Vermont Legislature SmartTranscripts:

[Sen. Ann Cummings (Chair)]: We are This is Senate Finance, February 17. Now we're gonna start with one thirty eight s one thirty eight in accolating to commercial property assessed clean energy projects. This bill has not come out of natural resources, but it was likely to, and this is one where we will be prepared to act quickly since crossover is coming up quickly, and so we would do some background. I met with Chair Kathleen James over the lunch hour, talked about three bills that are coming our way. One is the 248A siding which we've looked at and one

[Unidentified committee member]: is

[Sen. Ann Cummings (Chair)]: I'm moving down here. One is the oh, yes. And all for anyone, it may just be Andy and I that remember the issue with if you have VoIP, that is phone over your Internet, there's a battery somewhere in there, and then if the power goes out and your battery is not working, you lose phone service. In your the old phone landlines, you don't. And, apparently, we've got and consolidated who are grandfathering their own copper lines, and so this issue was back up. I thought it came up a number of years ago because there was a power outage and there was one town that could not contact 911, or some people couldn't, and couldn't find the batteries. So that one is coming back. 248 a is coming over, and then the third one that is coming, I believe, is data centers. My notes. Data center is coming over. They're doing that one, she didn't know would come out, she thinks it might, so we will continue our work on it. They're doing essentially the same work we are, what, you know, what kind of protections do we have in place, are these all the same, what are other states doing, so we will continue on that one. So having said that, we're gonna start on S138, and Ellen, you're gonna walk us through it. Can you share screen?

[Ellen Czajkowski (Office of Legislative Counsel)]: Yes. Ellen Chittendenkowski, Office of Legislative Counsel. I am here on S-one 138. The version you have today is draft 3.1. That is the committee amendment that Senate Natural Resources has been working on. Also posted under my name today is the bill as introduced. If you'd like to look at it, it is significantly different than draft 3.1. And I'll explain a little bit why that is. I'm losing my voice, and so if at any point you can't hear me, please let me know. The When

[Sen. Ann Cummings (Chair)]: you can't talk, let us know.

[Ellen Czajkowski (Office of Legislative Counsel)]: Okay. Do you want me to zoom in more? Would you like me to make it bigger on the screen or is that okay?

[Sen. Ann Cummings (Chair)]: It looks fine to me and I've got the list on, so they're probably fine.

[Ellen Czajkowski (Office of Legislative Counsel)]: Okay. So as introduced, the request was to update the existing PACE statute to include commercial and industrial buildings. And so I'll explain what that is. Currently in Vermont statute, we have something called a PACE program. It's property assessed clean energy projects. A number of other states have adopted very similar programs. And since 2009, Vermont has had a statute, but it is specific to residential buildings. What it does is allow municipalities, a municipality may vote to become a PACE municipality. If they do so, within that municipality, property owners of residential buildings can enter into an agreement with the municipality so that a private lender can lend funding for a clean energy project that will be built on that site. And then it is recouped by the municipality having a special assessment on that property. So the payment on the loan that is made is recouped through the use of a special assessment, the property tax. I am not an expert on municipal property tax nor on funding specifically, but this is a special mechanism that is available for municipalities who want to use this program. If a municipality opts into this program, they vote, the loan to the individual property owner is secured to the property itself as a lien. And so the property owner makes payments through the special assessment, but if they were to sell the property, the loan would remain as part of the lien on the property and the next owner would have to assume the payments on that loan. So currently, has only existed for residential property. This bill would extend that to commercial and industrial properties. The bill is introduced, just inserted the word commercial properties into the existing statute, therefore using all the existing programmatic structure. But this draft that the Senate Natural Resources Committee is working on actually creates a separate sub chapter for commercial properties and gives this program different parameters, largely allowing the municipality to be less involved in the transaction and allowing third party lender to be more involved in the

