T&EITEM#1
March 18,2015
Worksession
MEMORANDUM
March 16, 2015
TO:
FROM:
SUBJECT:
Transportation, Infrastructure, Energy and Environment Committee
Amanda Mihill, Legislative AttomeycshWili
i.
1f
Worksession:
Bi116-15, Commercial Property Assessed Clean Energy Program­
Established
Bill 6-15, Commercial Property Assessed Clean Energy Program - Established, sponsored by the
Council President at the request of the County Executive, was introduced on February 3, 2015. A
public hearing was held on March 3 at which representatives from the County Executive and the
Apartment and Office Building Association (AOBA) supported the bill.
Bill 6-15 would:
• establish a Commercial Property Assessed Clean Energy Program to assist qualifying
commercial property owners to make energy improvements;
• allow private lenders that provide capital for a commercial loan provided under a local
clean energy loan program to have annual loan payments collected by the County as a
surcharge on a real property tax bill;
• establish that the surcharge on a real property tax bill is treated as all other taxes and
charges and that an unpaid surcharge shall be, until paid, a lien on the real property on
which it is imposed; and
• generally amend the environmental sustainability law.
Background
As Committee members may recall, in 2013 the Council enacted (and the Executive later signed)
Bill 11-13, which required the Executive to prepare a plan for implementing a Commercial
Property Assessed Clean Energy Program (PACE). The Executive delivered the Plan to the
Council on May 19,2014. Bill 6-15 would implement that Plan.
Issues for Committee Discussion
Lender consent.
The proposed PACE program would require the consent ofany mortgagee before
a property owner can participate in the program (©7, lines 148-149). In its hearing testimony,
AOBA noted its view that this provision is necessary because many loan documents prohibit a
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borrower from assuming additional loans without lender consent. However, AOBA also
questioned whether lenders are granting consent for building owners to apply for PACE loans
(©23). While Council staff believes this is an important provision to retain in the bill, Committee
members may wish to discuss this issue with Executive staff present at the worksession.
Owner's ability to repay.
Subtitle
11
of the Local Government Article of the Maryland Code
authorizes a county or municipality to establish a clean energy loan program. Section 1-1104 of
that law requires that one of the eligibility requirements for participation in this program be that
the county must "give due regard for the property owner's ability to repay a loan provided under
the program." This requirement is not in Bill
6-15
as introduced.
Council staff recommendation:
As the County Attorney memorandum on ©25 correctly states, Bill 6-15 should be amended to
include this requirement.
Council staff recommendation:
enact Bill
6-15
with the amendment described above.
This packet contains:
Bill 6-15
Legislative Request Report
Executive transmittal memorandum
Fiscal and Economic Impact statement
Public Hearing Testimony
County Executive
Apartment and Office Building Association
County Attorney Memorandum
Circle
#
1
11
13
14
20
21
25
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Bill No.
6-15
Conceming: Commercial
Property
Assessed Clean Energy Program ­
Established
Revised:
1/1412015
Draft No. 1
Introduced:
February 3,2015
Enacted:
August 3, 2016
Executive: _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ __
Sunset Date:
-2N~o~n~e
_ _ _ _ __
Ch. _ _, Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Council President at the Request ofthe County Executive
AN
ACT to:
(I) establish a Commercial Property Assessed Clean Energy Program to assist qualifying
commercial property owners to make energy improvements;
(2) allow private lenders that provide capital for a commercial loan provided under a local
clean energy loan program to have annual loan payments collected by the County as a
surcharge on a real property tax bill;
(3) establish that the surcharge on a real property tax bill is treated as all other taxes and
charges and that an unpaid surcharge shall be, until paid, a lien on the real property on
which it is imposed; and
(4) generally amend the environmental sustainability law.
By amending
Montgomery County Code
Chapter lSA, Environmental Sustainability
Article 5
Sections lSA-33,lSA-34, ISA-35, lSA-36, and lSA-37
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom existing law or the
bill by
amendment.
Existing law unaffected by bill
The County Council for Montgomery County, Maryland approves the following Act:
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BILL
No. 6-15
1
2
Sec.
1.
Sections 18A-33, 18A-34, 18A-35, 18A-36, and 18A-37 are amended
as follows:
Article 5. Commercial Property Assessed Clean Energy Program
18A-33. [Commercial Property Assessed Clean Energy Program] Definitions.
(a)
Definition§..
In
this Section, the following words have the meanings
indicated:
Commercial property
means any real property located in the County that
is either not designed for or intended for human habitation, or that is used
for human habitation as
~
multi-family dwelling of.4 or more rental units.
Commercial Property Assessed Clean Energy Program
or
Program
means
~
3
4
5
6
7
8
9
10
11
program that facilitates energy improvements and requires
12
repayment through
~
surcharge on the owner's property tax bill.
County designated lender
means
~
13
person who may be selected by the
14
15
County through
~
competitive process to offer financing, and if offered
and accepted by the County, related funding for administrative services
for the Program.
