AGENDA ITEM #6A
November 19,2013
Action
MEMORANDUM
November 15,2013
County
Council~
.
TO:
FROM:
SUBJECT:
~JJi
Amanda Mihill, Legislative Attorney
Action: Bill 11-13, Commercial Property Assessed Clean Energy Program -
Established
Transportation, Infrastructure, Energy, and Environment Committee recommendation
(3-0): enact Bill 11-13 with amendments to require the Executive to develop a plan to
implement a Commercial Property Assessed Clean Energy Program
Bill 11-13, Commercial Property Assessed Clean Energy Program - Established, sponsored by
Councilmember Berliner, was introduced on April 23, 2013. A public hearing was held on June
11. There were no speakers.
Transportation, Infrastructure, Energy, and Environment
Committee worksessions were held on July 8 and October 28.
Bill 11-13 would establish a commercial property assessed clean energy (PACE) program to
assist qualifying commercial property owners to make energy improvements and establish a
revolving loan fund to provide property owners loans under the Program.
Fiscal and Economic Impact Statements
OMB's fiscal impact statement (©10) indicates that
Bill 11-13 would have a fiscal impact, but it would depend on the size and scope of the program.
According to the statement, DEP cannot implement the program without retaining a consultant to
design a program suitable for the County, which would cost $100,000-$150,000. Elements that
would contribute to the fiscal impact include financing costs, startup costs (marketing and
outreach, develop web infrastructure), and ongoing program costs.
The fiscal impact statement notes that the fiscal impact to the County would be lessened if the
commercial PACE program employed owner-arranged or quasi-government financing. A bill
that would allow this type of financing was introduced in the 2013 General Assembly session,
but was not enacted.
Maryland law.
The State does not currently have a commercial PACE program. State law
authorizes political subdivisions to establish clean energy loan programs for residential and
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commercial property owners to finance energy efficiency projects and certain renewable energy
projects (©17).
Experience in other jurisdictions.
A number of jurisdictions in other areas of the country have
adopted commercial PACE programs. According to PACENow, an advocate organization that
assists jurisdictions in setting up programs, commercial PACE programs were pioneered in
Boulder County, Colorado and in several local jurisdictions in California. Last year, Connecticut
created the first statewide program. Another notable jurisdiction with commercial PACE
programs is the District of Columbia. In 2011, Lawrence Berkeley National Lab, the Clinton
Climate Initiative, and Renewable Funding released a policy brief on commercial PACE
programs (©27).
Correspondence
The Greater Washington Commercial Association of REALTORS® sent a
letter to the Council with its strong support for Bill 11-13 (©42).
Executive staffpolicy paper
Executive staff prepared a policy paper that discusses the bill and
PACE options (©43). This paper raises several issues for consideration to implement a PACE
program. The policy paper discusses these best practices and common themes that the
Committee may wish to discuss:
• Require lender consent for a PACE assessment on a financed property (Bill 11-13
includes lender consent).
• Allow owner-arranged financing (requires state legislation).
• In principle, energy cost savings should equal financing and project costs.
• Adequate administrative resources to run the program should be provided.
• Energy measurement and verification, which monitors a project's performance over an
extended period of time, should be conducted.
• Couple PACE programs with available utility incentives.
Issues/Committee Recommendation
WI,at type of legislation should he adopted?
Rather than legislating a program at this time,
Executive staff proposed an amendment to require the Executive to develop a plan to implement
a PACE program. In Executive staffs view, this amendment would allow the Department to
retain a consultant to design a program tailored to Montgomery County. Such a program could
take into account the County's commercial property inventory, market for retrofits, state law, and
other important considerations. Executive staff stress that their amendment would allow the
development of a plan that will outline the actions and costs necessary to launch aPACE
program.
As the Executive staff policy paper notes, there are several jurisdictions (and others not included
in the policy paper) that have adopted PACE programs. While there are some best practices that
are emerging, these jurisdictions have programs that are all different. If the Council adopts
legislation mandating certain portions of a PACE program at this time, it is likely that
amendments would be required after a consultant develops a program. With or without
2
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legislation, the Executive could develop a plan to implement a PACE program. Committee
recommendation (3-0): adopt the Executive staff amendment to require the Executive to
develop a PACE program.
What
is
the appropriate timeframe to develop the PACE plan?
Committee recommendation
(3-0): set a deadline of 6 months from the date Bill 11-13 is adopted for the Executive to develop
a PACE plan. Executive staff raised concerns that while it is their goal to develop the plan in 6
months, they could guarantee that date.
Committee recommendation (3-0): enact Bill 11-13 as amended. The amended version of Bill
11-13 begins on ©7, line 136.
This packet contains:
Committee Bill 11-13
Legislative Request Report
Fiscal and Economic Impact Statements
State Law
Policy Brief
GWCAR letter of support
Executive staff policy paper
Circle
#
1
9
10
17
27
42
43
F:ILAWIBILLSI13 I I Commercial PACEIAction Memo.Doc
3
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Bill No.
-:----=_-'-'--'-=--:--_--=-____
Concerning: Commercial
Prooertv
Assessed Clean Energy Program ­
Established
Revised:
10/2812013
Draft No.
Introduced:
April 23, 2013
Expires:
October 23,2014
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date: _--::-:-:---::--_ _ __
Ch. _ _, Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Councilmember Berliner
AN
ACT to:
(1) [[establish a Commercial Property Assessed Clean Energy Program to assist qualifying
commercial property OMlers to make energy improvements;
(2) establish a revolving loan fund to provide property OMlers loans under the Program; and
(3)]] require the Executive to develop a plan to implement a Commercial Property Assessed
Clean Energy Program to assist qualifying commercial property OMlers with energy
improvements and:
ill
generally amend the environmental sustainability law.
By adding
Montgomery County Code
Chapter 18A, Environmental Sustainability
Article 5
Section 18A-33[[, 18A-34, 18A-35, 18A-36, 18A-37, and 18A-38]]
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unqffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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BILL
No. 11-13
1
Sec. 1. Article 5 of Chapter 18A ([[Sections]] Section 18A-33[[, 18A-34,
18A-35, 18A-36, 18A-37, and 18A-381]) is added as follows:
[[Article 5. Commercial Property Assessed Clean Energy Program]]
[[18A-33. Definitions.
In this Section, the following words have the meanings indicated:
Commercial or industrial property
means any privately owned commercial or
2
3
4
5
6
7
industrial real property located in the County.
Commercial Property Assessed Clean Energy Program
or
Program
means
B:
8
9
program that facilitates energy improvements and requires repayment through
~
10
11
surcharge on the owner's property tax bill.
Department
means the Department of Finance.
Director
means the Director of the Department or the Director's designee.
Eligible cost
means the net cost of buying or installing an energy
12
13
14
15
16
improvement, including any part, component, or accessory necessm to
operate the improvement or device, less any amount received from
~
public or
private program because the improvement or device is or will be made or
installed.