[Sen. Ann Cummings (Chair)]: transaction. And

[Ellen Czajkowski (Office of Legislative Counsel)]: I will do my best to answer questions. Some of this is a little bit out of my expertise. So section one on page one is creating a new subchapter within Title 24, Chapter 87, which is the special assessment authority for municipalities. So this is a type of special assessment that municipalities can use. So commercial property assessed clean energy, CPASE, district's approval of voters. In this subchapter, district means a property assessed clean energy district. The legislative body of a town, city, or incorporated village may submit to the voters of the municipality the question of whether to designate the municipality as a property assessed clean energy district. In a district, only those property owners who have entered into written agreements with the municipality under 3276 of this title will be subject to a special assessment as set forth in 03/1955. Upon a vote of approval by a majority of the qualified voters of the municipality voting at an annual or special meeting duly warned for that purpose, the municipality may allow for the imposition of a special assessment to secure private financing for property owners for projects relating to renewable energy as defined in '30 BSA August or eligible projects relating to energy efficiency as defined in 3267 undertaken by owners of commercial or industrial buildings within the bounds of the municipality. The highlighting that appears in this draft is reflecting the changes from the prior draft Senate Natural Resources had been working on.

[Sen. Ann Cummings (Chair)]: So

[Ellen Czajkowski (Office of Legislative Counsel)]: on page two, subsection C, as used in this chapter, commercial or industrial building means any building other than a residential dwelling. A municipality that has adopted a special assessment under this section may charge a fee for providing this service to a third party lender. Section 3,276 written agreements, consent of property owners, energy savings analysis, lender consent. So upon an affirmative vote made under that prior section and the performance of an energy savings analysis pursuant to the next subsection, an owner of a commercial or industrial building within the boundaries of a district may enter into a written agreement with the municipality that shall constitute the owner's consent to be subject to the special assessment. Entry into such agreement may occur only after 01/01/2027. Prior to entering into a written agreement, a property owner shall have performed analyses, shall have analyses performed to quantify the project savings and energy savings, sorry, project costs and energy savings, and estimated carbon impacts of the proposed energy or resiliency improvements, including the following analyses. So Summit Natural Resources has been contemplating adding these resiliency types of improvement in addition to other renewable energy projects. So where energy or water usage improvements are proposed, an energy analysis by a licensed engineering firm or engineer or other qualified professionals listed in the program guidebook stating that the proposed qualified improvements will either result in more efficient use or conservation of energy or water, the reduction of greenhouse gas emissions, the addition of renewable sources of energy or water. Where renewable energy is proposed, an engineering study showing that the improvements are feasible. Where resilience improvements are proposed, certification by a licensed professional engineer stating that the qualified improvements will result in improved resilience. Or for new construction, certification by a licensed professional engineer or engineering firm stating that the proposed qualified improvements will enable the project to exceed the energy efficiency or water efficiency or renewable energy or water usage requirements of the current building code. So anyone seeking to undertake a project that will be funded through this process needs to have an engineer conduct an analysis of the project to demonstrate that it will result in either efficiency or reduced energy usage. A written agreement shall provide that the length of time allowed for the property owner to repay the assessment shall not exceed the life expectancy of the project. In instances where multiple projects have been installed, the length of time shall not exceed the average lifetime of all projects weighted by cost. Notwithstanding any other provision of law at the time of the transfer of a property ownership, including foreclosure, the past due balances of any special assessment under this sub chapter shall be due for payment, but future payments shall continue as a lien on the property. So if there's a sale or a foreclosure, the back payments that are overdue need to be paid, but the rest of the loan will transfer to the new, the new owner will take on the payments for the future payments. In the event of a foreclosure action, the past due balances described above shall include all payments on an assessment under the sub chapter that are due and unpaid as of the date the action is filed, and all payments on the assessment that become due after that date and that accrue up to and including the date title to the property is transferred to the