Vermont Legislature SmartTranscripts:

[Speaker 0]: We're live.

[Rep. Kathleen James]: Ready? Miss Joan Joan, are you here?

[Rep. Michael “Mike” Southworth]: I am.

[Joan Goldstein]: Just trying to work my camera. Bear with me.

[Rep. Kathleen James]: Oh. Just went live.

[Joan Goldstein]: Okay. Hi. Good morning. Do you hear me okay?

[Rep. Kathleen James]: Yeah. And you can hear us, I assume.

[Joan Goldstein]: Yes, we can.

[Rep. Kathleen James]: Great. So we're live already. So we'll just go around and introduce ourselves and then we'll turn it over to you. So welcome everybody to House Energy and Digital Infrastructure. It is Wednesday, April 1, and we are here to continue learning about the C PACE program and s one thirty eight. So I'm representative Kathleen James from Manchester.

[Rep. R. Scott Campbell]: Scott Campbell from Saint Johnsbury. Richard Bailey, Lamoille too. Chris Morrow, Windham, Windsor, Bennington. Michael Caledonia too. Christopher Howland, Rutland Ford.

[Speaker 0]: Dara Torre, Washington two.

[Bram Kleppner]: Bram Kleppner, Chittenden thirteen, Burlington.

[Rep. Kathleen James]: Great. And joining us in the room?

[Rep. Christopher Howland]: Nick Chair, down track to mark.

[Rep. Kathleen James]: Super. Alright. For the record.

[Joan Goldstein]: Hi. I'm Joan Gold Goldstein, CEO of Vermont Economic Development Authority and with me I have two people. If you could put your cameras on, I've got Jennifer Emlins Butler who's our Chief Legal Officer and Sam Buckley who's our energy lender. So I just wanted to, know, I don't know, I've never testified I think in your committee before, so just a little bit about Vida so that you know who we are.

[Rep. Kathleen James]: That'd be helpful. Thank you.

[Joan Goldstein]: Okay, great. So we've been around since the 70s and we're an instrumentality of the state. The governor appoints the board and we basically borrow money and lend it out to farms, forestry, sorry, manufacturers, technology companies, small businesses, hospitality. We have a very diverse portfolio. Our energy portfolio represents a little bit more than 10% of our portfolio. We have been lending directly on renewable energy. And on the commercial side, we're predominantly a subordinated lender. We work with a senior lender, which is typically a community bank. We are very intrigued by the CPAs legislation. We very much are looking at this as an economic development initiative. 38 states already have this legislation and why should Vermont you know be the laggard here. We looked at the legislation. We have a few comments. I mean we are looking at this as a potential lender and we think there's a good role for us here. Some of the lenders you've already heard from play in a larger space. I've heard people say a million dollars was a small loan and that would not be the case, for us. So, we are interested. I wanted to just go through the most recent. Would that be helpful? Or do you have any questions so far about us?

[Rep. Kathleen James]: I definitely want to learn more about the role you think VITA could play and what kind of projects you think you could support through this. But if you want to make more specific comments on the bill first, that's great.

[Joan Goldstein]: Yeah, so I guess I'll start out with a few things. One is we just were able to get some funding from the federal government for energy efficiency projects. So we have a funding source, in order for us to lend. So we think this would fit very nicely. We think this could be either for retrofitting of existing properties or perhaps on new construction. We do see those two users. The other use is significant amount of mitigation efforts have to happen because of the enormous flood damage that has occurred in the state over the last several years. And so I think those three things together represent opportunities. I don't know, Sam, if you wanted to add a bit more on that.

[Sam Buckley]: Yeah, I don't really have much more to add. I mean, think any PACE eligible project VITA could participate in. I mean, energy loan program, as it stands, we can make loans up to $6,000,000 So I think we could play a substantial role either working with other doing deals that, as Joan mentioned, were too small perhaps for the national C PACE lenders to consider or larger projects where folks are looking for a local lender?

[Rep. Kathleen James]: Kate. Yeah, go ahead.

[Joan Goldstein]: So when I looked at the most recent, we did comment on this in Senate and some of the things were changed and some were not. I thought it would be good to go through it. One thing and just to be clear at the very beginning of of the page where it talks about that a town, a municipality could, kind of approve a district, if you will. It just mentions renewable energy or energy efficiency and elsewhere it talks about resiliency. So, just thought for good measure to ensure that resiliency or climate mitigation or flood mitigation, however we want to word it, but to make sure that's included. Otherwise, it could be some confusion about whether or not it would be eligible. So, and I do think this could be very useful anytime folks were talking about the flood, the impact of the flood, efforts were just not covered by typical disaster recovery funds. So, I just want to make that clear. Further down yep. Let me just get to the.

