By: Lucio III H.B. No. 3308

A BILL TO BE ENTITLED

AN ACT

relating to the formation of special districts for the purpose of storm mitigation and resiliency, energy, water, and indoor air utilizing private funding sources; providing thereto the ability of specific entities to use conduit financing; and establishing specific consumer protection provisions for residential property owners related to the program.

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

SECTION 1. Chapter 400, Title 12, Subchapter C is added to read as follows:

Sec. 400.001 SHORT TITLE. This Chapter may be cited as the Storm Mitigation and Resiliency Financing Act.

Sec. 400.002 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 this act may exercise powers granted under this chapter. The establishment and operation of a program under this chapter by a local government is a governmental function for all purposes.

Sec. 400.003 LOCAL GOVERNMENT AUTHORIZATION. The governing body of a local government may determine that it is convenient and advantageous to establish a program under this chapter to create districts to facilitate the use of conduit financing for improvements to harden structures and mitigate the impacts of weather-related events, flooding and fires; or provide improvements which increase the energy and water efficiency, by owners of certain residential real property; to provide for the financing of such programs through voluntary property assessments, commercial lending, and other means.

Sec. 400.004 ISSUANCE OF BONDS. A local government shall be authorized to issue bonds, notes, and other evidences of indebtedness and to pay the cost of authorized financing from the proceeds thereof; to provide for the repayment of bonds, notes, and other evidences of indebtedness; to authorize certain fees; to prescribe the powers and duties of certain governmental officers and entities; and to provide for remedies.

(a) Bonds or notes issued under this section may not be general obligations of the local government. The bonds or notes 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 or notes:

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

(b) Bonds or notes issued under this chapter further an essential public and governmental purpose, including, but not limited to:

(1) Preservation of private property against natural disasters and wildfires

(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; or

(6) enhancement of employment opportunities.

Sec. 400.005 ESTABLISHMENT OF A DISTRICT. As provided in this Chapter the local government may enter into a contract with the record owner of property within a district to finance one or more qualified projects on the property. The contract may provide for the repayment of the cost of a project through assessments on the property benefited. The financing or refinancing may include the cost of materials and labor necessary for installation and of permit fees, inspection fees, application and administrative fees, bank fees, application, administration, and other program fees, and all other fees that may be incurred by the record owner pursuant to the installation on a specific or pro rata basis, as determined by the local unit of government.

(a) Any combination of local governments may agree to jointly implement or administer a program under this chapter, including entering into an interlocal contract under Chapter 791, Government Code, to jointly implement or administer a program.

(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 establishment requirements.

(c) One or more local governments may contract with a third party, including another local government, to administer a program. Local governments that are parties to an interlocal contract described by Subsection (a) may contract with an entity listed in Section 791.013, Government Code, for program administration.

(d) 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.

(e) The members of the governing body of a local government, other elected officials of a local government, employees of a local government, and board members, executives, employees, and contractors of a third party who enter into a contract with a local government to provide administrative services for a program under this chapter are not personally liable as a result of exercising any rights or responsibilities granted under this chapter.

Sec. 400.006 ESTABLISHMENT OF A 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 authorized representative of the local government and record owners of real property may enter into written contracts to impose assessments to repay the financing by owners of qualified projects on the owners' property 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. 400.007 ESTABLISHMENT OF A 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) a description of the types of qualified projects that may be subject to contractual assessments;

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

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

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

(G) a reference to the required report on the proposed program and a statement identifying the location where the report is available for public inspection;

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

(I) a statement identifying the appropriate representative of the local government and the appropriate assessor-collector for purposes of consulting regarding collecting the proposed contractual assessments imposed on the assessed property;

(2) hold a public hearing at which the public may comment on the proposed program; and

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

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

(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) A local government may:

(1) hire and set the compensation of a program administrator and program staff; 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 expressed as a set amount, a percentage of the amount of the assessment, or in any other manner;

(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).

