[First Reprint]

ASSEMBLY, No. 2579


with committee amendments




DATED:  MAY 12, 2015


      The Senate Budget and Appropriations Committee reports favorably Assembly Bill No. 2579 (1R), with committee amendments.

      As amended, this bill authorizes municipalities to facilitate private financing of water conservation, storm shelter construction, and flood and hurricane resistance projects through the use of voluntary special assessments, thereby expanding the "clean energy special assessment," established by P.L.2011, c.187 (C.40:56-1.4 et al.), and renaming it the "PACE special assessment," to utilize a concise acronym for the term "property assessed clean energy."

      Currently, the governing body of a municipality, upon application to and approval by the Director of the Division of Local Government Services in the Department of Community Affairs, may undertake the financing of the purchase and installation of renewable energy systems and energy efficiency improvements made by property owners. By ordinance, the municipality may provide for a "clean energy special assessment" to be imposed on those properties when the property owner has requested the assessment in exchange for receiving assistance with the initial financing. Currently, the only projects eligible for this treatment are installations of renewable energy systems and energy efficiency improvements.

      Under the bill, water conservation projects, flood resistant construction projects, hurricane resistant construction projects, storm shelter projects, and safe room projects are also eligible for a "PACE special assessment."  The bill allows most municipalities to establish and operate PACE programs without applying for approval by the Director of the Division of Local Government Services.  Municipalities that (1) have received Transitional Aid within last three years, (2) are subject to State supervision under the "Local Government Supervision Act (1947)," P.L.1947, c.151 (C.52:27BB-1 et seq.), or (3) are subject to the "Municipal Rehabilitation and Economic Recovery Act," P.L.2002, c.43 (C.52:27BBB-1 et al.), are required by the bill to apply for approval from the director prior to establishing a PACE program.

      Under current law, to finance eligible projects, the governing body of the municipality may issue bonds pursuant to N.J.S.A.40:56-13.2, or may apply to a county improvement authority that issues bonds pursuant to paragraph (2) of subsection (j) of N.J.S.A.40:37A-55.  Currently, use of private financing is not explicitly prohibited. 

      This bill permits certain exceptions to the "Local Bond Law" (N.J.S.40A:2-1 et seq.) for the financing of PACE programs. These exceptions concern the down payment requirement, and provisions addressing periods of usefulness, bond maturity, public sale, and local finance board review.  The bill also clarifies that the governing body of the municipality may use private funds to finance eligible projects.

      As amended, the bill allows a municipality, or a county improvement authority or other public entity, implementing a PACE program on behalf of a municipality, to designate private entities to finance the purchase and installation of eligible PACE projects.  An eligible entity shall include a "related competitive business segment of a public utility holding company," or a "related competitive business segment of an electric public utility or gas public utility," as defined under section 3 of P.L.1999, c.23 (C.48:3-51), so long as the organization is not subject to the jurisdiction of the Board of Public Utilities.  Similar to programs administered by municipalities and county improvement authorities, the bill provides for private entities to be repaid through PACE special assessments.  Because of the specialized and qualitative nature of the services to be provided through agreements between municipalities, county improvement authorities or other public entities, and private entities to administer PACE programs, the bill specifies that these agreements will not be subject to the "Local Public Contracts Law," P.L.1971, c.198 (C.40A:11-1 et seq.). 

      The bill takes effect immediately upon enactment. 

      As amended and reported, this bill is identical to Senate Bill No. 1510, as also amended and reported by the committee.



      The amendments make the following changes:

·       Insert a “findings” section as section 1 and a definitions section as section 2;

·       Renumber section 1 as section 3, section 2 as section 4, section 3 as section 5, section 4 as section 7, and section 5 as section 8.  Insert a new section 6;

·       Define "private entity" to clarify that those entities with which municipalities and county improvement authorities may contract to assume PACE program responsibilities include for-profit and non-profit entities, and the "related competitive business segment of a public utility holding company," or the "related competitive business segment of an electric public utility or gas public utility," as defined under section 3 of P.L.1999, c.23 (C.48:3-51).  To ensure that PACE program costs are not covered though utility rate increases, this definition does not include any organization subject to the jurisdiction of the Board of Public Utilities;

·       Amend the definition of “project costs” to clarify that interest and other financing charges are a part of the cost of utilizing the PACE program;

·       Amend subsection b. of the new section 3 to allow municipalities to designate government entities in addition to county improvement authorities to manage, oversee, administer, finance or implement all or any portion of a PACE program on the municipality’s behalf;

·       Amend subsection e. of the new section 5 to ensure that, if a lien is struck off and sold to the municipality at tax sale, a PACE special assessment on the property shall survive a subsequent foreclosure action;

·       Amend subsection f. of the new section 5 to expand the ability of any party entitled a PACE special assessments to assign the PACE special assessment as security for the repayment of bonds and other obligations;

·       Add a subsection h. to the new section 5 to clarify that in the event of inconsistency between this bill and any other law with respect to PACE special assessment, this bill will control; and

·       Make several technical changes.



      The bill, as amended, will have an indeterminate impact on municipal finances.  The bill authorizes municipalities to issue bonds or borrow funds from a county improvement authority or other public entity to finance loans to property owners to acquire and install renewable energy systems and energy efficiency improvements.  The issuance of municipal debt must be authorized by an ordinance adopted by a two-thirds vote of the full membership of the governing body of the municipality and approved by the mayor, as is necessary in the specific form of government.  The loans would be secured by the payment of a special assessment on the improved property.  Special assessments would be paid quarterly and assigned to the agency that issued the bonds or provided the financing for the renewable energy improvements.

      This legislation could make it easier to implement a PACE special assessment program by relaxing certain requirements of the “Local Bond Law,” (N.J.S.40A:2-1 et seq.).  However, providing municipalities with greater discretion regarding how and under what terms the program is financed may increase the costs of the program and individual PACE projects.  By broadening the types of projects that may be financed through PACE special assessments, the bill could increase the risk of a municipality not recovering adequate debt repayments from property owners.

      While the bill provides for a financing mechanism under which costs are borne only by property owners benefitting from energy improvements, municipalities may be required to expend general revenues to provide for the repayment of bonds or loans in the event that a property owner fails to make required payments of the special assessment.  The OLS notes that even when non-recourse debt is issued by a private entity to finance PACE projects, a default could exert pressure on a municipality to redeem the debt even though it is not obligated to do so.  In most cases, a municipality should be able to recover its costs through enforcement of its lien against the property owner under general law.