[Rep. Kathleen James]: And I wondered also, Jonah, I'm sorry, I didn't look at our website this morning. Did you or can you submit written testimony? Because it's really helpful. You guys have comments on the bill, to have those in writing is super helpful when we go back later to mark it up ourselves.

[Joan Goldstein]: Okay perfect we will get that to you. So in the very first section it just talks about-

[Rep. Kathleen James]: I think you're on the bottom of page one.

[Joan Goldstein]: Yeah, it just says to secure private financing for property owners relating to renewable energy as defined or to eligible projects relating to energy efficiency. And that's all it says that so I just want to make sure that if you want to include resiliency and mitigation measures that that's right in at the get go.

[Rep. Kathleen James]: Okay.

[Joan Goldstein]: Yeah and so yeah and then you do further down mention resiliency. So I think the intent is indeed to include those. I want to make sure that we're all on the same page.

[Rep. Kathleen James]: Yeah, that is.

[Joan Goldstein]: Okay. Then I think further down, let me just get to the page it. There's a section that talks about assessed value and I know that others have also commented on this that if the limit is 90% of assessed value probably we're not going to get too much. So that's on I'm not seeing a page number here but it's yeah further down where we talk about the limitation. It's page five of 11. So we think that should be of the appraised or as complete or as stabilized value. And then there's a section about exceeding standards and I'm wondering why we're going to require them to exceed. Could we just have meet or exceed? That would be one.

[Rep. Michael “Mike” Southworth]: Where is that?

[Joan Goldstein]: Give me a moment.

[Rep. Michael “Mike” Southworth]: I think I noticed that too, but I

[Joan Goldstein]: Yeah. Okay, it's on page three of 11. Sorry, it's it's the looks like it's the third paragraph for new construction certification by licensed professional engineer engineering firm stating that proposed qualified improvements will enable the project to exceed. Yeah, so I'm just wondering why.

[Rep. Michael “Mike” Southworth]: Line nine on page three.

[Joan Goldstein]: Line nine on page three. Thank you.

[Rep. Michael “Mike” Southworth]: Meet Mercy. I like that.

[Rep. Christopher Howland]: Yeah.

[Rep. Kathleen James]: Well, and we had a question about the language. The current building code and sorry, can't remember how we resolved this yesterday, but how or whether that would interact with the executive order. We felt like we needed to maybe clarify there unless, does that not impact the CVs?

[Rep. Michael “Mike” Southworth]: Yes, it should refer to the commercial building energy standards and we also wanted to hear from DFS about that. That's right. Or at least maybe a comment that's not necessarily Okay,

[Rep. Kathleen James]: Anyway, we had some questions about that section as well.

[Speaker 0]: Okay.

[Rep. Kathleen James]: But we I haven't flagged anyway the exceed. So meet or exceed.

[Rep. Michael “Mike” Southworth]: Yes.

[Rep. Kathleen James]: I think and we were more concerned about meet or exceed what exactly because of this current building code. Right.

[Joan Goldstein]: Okay. And then just one thing, I mean it's not in here spelled out, but I was just wondering if a use of this would be, you know, do we include stormwater retrofit as a mitigation measure? Because that seems to be something that property owners are all contending with and perhaps this is a way for that to make sure that that's included as well.

[Rep. Michael “Mike” Southworth]: Should we have that?

[Rep. Kathleen James]: Weren't we thinking that might be covered under the definition of resiliency? Because one thing we noticed is that resiliency in other parts of the bill, there's specific reference. Define energy efficiency and we define renewable energy, but resiliency isn't defined anywhere in this bill. Right, right.

[Joan Goldstein]: Right, so we might, I mean it might be best to spell it out maybe like what some of the things included. Otherwise, there'll be confusion and but I was just thinking, I'm approaching this from the perspective of, you know, people talk all about the work that's necessary for retrofit and the expense and it's difficult to get financing for it. This might be an avenue. Same thing with the mitigation measures. So yeah. That's all I had. I don't know if Sam or Jennifer you have anything else. I mean I know that they mentioned that VITA is going to determine who's the administrator but we'd really we want to stick to our knitting here. We're lenders and we really want to lend in this space so would rather not act as administrator. We also want to look and see how does this get taken up in Vermont? Like is there going to be significant take up before appointing an administrator and then they do a lot of upfront work and then is not very much take up, which I think happened with the residential PACE program.

