Vermont Legislature SmartTranscripts:

[Rep. Kathleen James (Chair)]: We're live. Welcome back, everybody. It's House Energy and Digital Infrastructure on April 1, and we are continuing to take testimony on s one thirty eight, and we're here with the Vermont Bankers Association. I'm rep Kathleen James from Manchester.

[Rep. Richard Bailey (Member)]: Richard Bailey, 1102.

[Rep. Christopher Howland (Member)]: Chris Morrow in the Windsor Bank. Michael Southworth, Caledonia two. Christopher Howland, Rutland Ford.

[Rep. Kathleen James (Chair)]: Dara Torre, Washington two.

[Rep. Bram Kleppner (Member)]: Bram Kleppner, Chittenden 13, Burlington.

[Chris D’Elia (President, Vermont Bankers Association)]: I met your wife recently.

[Rep. Christopher Howland (Member)]: Under what circumstances, sir? You The

[Chris D’Elia (President, Vermont Bankers Association)]: safety team? Yes. Indeed. She came and presented at our Women in Leadership Conference. Oh, wonderful. Did a great job.

[Rep. Christopher Howland (Member)]: Okay. Nice. It's great to hear.

[Rep. Kathleen James (Chair)]: Awesome. And in the room.

[Chris D’Elia (President, Vermont Bankers Association)]: I'm Nick Jerick with Downs Rack and the Martin for sharing.

[Rep. Kathleen James (Chair)]: I'm in the legislative attorney session. Great. And who are you interning for? Senator Chittenden. Super. Great. Alright. For the record.

[Chris D’Elia (President, Vermont Bankers Association)]: For the record, Chris Deli, president of Vermont Bankers Association. Thank you for the opportunity to come in and visit with you. I picked up a little bit of your hearings that you've had over the last couple of days. I'll just give you our thoughts on the bill, and then I think you folks have a number of questions that I'd be more than happy to answer. I should also let you know that I was here when we did the residential PACE program, I'm so happy to answer any questions that you might have related to that. So I'm very familiar with the bill when it was introduced last year by Senator Chittenden, and during the summer and fall, did some research on what other states have done. I think about 38 states have passed similar legislation. And I think every state has adopted the language that I'll key in on in this bill. But obviously, you're familiar with the goal and that's to try and create an additional resource, financial resource for commercial projects to access in order to implement energy efficiency improvements, resiliency, climate resiliency, etcetera. What's unique about PACE, both the residential and the commercial, is it uses the property tax mechanism for repayment of the debt. So instead of having a conventional loan where you go to the bank, they approve the loan, you take out the money, and you're making monthly payments back to the bank. In this case, you're going to who's ever going to administer the program for you or the municipalities. They will go through an application process. As soon as they get approval, they will receive the funds, and then the repayment mechanism is using the property tax collection system, if you will. So in the bill, you see language that speaks to lean priority and a PACE assessment being treated just like property taxes. And again, that's for collection purposes. The lien, even though you're underwriting the commercial entity, the lien runs with the property. So I may own the property for five years and I decide to sell it. That lien is going to run with that property to the new buyer, assuming they're willing to accept that lien. Some may, some may not. Some may say, hey, Chris, you gotta get rid of that before I'm gonna be willing to buy that. And you have to go through the process to figure out how you're gonna pay that off if you wanna sell it to that individual. So that's another unique aspect of of the PACE program. What we were interested in, as you can imagine, we're we're out in the marketplace making commercial loans. We're looking at the full depth and breadth of the borrower. We have everything that we need to know in order to determine whether we should make that loan or not. Credit risk, taxes, financial statements, business plans, whatever it may be. So we understand completely where the circumstances around that borrower. You can imagine the risk that would be created if all of a sudden that borrower had the ability to go get a loan, and it could be sizable because some of these projects could be quite sizable, and all of a sudden the financial institution learns that that loan is now in a priority position in front of theirs. That is without question not going to happen from my commercial lender's perspective. It was very clear that if a municipality created a PACE district without the language in the bill, which I'll go to in a second, they would never do a commercial loan in that district because it would be too risky for the institution. So what you see in this bill on page five line eight is, I believe, in every other case bill that exists in the states across the country, and that is the language around consent. How will that work? Again, I'm the borrower at Chrystilia. I have a loan with XYZ Bank. I'm in a PACE district now. My municipality offers that, and I want to take advantage of the financing options. I would go to XYZ Bank and say, this

[Unidentified committee member]: is what I'm looking at doing. And XYZ Bank has sole authority to say yes or no.

[Chris D’Elia (President, Vermont Bankers Association)]: XYZ Bank, again, is looking at the full depth and breadth of my circumstances for borrowing. Now, it could play out a number of different ways. XYZ Bank could say, well, we could do that for you. But if you want, let's sit down and talk about what loan options they must be. XYZ Bank could say, no, you have a million dollar loan out with us. The risk is too high. We're not gonna consent that. And then I could not go get a PACE assessment loan. Or I may only owe $20,000 I may owe $50,000 and the risk for the institution is so much less at that de minimis amount that they may say, Yeah, fine. We see no problem with you going getting a PACE assessment and we'll step back in a secondary position. I think you heard from Vida today, Joan Goldstein. We do a lot with the Brahman Economic Development Authority. And in our partnership with them, we take a first position, they take a second position. Without this language, they would drop to third, which is again a high risk of it. So we worked with the Senate Natural Resources Committee to get this language in the bill. It was acceptable to us coming out of the Senate. And even though there's this loan lean priority language that's in there, for us, it is mitigated by by us having that consent language in there. So we do not see a problem supporting this bill. So do is this paragraph just referred to

[Rep. Christopher Howland (Member)]: the first mortgage holder and the second mortgage holder doesn't? They don't have to get consent of

[Chris D’Elia (President, Vermont Bankers Association)]: the second mortgage? No. Well, let me just pull it up. Sorry. I have the language right in front of me. Oh, it says each holder. Each holder. So you could add it. Yeah.