County designated program manager
means
selected by the County through
~
~
16
17
person who may be
18
19
competitive process to provide
administrative and management services for the Program.
Department
means the Department of Finance.
Director
means the Director of the Department or the Director's
designee.
Energy efficiency and/or renewable energy improvement
or
improvement
means any equipment, device, or material that is intended to decrease
energy consumption or expand use of renewable energy sources,
including:
20
21
22
23
24
25
26
27
ill
insulation in any wall, roof, floor, foundation, or heating and
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BILL
No. 6-15
28
cooling distribution system;
29
30
31
32
ill
~
storm window or door, multi-glazed window or door, heat­
absorbing or heat-reflective glazed and coated window and door
system, or additional glazing, reduction in glass area, and other
window and door system modification that reduces energy
consumption;
33
34
35
36
ill
ill
an automated energy control system;
~
heating, ventilating, or air-conditioning and distribution system
modification or replacement;
37
38
39
40
41
ill
®
caulking, weather-stripping, and air sealing;
replacement or modification of
~
lighting fixture to reduce the
energy use ofthe lighting system;
ill
tID
{2}
an energy recovery system;
~
day lighting system;
that is fully or partially powered
l2Y
electricity;
42
the installation or upgrade of electrical wiring or outlets to charge
~
motor vehicle
43
44
ilQ)
£!
measure that reduces the usage of water or increases the
efficiency of water usage;
Ql)
45
46
any other installation or modification of equipment, device, or
other material intended to decrease energy consumption or expand
the use of
~
renewable energy source;
47
48
49
50
51
~
any measure or system that makes use of or expands
~
renewable
source of energy, including solar water heater, solar thermal
electric, photovoltaic' s, wind, biomass, hydroelectric, geothermal
electric, geothermal heat pumps, anaerobic digestion, tidal energy,
wave energy, ocean thermal, fuel cells using renewable fuels, and
geothermal direct-use; or
52
53
54
CJ)
MW\BILLS\1506 Conunercial
Property
Assessed Clean Energy\BiII1.00cx
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BILL
No.
6-15
55
56
57
58
Ql)
any renewable energy system that is
f!
fixture, product, device, or
interacting group of fixtures, products, or devices on the
customer's side of the electricity meter that uses at least one
renewable energy source to generate electricity. A renewable
energy system includes
f!
biomass system, but does not include an
incinerator or digester.
Private lender
means !! lender selected
Qy
the property owner to provide
loan funds to the property owner for an improvement.
Property owner
means !! person who owns qualified property or has
f!
ground lease or!! long-term lease of.§. or more years on qualified property.
Qualified property
means any commercial real property that meets the
eligibility criteria for the Program.
Renewable energy source
means
f!
source of energy that naturally
replenishes over
f!
human, not !! geological, time frame and that is
ultimately derived from solar power, water power, or wind power.
Renewable energy source
does not include petroleum, nuclear, natural
gas, or coal. A
renewable energy source
comes from the sun or from
thermal inertia ofthe earth and minimizes the output oftoxic material in
the conversion ofthe energy and includes:
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
ill
ill
ill
(1)
ill
non-hazardous, organic biomass material;
solar electric and solar thermal energy;
wind energy;
geothermal energy; and
methane gas captured from!! landfill.
Surcharge
means the annual repayment of!! loan, including principal,
interest, and related charges, that funds an improvement and is collected
through the real property
tax
billing process.
FW
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BILL
No.
6-15
82
[(b)
The Executive must, by May 19,2014, prepare a plan for implementing
a Commercial Property Assessed Clean Energy Program that analyzes
and provides recommendations on the following elements:
(1 )
(2)
(3)
standards for eligible energy and environmental improvements;
energy audit or project design review requirements;
procedures for monitoring project progress and post-installation
inspections;
(4)
(5)
(6)
(7)
83
84
85
86
87
88
89
program funding sources;
lending standards and priorities;
minimum and maximum loan amounts;
interest rates, terms, and conditions;
application
procedures,
including
necessary
supporting
90
91
92
93
94
(8)
documentation;
(9)
criteria for adequate security;
95
96
97
98
99
(10) procedures to refer applicants to other public and private sources
of funds and incentives;
(11) procedures related to decisions on loan acceptance and denial, or
loan terms and conditions;
(12) procedures for nonpayment or default;
(13)
disclosure requirements for real estate transactions;
100
101
102
(14) criteria for loan disbursement; and
(15) any additional requirements necessary for program operation or
security ofloan funds identified by the Executive.]
[[18A-34
=
18A-37. Reserved.]]
18A-34. Commercial Property Assessed Clean Energy Program established.
103
104
105
106
107
ill
Established.
The Director must create and administer
~
Commercial
108
Property Assessed Clean Energy Program.
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Assessed
Clean Energy\BiIll.Docx
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BILL
No.
6-15
109
110
(Q)
Third-party lender.
The Director may enter into an agreement with
third-party lender that is either
f!
County designated lender or
~
~
private
111
112
113
114
lender that funds
~
loan for an improvement. The agreement must provide
for the repayment of the loan for the improvement and any cost of
administering the Program through
f!
surcharge on the qualified property.
