SB2865.DOC

SECTION 1. The legislature finds that in order for the State to reach energy efficiency and clean energy goals, increased activity in residential and small commercial projects is essential. However, the initial capital investment required to install renewable energy systems and energy efficiency improvements is a significant barrier to residential and commercial property owners. Employing innovative financing will remove known barriers and stimulate enterprise in the clean energy sector, helping the State to achieve its clean energy targets while stimulating the economy.

A property assessed clean energy bond, commonly referred to as a PACE bond, is a bond where the proceeds are lent to commercial and residential property owners to finance efficiency improvements and small renewable energy systems. Owners then repay their loans over a prescribed time period via an annual assessment on their property tax bill. The liability to repay the bond is attached to the property, rather than the individual, as an assessment on real property. By attaching the debt to the property taxes, the chances for loss to the State are very low even in these uncertain times since property tax liens are senior to mortgage debts. Property assessed clean energy bonds can be issued by the State or local governments and the proceeds can typically be used to retrofit both commercial and residential properties. Sixteen other states have already established property assessed clean energy bond financing or loan programs and two other states have pending legislation.

Assisting renewable energy projects and investments in Hawaii can provide jobs, as well as long-term energy, environmental, and economic benefits. Moreover, this Act is compatible with the goals and objectives of the Hawaii clean energy initiative. This Act will increase energy security, encourage economic diversification, provide increased career opportunities for Hawaii residents, and attract funding and investment into the State.

The purpose of this Act is to establish a property assessed clean energy bond financing program in Hawaii.

SECTION 2. Chapter 39, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§39‑ Property assessed clean energy bond program. (a) Beginning July 1, 2011, and expiring December 31, 2030, there is established a property assessed clean energy bond program.

(b) As used in this section:

"Energy efficiency improvements" means installation or physical modifications to property designed to reduce energy consumption. For the purposes of this Act, energy efficiency improvements do not include appliances such as washing machines, dryers, dishwashers, and all similar appliances. Energy efficiency improvements shall include but not be limited to the following list of measures:

(1) Air sealing and ventilation;

(2) Insulation;

(3) Space heating and cooling;

(4) Water heating;

(5) Hardwired lighting;

(6) Daylighting;

(7) Windows;

(8) Doors and skylights;

(9) Reflective roofs; and

(10) Energy efficiency improvements to pool equipment and landscaping.

"Renewable energy system" means a system that produces thermal or electrical energy from renewable sources, including units with an electrical back-up component, intended for use within the residential or commercial property on which it is located. The following systems qualify for inclusion in this section:

(1) Solar hot water systems;

(2) Solar photovoltaic systems;

(3) Small wind systems; and

(4) Biogas systems.

(c) The State may issue bonds and may, either acting alone or in partnership with a county or counties as authorized under chapter 39, incur indebtedness for or otherwise finance renewable energy systems and energy efficiency improvements undertaken by individual property owners within the State. The principal and interest on the subject bonds shall be a general obligation of the State and the assessment payment revenues on the affected properties within the participating county or counties shall, upon agreement between the State and the county or counties, be applied to service the debt on the bonds.

(d) In order to effectively and expeditiously carry out the objectives of this Act, a third-party administrator shall be contracted by the department of business, economic development, and tourism through standard state procurement processes to manage and administer the State property assessed clean energy bond financing program authorized by this Act. The third-party program administer shall be responsible for the following:

(1) Establishing criteria and procedures for qualifying technologies and performing energy audits. The third-party program administrator shall identify the energy efficiency improvements that qualify for property assessed clean energy bond loan financing and shall develop appropriate procedures for qualifying improvements. After a property owner has submitted an application for property assessed clean energy bond loan financing, the administrator shall calculate the subject property’s current energy consumption and energy costs and estimate the potential cost benefits that could be realized through energy efficiency improvements and by installing renewable energy systems on the subject property;

(2) Providing education and training on energy efficiency improvements to applicants. Decision-making regarding improvements to be selected and use of improvements in order to maximize energy efficiency shall be a required component in the education and training;

(3) Prescribing loan repayment periods and providing projected property tax assessment estimates. The program administrator shall prescribe a deadline for loan repayment and provide the applicant property owner with a projected property tax assessment estimate that will be due and collected along with the ad valorem property tax bill should the applicant elect to obtain financing as provided by this program. The length of time allowed for the property owner to repay the assessment shall not exceed the life expectancy of the systems or improvements. In instances where multiple systems or improvements have been installed, the length of time shall not exceed the average lifetime of all projects, weighted by cost. Lifetimes of projects shall be determined by the program administrator with consultation from the department of business, economic development, and tourism or another qualified technical entity designated by the aforementioned department;

(4) Assisting the counties with administrative duties related to the execution of this program. Administrative duties shall include:

(A) Initiation and authorship of any and all written agreements between participating property owners and the counties or funding institutions;

(B) Public relations and program promotion within the counties, including community outreach and making information relating to the program available; and

(C) Assisting the counties with any and all edits or additions to existing county documents needed to efficiently collect property tax assessment payments from participating property owners.

(5) Distribution and repayment of program funds. The program administrator shall be responsible for accurately and appropriately distributing State bond proceeds appropriated for this program to participating property owners and funding institutions. The program administrator shall also be responsible for loan repayment to the State from revenue generated by participating county property tax assessments as described in this Act; and

(6) Reporting and accounting. The program administrator shall be responsible for collecting, compiling, and reporting all data and information relating to the property assessed clean energy bond financing program to the State, the department of business, economic development, and tourism, and the department of budget and finance.

(e) For a county to access funding generated by the sale of aforementioned bonds by the State, the county shall voluntarily agree to participate in the program enacted by this measure. County participation shall constitute an agreement to institute and collect property tax assessment payments, through the ad valorem real property tax collection schedule, in connection with the repayment of each individual loan financed by bond proceeds."

SECTION 3. The director of finance is authorized to issue general obligation bonds in the sum of $ or so much thereof as may be necessary and the same sum or so much thereof as may be necessary is appropriated for fiscal year 2010-2011 for the purposes identified in Section 2 of this Act.

The sum appropriated shall be expended by the department of business, economic development, and tourism for the purposes of this Act.

SECTION 4. The appropriation made for the capital improvement project authorized by this Act shall not lapse at the end of the fiscal biennium for which the appropriation is made; provided that all moneys from the appropriation unencumbered as of June 30, 2012, shall lapse as of that date.

SECTION 5. This Act does not in any way prohibit or limit the counties to institute a property assessed clean energy bond or similar financing program for and within their respective county independent of State partnership or involvement.

SECTION 6. New statutory material is underscored.

SECTION 7. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2865
TWENTY-FIFTH LEGISLATURE, 2010
STATE OF HAWAII