[Rep. Christopher Howland (Member)]: It says each. That's right. Yep.

[Rep. Kathleen James (Chair)]: We have questions? Thoughts on the third party administrator?

[Chris D’Elia (President, Vermont Bankers Association)]: This is the hot potato that nobody wants to take on right now. The the thoughts really focused on the language that got changed in the senate because the initial drafts were very prescriptive on who they wanted to have in there, and then the language morphed to entity to be a bit more broad. I think, again, you probably have heard from a few administrators that are out there in the broader marketplace that could come in and work with municipalities. I think again, Veed has probably explained their issues at this point. I know you may consider another entity out there, the Economic Progress Council. They don't administer a loan program. They administer tax credits as well as access to the growth in the property taxes under tips and chip. So even though they're familiar with an application process, it's very a very different underwriting process that you would do as an administrator for this program. I will just say, I think finding an administrator makes sense on behalf of the municipalities to get one of these up and running to administer it. The financial liability if a municipality were to create a loan pool and put that out there is something I don't think many municipalities will wanna do. So having that third party administrator makes a lot of sense.

[Rep. Kathleen James (Chair)]: Okay. Alright. Yeah.

[Rep. Richard Bailey (Member)]: So I'm I'm concerned about the municipality being ended up hole in the

[Chris D’Elia (President, Vermont Bankers Association)]: bag for all of this. Yep.

[Rep. Richard Bailey (Member)]: And I'm looking at an improvement loan and just throw out another half million dollars Sure. Or whatever the year twenty year thing.

[Unidentified committee member]: Yep.

[Rep. Richard Bailey (Member)]: It's either a single payment, property tax payment, or two payment property tax payment. Yep. I would need Four. Burlington is four. Oh, high Park 4 because our taxes are so high. Easy payment. Sure. But that's gonna be

[Chris D’Elia (President, Vermont Bankers Association)]: a sizable loan pay at a one time shot. Right? Well, the the terms that I think the bill allows for is over the life of the project, I think possibly up to thirty years. Right. So you're gonna amortize it over that period. So but to your point, that that payment is going to be one larger sum versus spread out over twelve months. Right. Yes. I think to address the municipality concern, and you get a lot of discussion in the senate about this, The way the bill contemplates is that the municipality would not take on the financial liabilities or administration of the program. And and I think that's important because if you if they were to do that, let's say a municipality goes to the bond bank and they take out a $5,000,000 bond and they wanna set up a PACE program, that municipality and all the taxpayers in that municipality are responsible for repaying that debt. This is different because you've got a third party financial entity that is putting up the money, not the municipality. That's at least what's contemplated in the bill. Okay.

[Rep. Richard Bailey (Member)]: But what happens in the fact that the property owner just decides to walk away from the property and not collecting its property tax. Now it's got a loan that's gonna collect too.

[Chris D’Elia (President, Vermont Bankers Association)]: So the loan stays with the property. The the the creditor, if you will, which is the financial entity making the funds available for the PACE, is the one that needs to get repaid. Again, you're only using the property tax collection system as the mechanism for repayment. So ultimately, again, I'll use myself as an example. If I default on a loan, Chris Delia owns ABC entity that put the money up for the loan. How do they collect on that? If if it's just the assessment, they could go through theoretically a foreclosure process. They could try and collect the debt by seizing the assets that I've got for that business. If I'm defaulting on my property taxes, then you're gonna go to a property tax sale in a municipality. And, again, I think in the bill, the way that's contemplated is you don't owe the full thirty years. You only owe the outstanding debt on the assessment up until the time the sale is transacted. So it's not the full amount. It's whatever you're delinquent on. And then, again, you've gotta have a buyer who's willing to come in and pick up that assessment on the property and make those payments going forward.

[Rep. Bram Kleppner (Member)]: And and what if that buyer doesn't want that loan? Your your Yes. Either they don't walk away from the property or

[Chris D’Elia (President, Vermont Bankers Association)]: That is a that is a challenge because there will be some buyers out there that say, I yes. I understand. I'm gonna get the benefits of the energy efficiency going forward, but I don't want a $100,000 lien on the property, and therefore, I'm not gonna buy it. It could weed out some potential buyers

[Rep. Bram Kleppner (Member)]: for sure. But in I'm sorry. Just to follow-up on that, if I may. Under almost no circumstances, the municipality ever be stuck with that liability because the lender Yep. Stops getting their payments Correct. And they will take possession of the property, go after Correct. They will do whatever they do. Correct. And if the money stops flowing, the money stays not flowing, it's still the up to

[Chris D’Elia (President, Vermont Bankers Association)]: the lender to find a buyer who's willing to take on that obligation and all those. Correct. The the only thing the municipality is out is if I am not paying my property taxes separate from the assessment. That's the only thing the municipality is out.

[Rep. Kathleen James (Chair)]: That would happen anyway. That would

[Chris D’Elia (President, Vermont Bankers Association)]: happen anyway. And and, you know, you hope that there's bidders that show up to the sale because you don't want the municipality by default, because nobody shows up to the sale, they end up owning the property. So that becomes a challenge for the municipalities. That exists today under normal property tax sales circumstances.

