On February 3, 2010, Energy & Utilities Policy Committee Chairman Steve Precourt (R-Orlando) and House Majority Leader Adam Hasner (R-Delray Beach) announced that they are exploring the adoption of legislation which was named by the Harvard Business Review as one of the "Breakthrough Ideas for 2010." "PACE" or "Property Assessed Clean Energy", is a concept utilizing local government bonding capacity to lend funds to commercial and residential property owners to finance energy retrofits (efficiency measures and small renewable energy systems) who then repay their loans over 20 years via an annual assessment on their property tax bill.
Popularly referred to as "Energy Finance Districts" or "Clean Energy Assessment Districts", these municipal taxing districts have gained national attention for the advantages they provide over more traditional loans for financing energy efficiency retrofits to the extent the costs are tied to the property, not the original investor, thereby overcoming some of the most intractable market barriers to energy efficiency such as the landlord-tenant problem.
"PACE is a no-subsidy, no-mandate, no-cost to taxpayers, consumer opt-in approach that can bring clean energy technology to homeowners and businesses while creating jobs for Floridians," said Hasner. "By helping consumers finance the upfront costs for energy improvements, we'll be taking away the biggest burden for homeowners who want to make their homes more energy efficient and save money."
How it Works
PACE bonds are issued by a municipality or special district and backed by property tax liens on the buildings of owners who voluntarily take PACE loans from the bond pool. The property owner repays the loan over a 20-year period through an increase on their annual property taxes equal to one-twentieth of the loan plus interest. For many, the annual energy cost savings realized from retrofitting exceed the cost of the annual repayment costs, thereby resulting in no net out-of-pocket expense. If the property is sold before the end of the repayment period, the new owner inherits both the repayment obligation and the financed improvements.
Who Likes the Concept
Local governments across the country have been rapidly exploring the PACE concept idea since it accelerates movement toward energy independence & reduces greenhouse gas emissions, it does not provide any financial risk to the municipality, and the projects generated by these private sector clean energy improvements may provide job creation for local economies. Investors have been warming to the idea since, like other taxes, PACE bonds are paid before other claims against the property in the case of foreclosure. Both commercial and residential property owners have been embracing the idea, as Energy Financing Districts offer many additional advantages to traditional retrofit financing including a long repayment period, potentially lower interest rates, tax-deductible interest payments, and an easier access to capital otherwise not available in the second mortgage or home equity market. PACE has also been credited with accelerating the timing of energy retrofits for landlords and tenants who would otherwise not explore a present energy investment in their property in the current economic climate.
Where it all Began
The Energy Finance District concept began in 2008 with the passage of enabling legislation in California. Since then, Colorado, Illinois, Louisiana, Maryland, Nevada, New Mexico, Ohio, Oklahoma, Oregon, Texas, Vermont, Virginia, and Wisconsin have passed enabling legislation to authorize the creation of Energy Finance Districts. Legislation is currently pending in Arizona and New York, as well.
Florida's Ability to Keep the Pace
If a successful model can be implemented, House Leaders are also looking at the option to expand the PACE approach to property owners looking to harden their homes through hurricane mitigation improvements. Property owners could offset the costs of their improvements through potential reductions in property insurance costs.
Jeffrey Lynne, P.A., offers experienced and knowledgeable guidance for public and private clients to maximize the value and minimize the cost of the design, permitting and construction of green projects and mandated/incentivized sustainability issues impacting real estate and infrastructure projects throughout the United States, including financing and economic development, government affairs and public policy, land use and environmental law, construction, infrastructure development, and procurement law and government contracts.
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