(f) A report for a proposed program shall be prepared by the local government and include the following:

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

(2) a form contract between the local government and the property owner specifying the terms of:

(A) assessment under the program; and

(B) financing provided by a third party or the local government, as appropriate;

(3) if the proposed program provides for third-party financing, a form contract between the local government 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 a local government representative authorized to enter into written contracts on behalf of the local government;

(6) a plan for ensuring sufficient capital for third-party financing;

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

(A) a maximum aggregate annual dollar amount for financing through contractual assessments to be provided by the local government under the program;

(B) a method for ranking requests from property owners for financing through contractual assessments in priority order if requests appear likely to exceed the authorization amount; and

(C) 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;

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

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

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

Sec. 400.008 DEFINITIONS. For purposes of this program:

(a) "Local government" means a municipality, county, council of government.

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

(c) "Program Administrator" means a joint-powers authority, state agency with the authority to issue bonds as defined under this chapter, or a regional council of governments acting within its jurisdictional boundaries.

(c) "Qualified improvement" means a permanent improvement fixed to real property and intended to assist in mitigating damage caused by the impacts of weather-related events, flooding and fires; decrease water or energy consumption or demand.

(d) "Qualified project" means the installation or modification of a qualifying improvement.

(e) "Residential Real property" means any of the following:

(1) properties with 1-4 living units (may include single family, townhome, PUD, duplex, triplex, and 4-plex)

(2) manufactured homes that have supportive documentation showing they have foundations or are permanently affixed and taxed as real property.

(f) "Qualifying improvement" includes any:

(1) Energy conservation and efficiency improvement, which is a measure to reduce consumption through conservation or a more efficient use of electricity, natural gas, propane, or other forms of energy on the property, including, but not limited to, air sealing; installation of insulation; installation of energy-efficient heating, cooling, or ventilation systems; building modifications to increase the use of daylight; replacement of windows; installation of energy controls or energy recovery systems; and installation of efficient lighting equipment.

(2) Weather and Fire resistance improvements, which includes, but is not limited to:

(a) Improving the strength of the roof deck attachment;

(b) Creating a secondary water barrier to prevent water intrusion;

(c) Installing wind-resistant shingles;

(d) Installing gable-end bracing;

(e) Reinforcing roof-to-wall connections;

(f) Installing storm shutters; or

(g) Installing opening protections.

(h) Installing lightning protection devices and whole-structure surge protection systems.

(3) Wastewater treatment improvement, which includes, but is not limited to the replacement or improvement of an onsite sewage treatment and disposal system with an advanced onsite treatment and disposal system or technology or the replacement of an onsite sewage treatment and disposal system with a central sewage system.

(4) Flood and water damage mitigation and resiliency improvement, which includes, but not limited to projects and installation for the raising of a structure above the base flood elevation to reduce flood damage; A flood diversion apparatus and/or sea wall improvement, which includes seawall repairs and seawall replacements; Flood damage resistant building materials; Electrical, mechanical, plumbing, or other system improvements that reduce flood damage; or, Other improvements that qualify for reductions in flood insurance premiums.

(5) Environmental health improvement, which is an improvement or measure intended to mitigate harmful environmental health effects to property occupants, including, but not limited to measures that do any of the following:

Mitigate the presence of lead, heavy metals, polyfluoroalkl substance (PFAS) contamination, or other harmful contaminants in potable water systems. Improvements may include, but are not limited to, conversion of well water to municipal water systems, replacing lead water service lines, or installing water filters; Mitigate lead paint contamination in residential housing built before 1978; and, Mitigate indoor air pollution or contaminants, including, but not limited to, particulate matter (PM), viruses, bacteria, and mold.

Sec. 400.009 PROGRAM ELIGIBILITY. The method for ensuring a demonstration of financial ability of the residential property owner to participate in the program must be based on appropriate underwriting factors, including:

(a) providing for verification that:

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

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

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

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

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

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

(b) 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 representative designated to enter into written contracts on behalf of the local government under the program.

Sec. 400.010 LIENS.

(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 this Chapter 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) After the notice of a contractual assessment is recorded as provided under this Chapter, the lien may not be contested on the basis that the improvement is not a qualified improvement, or the project is not a qualified project.

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

(d) 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 to the extent the enforcement is consistent with Section 50, Article XVI, Texas Constitution.

