regard to administering that. But again, it's really not that the documentation can be made available and can be tailored appropriately, but they won't have to create the documents from scratch within each municipality. So it becomes more of an application and agreement that this meets the statute and criteria. And from a cost perspective, those third parties and appropriately raised and I appreciate that it was from a lender's perspective, what really becomes very makes deals very uncertain are unknown fees. So to the extent the fees that the municipality might need to appropriately administer this, and it was pointed out previously that those are not meant to be money making within the economic community there, hopefully these building of these buildings and the payment of property taxes and the development of these properties would be the sort of revenue stream that these municipalities would realize. But the actual administration fee should cover sort of the ministerial costs and expenses of doing business. And the third parties that transact know and understand this. And if a deal, if the fees on a deal are too heavy, the property owner won't, can't do the deal because the property doesn't make sense. So we are all sort of on the same page that the fees should be appropriate. But the entities that provide this service in other states and work, even in some instances, state to state are accepted by the lender community and by the of course, by the property owners who have to know and understand what those fees could be going in before they enter into, you know, a financing arrangement.

[Unidentified Committee Member]: So I know we don't have a lot of time, but it sounds like the bill that we have in front of us doesn't necessarily follow best practice across states in that there isn't a clear format for these loans. Every municipality can do it a different way depending on their contract. Am I misunderstanding what you just said?

[Amanda Samai (CastleGreen Finance)]: The statute provides a state format and lays out sort of the criteria of a municipality, more likely than not will say the state has done a good job. We're making this available and pass an ordinance to create a district.

[Unidentified Committee Member]: The I'm administration not sure that this bill does that. That's I guess where I'm

[Amanda Samai (CastleGreen Finance)]: Oh, I'm sorry if I don't see that the same way. Think that it does. I think that if you wanted to, the state level, under the statute appoint a program administrator, that is very different than how other states actually do it because they do allow the municipalities to make that determination themselves.

[Ellen Chittenden (Office of Legislative Counsel)]: Okay.

[Amanda Samai (CastleGreen Finance)]: And in some instances, they, you know, they they do it themselves. And with regard to a lender not being a program administrator, the gentleman before me highlighted a lot of the concerns. A program, a lender might be a program administrator, but in those instances, we would probably suggest that the municipality would enter into program administration agreements with each active lender such that each lender could be the administrator of its own program to avoid some of the situations that he highlighted, which is that one lender might be perceived as being recommended by the municipality or if there were incoming inquiries, that lender slash administrator may not create an open PACE lending platform and share those with other the opportunities with other PACE lenders to give that property owner access to multiple options. Those are some of the concerns that limit one lender being a program administrator.

[Michael Marcotte (Chair)]: Amanda, do you know in other legislation, if it provides for job description or description of what an administrator needs to provide.

[Amanda Samai (CastleGreen Finance)]: In terms of service?

[Michael Marcotte (Chair)]: Yes.

[Amanda Samai (CastleGreen Finance)]: With the municipality, there's typically a program administrator agreement, again, which gets executed at the local level because it's the local entity that would be levying the assessment. And the local entity has the autonomy of that area and the jurisdiction of the property owner who lives within that area. But the program administration agreements are sort of for the PACE sector and the PACE industry across the board, fairly standard. Again, it's all the things we highlighted in terms of the application process, and then the transition to closing the deal and collection of the assessment payment.

[Michael Marcotte (Chair)]: There are certain qualifications that a person would have to have in order to be administrator?

[Amanda Samai (CastleGreen Finance)]: They know, I mean, some of these third parties are private entities. So I think it comes down to the comfort level of the municipality and working with that program administrator. Again, because it's not sort of meant to be more than making sure that everything that's laid out in the statute is covered and collected prior to the assessment being levied. It's sort of more of an application review and approval than what we would deem underwriting from that perspective.

[Michael Marcotte (Chair)]: Any other questions? Amanda, thank you.

[Amanda Samai (CastleGreen Finance)]: Yes, Thank you for your consideration. We appreciate it.

[Michael Marcotte (Chair)]: Appreciate your time.

[Amanda Samai (CastleGreen Finance)]: Of course. Thank you.

[Michael Marcotte (Chair)]: So first, do we have an amendment that's do we have the amendment that's going forward tomorrow? So,

[Megan Sullivan (Vermont Chamber of Commerce)]: sorry. Go ahead. Yes

[Michael Marcotte (Chair)]: ish. And that's so the the the amendment and I can forward it to everyone. To which bit? John. This is 2218. Oh, you you already posted it. So so that's not the committee of jurisdiction hasn't seen this amendment yet? Correct. Okay. So they should see this amendment before we do. Okay. So that will be tomorrow, I'm assuming? Yes, I

[Jonathan Cooper (Member)]: would assume that's the case. So

[Michael Marcotte (Chair)]: we've been asked to just review, take a look at the insurance piece that's in there, the passive because we deal with insurance, mean, so our judiciary is not, They just wanna make sure that we're looking at it too. So if they haven't seen this new amendment yet, I think it's more appropriate for them to see it first. And then you can take a look at it after.

[Josh Hanford (Vermont League of Cities and Towns)]: You may not need to look at it because the redraft doesn't reference insurance.

[Michael Marcotte (Chair)]: Let judiciary look at the amendment, and they can tell us tomorrow if if they would like us to review it or not, if that makes sense.

[Josh Hanford (Vermont League of Cities and Towns)]: Alright. I am already scheduled in there.

[Michael Yacke (Petros PACE Finance)]: Figure it out.

[Michael Marcotte (Chair)]: Okay. I'll have that conversation with chair more on that. If he wants us to review it, then we will. Okay. Okay. So I guess we solved that problem. Perfect.

[Unidentified Committee Member]: We have somebody remote.

[Michael Marcotte (Chair)]: Yeah, Phil, now we're all set. There's a new amendment that judiciary needs to look at, we may not even have

[Josh Hanford (Vermont League of Cities and Towns)]: to look at it. Thank you. Phil, we're gonna call you and meet with general counsel right now.

[Michael Marcotte (Chair)]: Okay. Thank you everyone. Thank you. Thank you. Easiest testimony we've ever given. So I think that's it. Peter Walters, we were going to talk with him, but I think we had a conversation with him once a day. I think that's it for today.