[Rep. Bram Kleppner (Member)]: So that is a circumstance under which the municipality could become responsible for the CPAs loan if the municipality ended up owning the property.

[Chris D’Elia (President, Vermont Bankers Association)]: I don't see that because the agreement is not with the municipality. The agreement is with Chris Deleon, an ABC company who provided the money. And I and I think the way this is structured, I don't see anywhere in the bill where the municipality becomes responsible for non repayment of that assessment. But doesn't the obligation to repay the assessment travel with the property? It does, but it's with the yes. It does. But, again, oh, boy. That's does. Again, the the municipality is not part of the contractual relationship, but if no bidders show up, they, by default, own the property.

[Rep. Christopher Howland (Member)]: I don't I don't think the town has to buy the property, and when they put it up for tax sale, they can just stop the tax sale. No bidders show up. They don't have to take

[Chris D’Elia (President, Vermont Bankers Association)]: And just leave it sitting out leave

[Rep. Christopher Howland (Member)]: it there and conduct a and I say that from the position of being a former tax reform.

[Rep. Kathleen James (Chair)]: Well, the league is coming in next.

[Rep. Christopher Howland (Member)]: Yeah. So, yeah, I I but I hear I know. Get your so concerned the property transfer The the debt transfers with it, but if there's no buyer for the

[Rep. Bram Kleppner (Member)]: property And the municipality chooses not to take ownership. Right.

[Rep. Christopher Howland (Member)]: It does So there's a way out there. Yeah. Yeah. The debt sits there and whether or not and then to the terms of the contracted, it probably continues to accumulate interest.

[Rep. Michael “Mike” Southworth (Member)]: Well, at that point, the lender would take it over to get their money back. Right?

[Chris D’Elia (President, Vermont Bankers Association)]: The it it is there are times when a lender again, I'm only talking property taxes at this point. A lender will step in. They will cure the delinquency on the property tax because they want to preserve their asset, which was used to secure the loan. So, yes, that will happen. Whether a PACE administrator chooses to do that or not, I would think they'd want to because that could be a sizable loan that's out there and assets that they could potentially recover. So it could be treated they could see that we could treat it the same as a mortgage in essence.

[Rep. Christopher Howland (Member)]: But the value of this PACE loan is only the energy efficiency and resiliency value of the building of the property. So, essentially, somebody said 60, you know, they're loan 60%, 20% equity, and maybe 20% of PACE loan. So there's a lot of leverage of bricks and mortar Yeah. Behind that.

[Rep. Michael “Mike” Southworth (Member)]: You also have whatever lenders in first position. They're the ones most likely to take the investment, take care of the property. They're on the hook. Right. Or

[Rep. Christopher Howland (Member)]: I think they want prove their what their balance of what they And 38 states have this? Yes. That's my understanding.

[Rep. Michael “Mike” Southworth (Member)]: It seems highly possible that how we get stuck with it.

[Chris D’Elia (President, Vermont Bankers Association)]: Well, I I can tell you that clearly the senate's intent was that they do not get stuck with it. Senator Hardy worked very hard to make sure that municipalities were, if you will, held harmless because this gets complicated quickly, and she was very concerned about that. So I that is absolutely the intent of the senate. Yeah. How

[Rep. Michael “Mike” Southworth (Member)]: would this assessment keep hearing the word assessment, and then they go back to appraisal and assessment. Yeah. Would it have any effect on brainless value?

[Chris D’Elia (President, Vermont Bankers Association)]: Well, I would think so because you're going in, you're making improvements to that property and investments in that property. I don't know how often that gets looked at in a municipality from the assessment's point of view, but I would see that the assessed value would be increasing based on however they would calculate the new investments that went into that property. So, yes, I would see that increasing the grand list.

[Rep. Michael “Mike” Southworth (Member)]: Gotcha. Gotcha. So wouldn't it just look like a mortgage value where it would be on the both those to the property? Yep. Thank you.

[Rep. Christopher Howland (Member)]: The value of solar panels don't tag the exact value of residential property taxes on

[Chris D’Elia (President, Vermont Bankers Association)]: solar. Well, there's there's, again, assessment, assessed value different than market value. Right. Create value. Create rate. And we had a discussion about that in the Senate briefly as well. We've seen significant changes in the appraisal world as far as adoption of values when it comes to these types of investments on the residential side. So that appraisers are accounting for some level of value when they're looking at doing their appraisal work on loan.

[Rep. Michael “Mike” Southworth (Member)]: So you mentioned the the Dara case. We heard from Peter that the main sticking point on that is not being able to sell these into the secondary market. Correct. Is there a workaround on that that other states have done or that you can consider? Or the No.

[Chris D’Elia (President, Vermont Bankers Association)]: So the in in the mortgage world, two options that a financial institution has. One is to do a loan and portfolio where the bank does not sell it in the secondary market. They keep it in house. Could be a variety of reasons why they do that. Servicing is directly with the institution. There are others who the model is to provide mortgages out in the marketplace, but the way they recapitalize themselves, the loan pool, is to sell them in the secondary market. The primary buyers are Fannie Mae and Freddie Mac in the secondary market, and they will not buy a PACE loan if there's excuse me, buy a property with a PACE lien on them. That is consistent across the country. So the only way a bank would do it if there was a PACE lien on the piece of property is if the bank felt that they wanted all the new portfolio. They would not be able to sell it in the secondary market. I'm not aware of any workaround. Mhmm. And I I will say that's a contributing factor, but I don't believe that's the primary reason why residential fees never got off the ground. It's it's just we had, I think, 14 roughly municipalities that did it. I could probably count on four hands on any loans they've been

[Rep. Christopher Howland (Member)]: out there.

