Regulation to allow Green Liens for Retrofits - GBF2009

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Sonja Persram Presents at the 2009 Green Building Festival in Toronto

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  • All of the emission permits should be put up for auction, in keeping with the “polluter pays” principle.
  • Regulation to allow Green Liens for Retrofits - GBF2009

    1. 1. Regulating to allow green liens for Retrofits Sonja Persram, BSc., MBA, LEED ® AP Sustainable Alternatives Consulting Inc. Presented to the: Green Building Festival / IIDEX Thursday, September 24, 2009
    2. 2. Bizarro Cartoons by Dan Piraro Used with permission
    3. 3. ‘ Green Liens’ - Outline <ul><li>Definition, uses & key features of liens: Local Improvement Charges & Community Improvement Plans </li></ul><ul><li>Advantages for property owners </li></ul><ul><li>Enabling LICs </li></ul><ul><li>Municipal benefits & pilot </li></ul><ul><li>Green energy lien considerations (Technical, Legislation, Supports, Social Equity, Financial, Triple-Bottom-Line, Optimizing Municipal Program $) </li></ul><ul><li>Existing legislation & examples </li></ul><ul><li>Green building liens: municipal program considerations </li></ul><ul><li>Opportunities/Challenges </li></ul><ul><li>Who is considering green liens </li></ul><ul><li>Next steps </li></ul>
    4. 4. Liens: definition & existing uses <ul><li>Local Improvement Charges </li></ul><ul><ul><li>Used for allocating costs to properties whose owners benefit from improvements </li></ul></ul><ul><ul><li>For infrastructure development for community enhancement </li></ul></ul><ul><ul><li>Uses: e.g. putting in sidewalks, street lights, sewers, curbs & gutters, building a local park </li></ul></ul><ul><li>Community Improvement Plans </li></ul><ul><ul><li>Repair, rehabilitation, redevelopment </li></ul></ul><ul><ul><li>Encourage private sector investment & jobs </li></ul></ul><ul><ul><li>Public spaces, parks & recreation </li></ul></ul><ul><ul><li>Incentive-based initiatives on private property: grants, loans, property tax assistance </li></ul></ul><ul><ul><ul><li>Community energy efficiency improvements </li></ul></ul></ul>Municipal legislation provisions which enable municipalities to assist property owners with improvements.
    5. 5. LIC & CIP Liens: key features The following analysis focuses on LICs Yes Yes Loan attached to property No similar stipulation Not income i.e. no credit risk assessment . Criteria for eligibility Toronto TIEG grants require Toronto Green Standard No Building greening (examples) Yes Yes Loan payments: long-term surcharge on property tax Yes Yukon - renewables; Dawson Creek: EE/RE; Ontario: no Work includes energy efficiency improvements & renewables (EE/RE) Yes Not in Ontario Private property? No Yes Priority lien? CIPs (Planning Act) LICs (Ontario Municipal Act) Feature
    6. 6. Advantages of LIC-based improvements for property owners <ul><li>Repayment term stretched so that energy savings > than payments </li></ul><ul><li>Debt is attached to the property, not the owner </li></ul><ul><li>On sale, any remaining repayment obligations are automatically transferred – along with the financed EE/RE asset - to the property’s new owners, while still allowing the property to be sold at a competitive price. Liens paid out in ON. Liens transferred: Yukon; Dawson Creek; USA </li></ul><ul><li>Removes the disincentive for short-term owners to pay for measures: regardless of how long an owner intends to hold the property, the current owner both benefits from the measures (savings on energy, etc) and pays their costs. </li></ul>
    7. 7. Enabling LICs to support EE/RE improvements <ul><li>Legal opinion: not currently doable to use LICs for this purpose. Re: current CIPs e.g. for TIEGS: not set up with this intention. </li></ul><ul><li>Broaden scope of LIC to include green energy improvements & streamline process </li></ul><ul><li>Municipalities use the LIC provision of the Municipal Acts to add an incremental charge to the property tax of a property (to pay for EE/RE improvements). </li></ul><ul><li>How: </li></ul><ul><li>Municipality (or third party) finances 100% of the cost of pre-approved energy efficiency or renewable energy retrofits or new construction costs (including energy audits, verification and administration costs) at a competitive fixed interest rate, over 15 to 20-30 years. </li></ul><ul><li>Municipality aggregates financing for many homes and obtains favorable financing (because of low risk of default) through e.g. bonds, then transfers the payments so that they do not add to the debt load of the municipality. </li></ul>