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

(f) 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. 400.011. CONTRACT FOR COLLECTION OF ASSESSMENTS; NO PERSONAL LIABILITY.

(a) 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.

(b) A county assessor-collector who performs the duties of a local government relating to collection of assessments imposed by a local government under this chapter is not personally liable as a result of exercising those duties under this chapter.

Sec. 400.012 CONSUMER PROTECTIONS. In order to protect the property owners' interest each program administrators under this Chapter shall provide the following:

(a) Financial Disclosures. Provide a financing estimate and disclosure to the qualifying residential real property owner entering into an assessment financing contract that includes:

(1) The total amount estimated to be funded including the cost of the qualifying improvements, program fees, and capitalized interest, if any;

(2) The annual estimated payment amount;

(3) The term of the assessment;

(4) The fixed interest charged and estimated annual percentage rate;

(5) The qualifying improvement(s);

(6) A disclosure that if the property owner sells or refinances their property, the property owner may be required by a mortgage lender to pay off the assessment as a condition of sale or refinancing;

(7) A disclosure that the assessment will be collected along with the property owner's property taxes and will result in a lien on their property from the date of the assessment contract; and,

(8) A disclosure that failure to pay the assessment may result in penalties and fees, along with the issuance of a tax certificate that could result in the property owner losing the home.

(b) Confirmation Call. Complete, with a qualifying residential real property owner or an authorized representative of a qualifying residential real property owner, an oral confirmation call in plain language via a live telephone call, which shall be recorded in an audio format in accordance with Texas law. A voicemail to the qualifying residential real property owner will not satisfy this requirement. As part of this call, the following shall be included:

(1) Confirm that at least one qualifying residential real property owner has access to a copy of the assessment contract and financing estimates and disclosures;

(2) Ask the qualifying residential real property owner if they would like to communicate primarily in a language other than English;

(3) Confirm with the qualifying residential real property owner the following:

(A) The qualifying improvement(s) being financed;

(B) The total estimated annual costs the qualifying residential real property owner will have to pay under the assessment contract including applicable fees;

(C) The total estimated average monthly equivalent amount of funds the qualifying residential real property owner would have to save in order to pay the annual costs of the assessment including applicable fees;

(D) The estimated date the qualifying residential real property owner's first assessment related property tax payment will be due;

(E) The term of the assessment contract;

(F) That payments for the assessment contract will cause the qualifying residential real property owner's annual tax bill to increase, that payments will be made through an additional annual assessment on the property, and will be paid either directly to the county tax collector's office as part of the total annual secured property tax bill or may be paid through the qualifying residential real property owner's mortgage impound (escrow) account;

(G) That the qualifying residential property owner has disclosed whether the property has received or is seeking additional program assessments and has disclosed all other assessments or special taxes that are or about to be placed on the property;

(H) That the property will be subject to a lien during the term of the assessment contract and that the obligations under the agreement may be required to be paid in full before the qualifying residential real property owner sells or refinances the property;

(I) That any potential utility or insurance savings are not guaranteed and will not reduce the assessment payments or total assessment amount;

(J) That the Administrator or contractor do not provide tax advice and that the qualifying residential real property owner should seek professional tax advice if he or she has questions regarding tax credits, tax deductibility, or other tax impacts of the qualifying improvements or the assessment contract.

(c) Confirmation of Completion. Before disbursing all funds for qualifying improvements on qualifying residential real property to either a licensed contractor in the State of Texas performing work under the program or the residential property owner, the Administrator shall first confirm the work has been completed, either through written certification from the property owner, a recorded telephone call with the property owner, or a site inspection through a third party means.

(d) No Disclosure of maximum assessment financing. A local government or program Administrator shall not directly disclose the maximum assessment financing amount a qualifying residential real property owner is eligible for to any contractor or to any third party engaged in soliciting a assessment contract from a qualifying residential real property owner.

(e) Three Day Right to Cancel - The qualifying residential real property owner shall be given the right to cancel the assessment contract within no less than three business days after signing the assessment contract without any financial penalty for doing so.

Sec. 400.013 PROHIBITED FINANCING.

