BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Carole Migden, Chair 1383 (Pavley) Hearing Date: August 15, 2005 Amended: July 13, 2005 Consultant: John Decker Policy Vote: EU&C (7-3) _________________________________________________________________ ____ BILL SUMMARY: AB 1383 creates a grant and loan program to facilitate the installation of solar energy systems in low-income housing. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2005-06 2006-07 2007-08 Fund Transfers $5,000 $10,000 $10,000 Special* *The bill transfers funds from the Emergency Renewable Resources Account and the fund identified (and unnamed) in subdivision (a) of Chapter 329 (Statutes of 2000), or from the funds appropriated in SB 1 (Murray and Campbell), the Million Solar Roofs Initiative. _________________________________________________________________ ____ STAFF COMMENTS: The bill meets the criteria for referral to Suspense File. According to the sponsor, the bill is intended to provide up to 100 percent financing for solar units installed in low-income housing, and loan up to $100 million over ten years. The bill creates a revolving fund, to be administered by the energy commission. The revolving fund is capitalized with transfers from special funds which derive their revenues from rate payers. The commission may make annual allocations from the fund to providers of low-income housing. The commission may make loans or grants. The revolving fund sunsets on January 1, 2016. Section 1 of the bill contains findings and declarations. Among other things, the section says that California needs a steady supply of affordable electricity and expanding the number of solar energy units will help the state's manufacturing base. Section 1 also declares that by establishing the loan program, the state will (a) make a cost-effective investment, (b) modify solar energy incentives and (c) provide more reliability to its electricity supplies. The bill could result in transfers of up to $10 million annually, with offsetting revenue in the future deposited in the revolving fund as the loans are repaid. - continued - AB 1383 (Pavely) Page 2 STAFF NOTES: 1) Neither the sponsors nor the commission are able to identify the size of the potential demand for the bill's loans. Nor does the bill identify how the bill will ensure cost-effectiveness or reliability. Though the bill's findings and declarations provide general information, they do not provide a basis for measuring program effectiveness. For example. on what basis will the commission measure whether the loans merely crowd out other subsidies? On what basis should the Legislature consider whether ill the new solar units are a cost-effective allocation of state funds? When should the Legislature expand the program? The author should clarify . 2) In the Senate Energy, Utilities and Communications Committee, the bill's continuous appropriation was deleted and replaced with a provision requiring the Legislature to make annual appropriations. It is not clear what is being appropriated. Is it the amount of the transfer from the special funds to the revolving fund, or is it the amount from the revolving fund which the commission may allocate for the loans? Moreover, because the sponsors are unable to identify the on-going need for these loans, the Legislature should require the commission to report on the loan portfolio and the health of the revolving fund. Staff recommend that the bill be amended to (a) clarify that the Legislature annually appropriate funds from the revolving fund for allocation by the commission, and (b) require the commission to report on the program's loan portfolio and the condition of the revolving fund . 3) To the extent the commission makes loans which are due after January 1, 2016, who manages the repayments? Where do the payments go? Presumably, the funds are still paid to the commission, who re-deposits the money into the accounts from which the funds were originally transferred. In addition, the bill authorizes the commission to charge an application fee. The bill should specify that the fee cover the costs of the entire application process, and the fee revenue be deposited in the revolving fund. The author should clarify . 4) The bill authorizes the commission to make grants, in addition to loans, to the housing developers. Because the amount of the grants are likely to be offset dollar-for-dollar for any low income housing tax credit allocated by the Treasurer, the grants may not be the best way to encourage solar units. The sponsors did not intend for the commission to make any grants. The author should clarify . - continued - AB 1383 (Pavely) Page 3 5) According to the sponsor, the bill is directed at non-profit development corporations. However, the bill is not limited to them. Other non-profits, local governments, for-profit corporations, and individuals all could qualify for the loans. Given the limits of the likely funding streams, the author should clarify . 6) The state and federal government currently has various tax, loan and grant programs for subsidizing the installation of solar panels. It is possible that the bill would authorize subsidizing an installation by more than 100 percent of the developer's costs. The author should clarify that the loans provided in this bill-when combined with the other state and federal incentives--will not provide financing in excess of 100 percent of cost.