[Chris D’Elia (President, Vermont Bankers Association)]: And my observation over the years when this was trying to get off the ground was this is a very high educational list for property owners. And what I said earlier, just on the sidebar conversation, the the folks in Rutland at NeighborWorks who were holding your hand through the whole process and didn't let you politely off the hook. Did you call the contractor? Did you call those person? You file your paperwork? That was the most, in my opinion, successful program in the state because you were being shepherded through the process. Often people left to their own devices. I'll get to it tomorrow. Maybe I'm not that into it. Maybe it's too complicated. I don't wanna call five contractors. Let's and it never really took. And we're not we're not even in that sense.

[Rep. Michael “Mike” Southworth (Member)]: Yeah. Just too much friction. Yeah. It's just

[Rep. Richard Bailey (Member)]: Do you have either success or failure of these programs nationwide, but looks does it seem to be working or not working?

[Chris D’Elia (President, Vermont Bankers Association)]: On the commercial pace, I personally do not, but I will recall an individual who testified in the senate that said the delinquency rate was less than 1% on their loan portfolio for commercial based activities. So very successful. Yep.

[Rep. Kathleen James (Chair)]: Alright. Thank you so much.

[Rep. Christopher Howland (Member)]: Thank you.

[Chris D’Elia (President, Vermont Bankers Association)]: Happy to help.

[Rep. Kathleen James (Chair)]: Yeah. Appreciate your time.

[Rep. Bram Kleppner (Member)]: Thank you. Good to see you.

[Chris D’Elia (President, Vermont Bankers Association)]: Good to see you. Thank you.

[Rep. Kathleen James (Chair)]: Alright. Josh. Thanks for being here.

[Josh (Director of Intergovernmental Relations, VLCT)]: Sure. Thank you.

[Rep. Kathleen James (Chair)]: Yeah. I think you've testified here more than once, so I don't think we need to all introduce.

[Josh (Director of Intergovernmental Relations, VLCT)]: That's fine. Okay. I'll introduce for the record, Stanford, director of intergovernmental relations at the Vermont League of Cities and Towns. And this testimony is gonna be pretty brief as it was in the Senate. The language that passed the Senate, the LCT is supportive of, mostly because this is a choice talents would get to make whether they want to enter into commercial pace or not. It's self executing, they have to decide. We're not judging whether many communities will take this up or not. We always support new authorizations from municipalities. We believe there's probably only a couple of municipalities that probably really would pursue this. And that's great. If it helps a business in those communities and they wanna do that, we wanna be able to support communities having that option. You know, I think the questions that I I've heard in the past about an administrator to do that. I think that's an open question. You know, VLCT is not a position at that time to entertain whether we would be in an option or not. I think that it is true that if it's complicated and there's a lot of concerns and there isn't someone to handhold, maybe that may be a challenge for municipalities that debate whether to authorize this or not. But we'll see if maybe someone emerges as as that playing that third party role. I think I briefly heard about concerns of municipalities maybe holding the bag. I was trying to listen as I came in. Our municipal attorneys reviewed the language and feel that, you know, we're we're protected. There's lots of liability protection in here. If a business, just like a residential property or any property, doesn't pay the property taxes, you know, the remedy ultimately is this tax sale. If there isn't a lending institution that wants to take that on and and foreclose on it, a tax sale is always brought with with challenges. You know, the municipality at that point is only seeking a remedy to capture its delinquent taxes. It's not trying to solve any loans out there or any other debt. It's it's to recover delinquent taxes because the the reality as the law is today, when people are delinquent in their taxes, the rest of the taxpayers pay those delinquencies because the municipality is responsible for paying the full property tax, education property tax to the state every year, regardless of if they have delinquencies or not. And that that can be a challenge in some communities, you know, with rising property taxes or the recent changes to the prop property tax sale process from a couple years ago, which really extends that out two years in all practical purposes before you can even initiate a tax sale. So, you know, small municipality that's holding on to 20% delinquency can be a financial burden on on some smaller towns and can actually raise the property taxes of other property taxpayers. That's a separate issue than this really, but just I heard some questions, so I wanted to mention that. So, in general, we support the bill as it was moved from the Senate and with the protections that are there, and happy if a few municipalities have a new authorization they can pursue.

[Rep. Kathleen James (Chair)]: Okay. I I have a question. I I've asked this question of a bunch of different people, and I just need to keep keep asking it while I make sure I totally understand it.

[Unidentified committee member]: Thank you.

[Rep. Kathleen James (Chair)]: Can you just walk me through so how I'm envisioning this is that you've got a commercial property owner and a private lender or or whatever. So you've got a property that wants the loan and you've got a lender. And so this is a private transaction between them. The municipality is not on the hook for any of the terms of that. But the payment mechanism, you know, I'm envisioning instead of how it usually works where you take out your loan and you pay your lender, we're setting up this municipal pass through, basically. That's how I'm picturing it. And I I need to keep understanding how that makes the loan much more secure. How that how that helps, why that's better. And I'm just gonna keep asking people until somebody says it in a way that I'm like, yes, I get it. And I think maybe the only one on the committee who needs to keep hearing this, but I think it's helpful to keep hearing why that is a better and more secure way for this commercial property to pay that private lender.