[Rep. Kathleen James]: How do you imagine the I'm I am not clear on the administration piece of it. So I know that in some some towns I mean, some of the testimony we heard yesterday indicated that in some or many municipalities, there may only be, like, one or two or a few applications a year and maybe just the town government could just do it. But I wasn't clear on the concept of who you would farm that program administration out to in a city like a larger district. Like say if all of Burlington is a C PACE district, They're probably not going to want to do that work themselves. So who pays to hire the program administrator and who actually does that work? I am totally unclear on that aspect of the bill. So far, informally, and then just now from you, two of the agencies who might have been tagged as program administrators have been like, we don't want to do it. What how do you envision that even working?

[Joan Goldstein]: Yeah. So one thought was to think about this as a pilot, if you will. So without calling it a pilot necessarily, but let's see how let's say it's the larger towns that would embark on this right away only because they have the wherewithal, they have significant property owners that are going to do these improvements, and the lender works with the town to figure out a way, the best way to administer this. I think, you know, a town may want to administer this themselves because they're already in the process of collecting property tax, and others it's going be out of the question. So, I see in the bill you make a express statement that if you're a lender, you can't be the administrator. That would rule out us, for example, trying to learn about what it would take to do the administration. But I do think learning by an actual example is a better way to go rather than appointing some agency to do it and then they find there isn't much take up. I guess one example was immediately thought of Efficiency Vermont, but I know that they worked on the residential pace and there was like no take up. So you want to avoid that sort of thing and instead just let's see how this unfolds and what the towns could do you know, to help. I think Vermont League of Cities and Towns might be another possible avenue. I think as to who pays the fee, it's really the property owner pays all the fees.

[Rep. Kathleen James]: Okay.

[Joan Goldstein]: You know, that's it goes and it also could be borrowed, right? It could be part of the financing package.

[Rep. Kathleen James]: Okay, right.

[Joan Goldstein]: You know, think as an example, like you know TIF was a very complicated program. The larger towns did it. It took years before we're able to now make something where smaller towns could do it and they also could outsource the admin and there's technical assistance provided through people like the regional planning commissions and the Vermont League. So I think you know let's see how this unfolds. Let's pass the legislation. I think it's great to be able to take advantage of this opportunity and yeah let's do it and learn. Okay.

[Rep. Michael “Mike” Southworth]: Sorry go ahead Scott. I had a question. The only reference I could see to VIDA and program administration is at the bottom of page seven where it says that DFR shall consult with relevant stakeholders including VLCT, VITA, Efficiency of Iran, and agencies from other states with C PACE programs in order to identify appropriate entities to serve as program administrators. So it doesn't suggest that any of those entities would be the program administrators, at least that's how I

[Rep. Christopher Howland]: Yeah.

[Joan Goldstein]: And and then I think that changed. I think our stance originally was let the municipality decide who could do the admin, rather than appointing a statewide admin. So this must have just got put in there that we're all going put our heads together to figure out who would be the person.

[Rep. Michael “Mike” Southworth]: Okay.

[Sam Buckley]: Yeah.

[Rep. Michael “Mike” Southworth]: So this does this seem appropriate to you then?

[Joan Goldstein]: Well it would feel odd that that VIDA would be part of determining who's the administrator if we also want to be the lender since the legislation also proposed that if you're a lender you can't be the administrator. So it's a bit yeah it's a bit tricky. Think the assumption I think people perhaps did not realize that Vida could lend in this space. And and I think that's what we're trying to enthusiastically express our interest in because it's an opportunity for Vermont and Vida has stood alongside businesses and property owners for its inception. We think this is another extension.

[Rep. Michael “Mike” Southworth]: Question then. We heard yesterday that these would be pretty secure loans and so therefore should attract relatively inexpensive money. Do you have any idea what sort of terms?

[Joan Goldstein]: Yeah, I couldn't really tell you right now. Just know

[Rep. Michael “Mike” Southworth]: that Yeah,

[Joan Goldstein]: mean we did so usually our pricing is dependent upon our funding stream and if we have an inexpensive funding stream from the feds for example, we usually pass that on to the borrower with of course a spread so that it pays for us and everything. So I couldn't couldn't tell you right off the bat. It also depends on the credit of the borrower and yeah and the project and the cash flow etc.

[Rep. Michael “Mike” Southworth]: All kinds of things. The funding from the feds can you identify where that's from?