The loan may include the cost of materials and labor necessary for
installation, any permit fee, any inspection fee, any application or
administrative fee, any bank or lender fee, and any other fee that the
property owner may incur for the installation of the improvement. The
third-party lender must submit
~
request for collection of each surcharge
amount to the County designated program manager
.Q£,.
115
116
117
118
119
120
121
122
123
124
if there is no
County designated program manager, to the Department no later than
April
1
of each year.
{£}
County designated program manager.
The Director may enter into an
agreement with
~
County designated program manager. The County
designated program manager must notify the Department of the amount
of the surcharge for each account to be collected on the real property tax
bill for that year's
1m
no later than May
1
of each year, and in
f!
format
approved
by
the Department. The County designated program manager
will receive the collections from the County, reconcile the collected and
billed surcharge for each account, and remit the surcharge amount to the
County designated lender or private lender. The County designated
program manager must report annually to the County on the participants
in the Program
Qy
name, property address, property tax account number,
amount ofeach surcharge billed, collected
Qy
the County, and remitted to
the lender, description of project, any administrative fees, the amount of
each loan, the amount of each loan balance, and the term of each loan.
~
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Property
Assessed
Clean Energy\BiIII.Oocx
125
126
127
128
129
130
131
132
133
134
135
t6l
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BILL
No. 6-15
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
This report must be submitted to the Department no later than February:
12.
of each year pertaining to activity in the prior calendar year.
@
The Director may enter into an agreement with one person who provides
both County designated lender and County designated program manager
servIces.
18A-35. Eligibility.
In
order to be eligible for this Program, the following criteria must be met:
(ill
Eligibility.
ill
ill
The property must be
~
qualified property.
The property owner must submit the following to the private lender
or the County designated lender at the time of application for
filnding:
CA)
express written consent of any holder of an existing
mortgage or deed oftrust on
~
qualified property; and
ill)
verification that there are no delinquent fees, taxes, water or
sewer charges or other special assessments on the qualified
property.
ill
The loan amount under this Program must:
(A)
be at least $5,000 and no more than 20% of the full cash
value of the qualified property. The full cash value is
determined
Qy
the Maryland State Department of
Assessments and Taxation; and
155
156
157
158
159
160
161
162
ill)
together with the outstanding balance of the mortgage or
deed oftrust, be no more than 90% of the full cash value of
the qualified property.
®
Property Assessed Clean Energy Surcharge.
ill
The property owner of qualified property must
~
to repay the
FW
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Conunercial
Property
Assessed Clean
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BILL
No. 6-15
163
164
165
166
167
168
169
170
171
172
173
174
175
176
177
178
179
180
181
amount fmanced through
~
surcharge levied on the County's real
property
tax
bill for the qualified property.
ill
ill
A surcharge may be imposed under
~
written agreement between
the County designated lender or private lender and the County.
As
~
condition for entering into an agreement under the Program,
the County designated lender or private lender must provide the
County designated program
man~er
and the Department
~
£QPY
of the loan documents and documents that verify:
(A)
there are no delinquent taxes, special assessments, or water
or sewer charges on the qualified property;
ill)
there are no delinquent assessments on the qualified
property under the Program;
{Q}
(ill
the property owner has obtained all necessary permits;
the improvement is pennanently affixed to the qualified
property and complies with all applicable State and federal
statutes and regulations, as determined
Qy
the appropriate
regulatory authority;
ffi)
existing mortgage or deed oftrust lender consent;
loan to value documentation; and
any other financial or program document that the Director
deems necessary.
®
(ill
182
183
184
185
186
187
188
189
(4)
In addition to the administrative fees in Section l8A-34(c), the
County may collect an administrative fee through the surcharge to
cover charges relating to lending, program management, billing, or
collection.
18A-36. Payment of surcharge; lien.
W
The County must collect the amount fmanced through
~
surcharge on the
F~
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Property Assessed
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BILL
No.
6-15
190
191
192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
211
212
213
214
215
216
property owner's real property tax bill and forward payments received
by
the County to the County designated program manager
Qr,.
if there is no
County designated program manager, to the lender no later than 30 days
after the payment due dates for real property taxes. Payment due dates for
semi-annual real property taxes are September 30 for the fIrst installment
and December 31 for the second installment, and for annual real property
taxes the payment due date is September 30.
(hl
Ifthe property owner sells the qualified property, the buyer must continue
to
!mY
the surcharge levied on the annual property tax bill.
W
The surcharge and any accrued interest or penalty constitutes
~
first lien
on the real property to which the surcharge applies until paid. An unpaid
surcharge will be, until
~ ~
lien on the qualified property on which
it
is imposed from the date
i!
becomes payable. The surcharge will accrue
interest and penalty and will be treated and collected like all other County
property taxes. Any delinquency will be collected through the County
Tax Sale process. The provisions of Title 14, Subtitle
Property Article of the Maryland Code that
mmlY
to
~
~
of the Tax
=
tax lien will also
mmlY
to the lien created under this law. Any delinquent surcharge
collected through the County
Tax
Sale process must be forwarded to the
County designated program manager
Qr,.
ifthere is no County designated
program manager, to the lender no later than 30 days after the payment
was received.