[Josh (Director of Intergovernmental Relations, VLCT)]: I can't answer that first.

[Rep. Kathleen James (Chair)]: But you you are the leading cities and towns.

[Josh (Director of Intergovernmental Relations, VLCT)]: Yeah. Our our concern is the municipality's ability authorization to authorize this. My understanding is attaching it to the property taxes and giving thirty years to pay that back might be the only way to capture this sorts of capital investment to make these energy improvements through a more reasonable rate. Maybe lenders wouldn't offer that in those terms just from a regular commercial room that doesn't have to involve the property taxes and and and the assets there. But I I am not an expert in these financial transactions in the bank and and why a a business would get better terms that way. I was around when the residential PACE was first started. And I remember all kinds of efforts to go out in many municipalities adopting that and thinking that was going to be the way to provide energy efficiency work on homeowners. And we know that that really didn't pan out and didn't really result in much. I think frankly, because there was a lot of other options for folks to do weatherization improvements. We created other programs and other initiatives and The genesis of this and sort of which business and which community, I'm not privy to knowing where this is coming from and why the other programs and other ways to address these energy efficiency measures you wanna take can't be accomplished through existing programs. My sense is it's a very large employer, very large business, and it's very expensive projects, but I don't know that. So I just don't Okay. Wanna comment on why this is the best way to to get that work done because I don't know if it is or isn't.

[Rep. Kathleen James (Chair)]: Okay. That's okay. It's back in my notes.

[Unidentified committee member]: Yeah. So I gotta leave one second at the end,

[Rep. Michael “Mike” Southworth (Member)]: but I'm going to ask a little bit

[Unidentified committee member]: more about the program administrator piece of it. We were talking earlier about the sort of loan origination issues or process, and to what extent that's a burden for municipalities, and whether that is one question I have is, is that part of the process worth separating from the collection part of the process, which seems like it would be a a little bit more straightforward for minutes of clerks to handle it because they'll be just getting a a check from the property owner that includes both the property taxes and the the loan payment for the for the for the c PACE loan. And at that point, it's pretty straightforward. You just carve out the amount that's that's probably. Keep that in your town copiers and send a check to or however it works, to the CPAs lender for the amount that's due on the CPAs loan. But the origination part might be more complicated. So I was just wondering if you have any Yeah. More thoughts about that, especially if there's smaller

[Josh (Director of Intergovernmental Relations, VLCT)]: towns. Yeah. I honestly think that smaller towns are probably going to shy away from this. Unless there's an administrator. Unless there's an administrator, unless there's a really large, important business that this is a must to support, and they're gonna find a

[Chris D’Elia (President, Vermont Bankers Association)]: way to work and find

[Josh (Director of Intergovernmental Relations, VLCT)]: an administrator, find a pay. But I would just be guessing about responding to your specific questions. All I know is that we're happy to authorize municipalities to take on new authorities and liability protections in this bill adequately protect municipalities. And so, you know, we're happy to to support it at at this point. Okay.

[Unidentified committee member]: Back to you.

[Rep. Kathleen James (Chair)]: Yeah. Back to you.

[Rep. Richard Bailey (Member)]: So if a municipality wants to declare state based program? Do they just say it's everything within the township, the border, the town border? Or is that part of the industrial park area?

[Josh (Director of Intergovernmental Relations, VLCT)]: I think they would have some leeway there, you know, a district, a clean energy district, as it's written, and I understand it. It would probably be conditioned on being in a certain part, certain zoning in the town.

[Rep. Kathleen James (Chair)]: It says it's the entire municipality.

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: Says it's the

[Rep. Kathleen James (Chair)]: entire municipality. Okay. Have a line. Page one, line 15.

[Josh (Director of Intergovernmental Relations, VLCT)]: Yeah. So they were just

[Rep. Kathleen James (Chair)]: The plumbing would still be in play. I mean, that's

[Josh (Director of Intergovernmental Relations, VLCT)]: A commercial energy property sector, clean energy district is the entire municipality. You know, that may be something that towns wrestle with as whether they really want that to be available for the entire municipality as opposed to this industrial section of the community. Really haven't.

[Rep. Kathleen James (Chair)]: When zoning because these are attached to commercial properties. If somebody's building a hotel or a hospital, I mean, hospital, but you know what I mean. If somebody's building a commercial property that would be eligible for C PACE, it doesn't really matter if the whole town's a C PACE district because Oh, really? That project would still have to happen according to the local zoning. Right?

[Rep. Michael “Mike” Southworth (Member)]: Right. Right. Yeah.

[Rep. Kathleen James (Chair)]: So it's not like it would overrule zoning and suddenly you'd be building that.

[Josh (Director of Intergovernmental Relations, VLCT)]: Right. No. No. No. I wasn't I wasn't meaning to.

[Rep. Kathleen James (Chair)]: Okay. Thank you. Sure. We're learning so much. Alright. Do we have any more questions for Josh?

[Josh (Director of Intergovernmental Relations, VLCT)]: I'll stick around.

[Rep. Kathleen James (Chair)]: Okay. Great. Yeah. Yeah. Well, let's just keep going. Is that are you okay to just keep going?

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: Maybe? Yeah. Great. Alright. Perfect.

[Rep. Kathleen James (Chair)]: So, hi, I think you've not testified here. No. Okay. So we are gonna introduce ourselves. I'm Kathleen James from Manchester.