(a) The term of the assessment contract shall not exceed the useful life of the qualifying improvement being installed or the weighted average useful life of all qualifying improvements being financed if multiple qualifying improvements are being financed. In either case the financing term shall not exceed 30 years.

(b) A program Administrator shall not offer assessment financing on qualifying residential real property that includes one or more of the following:

(1) Negative amortization schedule

(2) Balloon payments, or

(3) Pre-payment fees (other than nominal administrative costs).

(4) No reverse mortgages (HECM)

(5) No assessment on properties gifted to borrowers by charitable organizations

Sec. 400.014. FINANCING REQUIREMENTS. Before a qualifying residential real property owner enters into an assessment contract, the program Administrator shall reasonably determine the property owner has an ability to pay the estimated annual assessment and the property meets the minimum eligibility criteria including the following:

(a) Utilize commercially reasonable standards to determine the real property owner's ability to repay.

(b) Less than 20% of property value for the first $700k (inclusive of existing assessments, capitalized interest and fees) plus <10% of property value for amounts above $700k.

(c) All debt secured by the property may not exceed 90% of the Property's fair market value ("FMV"), at the time the application is submitted. Residential property owners shall have a minimum of 10% equity in the subject property prior to receiving financing through the Program. The max loan-to-value of the residential property, inclusive of mortgage debt and assessments at time of financing may not exceed 100% of FMV. The sum of all debt secured by the subject Property, the new assessment and all involuntary liens as described herein must not exceed the Property's market value.

(d) Mortgages must be current with no more than 1 x 30 day late in the past 6 months or period of ownership whichever is shorter.

(e) The total amount of any annual property taxes and assessments, including all assessments under this Chapter shall not exceed twenty percent (20%) of the Property's FMV.

(f) Property tax payments for the property must be current and the homeowner must certify that there is no more than one late payment for the shorter of the previous three years or since the present homeowner acquired the Property, whichever period is shorter.

(g) The Property must not have any involuntary liens with a balance greater than one thousand Dollars ($1,000.00) or notices of default currently recorded that have not been rescinded.

(h) The residential property owner may not currently be in bankruptcy or in forbearance.

Sec. 400.015 CONTRACTOR REQUIREMENTS. Minimum contractor requirements include:

(a) Contractor Licensing, Bonding and Insurance - A program Administrator shall not provide payment to either the contractor offering assessment financing on qualifying residential real property or the contracting residential property owner on an assessment financing project unless all of the following requirements are met:

(1) The contractor maintains in good standing an appropriate license from the State of Texas, if applicable, as well as any other permits, licenses, or registrations required for engaging in its business in the jurisdiction where it operates and maintains all state required bond and insurance coverage.

(2) The program Administrator obtains the State-licensed contractor's written agreement that they and/or relevant third parties will act in accordance with applicable advertising and marketing laws and regulations and all other applicable laws.

(b) Contractor Application Review, Approval, and Onboarding Processes. A program enacted under this Chapter within the State, shall maintain processes for qualifying eligible State-licensed contractors that include the following reasonable review of the following for each contractor:

(1) Relevant work/project history,

(2) Financial and reputational background checks,

(3) Criminal background checks, and

(4) Status on Better Business Bureau and/or other online platforms that track contractor reviews.

400.016 PROHIBITED MARKETING AND COMMUNICATIONS PRACTICES. Under this Chapter:

(a) A local government, program Administrator, or any contractor within the State of Texas are prohibited from the following:

(1) Suggesting or implying in any way that assessment financing is a government assistance program,

(2) Suggesting or implying that qualifying improvements are free or that assessment financing is a free program, or

(3) Suggesting or implying that financing qualifying improvements using the program does not require the property owner to repay the financial obligation.

(b) No Tax Advice. A local government, program administrator, or contractor shall not make any representation as to the tax deductibility of an assessments on qualifying residential real property. A local government, administrator, or contractor may encourage property owners to seek the advice of a tax professional regarding tax matters related to assessments.

(c) Project Pricing. Contractors shall not present a higher price for a project on qualifying residential real property financed by an assessment contract than the contractor would otherwise reasonably present if the project were not being financed through an assessment contract.

SECTION 2. This Act takes effect September 1, 2021.