18A-37. Regulations; annual report.
fu)
The Executive may adopt regulations under Method
ill
to administer the
Program.
(hl
The Executive must submit an annual report to the County Council
Qy
March
li
of each year describing program participation, number and
C9J
.
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BILL No. 6-15
217
218
219
Approved:
dollar value of surcharge billed and collected, and other relevant
infonnation pertaining to the prior calendar year.
220
George Leventhal, President, County Council
221
Approved:
Date
222
Isiah Leggett, County Executive
223
This is a correct copy ofCouncil action.
Date
224
Linda M. Lauer, Clerk ofthe Council
Date
225
flOl
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LEGISLATIVE REQUEST REPORT
Bill 6-15
Commercial Property Assessed Clean Energy Program
-
Established
DESCRIPTION:
The requested legislation amends Article 5, Sections 33-37 of Chapter
18A of the Montgomery County Code. The amended sections establish a
Commercial Property Assessed Clean Energy (PACE) Program to assist
qualifying commercial property owners to make energy improvements;
allow private lenders that provide capital for a commercial loan provided
under a local clean energy loan program to have annual loan payments
collected by the County as a surcharge on a property tax bill; establish that
the surcharge on a property tax bill is treated as all other taxes and charges
and that an unpaid surcharge shall be, until paid, a lien on the real property
on which it is imposed; and generally amend the environmental
sustainability law. Current law, as adopted through Bill 11-13, requires
that the County Executive submit a Commercial PACE Program
Implementation Plan to the County Council on May 19, 2014. The
County Executive submitted an Implementation Plan and is subsequently
submitting legislation to establish the PACE program.
Energy efficiency and renewable energy improvements, for example
high-efficiency heating and air-conditioning systems, may be
prohibitively costly to the property owner. PACE is designed to assist
qualifying commercial properties with financing energy improvements.
The PACE loan from a private lender is paid back through annual
surcharges on the property tax bill. This loan stays with the property and
a subsequent owner continues to pay the surcharge until the loan is fully
paid. Moreover, having the PACE surcharge included on the tax bill
provides greater security for the lender in the loan repayment as it allows
the charge to be part ofthe tax bill and therefore part ofthe
tax
lien process
ifthe PACE surcharge goes unpaid. PACE also addresses the problem of
"split incentive" where an owner-financed improvement benefits the
tenant through energy savings. Using the PACE repayment process, such
improvement repayments are levied through the property
tax
bill that in
many cases are paid by the tenant.
PROBLEM:
GOALS AND
OBJECTIVES:
To implement a Commercial PACE program that makes energy efficiency
and renewable energy improvements more affordable and provides
greater security to lenders in terms of collection of loan payments. Such
energy improvements provide an environmental benefit to the borrower
and the County.
Department of Finance
COORDINATION:
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FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
Office of Management and Budget
Department of Finance
nla
PACE programs have been introduced in various jurisdictions, including
Washington DC, San Francisco, Connecticut and Florida. In some cases,
the jurisdiction provides funding, such as in Washington DC, while in
others, for example San Francisco CA, the program relies on private
capital or owner-arranged financing.
SOURCE OF
INFORMATION:
Robert Hagedoom, Department of Finance (7-8887)
APPLICATION
WITHIN
MUNICIPALITIES:
nla
PENALTIES:
nla
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OFFICE OF TIlE COUNTY EXECUTIVE
ROCKVILLE. MARYLAND 20850
lsiah Leggett
County Executive
MEMORANDUM
January 14,2015
TO:
FROM:
George Leventhal, President
Montgomery County Council
Isiah Leggett, County Executive ---­
SUBJECT: Expedited Legislation - Commercial Property Assessed Clean Energy
Program
I am hereby submitting expedited legislation for your consideration and
County Council action.
The
legislation amends the County Code to establish a
Commercial Property Assessed Clean Energy (PACE) Program.
The PACE Program. assists
qualifying
commercial property owners with
making energy improvements; allows private lenders that provide capital for a
commercial loan provided under a local clean energy loan program
to
have
annual
loan
payments collected by the County as a surcharge on a property
tax
bill; and generally
amends the environmental sustainability law.
Pursuant to current law, I submitted a Commercial PACE Program
Implementation Plan
to
the County Council by May 19,2014, and am subsequently
submitting legislation to establish the PACE program. I look forward to working with
the Council to implement
this
important environmental initiative.
cc:
Timothy Firestine, Chief Administrative Officer
Marc Hansen, County Attorney
Joseph Beach, Director ofFinance
Jennifer Hughes, Director, Office of Management and Budget
Bonnie Kirkland, Assistant
Chief
Administrative Officer
Attachments: Expedited Legislation; Legislative Request Report; Fiscal Impact
Statement; Economic Impact Statement
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montgomerycountymd.gov/311
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240-773-3556 TTY
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ROCKVILLE, MARYIAND
MEMORANDUM
November 21, 2014
TO:
FROM:
SUBJECT:
stine,
Timothy L:JFi Chief Administrative Officer
Jennifer
A.