mortgage holder, the lien holder, or a third party in the foreclosure action. The person or entity acquiring title to the property in the foreclosure action shall be responsible for payments on that assessment that become due after the date of such acquisition. A participating municipality shall disclose to participating property owners each of the following, the risks associated with participating in the program, including risks related to the failure of participating property owners to make payment and the risk of foreclosure, And the provision of subsection H that pertain to prepayment of the assessment. And that's coming up further down in this section. A written agreement or notice of an agreement and the analysis performed pursuant to subsection B shall be filed with the clerk of the applicable municipality for recording in the land records of that municipality and shall be disclosed to potential buyers prior to transfer of property ownership. Personal financial information provided to a municipality by a participating property owner or potential participating property owner shall not be subject to disclosure as set forth in one BSA three seventeen C seven, which is the Public Records Act. If a notice of agreement is filed instead of the full written agreement, the notice shall attach the analysis performed pursuant to subdivision B and shall include at least each of the following: the name of the property owner as grantor, the name of the municipality as grantee, the date of the agreement, a legal description of the real property against which the assessment is made pursuant to the agreement, the amount of the assessment and the period during which the assessment shall be made on the property, a statement that the assessment will remain a lien on the property until paid in full or released, and onto page six, the location at which the original agreement may be examined. Prior to entering into the written assessment contract, the property owner shall obtain and furnish to the local government a written statement executed by each holder of a mortgage or deed of trust on the property securing indebtedness in their sole and absolute discretion that consents to the assessment and indicates that the assessment does not constitute an event of default under the mortgage or deed of trust. The combined amount of the assessment plus any outstanding mortgage obligations for the property shall not exceed 90% of the assessed value of the property. With respect to an agreement under this section, the assessments to be repaid under the agreement when calculated as they were the repayment of a loan shall not violate nine BSA sections 41 A, 43, 44, and 46 through 50. Those statutes in Title IX have to do with the laws that govern interest and the requirements that lenders have in relation to interest. And the maximum length of time for the owner to repay the assessment shall not exceed thirty years. Subsection H, for properties under subsection two of this chapter, which is the existing residential PACE statute, there shall be no penalty or premium for prepayment of the outstanding balance of an assessment under the subchapter if the balance is prepaid in full. And that is existing law under the existing program. You can finish paying back the loan early and there will be no penalty associated with that. However, that is not true for C PACE. Projects under this sub chapter three C PACE are not subject to these provisions, but shall be determined by the private agreement for financing improvements. So the third party lender is free to contract about whether or not there would be a penalty. On to page seven. Property may be eligible for financing if otherwise qualified improvements were completed and operational not more than thirty six months prior to the submission of the application to the program. Waivers to the thirty six month requirement may be granted in the sole discretion of the program administrator. And so section 3,277 is a statute that would designate a program administrator for this program. Senate Natural Resources is still working on this proposal. Some other states do have a program administrator. And I think under residential PACE, to some extent Efficiency Vermont did that work, but there isn't currently a statute addressing that. So this would create CPAES program administrator, The entity that administers the CPACE program under the subchapter shall be referred to as the program administrator. A municipality that has a CPACE ordinance may enter into a contract with the agency. So there hasn't been an agency designated in this draft yet. Enter into a contract with the agency for it to serve as the program administrator and to administer the functions of CPAs program for the municipality, or service the program administrator itself to administer the functions of a C PACE program, including entering into the C PACE agreements with commercial property owners and collecting assessments. So this would give the municipality the option of whether or not they wanted to administer the program within the town, or if they wanted to enter into a contract with an agency to do it for them. Model documents, educational materials. The agency shall develop and provide to municipalities model C PACE ordinances, model C PACE agreements, and other