Energy efficiency improvement
means any equipment, device, or material that
17
18
19
20
is intended to decrease energy consumption, including:
ill
ill
insulation in any wall, roof, floor, foundation, or heating and cooling
distribution system;
~
21
22
23
24
25
26
27
storm windows or door, multi-glazed window or door, heat-absorbing
or heat-reflective glazed and coated window and door system; and
additional glazing, reduction in glass area, and other window and door
system modification that reduces energy consumption;
ill
®
an automated energy control system;
~
heating, ventilating, or air-conditioning and distribution system
(!)-
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BILL
No. 11-13
28
29
30
31
32
33
34
35
36
modification or replacement;
ill
(Q)
caulking, weather-stripping, and air sealing;
replacement or modification of g lighting fixture to reduce the energy
use of the lighting system;
ill
an energy recovery system;
g day lighting system;
the installation or upgrade of electrical wiring or outlets to charge g
motor vehicle that is fully or partially powered
Qy
electricity;
rn
(2)
.QQ}
any measures to reduce the usage of water or increases the efficiency of
water usage; or
37
38
.QD
any other installation or modification of an equipment, device, or
material approved as g utility cost-savings measure.
39
40
Qualifying commercial real property
means any commercial or industrial
property that meets the qualifications established for the Commercial Property
Assessed Clean Energy Program.
41
42
43
Renewable energy resource
means g resource that naturally replenishes over g
human, not g geological, time frame and that is ultimately derived from solar
power, water power, or wind power.
Renewable energy resource
does not
include petroleum, nuclear, natural
~
44
45
46
or coal. A renewable energy resource
47
comes from the sun or from thermal inertia of the earth and minimizes the
output of toxic material in the conversion of the energy and includes:
48
49
50
51
52
53
54
ill
ill
ill
biomass;
solar and solar thermal energy;
wind energy;
geothermal energy; and
methane gas captured from g landfill.
ill
ill
Renewable energy system
means g fixture, product, device, or interacting
o
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BILL No. 11-13
55
56
group of fixtures, products, or devices on the customer's side of the meter that
uses at least one renewable energy resource to generate electricity.
Renewable
energy system
includes
£!
biomass stove, but does not include an incinerator or
57
58
59
digester.]]
[[18A-34. Commercial Property Assessed Clean Energy Program established.
60
61
W
(hl
Established.
The Director must create and administer
£!
Commercial
Property Assessed Clean Energy Program.
Bond issuance authorized.
The Director may issue
£!
bond to finance
£!
62
63
64
qualifying commercial real property to fund eligible costs to make an
energy efficiency improvement on the property.
65
i£l
Owner-arranged or lessee-arranged financing.
The Director may enter
66
67
into an agreement regarding repayments to
£!
third
.QMty
for owner­
arranged or lessee-arranged financing to fund eligible costs to make an
energy efficiency improvement on
£!
qualifying commercial real
property. The agreement regarding repayments must provide for the
repayment of the cost of the energy efficiency improvement and any
cost of administering the Program through an assessment on the
property benefited. The financing may include the cost of materials and
labor necessary for installation, any pennit fee, any inspection fee, any
application or administrative fee, any bank
the owner may incur for the installation.]]
[[18A-35. Eligibility;
~
of funds.
68
69
70
71
72
73
74
and any other fee that
75
76
77
78
W
Eligibility.
ill
A property owner must have an energy audit or renewable energy
system feasibility analysis on the qualifying commercial real
property that assesses the expected energy cost savings of the
energy improvement over the useful life of the improvement.
79
80
81
tV
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BILL
No.
11-13
82 .
83
84
85
ill
ill
A property owner must obtain the consent of any existing
mortgage holder.
A property owner must agree to repay the amount financed
through the County tax bill for that property, as required
Qy
Section 18A-36.
86
87
88
ill
ill
An energy efficiency improvement must be permanently fixed to
~
qualifying commercial real property.
89
90
91
If the cost of an energy efficiency improvement exceeds
$250,000, the property owner must provide for ongomg
measurements to establish the savings realized from the
improvement.
92
93
94
95
@
Any contract to install an energy efficiency improvement that
exceeds $250,000 must require the contractor to guarantee to the
property owner that the improvement will achieve
investment ratio greater than
.L
~
savings-to­
96
97
®
Property Tax Assessment
98
99
100
ill
An assessment may be imposed only under
~
written contract
between the Department and the property owner. Before entering
into
that:
(A)
there are no delinquent taxes, special assessments, or water
or sewer charges on the property; and
~
contract under the Program, the Department must verify
101
102
103
104
105
tID
ill
there are not delinquent assessments on the property under
~
property assessed clean energy program.
106
107
108
The property tax assessment must not exceed the useful life of the
energy efficiency improvement.
ill
The total amount financed must not exceed 10% of the assessed
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Bill
No. 11-13
109
110
111
112
value of the qualifying commercial real property.
(£1
Disclosure to property owner.
The Director must disclose any cost or
risk associated with participating in the Program, including any risk
related to the failure of the property owner to
!mY
the property tax
assessment to
~
property owner.]]
113
114
[[18A-36. Repayment
of funds;
lien.
115
116
W
The owner of qualifying commercial real property must agree to repay
the financed amount through the County property tax bill for that
property.
117
118
!hl
Under owner-arranged financing, the County may impose
~
property tax
assessment and forward payments to the third
~
119
120
121
122
123
124
financer or the
property owner may
!mY
the third
~
financer directly.
(£1
If the property owner sells the property, the seller must disclose that the
buyer must continue to repay the assessment through the property tax
bill.
@
The amount financed and any accrued interest constitute
~
first lien on
The
125
126
127
the real property to which the assessment applies until paid.
amount financed and accrued interest are collectable
Qy
suit or tax sale
like all other real property taxes, to the extent allowed
Qy
State law. If
the property owner does not
!mY
the amount financed and accrued
interest as required, the property may be certified to the Department of
Finance and the lien may be sold at the tax sale conducted
Qy
the
County.]]
[[18A-37. Regulations.
128
129
130
131
132
133
134
The Executive must adopt regulations under Method
Program.]]
ill
to administer the
135
Sec. 1. Article 5 of Chapter 18A (Section 18A-33) is added as follows:
Q
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BILL
No. 11-13
136
137
Article 5. Commercial Property Assessed Clean Energy Program
18A-33. Commercial Property Assessed Clean Energy Program
~
138
139
Definition.
In this Section.
Commercial Property Assessed Clean
Energv Program
or
Program
means a program that facilitates energy
improvements and requires repayment through a surcharge on the
owner's property tax bill.
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
au
The Executive must. within [6
months from the date of enactment]
prepare a plan for implementing a Commercial Property Assessed Clean
Energy Program that
following elements:
analy~es
and provides recommendations on the
ill
ill
(l)
standards for eligible energy and environmental improvements;
energy audit or project design review requirements;
procedures for monitoring project progress and post-installation
ill
ill
(Q)
program funding sources;
lending standards and priorities;
minimum and maximum loan amounts;
interest rates, terms, and conditions;
application
procedures.
including
necessary
supporting
ill
lID
(21
!lQ)
documentation:
criteria for adequate security;
procedures to refer applicants to other public and private sources
of funds and incentives;
156
157
158
159
160
161
162
(l1)
procedures related to decisions on loan acceptance a[lg denial. or
loan terms and conditions;
Qll
procedures for nonpayment or default:
ill)
disclosure requirements for real estate transactions;
o
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BILL No. 11-13
163
164
165
(ill
criteria for loan disbursement; and
!lil
Approved:
any additional requirements necessary for program operation or
security of loan funds identified by the Executive.