Joseph F.
es, Director, Office ofManagement and Budget
h,
Director, Department ofFinance
FEIS for Bill XX-14, Commercial Property Assessed Clean Energy Program­
Established
Please find attached the fiscal impact statement for the above-referenced bill.
JAH:fz
cc: Bonnie Kirkland, Assistant Chief Administrative Officer
Lisa Austin, Offices of1he County Executive
Joy Nurmi, Special Assistant to the County Executive
Patrick Lacefield, Director, Public Information Office
Joseph Beach, Director, Department ofFinance
Elyse Greenwald, Office ofManagement and Budget
Alex Espinosa, Office ofManagement and Budget
Naeem Mia, Office
ofManagem~t
and Budget
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.1
Fiscal Impact Statement
BUl XX-14, Commercial Property Assessed
Clean Energy Program - Established
1. Legislative Summary.
The proposed bill establishes a Commercial Property Assessed Clean Energy (PACE)
program within the Department of Finance to assist qualified commercial property owners
make energy improvements. The proposed legislation allows the County
to
enter into an
agreement with a third party lender
and
collect loan repayments through the property tax bill.
2.
An
estimate of changes
in
County revenues and expenditures regardless of whether the
revenues or expenditures are assumed
in
the recommended or approved budget.
Includes source of information, assumptions, and methodologies used.
The legislation will not result in a net chailge in revenues or expenditures to the County. The
County intends to pass through all programmatic costs to program participants through fees
charged with the loans made by private underwriters under contract with the County.
PACE programs in other jurisdictions have both initial startup costs and ongoing program
operating costs. These costs are often funded by a surcharge on each loan. However, it will
be necessary to carefully monitor these costs to ensure
that
the lending rates are competitive
and support broad participation in the program from commercial property owners.
Montgomery County
has
already incurred an estimated $100,000 in existing staff and
consultant costs for the start up ofthis program including preparing the Program Guidelines
and related legislation.
In
addition to PACE program implementation costs, the Department of Environmental.
Protection (DEP) estimates a public outreach and media campaign for the PACE program
would need to occur to both inform the public ofthe program and encourage participation.
DEP estimates the initial public outreach budget related to PACE at $25,000.
3. Revenue and expenditure estimates covering at least the next 6 fiscal years.
Please see nmnber 2.
4. An actuarial analysis through the entire amortization period for each bill that would
affect retiree pension or group insurance costs.
Not Applicable.
5. Later actions that may affect future revenue and expenditures
if
the bill authorizes
future spending.
As
stated in #2 above, the County intends to pass through the program administration costs
to
program participants. However,
it
will be necessary to monitor and carefully manage these
costs to ensure that the lending rates, are competitive and support broad participation in the
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program from commercial property owners. Depending on .the success of
the
PACE
program, there may be a need for more outreach, support, and program resources.
6.
An
estimate of the
staff
time needed to implement the bill.
Assuming the County
is
successful in outsourcing both the lending and program
administration function to a third-party, the Department of Finance will absorb the new
Commercial PACE related responsibilities with existing staff.
7.
An
explanation of how the addition of new staff responsibilities would affect other
duties.
There
will
be
no significant impact to existing
staff
in the Department of Finance or the
Department Environmental Protection
by
adding this responsibility to existing portfolios.
8.
An
~stimate
of costs when an additional appropriation
is
needed.
See number 2 and 6 above.
9. A
description of any
varia~le
that could affect revenue and cost estimates.
See number 2 and 6 above.
10.
Ranges of revenue or expenditures that are uncertain or difficult to project.
See number 2 above. While some
data
are available on commercial PACE programs,
sufficient long-term trend data are currently unavailable to accurately estimate revenues and
expenditures of a fully functioning commercial PACE program. Program implementation
expenditures should be re-examined regularly to ensure the program is fiscally
and
economically viable.
11. H
a bill
is
likely to have no
fiseal
impact, why that is the case.
Not Applicable.
12. Other fiscal impacts or comments.
Not Applicable.
13. The fonowing contributed to and concurred with.this anaJysis:
Stan Edwards, Department of Environmental Protection
Michelle Vigen, Department of Environmental Protection
Robert Hagedoom, Department of Finance
Eric Coffinan, Department of General Services
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Alex Espinosa, Office of Management and Budget
Elyse Greenwald, Office ofManagement and Budget
Matt Schaeffer. Office of Management and Budget
'.:­
@
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·1
.'
