What is PACE?
PACE is a local government initiative that allows property owners to finance qualifying energy efficiency and renewable energy retrofits and improvements to existing buildings. PACE loans are repaid through special property tax assessments that can be amortized for periods of up to twenty (20) years. If the property is sold before the full amount of the PACE loan is repaid, the repayment obligation is automatically transferred to the next owner because the lien securing the tax assessment follows title to the property.
How does PACE Work?
- The property owner identifies an energy efficiency or renewable energy project that would pay for itself through cost savings.
- The property owner submits the project for approval, most likely through a third-party administrator retained by the governmental entity to administer the program.
- The administrator approves the project for funding through the PACE loan program, establishes the property tax assessment for repayment of the cost of the project, and coordinates execution of a contract binding the parties to the program and the project.
- The property owner submits the approved project to a participating lender for construction financing.
- The property owner engages a contractor to complete the project, with the contractor being paid with funds advanced by the lender.
- The lien created by the property tax assessment is assigned by the taxing authority to the lender to secure repayment of the loan.
- Note: In certain circumstances, it may be necessary for the property owner to obtain consent to the PACE loan from the holders of existing liens against the property.
Who Can Participate in PACE?
Any owner of real property who is willing to participate, who meets the requirements of the PACE loan program, and who has a project that qualifies for PACE financing.
Why is PACE so Innovative?
Competition for and the high cost of capital are significant hurdles to construction of energy efficiency and renewable energy projects. PACE provides a readily accessible, low cost source of capital for such projects.
What are the Benefits of PACE to the Property owner?
- Low up-front cost
- Long-term financing (According to some PACE proponents, this financing might qualify for off-balance sheet accounting treatment. But there is no clear authority regarding this proposition at this time. Ultimately, this issue must be resolved in accordance with generally accepted accounting principles, and interested parties are advised to consult their accounting professionals.)
- Reduced operating costs (increased cash flow) realized through lower energy bills
- Enhanced property value
- Decreased internal competition for capital dollars
- Potential tax benefits
- Intangible benefits, such as green credits
Has Anyone done this Before?
Yes. Currently, 27 states and the District of Columbia have adopted PACE-enabling legislation with broad bipartisan support. In September 2011, PACE loan programs totaling $650 million were announced for projects in Miami, Florida and Sacramento, California. Many more cities and states are beginning to implement PACE loan programs.