84R8180 PAM-F

By: Keffer H.B. No. 3363

A BILL TO BE ENTITLED

AN ACT

relating to authorizing local government programs to provide assessments for residential water and energy improvements in designated regions, including authorizing the issuance of obligations to provide financing for the programs; authorizing a fee.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 1232.002, Government Code, is amended to read as follows:

Sec. 1232.002. PURPOSE. The purpose of this chapter is to provide a method of financing for:

(1) the acquisition or construction of buildings; [and]

(2) the purchase or lease of equipment by executive or judicial branch state agencies; and

(3) local government water and energy improvement contractual assessment programs for the benefit of residential real property under Chapter 400, Local Government Code.

SECTION 2. Section 1232.066(a), Government Code, is amended to read as follows:

(a) The board's authority under this chapter is limited to the financing of:

(1) the acquisition or construction of a building;

(2) the purchase or lease of equipment; [or]

(3) stranded costs of a municipal power agency; or

(4) local government water and energy improvement contractual assessment programs for the benefit of residential real property under Chapter 400, Local Government Code.

SECTION 3. Subchapter C, Chapter 1232, Government Code, is amended by adding Section 1232.1075 to read as follows:

Sec. 1232.1075. ISSUANCE OF OBLIGATIONS FOR FINANCING LOCAL GOVERNMENT WATER AND ENERGY IMPROVEMENT CONTRACTUAL ASSESSMENT PROGRAMS. (a) The legislature finds that:

(1) promoting the conservation, protection, management, development, and beneficial use of the state's energy and water resources is an essential public purpose and it is appropriate for the state to assist local governments in the development and financing of local government water and energy improvement contractual assessment programs for the benefit of residential real property under Chapter 400, Local Government Code; and

(2) it is appropriate for the authority, on the request of a local government, to assist in the financing of local government water and energy improvement contractual assessment programs for the benefit of residential real property under Chapter 400, Local Government Code.

(b) In this section "bond," "credit agreement," "local government," and "program administrator" have the meanings assigned by Section 400.002, Local Government Code.

(c) At the request of the program administrator under Section 400.016, Local Government Code, the authority shall issue bonds for the financing of a local government water and energy improvement contractual assessment program for the benefit of residential real property established under Chapter 400, Local Government Code.

(d) The authority shall determine the method of sale, type of bond, bond form, maximum interest rates, and other terms of the bonds that, in the authority's judgment, best achieve the economic goals of the local government and provide funds at the lowest practicable cost.

(e) The authority may enter into a credit agreement in connection with the bonds. The bonds and the related credit agreement must be payable from and secured by a pledge of revenues to be received from contractual assessments imposed under the program established under Chapter 400, Local Government Code.

(f) The proceeds of bonds issued by the authority under this section shall be deposited with a trustee selected by the authority and the program administrator.

(g) Bond proceeds, including investment income, shall be held in trust for the exclusive use and benefit of the local government. The local government may use the proceeds to pay:

(1) the costs of materials and labor necessary for the installation or modification of qualified improvements;

(2) underwriting, processing, and administrative fees;

(3) the costs associated with issuing the bonds, including fees paid to a bond issuer, bond counsel, bond placement agent, or bond trustee;

(4) assessment, administrative, and county recording fees; and

(5) any other lawfully permitted costs related to a program established under Chapter 400, Local Government Code.

(h) A bond issued by the authority under this section and any related credit agreement is not a debt of the state, a state agency, or a local government and is not a pledge of the faith and credit of the state, a state agency, or a local government. A bond issued by the authority under this section and any related credit agreement is payable solely from and secured by a pledge of revenues from contractual assessments imposed under the program established under Chapter 400, Local Government Code.

(i) A bond issued by the authority under this section and any related credit agreement must contain on its face a statement to the effect that:

(1) the state, a state agency, or a local government is not obligated to pay the principal of or interest on the bond except as provided by this section; and

(2) the faith and credit or the taxing power of the state, a state agency, or a local government may not be pledged to pay the principal of or interest on the bond.

(j) The state may not with respect to any outstanding bonds under this section:

(1) take action to limit or restrict the rights of the local government to fulfill its responsibility to pay bond obligations; or

(2) in any way impair the rights or remedies of the bond owners until the bonds are fully discharged.