Economjc Impact Statement
Bill
:u~14,
Commercial Property Assessed Clean Energy Program - Established
Background:
. This legislation would establish a Commercial Property Assessed Clean Energy Program
(program) to assist qualifying commercial property owners
to
make energy
improvements; allow private lenders that provide capital for a commercial loan provided
under a local clean energy loan program
to
have annual loan payments colleCted by the
County as a surcharge on a property
tax.
bill; establish that the surcharge on a property
tax.
bill is treated as
all
other taxes and charges and that an unpaid surcharge shall
be,
until
paid, a lien on the real property on which it is
imposed;
and generally amend the
environmental sustainability law.
1. The sources of information, assumptions, and methodologies used.
According
to
the Department ofEnvironmental Protection, the level ofdata on the
types ofprojects and commercial property owners eligible for this Program, the cost
ofthe project,
and
the reduction in energy costs achieved by the owners are very
limited and project/site specific. While
there
are over 4,200 commercial buildings
that encompass over 150 million square feet in the County, it is
difficult
without
available data on the demand for eligible projects and the amount of lending
to
determine with any certainty the economic impact ofBill xx-14.
2. A description of any variable that could affect the economic impact estimates.
,
!
.
To estimate the economic impact with any degree of certainty, the analysis requires
the number ofpotential projects that will
be
constrained by the level oflending.
At
a
minimum, a project that has been approved should achieve an economic benefit such
that the cost savings from a reduction in energy consumption will exceed the cost of
the project However without specificity on the
type
ofproject and the cost savings,
it is premature to detennine the economic benefits of that project Second, the total
economic benefit to the County is also dependent on the amount of available
financing by lenders.
3. The Bill's positive or negative effect,
if
any on employment, spending, saving,
investment, incomes, and property values in the County.
It
is
expected that a fully functioning Commercial PACE program will incentivize
increased construction activity and improve property values and may have additional
positive economic impacts on income, employment, and investment in the County.
However, as stated in item #2, the total economic effect will depend on the amount
offinancing available, the number of commercial owners and projects that are
eligible for the Program. the costs of renovating and retrofitting a property, the costs
ofinvesting in an energy efficiency or renewable energy system and the operating
costs of such a system over the life of the system, the reduction of energy
!.
I
Page 1 of2
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Economic Impact Statement
Bill xx-14, CODlDlercial Property Assessed Clean Energy Program - Established
consumption and savings from that reduction, and the additional business
opportunities and increase in employment by companies
that
supply equipment and
.material and companies that install such equipment and material The level of
detail
necessary to ascertain the positive economic effect is limited, and as such, the total
economic effect cannot be detennined
with
any degree ofcertainty.
4.
If
a Bill
is
likely to have no economic impact, why is that the ease?
Please see item #3
5. The following contributed to and concurred with this analysis:
David Platt and
Rob Hagedoom, Finance;
lQ5t:j>h F/Beach,
DIrector
DetS'artment
of
Finance
Date
Page 2 of2
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TESTIMONY ON BEHALF OF COUNTY EXECUTIVE ISIAH LEGGETT
BILL 6-15 - COMMERCIAL PACE
March 3, 2015
My name is Robert Hagedoom, Chief Division of Fiscal Management, Department of
Finance, and I am here to testify on behalf of County Executive Isiah Leggett in support
of Bill 6-15.
This legislation amends the County Code to establish a Commercial Property Assessed
Clean Energy (PACE) program in Montgomery County. This program assists qualifying
commercial property owners with making energy improvements; allows private lenders
that provide capital for a commercial loan provided under a local clean energy loan
program to have annual loan payments collected by the County as a surcharge on a
property tax bill; and establishes that the surcharge is treated as all other taxes and
charges and that unpaid surcharge will be a lien on the real property.
PACE programs have been introduced in various jurisdictions in the country, including
Washington DC, San Francisco, Los Angeles, Connecticut and Florida. Collectively,
these jurisdictions have used PACE to unlock millions of dollars in energy efficiency and
renewable energy investments. Montgomery County would, upon program launch, be
part of this national initiative that makes energy efficiency and renewable energy
improvements more affordable and provides greater security to lenders
in
terms of
collection of loan payments. Such energy improvements provide environmental and
economic benefits to the borrower and the County.
Pursuant to current law, the County Executive submitted a Commercial PACE Program
Implementation Plan to the County Council on May 19,2014. The Department of
Finance worked closely with the Department of Environmental Protection, Department of
General Services, County Attorney, and Public Financial Management (PFM), the
County's consultant, to develop this Plan. This Plan conforms to Senate Bill 186, Clean
Energy Loan Programs, adopted by the Maryland General Assembly during the 2014
legislative session. SB 186 enables counties to pass a local law to authorize Commercial
P ACE for private lenders; collect a surcharge on the property tax bill; and allow certain
administrative fees to be charged to borrowers. Mortgage lender consent is required for
all Commercial PACE loans.
Bill 6-15 reflects that Implementation Plan and we look forward to implementing this
important environmental initiative. Thank you for the opportunity to testify.
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TESTIMONY ON
BILL 6-15, THE "COMMERCIAL
PROPERTY ASSESSED CLEAN ENERGY
PROGRAM"
Nicola Y. Whiteman, Esq.
