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.