forms and documents and educational materials for use by municipalities, property owners, and capital providers in the implementation of C PACE programs. The agency may enter into a contract with the C PACE municipality where the agency shall serve as the program administrator in the municipality, collect fees necessary to administer the program, and subcontract with one or more third parties to perform all or part of the duties of a program administrator on behalf of the agency. Other than the fulfillment of its obligations specified in a C PACE agreement, neither the agency nor a municipality has any liability to a commercial property owner for, or related to energy savings or resilience improvements financed under a C PACE program. Those first sections are creating new statutes specific to what would be the commercial PACE program. The next few sections amend the existing residential PACE program to add reference to the CPAs. And so there will be some common language between residential and CPAs, but then the CPAs will have some specific language that is specific to it and different from how the residential PACE program was operating. So section two amends 24 VSA 3,263, cost of operation of a district, the owners of a real property who have entered into written agreements with the municipality under 3,262, which is residential PACE, or the new 3,276, which would be commercial PACE, shall be obligated to cover the costs of operating the district. A municipality may use other available funds to operate the district. Section three amends 24 BSA 3,264 rights of property owners. A property owner who has entered into a written agreement with the municipality under 3,262 Residential PACE or three thousand two and seventy six, the C PACE may enter into a private agreement for the installation construction of a project relating to renewable energy or energy efficiency. Section four, liability of municipality. A municipality that incurs indebtedness for or otherwise finances project under this subchapter shall not be liable for failure of performance of a project. A municipality that incurs indebtedness for bonding under the subchapter shall pledge the full faith and credit of the municipality. But the new language that's being added says a municipality that enters into a written agreement with a property owner under sub chapter three, the commercial PACE program shall not incur any indebtedness or otherwise finance projects under this chapter, nor shall be liable for the failure of the performance of a project nor pledge the full faith and credit of the municipality. So this is one of the significant distinctions between residential PACE and the proposal in this bill, and that is to municipalities will not be incurring indebtedness or otherwise financing projects under this. They will be mostly acting as the pass through and the way that the payments are collected, not themselves financing. The financing will happen through a third party. Section five twenty four BSA three thousand two and sixty eight release of lien. A municipality shall release a participating property owner of the lien on the property against which the assessment under this sub chapter residential PACE or sub chapter three, which is commercial PACE is made upon full payment of the value of the assessment. Notice of a release of a lien for an assessment under residential PACE or commercial PACE shall be filed with the clerk of the applicable municipality for recording in the land records in that municipality. Section six, collection of assessments, liens, Special assessments under this chapter shall constitute a lien on the property against which the assessment is made in the same manner and to the same extent as taxes assessed on the grand list of a municipality. And all procedures and remedies for the collection of taxes shall apply to special assessments. Notwithstanding that section, a lien for an assessment under subchapter two, the residential piece, shall be subordinate to all liens on the property in existence at the time the lien for the assessment is filed on the land records. Shall be subordinate to a first mortgage on the property recorded after such filing and shall be superior to any other lien on the property recorded after. In no way shall this subsection affect the status or priority of any municipal lien other than a lien for an assessment under residential PACE. So here's another distinction between residential PACE and commercial PACE. For residential PACE, in the lineup of loans on the property or liens on the property, residential PACE is subordinate of their loans that were, to all of their liens at the time the PACE agreement is entered into and subordinate to the first mortgage, but then is superior to all other liens after. But new language is added at the bottom of page 10, A lien for an assessment under sub chapter three, CPACE, shall be exempt from the provisions of this section. And upon receipt of consent from lenders pursuant to subsection E shall not be subordinate to all liens on the property in existence at time of the lien. The assessment is filed on the land records. I don't know a ton about how this will work. And so you may want to hear from the advocates on that bill, on this bill, how the subordination process will work for seniors.