166
167
Nancy Navarro, President, County Council
Date
168
Approved:
169
Isiah Leggett, County Executive
Date
170
This
is
a correct copy o/Council action.
171
Linda M. Lauer, Clerk of the Council
Date
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LEGISLATIVE REQUEST REPORT
Bill 11-13
Commercial Property Assessed Clean Energy Program
-
Established
DESCRIPTION:
Bill 11-13 would establish a Commercial Property Assessed Clean
Energy Program to assist qualifying commercial property owners to
make energy improvements and establish a revolving loan fund to
provide property owners loans under the Program.
Making energy efficiency improvements to commercial buildings can
be a cost-effective way to reduce greenhouse gas emissions.
However, the lack of accessible financing options is a barrier to many
property owners and may prevent them from making these energy
efficiency improvements
To establish a program to provide property owners with a financing
option to make energy efficiency improvements to their commercial
prope~y,
thereby reducing energy costs and greenhouse gas
emISSIons.
Departments of Environmental Protection, Finance, and Permitting
Services.
To be requested.
To be requested.
To be requested.
To be researched.
Amanda Mihill, Legislative Attorney, 240.777.7815
To be researched.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENALTIES:
N/A
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-
ROCKVILLE,
MARYLAND
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MEMOR'ANDUM
1une 10,,2013
TO:
,FROM:
~
..
(
Nancy Navarro, President, County Council
1ennifer
A.
Hughes.
Director. Office
ofManagem~udget
10sepb F. Beach,
Directo~"Department
of
Finance,
-DC)
SUBJECT:
Council BiU
'11-13.
Commercial Property Assessed Clean
Energy
Program Established
, Please :find attach.ed the fiscal and economic impact statements for the above-referenced
legislation.
JAH:nm
c: Kathleen Boucher, Assistant Chief Administrative Officer
Lisa Austin, Offices ofthe County Executive
Joy
Nurmi,
Special
Assistant
to
the
County Executive
Patrick Lacefield, Director. Public Information Office
Joseph E Beach, Director, Department of
Finance
Michael Coveyou, Department of Finance
Alex Espinosa, Office ofManagement and Budget
Matt Schaeffer, Office ofManagement and Budget
Naeem Mia, Office of Managemeat and Budget
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Fiscal Impact Statement
Council
Bill 11-13,
Commercial Property Assessed Clean Energy Program -
Established
1. Legislative Summary.
Bill 11-13 establishes a Commercial Property Assessed Clean Energy (PACE) program
to assist qualifying commercial property owners make energy improvements and
establishes
a
revolving loan fund to provide property owners loans under the program.
2. An estimate of changes
in
County revenues and expenditures
reg~rdle8s
of whether
the revenues or expenditures are assumed in the recommended or approved budget.
Includes source ofioformation, assamptions,
and methodologies used.
The Bill requires the Director of the Department of Environmental Protection (DEP) to
establish a PACE program, which DEP Would administer under a future regulation. The'
Bill would have a fiscal impact but since
it
does not define the size or scope of the
program, it is not possible at this time to determine a specific estimate of changes
in
County revenues or expenditures. DEP, however, cannot implement the Bill's
requirement to establish a PACE program without retaining a consultant with expertise in
energy retrofit financing programs, inc1uding PACE programs, to design a program for
the County. DEP believes a consultant would cost
$100,000 - $150,000
based on
information from other jurisdictions.
The extent of additional expenditures required to implement a commercial PACE
program depends on the number ofprojects, their scale, and the method used to finance
them. Data is available from commercial PACE programs in other jurisdictions:
I
Program
Washington,
DC
Projects Interested
12
large.
20
small
San
Francisco
Connecticut
Florida
Sonoma
Up to $7 million in
projects.
120
projects, staff
One complete, two near final. Collectively
$3.5
million.
estimate
70%
convertib1e to projects
Unknown
58,
but most are small projects
Unknown
Pro,jects Financed
One
140
unit residential property valued at
$340,000
in final stages ofunderwriting.
One $1.4 million project.
°
The
jurisdictions listed above have utilized a variety of funding techniques to provide the
initial capital needed for commercial property retrofits, including:
• Owner arranged, private capital funding: Participants secure private financing and
repay loans through the property taX-bill.
• Quasi-government program: These programs utilize a quasi-government entity
with
the
authority to issue bonds or secure private financing for projects. The
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jurisdiction operates the program and collects loan repayments through the
property tax bill.
• Municipal financed programs: These programs derive funding from
municipal
bonds, revolving load funds, or other appropriated funds. Most commercial
programs have transitioned from or abandoned this model due to the large capital
costs of most commercial projects.
The table below notes the funding approaches taken by other jurisdictions for commercial
PACE programs:
Program
Washington, DC
San Francisco
Type
of Fond
Conduit Bond
Private Capital/Owner
Arranged
Public Benefit
Funds/Owner Arranged
Jinancing____
Private Funds
TreasurylPrivate Funds
Connecticut
r----­
Initial
Funding
$250 million
Unlimited, but short term
limits due to credit
enhancements
$20 million
Florida
Sonoma
$500 million
Over $67 million
Currently, State
law
(Article
24,
Section 9-1501 et seq. of the
Maryland
Annotated C<:>de)
prohibits
the
County from collecting private loan repayments through the property tax
bill.
In addition to financing costs, PACE programs in other jurisdictions have both initial
startup costs and ongoing program operating costs. Startup funding would be needed
to,
among other things, prepare program materials, including marketing and outreach;
define underwriting standards; and develop web infrastructure. These costs could be
recovered through fees added to loans, but most programs have chosen to absorb these
.
costs, at least initially, in order to reduce the cost of the loan to borrowers. Most
programs assume ongoing administrative costs will be entirely funded by a surcharge on
each loan once the program reaches a certain scale. In
addition,
most programs
use
credit
enhancements and subsidies to ensure timely payment to lenders or offset losses. Based
on imonnation from other jurisdictions, the staff, consultants, and other costs associated
with implementing a commercial PACE program could range from $600,000 to $1
million. The table below outlines start-up costs and long-term staffing/consultant support
in
other jurisdictions:
Program
DC
San Francisco
Connecticut
Implementation Funds
$800,000
$600,000
$1 million
Ongoing
FTEs/CoDsultants
1+ consultants
2+ consultants
2+ consultants
(6-
to 8
individuals and other
specialized consultants as
@
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Florida
Sonoma
Unknown
Unknown
needed)
Volunteer commissioners
2
A specific cost estimate for a commercial PACE program in Montgomery County cannot
_ determined until
a
program is designed, but the information from other jurisdictions
be
provides a range of costs that
are
possible.
A
significant factor influencing the fiscal
impact would
be
the source and amount of capital financing for the retrofit projects.