Senior Vice President of Government Affairs
Apartment and Office Building Association of
Metropolitan Washington
March 3, 2015
1050 17th Street, NW Suite
~OO
Washington, DC 20036
p: 202.296.3390
f:
202.296.3399
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Good afternoon Councilmembers and staff.
I am Nicola Whiteman, Senior Vice
President of Government Affairs for the Apartment and Office Building Association of
Metropolitan Washington (AOBA). AOBA is a non-profit trade association representing owners
and managers of more
than
57,000 apartment units and over 24 million square feet of office
space in Montgomery County. I am pleased to testify today on Bill 6-15, the "Commercial
Property Assessed Clean Energy Program."
I.
BILL 6-15 PROPOSES AN INNOVATIVE SOLUTION FOR ACIllEVING
ENERGY SAVlNGS IN BUILDINGS.
The possibility of a new financing mechanism represents an exciting opportunity to
significantly impact energy use in commercial buildings.
1
While building owners can (and many
already have) implement low-cost measures to reduce their energy costs, many energy-efficiency
projects require a significant financial investment. One must also consider that desirable energy-
efficiency upgrades for older multifamily buildings can require cost-prohibitive solutions.
2
The
financing model proposed by the legislation could allow building owners to move forward with
"shovel ready" high impact energy efficiency projects. Notably, the legislation is drafted to
finance a wide array of energy efficiency projects in commercial properties. The County's
diverse building stock have varying project needs given factors such as differences in age,
energy systems, and operating pattems.
3
As drafted, any energy efficiency and/or energy
IThe definition of"commercial property" in 18A-33{a) includes both commercial office buildings and multifamily properties of a
certain size. Section 18A-33{aX"commercial property" means any real property located in the Couoty that is either not designated
for or intended for human habitation. or that is intended for hUOlan habitation as a multi-family building of 4 or more rental
uoits.")
See Green Building Facts,
U.S. Green Buildings Couocil, Feb. 23, 2015, http://www.usgbc.orgfarticleslgreen-building­
facts, copy of which is attached
to
AOBA's statement ("According to the U.S. Green Buildings
Couoci~
buildings accouot for
73% of electricity consumption and 38% of all C02 emissions in the United States.")
2See
Montgomery Couoty, Maryland Commercial Building Energy Efficiency Policy Study, March 2013, (2013 Energy Report),
page 9 (" ... multifamily buildings hold
greater
technical potential than commercial buildings. both in total energy percent savings
terms. They tend to be older, are more subject to market barriers, and are harder
to
finance for energy retrofits. It is apparent that
to
achieve the Couoty's 25% goal, even on a technical basis, multifamily buildings would have to be a key part of any Couoty
policy and program suite.")
?,.,......,
3
See also
2013 Energy Report, page 7 acknowledging differences between and among commercial and residential buildings.
f')')
)
{"Commercial and multifamily market segments present different challenges. The Couotywill need
to
carefully consider
~
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improvement "that is intended to decrease energy consumption or expand use of renewable
energy sources" could potentially qualify for funding under the proposed PACE program. The
broad language will permit funding of programs that meet the energy improvement needs of the
County's complex mix of commercial properties.
II.
LENDER SUPPORT IS CRITICAL TO SECURING BUILDING OWNER
PARTICIPATION AND THE SUCCESSFUL IMPLEMENTATION OF A PACE
PROGRAM.
Section 18A-36(c) proposes to make the surcharge senior to a mortgage and all other
liens on a property.
4
Most mortgages prohibit the borrower from doing any act which would
impair the security of the lender. Placing a surcharge on a property, which is senior to the
mortgage, constitutes such an act and may place.a property owner in default. To remedy this
problem, the bill includes language similar to provisions applicable to District of Columbia and
Virginia PACE programs, requiring the applicant to secure the mortgagee's prior consent.
5
See
Bill 6-15
§
l8-35(a)(2)("The property owner must submit the following to the private lender or
the County designated lender at the time of application for funding ... (A) express written consent
of any holder of an existing mortgage or deed of trust on a qualified property." This consent
targeting its policies and programs to gain the greatest energy savings, while also addressing the barriers and needs unique to
each market segment The Study found that both commercial and multifamily markets exhibit
100"10
characteristics that must be
accounted for in policy and program design
if
they are to be successful. ... Commercial buildings such as offices, retail, and
healthcare differ greatly from each other in
terms
of energy systems,. operating patterns, ownership patterns., and financing
structures.")
4B6-15, Section 18A-36{c)("The surcharge and any accrued interest or penalty constitutes a
first
lien on the real property to
which the surcharge applies until paid.
An
unpaid surcharge will be, until paid, a lien on the qualified property on which it
is
imposed from the date it becomes payable.")
sSee
DC Official Code 8-1778.42(a)("To qualify for a loan from the National Capital Energy Fund, the property owner shall file
with
the administrator a loan application including the following:
(7)
Property owner certification that the Special Assessment
will not violate any agreements with any other lender or provision of applicable lender consents..."); Va.Ann. Code
§
15.2­
958.3. Financing clean energy programs. E. ("A voluntary special assessment lien on real property other than a residential
dwelling with fewer
than
five dwelling units or a condominium project as defined
in
§
55-792:
1.