(k) Bonds issued by the authority under this section, any transaction relating to the bonds, and any profits made from the sale of the bonds are exempt from taxation by the state or a local government.

(l) The board of directors of the authority and the employees of the authority are not personally liable as a result of exercising any rights or responsibilities under this section.

SECTION 4. Subtitle C, Title 12, Local Government Code, is amended by adding Chapter 400 to read as follows:

CHAPTER 400. MUNICIPAL AND COUNTY WATER AND ENERGY IMPROVEMENT

REGIONS FOR RESIDENTIAL IMPROVEMENTS

Sec. 400.001. SHORT TITLE. This chapter may be cited as the Residential Property Assessed Clean Energy Act ("R-PACE").

Sec. 400.002. DEFINITIONS. In this chapter:

(1) "Bond" means any type of revenue obligation, including a bond, note, certificate, or other instrument, payable from and secured by a pledge of revenues received from contractual assessments as provided in the resolution authorizing the obligation. A bond obligation includes the principal of a bond and any premium and interest on the bond, together with any amount owed under a related credit agreement.

(2) "Credit agreement" means a loan agreement, a revolving credit agreement, an agreement establishing a line of credit, a letter of credit, an interest rate swap agreement, an interest rate lock agreement, a currency swap agreement, a forward payment conversion agreement, an agreement to provide payments based on levels of or changes in interest rates or currency exchange rates, an agreement to exchange cash flows or a series of payments, an option, put, or call to hedge payment, currency, interest rate, or other exposure, or another agreement that enhances the marketability, security, or creditworthiness of a bond issued under this chapter.

(3) "Local government" means a municipality or county.

(4) "Program" means a program established under this chapter.

(5) "Program administrator" means the administrator designated under Section 400.006(b) or the local government official responsible for discharging the administrative duties of the program.

(6) "Property owner" means the record owner of real property.

(7) "Qualified improvement" means a permanent improvement fixed to real property and intended to decrease water or energy consumption or demand, including a product, device, or interacting group of products or devices on the property owner's side of the meter that uses energy technology to generate electricity, provide thermal energy, regulate temperature, or regulate water consumption.

(8) "Qualified project" means the installation or modification of a qualified improvement.

(9) "Real property" means residential real property on which a dwelling designed for occupancy for one to four families is located.

(10) "Region" means a region designated under this chapter.

Sec. 400.003. EXERCISE OF POWERS. In addition to the authority provided by Chapter 376 for municipalities, the governing body of a local government that establishes a program in accordance with the requirements provided by Section 400.008 may exercise powers granted under this chapter.

Sec. 400.004. AUTHORIZED ASSESSMENTS. (a) An assessment under this chapter may be imposed to repay the financing of qualified projects on real property located in a region designated under this chapter.

(b) An assessment under this chapter may not be imposed to repay the financing of:

(1) facilities for undeveloped lots or lots undergoing development at the time of the assessment; or

(2) the purchase or installation of products or devices not permanently fixed to real property.

Sec. 400.005. WRITTEN CONTRACT FOR ASSESSMENT REQUIRED. A local government may impose an assessment under this chapter only under a written contract with the property owner of real property to be assessed.

Sec. 400.006. ESTABLISHMENT OF PROGRAM. (a) The governing body of a local government may determine that it is convenient and advantageous to establish a program under this chapter.

(b) A local government may enter into an agreement with a designated administrator for the purposes of administering, qualifying, and otherwise discharging the local government's administrative responsibilities over the program in its jurisdiction, except that the local government retains the responsibility to impose assessments as provided by this chapter. The designated administrator may be a for profit or nonprofit organization with experience in managing programs similar to programs established under this chapter or an organization whose executive leadership includes persons who have managed programs similar to those established under this chapter.

(c) A local government may contract with a designated administrator that has established and is administering a program for one or more other local governments.

(d) The program administrator may enter into a written contract with a property owner in a region designated under this chapter to impose an assessment to repay the property owner's financing of a qualified project. The contract must expressly state the terms of the assessment, including the assessment term, the payment amounts, and the remedies for default and foreclosure.

(e) The financing to be repaid through assessments under a program established under this chapter may be provided by:

(1) a third party;

(2) the local government, if authorized by the program; or

(3) the Texas Public Finance Authority as authorized by Section 1232.1075, Government Code.