[Joan Goldstein]: Yeah so I'll let I'll let Sam take it away on that. I know that USDA is one bucket and there's another bucket. Yeah,

[Sam Buckley]: so we have been hesitant to talk about it because we constantly feel like we're a month away from getting it. We were awarded alone about a year and a half ago and we're still always feel like we're closer than ever. Called the USDA RESP program, Rural Energy Savings Program. It's not specifically outlined for C PACE, but we think it would be eligible for C PACE projects. This is money that the USDA originally and still does have for rural utilities, but because of the uptake from rural utilities was a bit anemic in areas about five years ago they broadened eligible borrowers to include quasi public state agencies like us. In fact, the bond bank has already received $40,000,000 of this money. And so we're a little bit behind them, but it's money that basically costs us about 1% and it can be used to lend to direct to businesses to help the broad languages reduce their energy costs. So that results in projects that are either for renewables, on-site renewables or efficiency measures. It wouldn't necessarily cover flood mitigation or resiliency, but it would definitely recover efficiency in renewables. And we would anticipate being able to lend that at 4% fixed, which is a pretty low rate. The only hiccup to that money is, and this is hopefully going to be addressed in a farm bill if it ever gets passed at the national level, but it's got a quirk that projects can't be more than ten years. And so at some point earlier, there was a question of like, what would the terms be? And terms of CPACE loans typically match the life of the asset. So if it's basically a building envelope improvement, it could be as long as twenty years, but our funding source here, that low cost would limit it to ten years. But we've got some ideas in mind to be able to blend it with our other sources of capital to basically financial engineer, if you will, a longer term amortization. But that would of course increase the overall cost of the project because we'd have to blend some of our market rate capital in with that, but probably more in the weeds than you wanted. No, no,

[Rep. Michael “Mike” Southworth]: that's actually what

[Rep. Kathleen James]: I was asking. You. How much was it? Did you say?

[Rep. Michael “Mike” Southworth]: And one other thing, the market rate capital, can you talk about that for a second? Where did that come from?

[Sam Buckley]: Sure. So we, well, and I'll let Joan, I mean, I'm not on the finance side, but we have VITAS various funding sources. But our major source of capital is we borrow on commercial paper market and leveraging the moral obligation of the state to get a slightly lower rate to to that. It's, you know, I think, in particular, our CFO, but I think our marginal cost of capital is about 4.5% right now.

[Joan Goldstein]: Yes, that's right. We have like funding sources from bank lines of credit, and we issue commercial paper. So most of our sources are more short term.

[Rep. Michael “Mike” Southworth]: Okay, thank you.

[Rep. Kathleen James]: Wanted to before we change topics, just wanted to ask how much money that

[Sam Buckley]: It's $10,000,000

[Rep. Kathleen James]: Okay. Rep. Southworth?

[Rep. Michael “Mike” Southworth]: Earlier in your testimony you stated something there wasn't much uptake on the R PACE. Would you have any information that you could relay to us as what you know about why it hasn't expanded more than it has or how limited it has been?

[Joan Goldstein]: Yeah, I know that's Yeah, go ahead Sam.

[Sam Buckley]: Can take a crack at that. One, it's even though they both have the same letters in them outside of the C and the R and that they in some ways operate in the same way, they're very different products and in some ways it's a disservice to the C PACE industry that R PACE has even lumped into it. And in fact at one point, I don't know if it's a deal breaker, we're not legislation experts, but we had advocated that maybe any reference to R PACE be sort of just taken out of this bill and standalone. The big reason that my understanding is that R. P. S. Hasn't succeeded nationwide is how it plays with basically the large mortgage companies, the Fannie Mae, the Freddie Mac's of the world, the way of them basically being able to it doesn't work with conforming mortgages that go to be sold because at the end of the day you need, as you see in C PACE, you need the lender. If there's a current loan, conventional loan on the property, they need to approve it, which we think is good. And that, my understanding is that just often doesn't happen in our pace or it takes, it's very Byzantine, so it can only work for mortgages that banks maybe hold themselves and don't sell, and most banks want that option. Even if they do hold residential mortgages, they want that option to be able to sell as a source of liquidity. And so that has resulted in that product not being successful, if you will. So it really comes down to the securitization of residential mortgages is my understanding.

[Rep. Michael “Mike” Southworth]: Thank you. That would be a big problem.

[Rep. Kathleen James]: Yeah. Yeah, repellent.

[Rep. Christopher Howland]: So is your organization gonna be lending out two buckets here? The C PACE bucket for utility here for energy improvements and then also lending on the property itself as first mortgage here.