An
owner arranged or quasi-government
fmanced
program would have
a
smaller
fiscal
impact on
the
County, but cannot be implemented at
this time
because State law
(ArticJe
24, Section 9-1501 et seq. of the Maryland Annotated Code) currently prohibits
collection of private loan repayments through the property
tax
bill.
A
bill
in the
Maryland
General Assembly that would have allowed the
tax bill
to
be
used
for this
purpose passed the Senate during the 2013 session but was not subject to a vote in the
House of Delegates prior to the conclusion of the session.
3.
Revenue
and
expenditure estimates covering at Icast
the
next
6 fiscal years.
See number
2.
An
initial expenditure of$100,OOO - $150,000 would
be
required for
a
consultant to design a program. Six-year estimates of revenues and expenditures can
be
estimated once
a
program is designed.
4. An actuarial analysis through the entire amortization period for each bill that would
affect retiree pension or group
insurance costs.
Not Applicable.
5. An estimate ofthe staff time needed to implement the bill.
See
number
2
and
3.
The startup and program implementation costs may include work by
current Coimty staff.
but
an estimate of staff time needed to implement the
Bill
cannot
be
estimated until after
a
program is designed.
6. An
estimate of costs when an additional appropriation
is
needed-
An
appropriation of
$
100,000 - $150,000 would be
required
to fund
a
consultant to
design a program
as
noted above.
An
additional appropriation would
be
required to
implement the program on
an
ongoing basis. but the amount would not
be
known
until a
program
is
designed.
7. An
explanation of how tbe addition of new staff
responsibilities
would affect otber
duties.
Not Applicable.
8.
Later actions that
may
affect future revenue and
expenditures
if
the
biU authorizes
future spending.
@
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Not
Applicable.
9. A description of
any
variable
that
could affect revenue and
cost
estimates.
See number 2 above.
1'0.
Ranges of revenue or expenditures that are uncertain
or
difficult
to
project.
See number 2 above.
While
some data
is
available on commerciaJ PACE programs)
sufficient long-term trend data is currently unavailable to accurately estimate revenues
and expenditures ofa
fully
functioning commercial
PACE
program. Program
implementation expenditures should be reexamined regularly to ensure the program is
fiscally and economically
viable.
11. H
a
bill
is likely
to have no fiscal impaet,
why that
is
the
case.
Not
Applicable.
12.
Other fiscal
impacts or comments.
Not Applicable.
13. The following contributed to and concurred with this analysis:
Stan Edwards, Department of Environmental Protection
Eric
Coffman, Department ofEnvttonmental Protection
Robert Hagedoorn, Department of Finance
Michael Coveyou, Department ofFinance
Alex
Espinosa, Office of Management and
Budget
Matt
Scbaeffer, Office
ofManagement
and
Budget
.. Date'
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Economic Impact Statement
BilJ 11-13, Commercial Property Assessed Clean Energy Program - Established
Background:
This legislation would establish a Commercial Property Assessed Clean Energy Program
(program) to assjst qualifying commercIal property owners
to
make energy
improvements, establish a revolving loan fund to provide property owners loans under
the Program,
and
amend the environmental sustainability law.
1.
The sources of information, assumptions, and methodologies used ..
According to the Department ofEnvironmental Protection (Department), the amount.
of data on the types ofprojects and commercial property owners eligible for
this
Program, the costs of the projects,
and
the reduction in energy costs achieved by the .
owners are very limited and project/site specific. While there are over
4,270
commercial buildings that encompass
150
million square feet
in
the County, it is
difficult without specific implementation guidelines and the amount
~f
funding to
detennine with any certainty
the
economic impact of
Bill 11-13.
2. A descriptioD
of
any variable that conld affect the eC()Domic impact estimates.
To estimate the economic impact with any degree of certainty, the analysis requires
the number ofpotential projects, which will be dependent
on the
level of f!.mding and
other factors. Based on the requirements' specified
in
the bill, at a
minimum a
project
that has been approved should achieve an economic benefit such that the cost savings'
a reduction in energy consumption
win
exceed the cost ofthe project. This bill
would not apply to condominiums. However without specificity
on
the types
of
projects to be implemented, it
15
premature to determine the economic benefits
of
the
bill.
from
3. The Bill's positive or negative effect, if any on employment, spending, saving,
investment, incomes, and property values in the County.
As stated in item
#2, the
total economic effect
will
depend on the amount
of
financing
available,
the
nUlU?er
of
projects
that are undertaken, the
costs
ofrenovating and
retrofitting
a
property, the'costs ofinvesting
in
a
renewable energy system and the
operating costS of such a system over the life of the system, the reduction ofenergy .
consumption and savings from that reduction, and the additional business
opportunities and increase
in
employment by energy consulting
and
construction
companies. The level of detail necessary to ascertain the positive economic effect is
'limited, and as such, the total economic effect cannot be determined with any degree
of
certainty.
4.
If
a Bill is likely to have no economic impact, why is that the case?
Please see item #3
Page 1 of2
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,
.
Economic Impact Statement
Bill 11-13, Commercial Property Assessed Clean Energy Program. Established
5. The following contributed to and concurred wIth this
analysis: David Platt and
Mike Coveyou, Finance.
Date
b/S"'
/2..0\:1­
~m
_ _
Page 20f2
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ARTICLE 24. POLITICAL SUBDIVISIONS -- MISCELLANEOUS PROVISIONS
TITLE 9. REVENUE AND TAXES.
SUBTITLE 15. CLEAN ENERGY LOAN PROGRAMS.
GO TO MARYLAND STATUTES ARCHIVE DIRECTORY
Md. Ann. Code art.
24,
§
9-1501
(2012)
§
9-1501. Definitions
(a) In general. -- In this subtitle the foHowing words have the meanings indicated.
(b) Bond. -- "Bond" means a bond, note, or other similar instrument that a political subdivision issues under this
subtitle.
(c) Chief executive. -- "Chief executive" means the president, chair, mayor, county executive, or any other chief
executive officer of a political subdivision.
(d) Political subdivision. -- "Political subdivision" means a county or municipal corporation.
(e) Program. -- "Program" means a Clean Energy Loan Program.
HISTORY:
2009, ch. 743.
NOTES:
EDITOR'S NOTE. --Section 2, ch. 743, Acts 2009, provides that the act shall take effect October 1,2009.
BILL REVIEW LETTER. --Chapter 743, Acts 2009 (House Bill 1567) was approved for constitutionality and legal
sufficiency. The surcharge under this bill does not constitute a lien against the property under State law as it was not
explicitly created. However, a lien created by local law authorized under this bill must satisfy due process requirements.
(Letter of the Attorney General dated May 12,2009.)
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ARTICLE 24. POLITICAL SUBDIVISIONS -- MISCELLANEOUS PROVISIONS
TITLE 9. REVENUE AND TAXES.
SUBTITLE 15. CLEAN ENERGY LOAN PROGRAMS.
GO TO MARYLAND STATUTES ARCHIVE DIRECTORY
Md. Ann. Code art.
24,
§
9-1502
(2012)
§
9-1502. Clean Energy Loan Program
(a) Ordinance or resolution. -- A political subdivision may enact an ordinance or a resolution establishing a Clean
Energy Loan Program.