    8. 8. Benefits to municipalities <ul><li>Leverages admin costs for self-financing of EE/RE retrofits & high performance buildings </li></ul><ul><li>Negawatts for municipalities at very low cost </li></ul><ul><li>Existing infrastructure for tax assessment and collection is used, minimizing overhead and transaction costs for repayment </li></ul><ul><li>Leverages existing grant program & other incentives </li></ul><ul><li>Encourages property owners in </li></ul><ul><li>deep energy efficiency measures : > savings </li></ul><ul><li>Leverages best financing terms by aggregating loans </li></ul><ul><li>Economic stimulus : provides opportunities for: </li></ul><ul><ul><li>local job creation </li></ul></ul><ul><ul><li>skills training programs </li></ul></ul><ul><ul><li>encouraging regional industrial development </li></ul></ul><ul><ul><li>development & expansion of green labour force. </li></ul></ul><ul><li>Allows local economic multiplier effect : locally employed labour force spends locally </li></ul>
    9. 9. Pilot project oversight & Quality Assurance <ul><li>Project oversight during/after retrofits </li></ul><ul><li>Q.A. system in place via energy audit system </li></ul><ul><li>For Pilot project: </li></ul><ul><li>Spare city responsibility for project oversight </li></ul><ul><li>to completion. Fee covers admin costs only, not oversight </li></ul><ul><li>Financing body (if lending institution) rates are spread too thin to cover oversight without extra funds </li></ul><ul><ul><li>Include fee for financing institution due diligence, or </li></ul></ul><ul><ul><li>Limit oversight to current energy audit company sign off on completion </li></ul></ul><ul><ul><li>Include project holdback pending completion </li></ul></ul>
    10. 10. Green Energy liens: Technical considerations <ul><li>Renewables vis-à-vis retrofits: With $x max </li></ul><ul><li>loan: CDM first? Net zero? </li></ul><ul><li>GHG emission reduction, energy savings & performance measures </li></ul><ul><li>Affordability: savings to exceed costs? </li></ul><ul><li>Iterative modeling: optimize solution for $x </li></ul><ul><li>Water conservation </li></ul><ul><li>Retrofits more complex: repairs; upgrades; </li></ul><ul><li>the unexpected e.g. leaks, mould, walls </li></ul><ul><li>Occupant discomfort; relocation costs </li></ul><ul><li>Opening walls vs e.g. outsulation </li></ul><ul><li>Standards: EnerGuide for Houses </li></ul><ul><li>Quality assurance </li></ul><ul><li>Existing buildings / New buildings </li></ul><ul><li>Taxes: Residential/Commercial/Industrial </li></ul><ul><li>District systems? </li></ul>
    11. 11. Green Energy liens: Ontario Legislative changes + considerations <ul><li>Private property </li></ul><ul><li>Admin costs? </li></ul><ul><li>Priority lien : LICs (yes) / CIPs (no) </li></ul><ul><li>Streamline process : approvals/objections/appeals, timing, duration </li></ul><ul><li>Definition of work: EE/RE Measures </li></ul><ul><ul><li>Technology </li></ul></ul><ul><ul><li>Design (passive) </li></ul></ul><ul><ul><li>Daylighting </li></ul></ul><ul><li>Eligibility criteria (LIC / CIP) (credit rating) </li></ul><ul><li>LIC affecting municipality’s debt capacity & financial obligation </li></ul>
    12. 12. Green Energy liens : LIC Legislation Ontario Municipal Act 2001 S.O. 2001, CHAPTER 25 <ul><li>Reserve fund for payment of long-term debt </li></ul><ul><li>35.   Debt and financial obligation limits for municipalities prescribed under subsection 401 (4) of the Act do not apply to long-term debt incurred with respect to the owners' share of the cost of a work. O. Reg. 586/06, s. 35. Revoked O. Reg. 287/09, s. 1 . </li></ul>Prior to July 31, 2009, owners’ LIC Long-Term debt did not affect municipality’s debt and financial obligation limits. Seems to have changed. Issue may be addressed elsewhere via other provisions, or may imply need for reserve fund if municipality takes on debt. To avoid this impact on municipality, one strategy: loan is from third party.