[Joan Goldstein]: Yeah. I mean, I I guess we'd have to look and see, like, what the situation is, But yeah, that could possibly happen. I mean, on the property, we usually are a subordinated lender and it's interesting on the energy side, we're able to be first. So yeah, we'll have to look and see how that deal would unfold. But sorry, you were gonna

[Sam Buckley]: Yeah, I was just gonna say, you know, to add on to what Joe was saying, it's really project specific. So oftentimes, especially anything that's going to result in retrofits or adding renewable to an existing property, there's probably already going to be financing there. And VITA typically as a rule, for the most part, doesn't do refinancing because we want our capital to be additive. In rare cases, we can if it makes sense for everybody. So typically there'll already be existing financing in place. For a new construction or a new project, it is possible that we could be in both parts. But again, we're looking to be additive to private sector. Yeah, I would view them as just separate. I guess there could be an advantage to us just from an underwriting perspective since we're doing so much underwriting in the project to play in two parts. I mean, that's somewhat analogous is we administer brownfield loans for the agent, for the state. And so oftentimes we will do that state money, but we will administer it underwrite and collect the loans. But then oftentimes there'll be a brownfield loan there for mediation. But if there's a substantial renovation or new construction on the project, we'll also be there as a subordinate loan position at conventional financing. I imagine it could work that way sometimes.

[Rep. Christopher Howland]: Rather than me taking a stab, could you tell me what a subordinate lender is?

[Sam Buckley]: Oh, just it's any lender that has other debt in front of them.

[Aaron Farrance]: All right.

[Rep. Christopher Howland]: So second, yeah.

[Sam Buckley]: You're Second mortgage is

[Rep. Christopher Howland]: Second or later.

[Sam Buckley]: Second or later. Sometimes we lose count. Mean, we've had fifth mortgages, I think sometimes. Not our ideal situation, but that's what it takes.

[Rep. Kathleen James]: Okay, great. Well, I'm excited to hear that you guys think you could lend in this space. I wasn't I actually wasn't expecting that. So that's great. Repellent?

[Rep. Christopher Howland]: Will you suggest that we remove the restrictions of the lender can't be the administrator? I mean, when I go get a I go get a bank loan, they sometimes sell my loan, but they still do the the collections of it. They're they're the the club. I still mail it to the same bank. Where where they mail it to, I don't know, but they they get a fee for apparently, for collecting the monthly payment.

[Joan Goldstein]: Yeah. I don't know the impetus of why they put that in there, and there might have been some advice from some of the players already in it. I I do know one of the folks given testimony yesterday also access administrator on some of the ones that they've lent to. So yeah, I I don't know. Maybe DFR has a view and yeah, I I I couldn't really tell you.

[Sam Buckley]: I don't

[Aaron Farrance]: think I have a strong feeling either.

[Sam Buckley]: I think there was. Did. I'm not sure the exact reason why it was put in there, but you know, I did pay attention to some of the testimony in the Senate. And I think it was more of a, I don't want to say knee jerk, just a reflective like protection thing to make, I think the word fox guarding the hen house came up or something like that. So I don't think there was any concrete examples or any I think it was just a guardrail that was put on to make sure that there was another set of eyes. Mean, in general, I think these programs, at the end of the day, the loan is going be a private transaction between a commercial property owner and a lender. The less sort of, it's two consenting parties, just like there's not an administrator, to your point, when you get a home mortgage, let's say a separate administrator, and when VIDA makes or a bank makes a loan to a conventional business, there isn't someone overseeing it, you know, directly.

[Speaker 0]: So yeah.

[Sam Buckley]: I guess we don't have a strong opinion one way or another.

[Rep. Christopher Howland]: We'll have to see what other states have for take up on this. Because, I mean, if a town only has one or two or city four or five, it's not a it's not a big workboth for an administrator and

[Joan Goldstein]: Yeah.

[Sam Buckley]: Yeah. My understanding is an administrator pretty much, you know, if the application is set up right, is making sure that the application is complete, know, that all the things that are enumerated in the legislation are there, that the lender is approved to do business in the state, that, you know, the appropriate amount of engineering study has been done there, that the town has the legislation. I mean, it shouldn't be a very onerous task to administer it.

[Rep. Kathleen James]: Famous last words. Yeah,

[Aaron Farrance]: I know. Well, that's why

[Joan Goldstein]: we're thanks for the opportunity to testify.

[Rep. Kathleen James]: Thank

[Joan Goldstein]: We'll get something to you so that you have it on the record of our suggestions.

[Rep. Kathleen James]: That'd be great. We'd appreciate that. And, we have DFR here. Perfect timing. So thank you so much for Alright. Joining

[Rep. Michael “Mike” Southworth]: Bye bye. Thank you.

[Rep. Kathleen James]: Alright, Aaron.

[Rep. Michael “Mike” Southworth]: Alright.

[Rep. Kathleen James]: Great. I you've not you've not been in our committee, so we'll just quickly introduce ourselves.

[Rep. Christopher Howland]: Okay.

[Rep. Kathleen James]: Wonderful. I'm Kathleen James from Manchester.