(f) If the program provides for third-party financing, the program administrator that enters into the written contract with a property owner must also enter into a written contract with the third party that provides financing for a qualified project under the program to service the debt through assessments.

(g) If the program provides for bond financing, the written contract described by Subsection (d) must be a contract to finance the qualified project through assessments.

(h) The financing for which assessments are imposed may include:

(1) the costs of materials and labor necessary for installation or modification of a qualified improvement;

(2) permit fees;

(3) inspection fees;

(4) fees associated with issuing bonds, including bond placement agent and bond trustee fees;

(5) underwriting, processing, and administrative fees;

(6) origination fees;

(7) program application and administrative fees;

(8) project development and engineering fees;

(9) county recording fees; and

(10) any other fees or costs that may be incurred by the property owner incident to the installation, modification, or improvement on a specific or pro rata basis, as determined by the local government.

Sec. 400.007. DESIGNATION OF REGION. (a) The governing body of a local government may determine that it is convenient and advantageous to designate an area of the local government as a region within which the program administrator and property owners may enter into written contracts to impose assessments to repay the financing by owners of qualified projects and, if authorized by the local government program, finance the qualified project.

(b) An area designated as a region by the governing body of a local government under this section:

(1) may include the entire local government; and

(2) must be located wholly within the local government's jurisdiction.

(c) For purposes of determining a municipality's jurisdiction under Subsection (b)(2), the municipality's extraterritorial jurisdiction may be included.

(d) A local government may designate more than one region. If multiple regions are designated, the regions may be separate, overlapping, or coterminous.

Sec. 400.008. PROCEDURE FOR ESTABLISHMENT OF PROGRAM. (a) To establish a program under this chapter, the governing body of a local government must take the following actions in the following order:

(1) adopt a resolution of intent that includes:

(A) a finding that, if appropriate, financing qualified projects through contractual assessments is a valid public purpose;

(B) a statement that the local government intends to make contractual assessments to repay financing for qualified projects available to property owners;

(C) if appropriate, a statement that the local government intends to delegate the administration of the program to a designated administrator;

(D) a description of the types of qualified projects that may be subject to contractual assessments;

(E) a description of the boundaries of the region;

(F) a description of any proposed arrangements for third-party financing to be available or any authorized state or local government financing to be provided for qualified projects;

(G) a description of proposed debt servicing procedures if third-party financing will be provided and assessments will be collected to service a third-party debt;

(H) a reference to the report on the proposed program prepared as provided by Section 400.009 and a statement identifying the location where the report is available for public inspection;

(I) a statement of the time and place for a public hearing on the proposed program; and

(J) a statement identifying the appropriate local official and the appropriate assessor-collector for purposes of consulting regarding collecting the proposed contractual assessments with property taxes imposed on the assessed property;

(2) hold a public hearing at which the public may comment on the proposed program, including the report required by Section 400.009; and

(3) adopt a resolution establishing the program and the terms of the program, including:

(A) each item included in the report under Section 400.009;

(B) a description of each aspect of the program that may be amended only after another public hearing is held; and

(C) the name and business address of the program administrator.

(b) For purposes of Subsection (a)(3)(A), the resolution may incorporate the report or the amended version of the report, as appropriate, by reference.

(c) Subject to the terms of the resolution establishing the program as referenced by Subsection (a)(3)(B), the governing body of a local government may amend a program by resolution.

(d) If a local government does not use a designated administrator, a local government may:

(1) hire and set the compensation of an administrator and staff for the program; or

(2) contract for professional services necessary to administer a program.

(e) A local government may impose fees to offset the costs of administering a program. The fees authorized by this subsection may be assessed as:

(1) a program application fee paid by the property owner requesting to participate in the program;

(2) a component of the interest rate on the assessment in the written contract between the local government and the property owner; or

(3) a combination of Subdivisions (1) and (2).