    13. 13. Green Energy liens: Program Supports <ul><li>Technical assistance: </li></ul><ul><ul><li>For owners </li></ul></ul><ul><ul><li>Energy advisor/Contractor capacity building (knowledge, licence, #s) </li></ul></ul><ul><ul><li>Financing calculators that incorporate incentives </li></ul></ul><ul><li>QA: </li></ul><ul><ul><li>Lenders’ due diligence </li></ul></ul><ul><ul><li>Municipality: achieving GHG & energy reduction goals </li></ul></ul><ul><li>Incentives </li></ul>
    14. 14. Additional supports Solar access/shade access Legislation Valuation Property value increment should include present value of energy savings. More in: Eisenberg, David & Persram, Sonja, Code, Regulatory and Systemic Barriers Affecting Living Building Projects, Cascadia Region Green Building Council, 2009
    15. 15. Green Energy liens: Social Equity considerations <ul><li>Focus would depend on municipality size, complexity </li></ul><ul><li>Equitable access to: </li></ul><ul><ul><li>Credit </li></ul></ul><ul><ul><li>Minimizing operating costs </li></ul></ul><ul><ul><li>Reduced risks from energy cost unpredictability & price volatility </li></ul></ul><ul><ul><li>Deeper CDM measures </li></ul></ul><ul><ul><li>Daylighting </li></ul></ul><ul><ul><li>Renewables </li></ul></ul><ul><ul><li>Municipal loan program: pilot & scaled up: finite loan totals and sizes </li></ul></ul><ul><ul><li>Participation in green economy: as owner & worker </li></ul></ul><ul><li>Minimize occupant relocation costs </li></ul><ul><li>Sliding loan rate </li></ul>
    16. 16. Green Energy liens: Financial considerations <ul><li>Loan eligibility – LICs: not income; not typical credit risk evaluation: history of property tax payments & liens . CIPs: can use credit rating. </li></ul><ul><li>Tax Lien: not on property title </li></ul><ul><li>Confirm that property owner LIC has no effect on municipal debt limits. May imply 3 rd party lender is optimal unless legislative change </li></ul><ul><li>Rates: lowest when municipality is lender </li></ul><ul><li>Real estate / lending community response to lien & transferability </li></ul><ul><li>Payment streams: </li></ul><ul><ul><li>Who gets $ </li></ul></ul><ul><ul><li>When $ issued </li></ul></ul><ul><ul><li>YUKON </li></ul></ul><ul><li>Quality assurance & financial due diligence </li></ul><ul><li>Financing: Energy improvements (LIC) + maintenance (loan) </li></ul>
    17. 17. Green Energy liens: Triple-bottom-line decision-making <ul><li>Goals: Optimize energy/GHG/cost reductions equitably </li></ul><ul><li>Pilot : municipal residential program: SFDs, MURBs </li></ul><ul><li>Pilot geographic selection: </li></ul><ul><li>All neighbourhoods (Berkeley) vs one neighbourhood (easier?) </li></ul>
    18. 18. Decisions: Optimizing municipal $ <ul><li>Considerations: </li></ul><ul><li>Energy / GHG reduction goals </li></ul><ul><li>Electricity – baseboard heating? </li></ul><ul><li>Peaks: oil+gas (leading to passive measures focus?) </li></ul><ul><li>High consumption? Property size /plug loads/income: social equity </li></ul><ul><li>Age of property </li></ul><ul><li>Large #s of similarly designed properties </li></ul><ul><li>Priorities? </li></ul><ul><li>NC: Green roofs? </li></ul><ul><li>Study of x housing types for common measures </li></ul>Scaling up : who first?
    19. 19. Green Energy Liens Legislated: <ul><li>Yukon Territory </li></ul><ul><li>District of Central Saanich legal opinion: can use LICs for renewable energy & energy efficiency </li></ul><ul><li>City of Dawson Creek, BC </li></ul><ul><li>4 US States. Examples: </li></ul><ul><ul><li>City of Berkeley, / State of California </li></ul></ul><ul><ul><li>County of Boulder, CO </li></ul></ul>
    20. 20. Green Energy Lien USA Examples: key features Yes Yes ; via contractual assessment district Loan payments collected on property tax roll? Not credit rating Not income. Based on prop tax pmts + lien history . States on loan document that may do credit rating in future. Criteria for eligibility (social equity appeal) Yes Yes Transferrable to new owner County/Municipalities 3 rd party Lender EE/RE RE EE/RE Yes : HB 08-1350 & County Ballot Measure 1A Yes ; Mello Roos; Assembly Bill 811 Private property? Yes Yes (benefits lenders) Priority lien? Boulder, CO Berkeley/State of California Criterion
    21. 21. Example: City of Berkeley ‘ Berkeley FIRST’ <ul><li>40 SFDs in pilot. Sold out in 9 minutes. Offered to both residential & commercial; uptake only by residential. Third party lender gets line of credit from bank, then lends to city: </li></ul><ul><li>Project financing amount: $ 41,599 solar pv project </li></ul><ul><li>Rebate: ($6,374) </li></ul><ul><li>Lender’s Financing rate: 6.75% </li></ul><ul><li>Program costs to be amortized: 1% </li></ul><ul><li>Effective Financing rate: 7.75% </li></ul><ul><li>Term of repayment: 20 years </li></ul><ul><li>Projected annual special tax: $3,522 / year </li></ul><ul><li>= $3,345 bond pmt + $106 City </li></ul><ul><li> fee + $70 County fee </li></ul>The funds are reflected the City of Berkeley’s Balance Sheet although in ‘Special’ seg funds. City issues the bonds. Lender borrows + puts up collateral of same amount with bank (i.e. just in case lender decides not to lend a particular project, the bank just uses the collateral).