[Rep. R. Scott Campbell]: Scott Campbell from Saint John's Burgundy. Richard Bailey, I'm a loyal too. Christopher Morrow, Windham, Linda Bennington. Christopher

[Rep. Christopher Howland]: Howland, Rutland Torre.

[Speaker 0]: Dara Torre, Washington two.

[Bram Kleppner]: Ma'am Kleppner, Chittenden 13, Burlington.

[Rep. Kathleen James]: And joining us.

[Nick (Downs Rachlin Martin)]: Nick Kirk with Dallas Rutland Martin.

[Rep. Kathleen James]: Great. Alright. Well, welcome to House Energy and Digital Infrastructure. Yeah. I'm sure he'll introduce us.

[Joe Valenti]: Joe Valenti, director of policy at DFR.

[Rep. Kathleen James]: Thanks, Joe.

[Aaron Farrance]: Good morning. Aaron Farrance, deputy commissioner of banking at DFR from Colchester. Welcome. Thanks. So, yeah, I don't have much remarks prepared. Like I said, I'd be happy to answer questions that you have. I DFR has been asked to testify on this bill in the senate. There's a provision in there where we'll work with other stakeholders about identifying, you know, the best administrator for the for the program, and and we're comfortable with that role. I think that original testimony, they wanted us to be the the administrator of the program, and that's not really what what we do. It's not our daily way. But we obviously oversee companies that are in in the financing space, so we're happy to play that role as

[Rep. Kathleen James]: So do you have I guess, first, just more of a technical question. Do you have any specific, like, other markup on the bill? Because if not, we could just talk about the administrator part of the military stuff about that.

[Aaron Farrance]: I don't. I don't. The the comments that I provided from the senate were were adopted, so that's where we're at.

[Rep. Kathleen James]: Great. What were they? Well, the did you say in the senate?

[Aaron Farrance]: The original version was just essentially a carbon copy of the the residential version, and so there was some conflicting information about, you know, could a lender charge a prepayment penalty, for example. And and with residential consumers, the answer is no under state law. The the commercial space would like that. In general, commercial borrowing, is permitted under law, and it just said two different things within that new version. Things like that. Remember Okay. Exactly. A few other technical things, but they were addressed.

[Joe Valenti]: Yeah. The the the primary recommendation that we had made was to be clear that the commercial program would be distinct from the residential program that already exists and that any of the protections that exist on the residential side would remain and but to Aaron's point, might not need to carry over to the commercial side because they wouldn't be necessary or customary for those kinds of transactions.

[Rep. Kathleen James]: K. So the administrator. So we're getting different different opinions. Mhmm. Commissioner suggested that we don't really need I I mean, I think what I essentially heard her say is that we don't really need to proactively appoint or consider who could be a third party administrator. We should just consider this to be informally like almost a pilot Mhmm. In the sense that if towns that take them this up can figure it out.

[Aaron Farrance]: Yeah. Yeah. That's an interesting component just to maybe level settle them for you just how commercial lending works in Vermont today Yeah. Outside of this program.

[Rep. Kathleen James]: Not our wheelhouse.

[Aaron Farrance]: Not not your wheelhouse. So, essentially, you you you an entity in order to make to do any lending in Vermont either needs to be licensed with DFR or otherwise exempt from our licensing process. Entities that are exempt, as you might expect, are are banks and credit unions. That's that's their job. They do they have statutory loan authority already. They don't need a special special permission. There are other, exemptions as well. So so beta is an is an exempt entity. Their insurance companies are exempt and so so on and so forth. In addition, a commercial lender who's making loans over a million dollars also doesn't need a license from GFR. So we would only be overseeing any commercial lending in this space that was under a mill. And I, you know, I don't know how big these deals would be. Sounds like some of them could be fairly sizable in some smaller towns, like if we're seeing, you know, smaller amounts being the amount lent. So it sort of remains to be seen how we would involve.

[Rep. Kathleen James]: And so, the section of the bill on page seven that says that DFR shall consult with relevant stakeholders including the league, VITA, Efficiency Vermont, and agencies from other states with C PACE programs in order to identify appropriate entities to serve as program administrators. Is there any harm? Would that be useful work? Should we take it out? Is there any harm to leaving it in?

[Aaron Farrance]: If the committee feels strongly that there should be a third party administrator, we're happy to play that role within that. But if it's the policy choice that, you know, we don't we don't feel the need to have a third party administrator, That's not really unlike any any existing company moving on today.

[Rep. Kathleen James]: Think it's going up at the same time. Mike Southworth?

[Rep. Michael “Mike” Southworth]: Are there advantages to a third party administrator versus not?