Sec. 400.009. REPORT REGARDING ASSESSMENT. (a) The report for a proposed program required by Section 400.008 must include:

(1) a map showing the boundaries of the proposed region;

(2) a form contract between the program administrator and the property owner specifying the terms of:

(A) assessment under the program;

(B) fees associated with the administration of the program; and

(C) financing and any costs associated with the financing provided by, as appropriate:

(i) a third party;

(ii) the local government; or

(iii) the Texas Public Finance Authority as authorized by Section 1232.1075, Government Code;

(3) if the proposed program provides for third-party financing, a form contract between the program administrator and the third party regarding the servicing of the debt through assessments;

(4) a description of types of qualified projects that may be subject to contractual assessments;

(5) a statement identifying the program administrator authorized to enter into written contracts on behalf of the local government;

(6) a plan for ensuring sufficient capital for third-party financing and, if appropriate, raising capital for local government financing for qualified projects;

(7) if bonds will be issued to provide capital to finance qualified projects as part of the program as provided by Section 400.015:

(A) the maximum principal amount for financing through bonds;

(B) a method for determining:

(i) the interest rate and period during which contracting owners would pay an assessment; and

(ii) the maximum amount of an assessment; and

(C) a description of the use of the proceeds, which may include the payment of:

(i) the costs for qualified improvements;

(ii) the costs of issuing the bonds;

(iii) the costs of a bond reserve fund; and

(iv) any other lawfully permitted program costs;

(8) a method for ensuring that the period of the contractual assessment does not exceed the useful life of the qualified project that is the basis for the assessment;

(9) a description of the application process and eligibility requirements for financing qualified projects to be repaid through contractual assessments under the program;

(10) a method as prescribed by Subsection (b) for ensuring that property owners requesting to participate in the program demonstrate the financial ability to fulfill financial obligations to be repaid through contractual assessments;

(11) a statement explaining the manner in which property will be assessed and assessments will be collected;

(12) a statement explaining mortgage insurance requirements provided by Section 400.010;

(13) a description of marketing and participant education services to be provided for the program;

(14) a description of quality assurance and antifraud measures to be instituted for the program; and

(15) the procedures for collecting the proposed contractual assessments.

(b) The method for determining financial ability under Subsection (a)(10) must use appropriate underwriting factors, including:

(1) providing for verification that:

(A) the property owner requesting to participate under the program:

(i) is the legal owner of the benefited property;

(ii) is current on mortgage and property tax payments; and

(iii) is not insolvent or in bankruptcy proceedings; and

(B) the title of the benefited property is not in dispute; and

(2) requiring an appropriate ratio of the amount of the assessment to the assessed value of the property.

(c) The local government shall make the report available for public inspection:

(1) on the local government's Internet website; and

(2) at the office of the program administrator.

Sec. 400.010. MORTGAGE INSURANCE CERTIFICATION REQUIRED FOR PARTICIPATION. Before a local government may enter into a written contract with a property owner to impose an assessment to repay the financing of a qualified project under this chapter, the program administrator must certify that mortgage guaranty insurance offered by an insurer that holds a certificate of authority to write mortgage guaranty insurance in this state is in place to protect the holder of the first lien mortgage on the property to be assessed from and against losses that may be caused by an assessment recorded under this chapter.

Sec. 400.011. DIRECT ACQUISITION BY OWNER. The proposed arrangements for financing a qualified project may authorize the property owner to:

(1) purchase directly the related equipment and materials for the installation or modification of a qualified improvement; and

(2) contract directly, including through a lease, power purchase agreement, or other service contract, for the installation or modification of a qualified improvement.

Sec. 400.012. RECORDING OF NOTICE OF CONTRACTUAL ASSESSMENT REQUIRED. (a) A local government that authorizes financing through contractual assessments under this chapter shall file notice of each contractual assessment in the real property records of the county in which the property is located.

(b) The notice under Subsection (a) must contain:

(1) the amount of the assessment;

(2) the legal description of the property;

(3) the name of each property owner; and

(4) a reference to the statutory assessment lien provided under this chapter.

Sec. 400.013. LIEN. (a) A contractual assessment under this chapter and any interest or penalties on the assessment:

(1) is a first and prior lien against the real property on which the assessment is imposed from the date on which the notice of contractual assessment is recorded as provided by Section 400.012 and until the assessment, interest, or penalty is paid; and

(2) has the same priority status as a lien for any other ad valorem tax.

(b) The lien runs with the land, and that portion of the assessment under the assessment contract that has not yet become due may not be accelerated and is not eliminated by foreclosure of a property tax lien.

