SB0302: SUMMARY AS PASSED BY THE SENATE (Date Completed: 5-25-23)

INTRODUCTION

Taken together, the bills would expand the scope of the Property Assessed Clean Energy Act to allow a local unit of government to contract and finance for an environmental hazard project and allow it to do so with more properties in its jurisdiction. The bills would apply current property assessed clean energy (PACE) program requirements for energy projects to environmental hazard projects; these projects would generally include the installation of equipment or materials intended to mitigate environmental hazards like contaminants, floods, or severe weather.

In addition, the bills would modify proposed PACE program project reporting requirements. Among other modifications, they would specify that, for all new construction energy projects, a report would have to include a requirement that the building or other structure exceed applicable Construction Code, Uniform Energy Code, and Administrative Code requirements.

BRIEF RATIONALE

A PACE program allows certain property owners to contract with third-party providers to build or retrofit clean energy projects on their property. Property owners may finance these projects through assessments placed on the property. According to testimony, PACE programs have successfully promoted tailored and economically sustainable clean energy projects since the Act's enactment a decade ago; however, some people believe that the Act is too restrictive, and so it has been suggested that the Act's scope be expanded to include more eligible properties and projects and that certain project requirements be deleted.

PREVIOUS LEGISLATION

(Please note: This section does not provide a comprehensive account of all previous legislative efforts on the relevant subject matter.)

Senate Bills 303 and 302 are similar to House Bills 5011 and 5012, respectively, of the 2021-2022 Legislative Session. The House Committee on Energy reported the bills, but they received no further action.

FISCAL IMPACT

Senate Bill 303 (S-1) would have no fiscal impact on the State and would have an indeterminate fiscal impact on local units of government. The bill would add to the list of eligible project types. Local government units may assess property taxes on PACE programs and if this assessment covers the cost to the local government, then there will be no fiscal impact. Senate Bill 302 would have no fiscal impact on State or local government.

MCL 460.933 et al. (S.B. 303) Legislative Analyst: Tyler P. VanHuyse

460.939 (S.B. 302) Fiscal Analyst: Bobby Canell

CONTENT

Senate Bill 303 (S-1) would amend the Property Assessed Clean Energy Act to do the following:

-- Authorize a local unit of government to contract and finance for an environmental hazard project.

-- Authorize a record owner of agricultural property to enter a PACE program.

-- Extend provisions that currently apply to energy projects to environmental hazard projects and provisions that apply to record owners of commercial and industrial property to record owners of agricultural property.

-- Specify that a local unit of government would be responsible for removing a lien on a property assessed under a PACE program.

-- Include improved public health and protection against climate hazards and other environmental hazards among the list of essential public and governmental services that justify a local unit of government's issuance of bonds or notes under a PACE program.

Senate Bill 302 would amend the Property Assessed Clean Energy Act to do the following:

-- Specify that a preliminary PACE program report could conduct a project baseline energy audit or a baseline energy model, instead of only the former.

-- Allow a record owner to waive a requirement that a contractor guarantee to a record owner that the project will achieve a savings-to-investment ratio greater than one and agree to pay the record owner, on an annual basis, any shortfall in savings below this level, for projects financed by over $250,000 in assessments.

-- Exempt a new construction energy project from the above provision.

-- Require, for a new construction energy project, a report to include a requirement that the building or other structure exceed applicable requirements of the Michigan Uniform Energy Code, Parts 10 and 10a of the Construction Code, and specified rules under the Michigan Administrative Code.

Senate Bill 302 is tie-barred to Senate Bill 303.

Senate Bill 303 (S-1)

Definitions

Under the bill, an "environmental hazard project" would mean the acquisition, installation, replacement, or modification of equipment, devices, or materials intended to address environmental hazards, including measures to do any of the following:

-- Mitigate lead, heavy metal, or PFAS contamination in potable water systems.

-- Mitigate the effects of floods or drought.

-- Increase the resistance of property against severe weather.

-- Mitigate lead paint contamination.

Currently, "anaerobic digestor" means a device for optimizing the anaerobic digestion of biomass for the purpose of recovering biofuel for energy production. The bill would define "anaerobic digestor" as a facility that uses microorganisms to break down biodegradable material in the absence of oxygen, producing methane and an organic product.

"Anaerobic digestor energy system" means an anaerobic digester and the devices used to generate electricity or heat from biogas produced by the anaerobic digester or to store the biogas for the future generation of electricity or heat. The bill would modify this definition to specify that an anaerobic digestor energy system would generate electricity or heat from methane.