[Aaron Farrance]: I think the only advantage really is just if there's an administrative burden placed on the municipality that's that's running the program. You know, I I in Colchester, we you know, our town office may have a little more manpower or people power to really administer the program, but a smaller town may not, I guess, the

[Rep. Michael “Mike” Southworth]: same. Thanks. Thank you.

[Bram Kleppner]: Commissioner mentioned that there is a prohibition on a lender also serving as an administrator. Do you know is that a good I mean, in principle, there's sort of a it makes sense, but, practically, do we care if Vida or some other lender in this eBay program is also the administrator of the program?

[Aaron Farrance]: Yeah. I I don't know exactly why that was was added. I think someone mentioned that, you know, fox guarding the house problem. As I mentioned. That doesn't exist in the current commercial lending already in the space, so I'm not sure how much of a problem that may or may not cause.

[Rep. Michael “Mike” Southworth]: I'm trying to imagine what program administrator would do. Just thinking about as a practical matter, the bill goes out for property taxes annually or biannually, whatever it is for the particular town. It includes an amount for the CPAs loan for that year, and somebody receives that check. It's either the town clerk or perhaps the program administrator. He then somebody divides up what is the payment on the CPACE loan, problem was due on the property taxes, and sends the appropriate money to the appropriate entity. I guess that's what the program administrator is that right? Is that

[Aaron Farrance]: That's basically my understanding as well. Yeah. I think there might be during the origination phase some some checks and balances to make sure that other portions of the law are are complied with the lenders consented. Mhmm. The the owners of the property received the proper disclosures and notice that this bill requires, etcetera, etcetera, sort of writing work and documentation.

[Rep. Kathleen James]: So, yeah, I I don't want I'm sort of wanting to leave this in because, you know, we we're hoping if if this it sounds like folks are really excited about this program. It could be useful. I don't wanna have the specter of, you know, an unfunded mandate or work getting shopped off on a local town official be a reason that people would object to becoming a C PACE district. If you're imagining somebody sitting in town hall who is suddenly gonna be, you know, in the in the position of being an admin on a loan that's between two private entities but flowing through the municipality. I mean, I think you you had said earlier that, you know, if the application is set up right, the admin is making sure the application is complete. I actually do that work in my other job. And it's it can be a huge pain in the butt, honestly. Right? Like, didn't do where's this? You didn't turn in this. This isn't proper. I read this over and it doesn't look right. You know? Well, what is that? Where do I get that? I I I don't know. I feel like any town that would wanna do this would want to have the option, especially if they're not gonna be paying for it, if the lender's gonna be paying for it, to say, you know what? This is gonna be super easy for us. We're gonna hire to to run this program for us. So I I actually feel like it's important unless there's some technical reason that it really shouldn't be happening. I I think it could hinder hinder uptake in smaller towns and get be a task that gets pushed off on local town employees.

[Rep. Michael “Mike” Southworth]: Yeah.

[Rep. Kathleen James]: That might take more time than we think.

[Aaron Farrance]: Yeah. I I think the third party administrator may be able to scale so they have that they're serving that person for multiple municipalities. They'll have more experience with terms, process, etcetera, etcetera. And I guess you could always during a test phase include this requirement. And then if it's not being if it's not helpful or useful or really effective, it could be modified down the road.

[Rep. Kathleen James]: But now I'm sort of wondering who's gonna do it because so far what we're hearing so far is that nobody people don't wanna do it.

[Rep. Michael “Mike” Southworth]: So Okay. That's good.

[Rep. Kathleen James]: VITA doesn't wanna do it. I think we're gonna hear that Efficiency Vermont doesn't wanna do it. I'd be shocked if the league wants to do it. You guys can't do it and don't wanna do it. So maybe the problem is that the bill is saying the lender can't be the administrator. Maybe it should just be the lender.

[Aaron Farrance]: Yeah. Or maybe it's a disinterested lender. You can theoretically get around it that way. I don't know. That is probably the the hindrance provision in the bill that's that's really holding people back.

[Rep. Michael “Mike” Southworth]: Okay. Inner's provision being that the electric can't be. Exactly.

[Rep. Kathleen James]: Do we have other questions for DFR? Or

[Rep. Michael “Mike” Southworth]: Well, so this section of the bill, on page seven, says basically the DFR will convene a group, consult with relevant stakeholders to identify appropriate entities to be a fifth administrator. Is DFR comfortable with that role?

[Aaron Farrance]: We we are. Yes. We've we've talked about it, and we're happy to comply.

[Rep. Kathleen James]: If you recommend that the administrator should be the lender, then we have to change the statute.

[Rep. Michael “Mike” Southworth]: Yeah.