[Sen. Ann Cummings (Chair)]: I think that Chris Delia coming in to I know subordination in Leeds is very touchy issue with mortgage lenders.

[Unidentified committee member]: Chris is supportive of that language.

[Sen. Ann Cummings (Chair)]: So we'll find out. Okay.

[Ellen Czajkowski (Office of Legislative Counsel)]: So then on page 11 into 12, this is the last section. So this is amending nine VSA section 46. So this again is in the chapter in title nine related to interest rates. And so section 43 of this title relating to deposit requirements and section 45 relating to prepayment penalties shall not apply and the parties may contract for a rate of interest in excess of the rate provided in 41A of this title in the case of. And so this statute lists currently types of lending that is exempt from the provisions in Title IX related to interest and deposit requirements. And so it's adding to this list on page 12, obligations incurred for commercial property assessed clean energy projects under 24 BSA chapter 87. So those projects will be exempt from these requirements, allowing the lenders to contract with the property owner themselves about what the rates and interest will be. And the effective date is 07/01/2026.

[Sen. Ann Cummings (Chair)]: I assume because I remembered nothing about the PACE program except I think I have a vague memory of it going through here and it was the subordination of loans and so the municipality declares an energy efficiency zone or whatever it's called, and then and I assume that could be the whole municipality. Right? Or be their growth area or whatever. But they declare this, I buy a building and I would like to put solar panels on my roof and power my my building with the solar panels. I have a mortgage with the bank for the building. I'm going to take out another loan to put the solar panels off. I pay for that improvement through my property taxes. That's the connection I'm missing. Is this a private loan? I mean normally I would get a loan from the bank and I would pay the bank. What's this program doing differently?

[Ellen Czajkowski (Office of Legislative Counsel)]: Yes, I will try to answer this question, but some of it is, I'm still not entirely clear on myself, but yes, what you described is true. And I think that specifically the loan they will be seeking is from a lender who is seeking to participate in PACE. And so there may be more favorable terms than just a regular third party loan. And then yes, the municipality is agreeing to collect the payments on those loans through the property tax mechanism and then they then remit them to the lender.

[Sen. Ann Cummings (Chair)]: Okay, so the lender is spared the costs aggravation of having to bill, to collect. It goes on as a special assessment to my building and it has alright, there's a thirty year, right, in there? Yeah. But whatever the term is, it is a special assessment added to my property taxes. But this would be on a project by project basis if my building next door does the same thing, but the cost is less because it's a smaller building. Or I need to rewire my entire building. It has knob and tube wiring. I'm assuming maybe new wiring would be more cost efficient, but I don't know. But whatever it is, they have a different loan perhaps from a different third party vendor. Their assessment would be different than mine. And the third guy in the block that does nothing, nothing happens to him. He doesn't share or cost. If I default, the burden is on the third party lender. Is that

[Ellen Czajkowski (Office of Legislative Counsel)]: Yes, so we haven't talked a lot about this in Senate Natural, I only know a little bit about it. There currently is a state reserve fund where there may be some funds available if the property owner goes fully bankrupt, is unable to pay entirely, but the municipality is not on the hook. The lien remains with the property and if the property is sold, the new owner would take that over.

[Sen. Ann Cummings (Chair)]: Okay, so if it's bankrupt, eventually it would be sold, I'm just not making the profit I thought I was, so I'm not making the payments on that lien. Normally the bank can foreclose if I've used the property as collateral. I'm not, I'm paying my mortgage, I'm paying my property taxes to the municipality. I'm just not generating the cash flow that I feel I can pay the loan. Is that the third party vendor that's on the hook for that?

[Ellen Czajkowski (Office of Legislative Counsel)]: I think so, and I think you should ask other witnesses about this, but this is related to the different language about the subordination of the loan to the other liens on the property.

[Sen. Ann Cummings (Chair)]: Okay, and Eric Frederick, all right.

[Sen. Thomas Chittenden (Vice Chair)]: Two things I think are sort of directed to you, Ellen, is my understanding to the Chair's point just now is at that time if this PACE loan is on the property and the property is sold or foreclosed, my understanding, tell me if this doesn't match you, and I can also direct you to a witness, is it would have to be paid off at the transfer of the property, but instead it could continue to be paid on its original lead plan time cycle. So that's one difference and that's in some ways the benefit of this is that if you have a short term interest in a property that you're gonna flip, you can invest in it and then sell it and you don't necessarily have to recoup that investment and instead it can be carried on with the property owner. I believe that's the intent of this. I don't know if wanna confirm that. And I have a second question on a different area.

[Ellen Czajkowski (Office of Legislative Counsel)]: Yes, I will agree. I think the small distinction I was trying to make is that if there was money owed and the property owner was bankrupt before the new owner took over, the new owner would take over only for the future payments. There may be money owed that may or may not be covered as part of the bankruptcy, depending on where they are in this subordination. And this is really not my area of expertise. So I agree with what you said, but there was a small distinction there also.

[Sen. Ann Cummings (Chair)]: Talk to bankers.