(b) Purpose. -- The purpose of the Program is to provide loans to:
(1)
Residential property owners, including low income residential property owners, for the financing of energy
efficiency and renewable energy projects; and
(2) Commercial property owners for the financing of:
(i) Energy efficiency projects; and
(ii) Renewable energy projects with an electric generating capacity of not more than 100 kilowatts.
(c) Surcharge on
tax
bill. ­
(1)
The Program shall require a property owner to repay a loan provided under the Program through a surcharge
on the owner's property tax bill.
(2) A surcharge shall be limited to an amount that allows the political subdivision to recover the costs associated
with issuing bonds to fmance the loan and costs associated with administering the Program.
(d) Assumption of obligation. - A person who acquires property subject to a surcharge under this section, whether
by purchase or other means, assumes the obligation to pay the surcharge.
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Md. Ann. Code art. 24,
§
9-1502
(e) Eligibility requirements. -­
(1)
An ordinance or resolution enacted under subsection (a) of this section shall provide for:
(i) Eligibility requirements for participation in the Program, including eligibility requirements for:
1. Energy efficiency improvements and renewable energy devices; and
2.
Property and property owners; and
(ii) Loan terms and conditions.
(2)
Eligibility requirements under paragraph
(I)
of this subsection shall include a requirement that the political
subdivision, in a manner substantially similar to that required for a mortgage loan under
§§
12-127, 12-311,
12-409.1,
12-925, and 12-1029 ofthe Commercial Law Article,
give due regard to the property owner's ability to repay a loan
provided under the Program.
HISTORY:
2009, ch. 743.
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TITLE 9. REVENUE AND TAXES.
SUBTITLE 15. CLEAN ENERGY LOAN PROGRAMS.
GO TO MARYLAND
STATUTES
ARCHIVE DIRECTORY
Md Ann. Code art.
24,
§
9-1503
(2012)
§
9-1503. Bonds
(a) Issuance. -- A political subdivision may issue bonds for the purpose of financing loans made through the Program.
(b) Adoption. -- To issue a bond, a political subdivision shall adopt an ordinance or a resolution that specifies the
maximum principal amount of the bond.
(c) Bond specifications in ordinance or resolution. -- As the political subdivision considers appropriate to effect the
Program, the ordinance or resolution may:
(1) Specify the items listed in subsection (d) of this section;
(2) Authorize the finance board of the political subdivision to specify those items by resolution or ordinance; or
(3) Authorize the chief executive of the political subdivision to specify those items by executive order.
(d) Bond specifications in general. -- For each issuance of a bond, the political subdivision may specify:
(1) The principal amount;
(2) The interest rate or, for floating or variable rates of interest, the method to determine the interest rate;
(3) The manner and terms of sale, including whether by competitive or negotiated sale;
(4) The time of execution, issuance, and delivery;
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Md. Ann. Code art. 24, §
9~
1503
(5) The fonn and denomination;
(6) The source, manner, times, and places to pay principal
or
interest;
(7) Conditions for redemption before maturity;
(8) The purposes for which proceeds may be spent;
(9) The source of security; and
(10) Other provisions that the governing body of the political subdivision detennines are necessary or desirable to
effect the Program.
HISTORY:
2009, ch. 743.
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ARTICLE
24.
POLITICAL SUBDIVISIONS -- MISCELLANEOUS PROVISIONS
TITLE
9.
REVENUE AND TAXES.
SUBTITLE 15. CLEAN ENERGY LOAN PROGRAMS.
GO TO MARYLAND STATUTES ARCHIVE DIRECTORY
Md. Ann. Code art.
24,
§
9-1504
(2012)
§
9-1504. Bonds -- Conditions of issuance
(a) Legislative intent. -- The General Assembly intends that general obligation debt may be incurred by issuing bonds
if the purposes for the debt include the purposes for issuing bonds under this subtitle.
(b) Issuance of bonds to finance loans. -- Subject to subsection (c) of this section, a political subdivision may issue
bonds to finance loans made under the Program in accordance with the procedures of the political subdivision for
authorization to sell and issue bonds.
(c) Pledging of
full
faith and credit. -- A bond issued in accordance with an ordinance or a resolution that pledges
the
full
faith and credit of a political subdivision is subject to:
(1)
Any applicable requirements of the Maryland Constitution and the political subdivision's charter and laws on
referendum for the issuance of general obligation debt; and
(2) Each limitation imposed by public general law, public local law, or charter on general obligation debt of the
political subdivision.
HISTORY: 2009,
ch.
743.
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ARTICLE 24. POLITICAL SUBDIVISIONS -- MISCELLANEOUS PROVISIONS
TITLE 9. REVENUE AND TAXES.
SUBTITLE 15. CLEAN ENERGY LOAN PROGRAMS.
GO TO MARYLAND STATUTES ARCHIVE DIRECTORY
Md. Ann. Code art.
24,
§
9-1505
(2012)
§ 9-1505. General provisions regarding bonds
(a) Form. -- A bond:
(1) May be in bearer form;
(2) May be registrable as to principal alone or as to both principal and interest; and
(3) Is a "security" under
§
8-102 ofthe Commercial Law Article,
whether or not the bond is one of a class or
series or is divisible into a class or series of instruments.
(b) Signature and seal. -­
(1)
A bond shall be signed manually or in facsimile by the chief executive of the political subdivision.
(2)
An
officer's signature or facsimile signature on a bond remains valid even if the officer leaves office before
the bond is delivered.
(3) The seal of the political subdivision shall be affixed to the bond and attested by the clerk or other similar
administrative officer of the political subdivision.
(c) Maturity. -­
(I) A bond shall mature not later than 40 years after the date of issue.
(2) Bonds may be issued as serial bonds or term bonds with provisions for a mandatory sinking fund or other
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Md. Ann. Code
art.
24,
§
9-1505
annual principal redemption beginning not later than
3
years after the date of issue.
(d) Manner ofsale. -­
(1)
A bond shall be sold in the manner, at public or private (negotiated) sale, and on the terms at, above, or below
par, as the political subdivision considers best.
(2) A bond is not subject to Article 31,
§§
9,10, and 11 of the Code.
HISTORY:
2009, ch. 743.
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ARTICLE 24. POLITICAL SUBDIVISIONS -- MISCELLANEOUS PROVISIONS
TITLE
9.
REVENUE AND TAXES.
SUBTITLE 15. CLEAN ENERGY LOAN PROGRAMS.
GO TO MARYLAND STATUTES ARCHIVE DIRECTORY
Md Ann. Code art.
24,
§
9-1506
(2012)
§ 9-1506. Tax exemption
(a) State and local. -- A bond, the transfer ofa bond, the interest payable on a bond, the income derived from a bond,
and the profit realized on sale or exchange of a bond are exempt from State and local taxes.
(b)
Federal tax status. -- A political subdivision may issue bonds under this subtitle without regard to their federal
tax status.
HISTORY:
2009, ch. 743.
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ARTICLE 24. POLITICAL SUBDIVISIONS -- MISCELLANEOUS PROVISIONS
TITLE 9. REVENUE AND TAXES.