[Rep. Richard Bailey (Member)]: Richard Bailey, Memorial 2. Chris Morrow, Windham, Windsor Bennington,

[Rep. Christopher Howland (Member)]: Michael Southworth, Caledonia to Chris Howland, Rowland Ford. Dara Torre, Washington. Yep. Bram Kleppner, Chittenden, Burlington.

[Rep. Kathleen James (Chair)]: Great. And in the room?

[Chris D’Elia (President, Vermont Bankers Association)]: Next year,

[Rep. Kathleen James (Chair)]: Fellow Scholl, legislative intern, senator Chittenden. Great. And Josh just left. So, okay.

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: Hi. I am Megan Sullivan, Vice President of Government Affairs for the Vermont Chamber of Commerce, and I am very excited to be here. I got to I was just testifying across the hall on economic development, and then coming over here talking about economic development, it's sort of like a shame for a Christmas day. I'm never honest. And appreciate being able to come in and talk about CPACE. I know you've sort of been digging into the details of how this works, and I will be upfront where I'm gonna be talking about sort of big picture why we're excited about this as a new potential economic development tool in Vermont's toolbox. You all had an emergency hearing, I think, in October about what was going on with federal funds for energy and not great for our efficiency projects that are happening in Vermont. And I, you know, I I was there. I heard a number of organizations testify about, the the scale back of federal funding for efficiency projects in the state. We've seen what's going on with FEMA funds in the state and the ability to have tools for commercial, industrial, large scale housing, when I said large scale, mean more than five units of housing, to be able to do this critically important work of energy efficiency, of renewable energy, of resiliency, is really important if we have less now reliance ability to access those federal funds that help offset the cost. And C PACE is one way that states have done that. I think there's about 38 other states that have C PACE programming that Vermont would be joining in. Right? We're not reinventing the wheel here. We're not breaking ground. This is really providing access to a tool that other states have already implemented and gotten right. And so, you know, for us, part of this is really about that that financing gap that I think has widened with the loss of federal funding for efficiency projects, to still see, our our business community, and our our housing community be able to do this important work, both for, our climate and, honestly, for their bottom line for the cost. Right? Energy has been getting more expensive in Vermont. We do have some of the lower costs in New England, but the rates are continuing to increase. So businesses are trying to think about how do I be both a good environmental steward, but also how do I continue to compete with my operating costs? So this really gets at both of those places. Part of what brings us to this is Vermont's economic action plan that the Vermont Future Project put out, I sent to Alex, so it should be on your dashboard Right. Of of what that economic action plan is. And so it looks at where you know, how Vermont's economy is doing and where do we need to go to continue to grow our economy in a way that supports all Vermonters. Access to capital and continuing to invest in energy efficiency are two of the priorities in the economic action plan. This aligns well with that. I know you've gotten some of how CPACE works, so I can skip going into that if you're feeling good about it. But let me talk about how other states some projects, so you can visualize. How are other states using CPACE? Other states have used it on small scale businesses, larger scale, large redevelopment industrial project, and housing projects. So one example is in Good Thunder, which is, like, my new favorite county, Minnesota. There was a thrift store that utilized c PACE in that town to finance LED lighting, and that generated meaningful energy savings for them and a strong return over time. In Worthington, Minnesota, there was lighting and HVAC upgrades that were used through C PACE financing, same those long term savings. So it it has been used, in states that have long established programs in these smaller projects to help those smaller businesses. Maybe it's not the same scale, but it's that same meaningful return. And I think to your question of, you know, why C PACE? Why does it go onto the property tax? Those upgrades live with the building. And they can have a good return, but that that return takes a longer time to realize. And so financing in a way that lives with the property, lives with the property taxes, allows for a longer term investment, the investment that runs the life of that upgrade, and attach it to property rather than to a traditional loan to the owner. So that even if that property sells, the property is still seeing the benefits of, that investment and having the the financing lived with the property is a way to make this accessible. Yeah.

[Rep. Kathleen James (Chair)]: I might be making a connection. So is that okay. So the property tax mechanism is at at the very bottom line, every practical way to attach the loan to the building. Yes. Not to the not to the buyer.

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: Not to the owner. Right. It's for.

[Rep. Michael “Mike” Southworth (Member)]: Has there been any instance or complaint about the CPASE assessment being a hindrance to more resale of a property?

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: I haven't heard of cases where where folks have said that. I will say, you know, I think our pace in Vermont, the residential version of this has not taken off. And I think it is more or you don't have the the complex financing tools in a single family home or a duplex that you have in commercial properties, those purchases tend to be more complex when you're talking about whether it's you're buying a a downtown commercial property or you're buying an industrial building or you're you're renovating a a hotel, that that those tend to be fairly complex financing products anyways. So I think you have a little bit more maturity in that development community that that's not that's not really a as as much of a challenge as it as it is when you're talking about residential or doing that on

[Rep. Michael “Mike” Southworth (Member)]: a property. Would it make sense to have a carve out in the event of a sale that they can do a prepayment without penalty?