"New construction energy project" would mean an energy project that occurs at a newly constructed building or other structure or that consists of significant modifications to an existing building or other structure.

"Renewable energy resource" means a resource that naturally replenishes over a human, rather than a geological, time frame and that is ultimately derived from solar power, waterpower, or wind power. Under the bill, the term would mean a resource that naturally replenishes over a human, rather than a geological, time frame whose conversion to a usable form of energy minimizes the output of toxic materials.

Authorization of Environmental Hazard Project Financing

Generally, the Act authorizes a local unit of government to establish a PACE program and create districts under the program. The Act allows a local unit of government to enter into a contract with the record owner of property within a district to finance or refinance one or more energy projects on the property. The contract may provide for the repayment of the cost of an energy project through assessments upon the property benefited. The financing or refinancing of an energy project may include the cost of materials and labor necessary for the energy project and the amount of permit fees, inspection fees, application and administrative fees, bank fees, or any other fees that may be incurred by the record owner for the installation.

Currently, the Act allows for the contracting and financing of only energy projects. Under the bill, a local unit of government also could contract and finance for an environmental hazard project. The bill would achieve this by applying all the following requirements of a PACE program for an energy project to a PACE program for an environmental hazard project.

Under the Act, "energy project" means the installation or modification of an energy efficiency improvement or the acquisition, installation, or improvement of a renewable energy system or anaerobic digester energy system. The bill would modify the definition to remove the word "improvement" and include the replacement of a renewable energy system or anaerobic digestor energy system. Under the bill, the term "project" would mean an environmental hazard project or an energy project.

Additionally, the bill would amend the definition of "property", allowing more record owners to contract with a local unit of government in a PACE program. Currently, "property" means privately owned commercial or industrial real property located within the local unit of government. Under the bill, "property" would mean commercial, industrial, or agricultural property.

Unless otherwise specified, provisions below also would apply to environmental hazard projects and to record owners of agricultural property.

PACE Program Establishment

To establish a PACE program, a governing body of a local unit of government first must adopt a resolution of intent that includes all the following:

-- A finding that the financing of energy projects is a valid public purpose.

-- A statement of intent to provide funds for energy projects, which may be repaid by assessments on the property benefited, with the agreement of the record owners.

-- A description of the proposed arrangements for financing the program.

-- The types of energy projects that may be financed.

-- Reference to a report on the proposed program and a location where the report is available (see Senate Bill 302).

-- The time and place for a public hearing on the proposed program.

Secondly, the governing body must hold a public hearing at which the public may comment on the proposed program, including the report. Thirdly, the governing body must adopt a resolution establishing the program and setting forth its terms and conditions, including all the following:

-- Matters required to be included in the program report.

-- A description of aspects of the program that may be amended without holding a new public hearing and aspects that may be amended only after a new public hearing is held.

The governing body may amend a PACE program by resolution. Before adopting the resolution, the governing body must hold a public hearing if required.

Imposing an Assessment

A local unit of government may impose an assessment under a PACE program only in accordance with a written contract entered into with the record owner of the property to be assessed. Before entering into a contract with the record owner under a program, the local unit of government must verify that no tax, special assessment, water or sewer charge, or assessment for another project under a PACE program is delinquent with respect to the property.

An assessment imposed under a PACE program, including any interest on the assessment and any penalty, constitutes a lien against the property on which the assessment is imposed until the assessment, including any interest or penalty, is paid in full. When the assessment, including any interest and or penalty, is paid, the lien must be removed from the property. The bill specifies that the local unit of government would have to remove the lien.

A local unit of government may issue bonds or notes to finance energy projects under a PACE program. Bonds or notes issued under the Act must further essential public and governmental purposes, including reduced energy costs, reduced greenhouse gas emissions, economic stimulation and development, improved property valuation, and increased employment. The bill would add to these public and governmental purposes improved public health and protection against climate hazards and other environmental hazards.

Senate Bill 302

Under the Act, to establish a PACE program, the governing body of a local unit of government, among other things, must develop a report that includes a plan for raising capital to finance improvements under the program, subject to the Revised Municipal Finance Act. The bill would delete the reference to the Revised Municipal Finance Act, and instead, specify that the requirement would be subject to Section 15 of the Property Assessed Clean Energy Act. Section 15 authorizes a local unit of government to issue bonds or notes to finance projects under a PACE program if the bonds or notes further a public and governmental purpose (see Senate Bill 303).