SUBTITLE 15. CLEAN ENERGY LOAN PROGRAMS.
GO TO MARYLAND STATUTES ARCHIVE DIRECTORY
Md. Ann. Code art.
24,
§
9-1507
(2012)
§
9-1507. Findings of political subdivision conclusive
For purposes of an action involving the validity or enforceability of a bond or security for a bond, a finding by a
political subdivision is conclusive as to:
(1) The public purpose of an action taken under this subtitle; and
(2) Any other matter relating to the issuance of a bond.
HISTORY:
2009, ch. 743.
NOTES:
EDITOR'S NOTE. --See note to
§
9-1501 of this article.
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Policy
Brief
Property Assessed Clean Energy (PACE) Financing:
Update on Commercial Programs
~.
-----....-.
~CLlNTON!
I
FOUNDATION ;
RENEWABLE
~~J:'
FUNDING
~*-ft~~
eLIN'TO N
CtJME
INITIATIVE
.
.~!\
.- H
'-'-Tf"
11111
BERKELEY LAB
LawrenCQ
Berkeley NiiHona' Laboratory
March 23,2011
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Executive Summary
Since 2008, 24 states and the District of Columbia have authorized Property Assessed Clean
Energy (PACE) under state law, and state and local governments initially allocated over
$150 million in federal grant funds to help launch programs.
1
However, actions taken by
the Federal Housing Finance Agency (FHFA), the Office of the Comptroller ofthe Currency
(OCC) and other financial regulators in mid-2010 froze most residential PACE programs.
Commercial PACE programs were not directly affected by these actions and are moving
forward in a number of cities around the country.2
This policy brief provides an overview of all currently operating commercial PACE
programs, including project data, the various financing mechanisms that are being piloted,
and common challenges across programs. The policy brief also includes a summary of
programs in the mid- to late developmental stage.
Key
findings:
• 71 projects have been
approved and financed in
the four active commercial
PACE programs,
representing about
$9.7
million in energy efficiency and renewable energy project investments (see Table
ES-1).
• In all active and planned programs, the existing mortgage holder must provide
written consent or formal acknowledgement for the property to participate in the
program. Mortgage lenders from local, regional and national banks have provided
their approval for these projects.
• While all existing programs are utilizing government capital or credit to provide
- financing for PACE projects, the programs scheduled to launch in 2011
will
rely
primarily on private capital complemented by federal grant money for credit
enhancement purposes.
These PACE programs were included in the initial plans and budgets filed by state energy offices and local
governments under the State Energy Program (SEP) and Energy Efficiency Community Block Grant (EECBG)
programs to utilize American Recovery and Reinvestment Act funds; most PACE program funds have since been
redirected to other initiatives.
2
Some regulatory risks remain for commercial PACE. For more information on regulatory action on residential and
commercial PACE, please visit Lawrence Berkeley National Lab's "PACE Status Update":
http://eetd.lbl.gov/ea/ems/reportsiee-policybrief08111 O.Qdf
I
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• The improvements
financed have varied
by program (see Fig.
ES-l). For example, the
majority of financings
approved by Sonoma
County (CA) will or
have funded solar PV
projects, while Boulder
County's projects are
predominately energy
efficiency. This may be
due to climate, local
incentive structures, or
other factors.
Fig. £5-1. Number of Approved Projects by Program
&
Type
Placer County
Palm Desert
II Renewable Energy Only
81 Energy Efficiency
Only
BOUlder
County
Sonoma County
=
Efficiency and
Energy
Renewable Energy
051015202530
1/
Approved Projects
New commercial PACE programs are launching
around the country and more significant
project volumes are expected by the end of
2011 (see Table ES-2). An overview of the
programs that have recently launched or are
planning to launch in 2011 appears below.
Table ES-2. Commercial
PACE Programs
Operational Programs
Programs in Design
Preliminary Planning
4
9
4
Total
17
PACE
Financing:
Update on Commercial Programs
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Commercial PACE Financing
Property Assessed Clean Energy (PACE) is an innovative municipal finance mechanism that
allows property owners to finance energy efficiency and renewable energy projects - such
as HVAC system upgrades, cool roofs, and solar photovoltaic systems - as a property tax
assessment. The debt is typically secured by a senior lien on the property, which helps
programs attract private capital at competitive rates and terms.3
Historically, much of the attention on PACE focused on its applicability to residential
properties. In the wake of the actions of the FHFA, OCC and other financial regulators in the
summer of 2010, more attention has shifted to the commercial building market.
This report provides an overview of all currently operating commercial PACE programs and
a summary of programs currently in development.
An overview of commercial PACE, including financial structures, regulatory issues,
American Recovery and Reinvestment Act (ARRA) compliance, and accounting, is provided
in Appendix A.
PACE Programs
There are currently four commercial PACE programs in operation and nine in design, many
of which are expected to launch in 2011.4 To date, active programs have approved $9.69
million of financing for
71
projects (see Table
1).
Table 1. Summary of Approved Commercial PACE
Projects
Range of Project
Approved
Average
Total
Approved
Projects
Sizes
Project
Funding
Size
$9.69M
$2K-$2.3M
71
$138K
Operational Programs
The four operational PACE programs vary significantly in design, funding source, and size.
These differences reflect the resources available to the government sponsors, the building
stock, and the incorporation of best practices over time. All of the operational programs are
supported by public funds (e.g., for credit enhancement purposes or direct investment) and
the rates and terms offered by these programs do not necessarily reflect market rates for
private capital. Program data through January 2011 is summarized in Table 2.
information regarding PACE please see "How to Guide on PACE Financing" (Fuller, Kunkel, Kammen
2009): httJ):I/raeLberke1ey.echilfinancincr/resources
4
In addition to those in formal planning stages, Cleveland, Ohio, Cutler Bay, Florida, New Orleans, Louisiana, and
Sacramento, California have begun preliminary planning to launch PACE commercial programs.
3
For more
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Table 2. Commercial PACE Programs in Operation Have Financed 71 Projects
Program
Approved
Total
Interest
Term
Source of
Average
Projects
Approved
(in
Rate
Funding
Project
Funding
years)
Size
Sonoma
37
$7.27M
Up to
County
$196K
7%
County,
20
Treasury
CA
Boulder
29
$1.52M
5 or
Moral
$51K
1.04% or
County,
2.29%5
10
Obligation
CO
Bond
Issuance
w/QECB
2
Placer
$319K
Up to
County
$160K
7.25%
County,
Treasury
20
CA
Palm
$575K
Up to
City
3
7%
$192K
Desert,
Backed
20
Funds
CA
Sonoma County Energy Independence Program (SCEIP):
Launched in spring 2009,
SCEIP is open to both residential and commercial customers (see Table 3). The County is
able to offer on-demand
Table 3. Sonoma County Program StatisticS
financing to property owners
Min $9.6K; Max $2.3M
Range of Project Size
since the program is funded out
of the County Treasury. The
Project Mix
25 Renewable Energy Only
County is exploring the use of a
7 Energy Efficiency Only
takeout strategy so that it can
3 Energy Efficiency
&
Renewable
Energy
replenish the funds it has
1 Energy Efficiency
&
Water
already extended.