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: I only talked to finance about sort of that technical that technical use. So that was our my small businesses. In Omaha, Nebraska, there was a $205,000,000 mixed use downtown redevelopment project that incorporated $25,000,000 in C PACE financing for energy upgrades, that was for mixed development. So it was residential, a hotel, and retail space. In New Haven, Connecticut, Hotel Marcel, which I really want to see now, was the first net zero hotel, and it had been an office building before then, C that PACE was a critical piece of the financing tool, for an all electric system and high performance design building. And then YMCA in also in Connecticut, has a strong C PACE, used it for lighting upgrades. It's you know, it can hit there's a lot of different uses, whether it's, you know, a nonprofit organization, small business, a large redevelopment, or a large business. And I think importantly, when we think, you know, residential place, that's probably getting to our to our larger housing. It it's not because residential is under four units. So this is also something that can be really helpful. While we have, you know, sort of energy standards that our affordable housing folks are trying to to reach having this additional financing tool is important. I think importantly, it's it's not mandated. Right? The towns don't have to offer this. A business doesn't have to use this. These are options. These are potential tools in the toolbox. And from our perspective, the more tools that we have to be able to think creatively about how to get projects done, how to reduce the cost of energy, how to increase resiliency, is great. And so if we can find the right balance of making sure that the towns aren't putting themselves at risk and that this is something that our community communities can access, it's a pretty exciting opportunity. I don't know how many new economic development tools we've added to the toolbox in recent years, and certainly in challenging economic times. That is housing focused. True. At this point, maybe it could grow to be economic development focused as well, and housing is big for economic development right now. But that type of financing that doesn't say we're gonna invest taxpayer dollars is exactly where, I think, is a sweet spot for the state right now. So we're really excited about the opportunity for this. We've heard from members that are, excited about the opportunity for this. There is one tweak that we'd love to see, and I think others may have also brought it up, and it's about the 90% of the property's municipal assessed value. If it's a piece of land, that assessed value is next to nothing. It really needs to be on the completed project. So we have language that we can offer if that's needed, but others may have already.

[Chris D’Elia (President, Vermont Bankers Association)]: H five line. Yeah.

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: The 90%. It keeps changing that. It keeps the guardrails on, but just I think meets the intent of what that financing percentage is supposed to be. And I think that's how California, New York, and Connecticut all do it as well.

[Rep. Kathleen James (Chair)]: I I am wondering whether it would be interesting for us to hear from another state that's like deepened in this. Sure. So we have that we had testimony yesterday from the C PACE Alliance, and I'm sure they could tell us whether we should talk to Connecticut or Minnesota or Good Thunder. Well I would just like to Yeah. A town a state that has some smaller communities would be cool.

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: Yeah. I think it is either there are states that are working, that it does work well for those, you know, small communities. It's not just Chicago and New York that are doing this. Yeah. And I'm sure our towns without any municipal staff may not be ready for it, but we've got lots of those.

[Rep. Kathleen James (Chair)]: Yeah. I'm actually putting together I'm having a memory in real time. You did the study. Yes. I did. We we posted it as public comment, but senator Chittenden's intern I'm sorry. I'm having a moment on your name. Yeah. For the legislative the Vermont Legislative Research Service did a report on this that looked at other states. And so, I don't want to put you

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: on the spot. Feel free.

[Rep. Kathleen James (Chair)]: But, maybe we could, we have time now. Do you want testify and talk about your report? Or is that totally inappropriate and you're not prepared for that and you want

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: us to book you? I wouldn't have any prepared remarks, but I've been following the bill closely. I'd be happy to speak on the research that we've done and my

[Rep. Kathleen James (Chair)]: Do have enough time to crack and we'll formally put you on the agenda with a little time to prepare or do you want to hop on right now? Totally dead matter to us.

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: Maybe a little time to

[Rep. Kathleen James (Chair)]: prepare would be nice. Great. I'm sure I can

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: be nice and polished for

[Rep. Kathleen James (Chair)]: you guys. I appreciate you all.

[Rep. Michael “Mike” Southworth (Member)]: You don't have

[Rep. Kathleen James (Chair)]: to be polished, but yeah. Sorry, I was spaced for a minute. So, great. So we will be doing that.

[Rep. Richard Bailey (Member)]: Yeah. So if this gets passed and you have a commercial entity in a town that sees there's a potential, does that does that business owner need to go to the municipality and say, I wanna get into this program. You need to assign us as a district.

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: Yes. I think, you know, most likely, especially at the start of this, we're gonna be seeing this be probably project led where they'll go to the you know, they're most likely talking to the municipality anyways about designs and permitting and zoning and, you know, for those projects that already, you know, have a relationship. So this would probably be another conversation of, we're this would be a helpful tool. The state just created this program. We'd love for you all to create a district, and we can, you know, help find those relationships, and it'll be up to the town whether or not they move forward on that. And, and then it you know, hopefully, we'll get to a point where, you know, once a town has it established that that's that's now a a municipality's tool in the toolbox as they're trying to do redevelopment projects for businesses. Right? That it's one more, you know, it's sort of like Chip where you can say like, we've got this and we've got this we can offer, you know, let's come together so we can get something done here.

[Rep. Kathleen James (Chair)]: Yeah. I know they're very different, but the more testimony we take, the more obvious it seems why our pace never took off. Like, if I wanna put solar panels on my garage, I'm not gonna approach my municipality and ask them to establish an R. I I don't know. You can just Yeah. You can see why it was just too complex for what it was. Too complex for a much simpler Scale. Yeah. Yeah. Yeah. So With these projects, you're likely

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: to have those complicated financing Mhmm. Mechanisms anyways and developers that are used to using them. And and I do but I do think saying that that there is that we've seen it move into the small business territory and and that's you're still having that commercial real estate owner who may be putting it in place for their first store tenant or whoever the tenant is that is you know, helps keep them downtown and and and do those redevelopment projects that can be more expensive than doing a greenfield project, frankly. And so I think our towns, especially, if we can help incentivize those, how do we how do we keep investing in our downtowns, investing in our economic hubs, That's really helpful.