    22. 22. Example: Boulder County, CO ‘ ClimateSmart Loan Program’ <ul><li>$40 million EE/RE program </li></ul><ul><li>$28M residential, $12M commercial. 1 st Round: ~400 homes </li></ul><ul><li>Payment from lender directly to contractor </li></ul><ul><li>Useful life average must be 15+ years. Loan up to 20 years </li></ul><ul><li>$15,000 loan, 15 years, Income qualified, Closing costs $1,897 (cost to issue bond @ 4%). Assessment rate 5.2%, annual assessment $1,650 </li></ul><ul><li>$50,000 loan, open, 15 years, Closing costs $7,972. Assessment rate 6.68%, annual assessment $6,240 </li></ul><ul><li>Admin fees are completely covered by participants. Include: </li></ul><ul><li>1) $75 Admin fee </li></ul><ul><li>2) Debt Service Reserve Fund of 8-12% for investor security to enhance bond rating and get better interest rate. Held in escrow from closing to secure bonds in case of nonpayment. Reduces effective interest rate & can be applied to pay down bond early. </li></ul>
    23. 23. Green Building Liens: Municipal Program Considerations <ul><li>Building performance goals; GHG reductions </li></ul><ul><li>Standards e.g. Toronto Green Standard </li></ul><ul><li>QA: 3 rd party evaluations? e.g. LEED ® </li></ul><ul><li>Pilot: commercial / industrial? NC? </li></ul><ul><li>Priorities e.g. Green roofs </li></ul><ul><li>Social equity vis-à-vis eligibility (credit rating): costs more likely to be > quantified benefits </li></ul>24
    24. 24. Opportunities/Challenges
    25. 25. Opportunities <ul><li>Municipal, provincial GHG emission/energy reduction & greening mandates </li></ul><ul><li>Community/neighbourhood greening </li></ul><ul><ul><li>Waterfront </li></ul></ul><ul><ul><li>Tower Renewals </li></ul></ul><ul><li>Manufacturing sector growth in clean-tech </li></ul><ul><li>Sectoral greening goals: </li></ul><ul><ul><li>CaGBC </li></ul></ul><ul><ul><li>BOMA </li></ul></ul><ul><li>Green jobs creation </li></ul><ul><li>Productivity: reduction in people costs, positive impacts on NOI, ROI </li></ul><ul><li>Other societal cost savings: </li></ul><ul><ul><li>health care </li></ul></ul><ul><ul><li>Energy & water infrastructure </li></ul></ul><ul><li>Economy enhanced </li></ul><ul><li>International competitiveness </li></ul>Green Jobs Philly
    26. 26. Challenges <ul><li>‘ LIEN’ perception & ON transferability reality </li></ul><ul><ul><li>Real estate </li></ul></ul><ul><ul><li>Finance </li></ul></ul><ul><ul><li>Public </li></ul></ul><ul><li>Legislative changes </li></ul><ul><li>Valuation </li></ul><ul><li>Public demand: awareness of triple-bottom-line benefits </li></ul>
    27. 27. Who is considering green liens? <ul><li>USA (energy) </li></ul><ul><ul><li>4 states legislated , 6 states pending </li></ul></ul><ul><ul><li>1300 municipalities including San Diego, San Francisco </li></ul></ul><ul><li>UKGBC PAYS (green energy / buildings) </li></ul><ul><li>Ontario Municipalities : Ottawa, London, Toronto </li></ul>
    28. 28. Next steps <ul><li>Green Energy Liens </li></ul><ul><ul><li>Municipal governments: </li></ul></ul><ul><ul><li>Request that provincial government make necessary legal, financial and institutional arrangements </li></ul></ul><ul><ul><li>Provincial government: </li></ul></ul><ul><ul><li>Amend Regulations to clearly permit LICs (or equivalent) for EE/RE, and to allow cities to pursue most favorable financing arrangement </li></ul></ul><ul><ul><li>Establish standardized procedures for municipalities to create and implement programs </li></ul></ul><ul><ul><li>Input from green energy/green building sectors </li></ul></ul><ul><ul><li>enabling LICs in residential sector (legislation). Ideally, same legislation would also enable commercial/industrial sectors </li></ul></ul><ul><ul><li>addressing residential sector in pilot </li></ul></ul><ul><ul><li>Disseminating findings </li></ul></ul><ul><ul><li>Assisting 1 municipality with pilot planning & implementation (homes) </li></ul></ul><ul><ul><li>Plan: expansion to other municipalities </li></ul></ul><ul><li>Green Building Liens </li></ul><ul><ul><li>TBD: Legislation (Definition, measures to be included) </li></ul></ul>
    29. 29. Thank you! Sonja Persram, BSc., MBA, LEED® AP, President Sustainable Alternatives Consulting Inc. T: 416.324.9388 [email_address] www.sustainable-alternatives.ca

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