1 Uns ecified
While the program provides
~So~u~r~c~e~o~fF~u~n~d~s
__
~
__
~Coun.~~~~
__
~
______
4
financing for a wide variety of
Lender Consent and/or Yes
Acknowledgment
renewable energy, energy
Re uired
efficiency and water efficiency
Acceleration
No
projects, 95% offunds
for
commercial building projects have gone to
Fig. 1. Sonoma County Percent
of
Funds
fund solar PV (48%) and cool roofs (47%)
by
Project
Type
(see Figure 1). The 25 solar PV projects will
Otlwr
total over half a megawatt and range in size
Cool Roof . . . ._
from under 10kW to over 100kW. Six of the
SOlar PV
~~~~
projects include cool roofs ranging in cost
from $7,000-$2.3 million. The remaining
commercial building projects are solar
5
Interest rates are 1.04% or 2.29% for projects with a five-year or ten-year term, respectively. In
Finance Structure
addition to the interest rate, capital expenses equal to 8.09% (five-year term) and 4.27% (ten-year term)
of the project cost are added to the financed amount to cover administrative and other expenses incurred
by the County over the lives of the assessments.
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thermal (2%), HVAC (1 %), and other energy and water efficiency measures such as lighting,
windows, and insulation.
Boulder County ClimateSmart Loan Program: Boulder, CO pioneered the pooled bond
method and has successfully completed two residential and one commercial bond issuances
(see Table
4).6
These bonds are backed by a moral obligation from the County. This moral
obligation has enabled
Table 4. Boulder County Program Statistics
the County to issue debt
Range ofActual Project
Min $2K; Max $200K
at attractive rates and to
Size
pass on these low
Project Mix
4 Renewable Energy Only
22 Energy Efficiency Only
interest rates to
3
Energy Efficiency and Renewable Energy
participants. Boulder
I
Finance Structure
Pooled Bond
further reduced the
Source of Funds
Public Issuance of Qualified Energy
interest rate for the
Conservation Bonds with a Moral
commercial program by
Obligation
Lender Consent and/or
Yes
using a portion of its
Acknowledgment
Qualified Energy
Required
Conservation Bond
Lender Consenting
7
National Bank
(QECB) allocation.?
5 Regional Bank
5 Community Bank
Boulder collected data
on the value of
1
Unspecified
participating properties,
Average Ratio of Financed 4.42%
alloWing program
Amount to Actual Property
administrators to track
Value
Acceleration
Yes
the lien-to-value ratio
Building Type
9
Office
(LTV) ofthe
6 Multi-family
assessments. 90% of
5 Food Service
the assessments have a
2 Small Manufacturing
LTV that is less than
2 Retail
5 Other
1:10. Only one project
has an LTV significantly greater than the 1:10 threshold and this property does not have a
mortgage. This data suggests that the 1:10
LTV requirement may be sufficient to
Fig. 2. Boulder County Percent of Funds
by
Project Type
maintain demand for PACE financing,
however Boulder County property values
Sola, HoI Waler
are high and the financing amounts are low
Insulation
relative to other programs.
3
Other Lending Institution
8
Properties have no mortgage
Insulating Doors and Windows
Cool
Roof
Boulder's PACE program has financed a
Solar
PV
wide range of building types and measures
(see Figure 2). The diversity of building
types in the pool suggests that PACE
financing may have wide applicability
despite split incentive challenges in multi­
family and other leased buildings. The majority of measures were energy efficiency
improvements. By cost, 30% of financing went to HVAC units, 11% to solar PV, 11% to cool
6
For more information on the pooled bond PACE model, see Appendix
A.
7
For more information on QECBs, see Appendix
A.
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PACE Financing:
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roofs, 8% to insulating doors and windows, 6% to insulation, 5% to solar hot water and the
remaining 29% to other efficiency measures such as lighting, retro-commissioning, and
energy management systems.
Palm Desert Energy Independence Program:
Palm Desert, CA launched the first PACE
program in 2008 and officially reopened its application process in August of 2010 after a
short suspension to review
Table 5. Palm Desert Program Statistics
FHFA guidance. The hot
Range of Project Size
Min $23K; Max $522K
climate makes solar, HVAC,
Project Mix
1 Renewable Energy Only
and other efficiency
2 Energy Efficiency Only
measures especially cost
Finance Structure
Warehoused
Source of Funds
effective for many building
Municipal Funds and
Redevelopment Agency Bonds
owners. The program has
Lender Consent and/or
Only for projects over $30K
primarily funded renewable
Acknowledgment
energy and energy efficiency
Required
improvements to residential
Acceleration
No
buildings but it is also open
Building Type
2 Retail
1 Office
to commercial properties
and has funded two HVAC replacements and one solar PV system in that market (Table 5).
mPOWER Placer County:
Placer County, CA began to focus on providing PACE financing to
commercial building owners in
Table 6. Placer County Program Statistics
2010. The program provides
Min $121K; Max $199K
Range of Project Size
funding for both energy efficiency
Project Mix
2 Renewable Energy Only
Finance Structure
Warehoused
and renewable energy
County Treasury
Source of Funds
improvements. Both lender
Investment
acknowledgment and a 1:10 lien-to­
Yes
Lender Consent and/or
value ratio are required to
Acknowledgment
participate in the program.
Required
Two commercial projects have been
funded and the county is processing
twelve other applications (Table 6). Many of these applicants are manufacturing facilities.
About two thirds of the proposed projects are solar PVand the remaining third are energy
efficiency projects. The program covers two climate zones and operates in collaboration
with two municipal utilities and one investor owned utility.
Currently, $33 million is committed for financing through the County Treasury with an
additional $22 million available. At a future date, the county plans to sell the PACE bonds
purchased and held in the County Treasury to replenish program funds for ongoing
financing.
Acceleration
Building Type
No
1 Plant Nursery
1 Motel
Programs In Development
The majority of PACE programs in development were specifically designed to serve
commercial markets, rather than being adapted from existing residential programs. These
programs will generally use private capital to fund improvements but most will still rely
upon credit enhancements like debt service reserves to attract private capital and to lower
rates for potential participants.
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City ofAnn Arbor, MI: Michigan recently passed PACE enabling legislation that would
allow its municipalities to launch commercial PACE programs. The City of Ann Arbor is
planning to launch a PACE commercial pilot later this year and may allocate a portion of its
ARRA funds to capitalize a debt service reserve fund.
California PACE Program: The California PACE Program is a privately-funded, state-wide
program. The program is administered through the Pacific Housing Finance Agency (PHFA),
a CA State Joint Powers Authority OPA). Any city or county in the State of California can join
the program, which will use its existing bonding authority (currently $95 million and up to
$2 billion) to raise capital for projects that have been aggregated across multiple
jurisdictions and meet certain eligibility requirements (e.g., lien holder consent obtained).