(c) The assessment lien may be enforced by the local government in the same manner that a property tax lien against real property may be enforced by the local government subject to the terms of the program and to the extent the enforcement is consistent with Section 50, Article XVI, Texas Constitution.

(d) Delinquent installments of the assessments incur interest and penalties in the same manner as delinquent property taxes.

(e) A local government may recover costs and expenses, including attorney's fees, in a suit to collect a delinquent installment of an assessment in the same manner as in a suit to collect a delinquent property tax.

Sec. 400.014. COLLECTION OF ASSESSMENTS. The governing body of a local government may contract with the governing body of another taxing unit, as defined by Section 1.04, Tax Code, or another entity, including a county assessor-collector, to perform the duties of the local government relating to collection of assessments imposed by the local government under this chapter.

Sec. 400.015. BONDS ISSUED BY LOCAL GOVERNMENT. (a) A local government may issue bonds to finance qualified projects through contractual assessments under this chapter.

(b) Bonds issued under this section and any related credit agreement may not be general obligations of the local government. The bonds and any related credit agreement must be secured by one or more of the following as provided by the governing body of the local government in the resolution or ordinance approving the bonds:

(1) payments of contractual assessments on benefited property in one or more specified regions designated under this chapter;

(2) reserves established by the local government from grants, bonds, or net proceeds or other lawfully available funds;

(3) municipal bond insurance, lines of credit, public or private guaranties, standby bond purchase agreements, collateral assignments, mortgages, or any other available means of providing credit support or liquidity; and

(4) any other funds lawfully available for purposes consistent with this chapter.

(c) A local government pledge of assessments, funds, or contractual rights in connection with the issuance of bonds by the local government under this chapter is a first lien on the assessments, funds, or contractual rights pledged in favor of the person to whom the pledge is given, without further action by the local government. The lien is valid and binding against any other person, with or without notice.

(d) Bonds issued under this chapter further an essential public and governmental purpose, including:

(1) improvement of the reliability of the state electrical system;

(2) conservation of state water resources consistent with the state water plan;

(3) reduction of energy costs;

(4) economic stimulation and development;

(5) enhancement of property values;

(6) enhancement of employment opportunities; and

(7) reduction in greenhouse gas emissions.

Sec. 400.016. REQUEST TO TEXAS PUBLIC FINANCE AUTHORITY FOR BOND ISSUANCE. (a) If a local government determines it is in the best interest of the local government to seek assistance in financing the program through the issuance of bonds, the local government may request the Texas Public Finance Authority to issue bonds under Section 1232.1075, Government Code, on its behalf.

(b) The governing body of the local government must pass a resolution authorizing the program administrator to submit a request to the Texas Public Finance Authority to issue bonds. The request must state the principal amount of the bonds and the maximum term, not to exceed 25 years.

(c) The principal amount requested under Subsection (b) may be increased to include an amount sufficient to:

(1) pay the costs of issuance by the Texas Public Finance Authority;

(2) provide for a bond reserve fund; and

(3) capitalize interest for the period determined necessary by the local government, not to exceed two years.

Sec. 400.017. JOINT IMPLEMENTATION. (a) Any combination of local governments may agree to jointly establish, implement, or administer a program under this chapter.

(b) If two or more local governments implement a program jointly, a single public hearing held jointly by the cooperating local governments is sufficient to satisfy the requirement of Section 400.008(a)(2).

(c) Local governments acting as a jointly operated program are authorized to request the issuance of bonds under Section 400.016 and to exercise the same powers under Section 400.003, including the authority to contract with a designated administrator.

Sec. 400.018. PROHIBITED ACTS. A local government that establishes a region under this chapter may not:

(1) make the issuance of a permit, license, or other authorization from the local government to a person who owns property in the region contingent on the person entering into a written contract to repay the financing of a qualified project through contractual assessments under this chapter; or

(2) otherwise compel a person who owns property in the region to enter into a written contract to repay the financing of a qualified project through contractual assessments under this chapter.

Sec. 400.019. NO PERSONAL LIABILITY. The governing body of a local government or local government employees are not personally liable as a result of exercising any rights or responsibilities granted under this chapter.

SECTION 5. This Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2015.