[Sen. Thomas Chittenden (Vice Chair)]: The second question? Yeah. So the second question I had for you, Ellen, and again, I'll direct it to the witnesses if need be, on page six, lines eight through 10, you have the combined amount of assessment plus any outstanding mortgage obligations for the property shall not exceed 90% of the assessed value of that property. Not a concern, but I'm curious, do you know where that 90% came from? Is that a benchmark from other states? Was that from testimony? Any history you have? Because I just I wonder if I'm a municipality and there's no mortgage on the property, I'm almost somewhat hesitant to have 90% of the overall value of the property tied up in a PACE loan. I'm wondering if that might create some unanticipated incentives, but maybe that's better directed to the witnesses. I'm just kind of curious if you know where that 90% came from.

[Ellen Czajkowski (Office of Legislative Counsel)]: I'm sorry, I don't remember. What I can tell you is that the initial, the first draft was based on the existing language for residential PACE and there are some qualifications in there. But then there were also language suggestions from people in the C PACE industry. And so I don't remember off the top of my head. I can go back and look, but you may hear from some of the witnesses today if they know.

[Sen. Thomas Chittenden (Vice Chair)]: Thank you.

[Sen. Ann Cummings (Chair)]: Okay. Committee, other questions from Ellen. Ellen, who would know how the residential PACE program has gone? I mean, like, are there a lot of uptake in that program?

[Unidentified speaker]: Chris Bealeontested, Nevada, Senate Natural.

[Sen. Ann Cummings (Chair)]: Okay, yeah there's almost no tape on provincial. Hadn't turned anything about it so I assumed that was the case.

[Sen. Thomas Chittenden (Vice Chair)]: When I was on the city council this came up and our city manager was very very hesitant and skeptical of presidential pace and I get that skepticism because residential owners you never know how they're going to treat property whether or not they're going to tend toward the investment. That's a huge risk and then the municipality only, you know, but commercial is a different animal that seems to have more uptake in other states from what

[Unidentified committee member]: I've heard. Yeah. I think residential, in other states actually homeowners were getting kind of, it's the right word, built maybe. There was some concerns about it not being well regulated.

[Ellen Czajkowski (Office of Legislative Counsel)]: Yeah.

[Sen. Ann Cummings (Chair)]: I remember the discussion having worked with bankrupt properties that were in foreclosure. Things of value tend to frequently get stripped out, like solar panels. I've seen well motors go away, any appliance. I've seen the thermostat got taken down. And so if you had gotten a PACE loan to put solar panels on, the next owner may be liable, but there's no solar panels. And I think this was going on during the last housing crash where there were there yeah. There were places where they were so underwater.

[Unidentified committee member]: Yeah. If I recall correctly, Chris tested by to that. C

[Unidentified speaker]: PACE uptake is very different than one page 17.

[Sen. Ann Cummings (Chair)]: And we will see if we can find out what the other states have done this, Alan.

[Ellen Czajkowski (Office of Legislative Counsel)]: I guess a number of other states have adopted C PACE in addition to residential PACE.

[Sen. Ann Cummings (Chair)]: So we'll see if we can get some statistics on that one too. Yeah, we heard from a lot of witnesses and natural resources, so

[Unidentified committee member]: you could look at the Yeah. List of witnesses that have some of the same ones in. Yeah.

[Sen. Ann Cummings (Chair)]: I mean, we aren't gonna do the death, but it's part of knowing, you know, if this was gonna get the uptake that the residential did, you have to do it and is it worth doing it. So but if other states have done it, then that's worth taking a look at. So we will see. Yeah. And I I guess the idea is that if I'm building a new building, I can get a mortgage on the building and then do a second mortgage like loan to put solar panels on the roof. The theory being that I might not do that if this wasn't available, but if I'm I'd I'd be interested to know what the value is if I'm building a new one. If I either put it on my original mortgage loan, construction loan. I guess the possible advantage is this third party may offer me a better deal on that addition. We'll check out we'll hear from Chrissy and Megan Sullivan is there. We have about a half an hour before our next set of witnesses, and given the rule of the live broadcast, I'm hesitant to move us along because Megan is sitting here, but I don't want there to be complaints that somebody tuned in and we weren't following the bridge. So, I think we have a half an hour.

[Unidentified committee member]: Yep.

[Sen. Ann Cummings (Chair)]: And we will