[Rep. Kathleen James (Chair)]: Thank you. One of the things we've been asking folks about is that third party administrator. Mhmm. Do you have any thoughts about that, especially for smaller towns? I I

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: think it's important to have that expertise and as much as we can help our small towns with capacity building, it's great. And again, I think, you know, the league weighed in on making sure there's the appropriate guardrails, right, so that people we don't have communities that are taking advantage of in doing these. But having that third party administrator is is in for equal for equitable access of economic development force. Which kinda comes

[Rep. Kathleen James (Chair)]: up with CHIP too Yeah. For small accounts. And I'm just wondering if there's maybe some synergy there. Like, would there be a role with our regional economic development corps to have some sort of enhanced support for smaller accounts for both of these things? As an administrator of that, maybe.

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: I don't know if they have the expertise or what. Is that

[Rep. Kathleen James (Chair)]: somebody you might wanna hear from? A regional economic development person? Sure.

[Rep. Michael “Mike” Southworth (Member)]: Seems like some of these chip and the PACE lenders are also administrators. They have all the expertise in software. Yeah.

[Rep. Kathleen James (Chair)]: Yeah. Although we might not third party. Tweak this language and have the disinterested one. It'd be possible. I don't understand why that you're not hearing the box guarding the Hinness argument so much.

[Unidentified committee member]: They're they're overseeing the money they've learned,

[Rep. Bram Kleppner (Member)]: which they've through the Well,

[Rep. Kathleen James (Chair)]: they should.

[Josh (Director of Intergovernmental Relations, VLCT)]: Hawkeye anyway.

[Rep. Kathleen James (Chair)]: Right? Like, they're overseeing the origination and the underwriting as they should, and they're making sure they get your payments as they

[Rep. Bram Kleppner (Member)]: should. I'm not sure. Making sure the paperwork's right. They do anyway. Yeah. My point of view is not a concern having a lender Yeah. Also be the administrator. Mean, they as Ralph Howland pointed out, they go get a loan. The bank administers that loan until they sell it. They told them how to

[Rep. Christopher Howland (Member)]: do it. Or they service it after they sell it. Yeah.

[Rep. Kathleen James (Chair)]: It's their money.

[Rep. Christopher Howland (Member)]: Continue to service it.

[Rep. Kathleen James (Chair)]: That's

[Rep. Christopher Howland (Member)]: right. I guess that's the term they use, service

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: the pump. You get a fee for that. Think it probably stems again from the R. S, right? If someone's showing up at your house and saying, I've got, we're gonna put solar on your roof and I got a great way to finance it and I'll work with your town,

[Rep. Kathleen James (Chair)]: you know, being sort of yeah, that's actually a good point. Like, maybe that's where it originated from, but I see a huge difference between a homeowner, you know, and their level of expertise and like a commercial developer. Yeah. Applying for a commercial loan. I would extremely expect they would have a different level of savvy in putting together their funding stack.

[Rep. Michael “Mike” Southworth (Member)]: So maybe we ought to be separating the R. P. S. And C. S. Within that bill and and not touch the R PACE in a department. Yeah.

[Rep. Kathleen James (Chair)]: I I don't feel like we should be fiddling with R PACE. I I'm trying to remember now which sections of the bill to try to tweak our pace. But to me, these are so different. I have to I have to walk I have to get back up my walk through notes and see which sections even feel with our pace. And whether we're accomplishing anything meaningful there anyway. Yeah. Perfect.

[Rep. Richard Bailey (Member)]: So is it gonna be difficult for the towns to create these districts? Is it just a governing body, or is it gonna let the town or municipal at the city's live vote?

[Rep. Christopher Howland (Member)]: Or I just went through. Just a legislative body. Just a slap order.

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: Yeah. Just Or the legislative body. Yes.

[Rep. Kathleen James (Chair)]: Duly warranty. Okay. Majority of the legislative body at a duly warrant meeting. So let's select board.

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: I don't

[Rep. Bram Kleppner (Member)]: think s one thirty eight touches our base.

[Rep. Michael “Mike” Southworth (Member)]: It does. The chapter two references. There are a bit two part based sub chapter. I mean, it creates a new sub chapter if that's all I have is. Well,

[Rep. Kathleen James (Chair)]: we're putting it in. So we're creating a new a whole new section of statue. I'm sorry. You're Do you mind hanging up? I'm here. Yeah. We're now we're being our committee. But it it as I remember it, so in the section in the broad section of law that sets up our pace, we're creating a whole new section that creates C PACE. Yeah. So that is where it should go. You know, it seems like it has to be in the it feels like it has to be in 24 VSA chapter 87. But I feel like Mike is right that there were

[Rep. Michael “Mike” Southworth (Member)]: There were pieces that intermingled, and it amended the definition of our base or amended the statute. Then section two thirty two sixty three

[Rep. Kathleen James (Chair)]: What page are you on?

[Rep. Michael “Mike” Southworth (Member)]: Page eight. The note where the added language is amending our base. And it is Paladin to charge fees to cover operation with sea space, so it's amending our base is what Ellen had told us.

[Rep. Kathleen James (Chair)]: To add sea based. Correct. So I guess we need to find out whether that's important to keep in there to enable sea based somehow. Okay. More questions for Megan? Alright. Thank you for having me. Thanks so much. Thank you for being here. So we are, we're actually done for the

[Megan Sullivan (VP, Government Affairs, Vermont Chamber of Commerce)]: No. We have No.

[Rep. Kathleen James (Chair)]: Not. We have eleven Alright. Can go off live. We'll be back at 11:30.