[Rep. Kathleen James]: Just thinking ahead. Understood. It

[Rep. Christopher Howland]: sounds like the administration is prior to any money changing hands, almost like you have to collect these in an application fee and all this work to get everything in order.

[Rep. Kathleen James]: Well, I think it's both. There's the work you do during the origination and the underwriting, and then there's the

[Speaker 0]: Right.

[Rep. Kathleen James]: Distribution of fees. Distribution.

[Rep. Christopher Howland]: Then as the payments come in, because they're calling in an assessment and it's coming through the tax department of the municipality, if it was just a superior loan without this term assessment, then I can I guess the correlation between the superior obligation with the municipality name on it that that makes it makes us

[Rep. Michael “Mike” Southworth]: It's it's suggesting here, would it make sense to divide those two functions, the origination phase from the from the payment phase that so for twenty years or something, the the payments are gonna be rolling in to the town clerk's office? Plus dividing that up doesn't seem like it would be that difficult. So maybe there's a difference between between all the upfront one that the deferred was mentioned and the rest of it.

[Rep. Christopher Howland]: In in the commercial world, they their prepayment penalties on loans, and is that because of these costs of originating the loan are buried in the interest rate, recovered through interest? Yeah. I mean,

[Aaron Farrance]: I think, you know, in a normal commercial lending transaction, if we're talking about the amount of work that an entity will have to put into loaning 10 or $20,000,000, it's it's it's a lot of effort upfront. And so if someone just refinance within six months, you're gonna you'll never be able to recoup that expense with that just interest over that period. Recover it all through your you recover those costs through your interest as best as goes away. Correct. Yeah. So there's no requirement on a commercial loan have a prepayment penalty. It's just allowed under statute. So if that is a a feature that could be negotiated between the parties. Right. But it's

[Rep. Christopher Howland]: a catch 22. If they ask for too much money up front to originate the loan, they don't get the applications because they'll go to somebody else who may Yeah. The period of time as a risk in in the loan. Theoretically, if those term

[Aaron Farrance]: those prepayment terms are too onerous, you know, someone may say that self I'll choose option b. That's what Okay.

[Rep. Christopher Howland]: But that that's again I'm a commercial buyer. Market working. I'm not a commercial borrower. Right. Sure. Only do have only done residential. Sure. Only done two, three.

[Aaron Farrance]: It's worth on residential transactions that are reasonable. You

[Rep. Christopher Howland]: off can pay whenever you want. Or car loan. Any any personal commercial personal type loan. Correct. Yep.

[Speaker 0]: Yep. Torre? I'm curious. I I know that there are energy saving companies where you do an efficiency project or a commercial property and then the savings is kind of returned to you over time? Like, is there any reason you couldn't do both in this case?

[Aaron Farrance]: I I don't I don't think so. I I think that's probably kinda why, you know, beta and and those other groups really want to be able to lend is sort of that they do a lot of this work. They they are trying to facilitate that with a greater good state, and so financing is also a helpful way to do that.

[Speaker 0]: And I was just curious, like, for resilience investments, would there be any savings to the to the business in terms of their insurance? Like, they were to do some important stormwater upgrade or something? Yeah. I That pencils out for them?

[Aaron Farrance]: I don't know. That might be a good factor for them to consider. Think in some of the testimony yesterday, they mentioned seismic risks, and so I think in certain jurisdictions, there might might be that. I'm I'm not yes.

[Joe Valenti]: I would I would add on that point that there are states that have been looking at funding climate mitigation and tying it to insurance rates. I think the challenge that we would have is that the number one peril that we face is flood, which is, you know, which is largely federal as opposed to if it were wildfire risk and wildfire insurance were under our jurisdiction, it would be a very different story. So it's hard to it's possible that insurers would see a relationship and price accordingly, but it's not something that we can we can readily mandate for for blood as particular peril. Although

[Rep. Michael “Mike” Southworth]: we may see fires. That's true. Got pretty dry last year.

[Rep. Christopher Howland]: Do you people handle the insurance side of the insurance? Yes. So do you have a position in what insurance companies can charge for blood insurance and the like of that.

[Aaron Farrance]: I don't I don't I'm not I'm not the person to ask. I don't have that expertise. I can definitely check on it for you, but I know that federal flood insurance program is really a federal program. It's under the state.

[Rep. Christopher Howland]: So when you apply for flood insurance, when you're in a flood zone, you're really buying a federal policy?

[Aaron Farrance]: Essentially, I'm federally backed. That's federally backed.

[Rep. Kathleen James]: Very good? All right, thank you so much for joining us.

[Aaron Farrance]: Thank you.

[Rep. Kathleen James]: And our next is at 10:00, so I think we can go off live and take a look. We'll be back at ten.