Shall have the same priority
status
as a property tax lien against
real
property, except that such voluntary special assessment lien shall have priority over any
previously recorded mortgage or deed of trust lien only
if
0)
a written subordination agreement.
in
a form and substance
acceptable
to
each prior lienholder
in
its sole and exclusive discretion, is executed
by
the holder of each mortgage or deed
o~~
trust
lien on the property and recorded with the special assessment lien
in
the land records where the property is located...
'J
@I
2
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provision is necessary as many loan documents prohibit ilie borrower from assuming additional
loans wiiliout ilie lender's consent.
While this consent provision will allow commercial property owners to avoid any
potential default issues,
it
is unclear wheilier lenders are in fact granting ilieir consent to building
owners applying for PACE loans. AOBA encourages ilie Council and County Executive to
solicit feedback from oilier jurisdictions wiili existing PACE programs to determine wheilier
lenders are granting mortgagors' requests that iliey consent to ilie PACE assessment.
In
order to
achieve meaningful participation by building owners, it is necessary that ilie County obtain
lender support wiili specifications regarding what lenders will require of property owners if a
lender is
to
approve modification of ilie loan document so iliat ilie property owner can proceed
wiili ilie loan under ilie PACE program. Such specifications should iliereafter be included in ilie
legislation and any implementing regulations.
In
ilie District of Columbia, which adopted legislation approving ilie development of a
PACE program in 2010, AOBA members are continuing to meet wiili representatives ofilie DC
PACE program administrator.
Our mutually desired goal is to allay any property owner
concerns about barriers which continue to discourage ilieir participation in ilie PACE program.
Here,
in
the County, we are working collaboratively wiili ilie County Executive
to
ensure ilie
successful adoption and implementation of a program which allows for significant building
owner participation and reduction of energy consumption and demand.
In
boili jurisdictions,
lender participation and consent is ilie focus of ilie stakeholder discussions.
ill.
CONCLUSION
AOBA welcomes ilie opportunity to continue working wiili ilie County on this endeavor
and we will be happy to answer any questions at this time.
3
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OFFICE
OFtHECOUNTY.ATIbRN'E'Y
I~iah L~ggett
CmmJ)l ExecutiVe
Mare
pdiansen
C
oU17tyAtllirlley
MEMORANDUM
TO:
VIA:
FROM:
Joseph
Beach, Directpr
Department of Finance
Marc
P.
Hansen
1J1a,
e
County Attorney
.Scott
R.
Foncannon'
As~jate
COl)nty
Attorney
. February
i
3,2015
DATE:
Sill 6-15, Comm.erc.ial Property
Assessed Clean
Energy
J>rognun"Establi~hed
l.have had an.Qpportunityto
review
Wn6-15,Cbnunerciai
Property Assessed
Clean
Energy
Program -
EStablished.
This
bill
eStablishes
a~ogram
that
facilities
e~rgy
improvements fOtCQtnmercial
properties within
the
County and
requ.ires
repayment
6flhe'lmm
ilifough~
surcharge on the pwner's property tax bill. The surcharge.will
be.
treated
as a
lien
on
the property and collected like all other
County
taxes.. The
County
may se1ecte.Cqunty
designated. leruler or
priv~te
lenders may be utilized fotthe loans anticipated
under
this
program.
The loansmusl be used for
energy
efficiency
or
renewable
energy
improvemen:ts!as
defined
in
the hill
and there areccrtain
specified
parameters
within
the
biB for.eHgihility as welll$the
pennittedamountofthe lo.llil·
Establishment of
the
Commercial Property Assessed Clean
Energy
Loan
Program is
,tiutlIDrlzed
by Subtitle
11
of
the
Local
dovemment
Article,
Annotated Code
of Maryland.
Section
1~1104.
ofthc Local
Goveroment.;\rtle~erequires
that an
ordinance
enacted
under
this
law must.
provide
that
eligibility
requirements
include a requiremeIlt that the .County give due
regard to the
property oymers
ability to
repay a
loan
provided
un~t
theprogrrun
and in arnanner
substantially
similar
to that
required for a mortgage loan under Sections 12-127. 12;.311,12­
409.1. 12-925. and 12.. 129 of the Comme.rcial Law Article.
Thisrequi~l1tshould
be included
within
the bill by
amendment or
Within.
the regQlationstpat
are
adopted to administer the
program.
101 MOnroe
Street,
Rockville,
Maryland 20850·2580
(240) 711.679S'TfO(240)
711~lS45
• FAX (240)
777-:67(}S
01
scott.
f.oncann()n@montgomery~fymd,gov
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Joseph Beach
February 13, 2015
Page
2
The bill 1.8
otherwi~
within the
authority
of
the
Council
and
legally
sufficient.­
cc:
Bonnie]{irkland, Assistant Chief
Administrative
OffiCer
O:flices of
the
COUIlty
Executive