Using this aggregation approach, the program aims to secure greater access to capital and
lower transaction costs for local PACE programs and the projects that they fund. As of
March 2011, eight cities have obtained the necessary approvals to join the program
including Tulare, Fresno, Palm Springs, Farmerville, Woodlake, Adelanto, Exeter and
Calipatria. The California PACE Program has received over $4 million in funding
applications and expects to aggregate energy retrofit applications already received for an
initial bond offering in second quarter 2011.
City of Los Angeles, CA: The Community Redevelopment Agency of the City of Los Angeles
(CRA/LA) is currently developing the Energy Upgrade Los Angeles Commercial Building
Performance Initiative to catalyze holistic energy and water performance upgrades in Los
Angeles' existing non-residential commercial buildings. The primary goal ofthe program is
to enable PACE financing of single building projects under the "owner-arranged" mode1,8 in
which owners negotiate and obtain financing directly from capital providers. The program
will also accommodate alternative approaches to financing projects in the event that the
building owner is unable to secure mortgage holder consent to a PACE assessment. The
Initiative will use ARRA monies to fund no-cost energy audits for property owners and to
provide appropriate levels of credit enhancement for the program's initial projects.
Program launch is slated for the second quarter of2011.
Northeast Ohio: The Northeast Ohio Advanced Energy District (AED) is Ohio's first energy
special improvement district (SID), a not-far-profit entity, incorporated in December 2010
by the City of Cleveland and 14 inner ring suburban municipalities of the First Suburbs
Development Council. The Economic Development Directors of each municipality serve on
the AED Board and two staff are currently working on program design with an expected
program launch date of Summer 2011. The AED enables commercial and industrial
property owners in the 15 AED member communities to install and finance energy related
projects, including solar electric, solar thermal, wind, geothermal, biomass and energy
efficiency related technologies.
City and County of San Francisco, CA: The City and County of San Francisco is using ARRA
funds to develop a commercial PACE pilot program as part of their GreenFinanceSF
program. San Francisco intends to use the "owner-arranged" model, at least initially. The
portfolio of projects will be supported by an ARRA-funded debt service reserve.
Santa Fe County, NM: The County of Santa Fe created its PACE district in October 2009 and
is designing a commercial PACE pilot program. Due to the nature of New Mexico's PACE
For more infonnation on the owner-arranged PACE model, see Appendix A.
8
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enabling legislation, the program will restrict financing to renewable energy measures. The
program will likely use the pooled bond approach and plans to attract private capital by
using ARRA funds to capitalize a debt service reserve.
Washington, D.C.:
The Washington, D.C. Mayor's Office of Planning and Economic
Development is finalizing a contract with its PACE program administration partner. The
contract should be in place soon with program launch slated for mid-2011. Commercial and
multifamily properties will be eligible to participate, making PACE financing available to
approximately 75% of the buildings in Washington, D.C. The District plans to use revenue
bonds to fund a pilot of $25-$30 million of energy improvements-it has $250 million of
total bonding authority. Fourteen major property owners own the majority of buildings in
downtown D.C., and the program plans to do aggressive outreach to these owners in order
to promote energy improvements on a diverse portfolio of buildings.
Western Riverside Council
of Governments
(California):
The Western Riverside Council
of Governments (WRCQG), which consists of 17 cities, the County of Riverside and two
water districts, is developing an energy efficiency and water conservation program that
would allow commercial property owners to implement energy and water efficiency
improvements using PACE assessments. The program will utilize specific credit
underwriting guidelines including minimum property LTV and project debt service
coverage ratios in determining loan eligibility. The program is expected to fund projects
through the sale of bonds by WRCOG. WRCOG is simultaneously developing a separate
program to fund large solar projects in commercial buildings. Initially, up to $25 million will
be made available for financing projects. The program plans to begin accepting solar project
applications in Mayor June of2011.
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PACE
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Conclusion
Preliminary data from the four operational programs indicates that PACE financing has the
potential to serve a variety ofbuHding types and is suitable for financing a range of energy
efficiency and renewable energy improvements. This data also suggests that underwriting
criteria like lender consent/acknowledgement and maximum lien-to-value (LTV) ratios may
be sufficient to responsibly deliver PACE financing to commercial building owners.
Participating property owners have had success in obtaining consent/acknowledgement
from mortgage holders including local, regional, and national lenders and approved
financings have largely met a 1:1 0 LTV ratio.
This data is encouraging, but cannot be widely extrapolated since many of the programs
launching in 2011 will utilize different financing structures, credit enhancements, and will
serve substantively different markets. Both Los Angeles and San Francisco will pilot the
owner-arranged financing model and will serve major urban markets. New programs will
also test the ability of PACE to attract capital without the use of municipal funds or
governmental backing.
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About the Authors of this Policy Brief
Renewable Funding:
Renewable Funding specializes in design, administration, technology,
and financing solutions for clean energy retrofit programs. Since 2008, the firm has worked
with over 200 communities to structure residential and commercial financing programs.
Renewable Funding is internationally regarded as an innovator in the clean energy financial
marketplace. The firm has pioneered property assessed clean energy (PACE) models for
residential and commercial properties, including leading the launch of the seminal
BerkeleyFIRST program. The firm also works, in close partnership with leading financial
institutions, to develop a secondary market for clean energy products. For more
information, visit: www.renewfund.com
Clinton Climate Initiative:
The William
J.
Clinton Foundation launched the Clinton Climate
Initiative (CCI) in 2006 to create and advance solutions to the core issues driving climate
change. Working with governments and businesses around the world to tailor local
solutions that are economically and environmentally sustainable, CCl focuses on three
strategic program areas: reducing emissions in cities, catalyzing the large-scale supply of
clean energy, and working to measure and value the carbon absorbed by forests. In each of
these programs, CCI uses a holistic approach to address the major sources of greenhouse
gas emissions and the people, policies, and practices that impact them. CCI is the delivery
partner of the C40, an association of large cities around the world that have pledged to
accelerate their efforts to reduce greenhouse gas emissions. CCI has extended the benefits of
its cities programs to a number of additional public and private sector partners. CCI cities
programs include energy efficiency building retrofits, outdoor lighting, waste management,
low carbon transportation, urban developments and C02 measurement and reporting. CCI
is a non-profit organization that operates from an independent and unbiased perspective
and has no financial interest in any project that might be developed as a result of its
involvement. Its work is funded through charitable donations from individuals and private
foundations. For more information, visit: http://www.clintonfoundation.org/cci
Lawrence Berkeley National Lab:
Within the Electricity Market and Policy area, Lawrence
Berkeley National Lab (LBNL) analyzes public interest policy issues and conducts research
projects on key electricity market issues, including electric power system reliability, energy
efficiency, demand response, renewable energy, distributed energy resources, and energy
sector modeling. For more information, visit: http://eetd.lbl.gov IEA/EMP lemp.html
®
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Appendix A - Overview of Commercial PACE
Property Assessed Clean Energy (PACE) financing programs allow state and local
governments, where permitted by state law, to extend the use of land-secured financing
districts to fund energy efficiency and renewable energy improvements on private property.
PACE programs attach the obligation to repay the cost of improvements to the property, not
to the individual borrower.
There are two major characteristics that make PACE unique in contrast to the traditional
use of land-secured financing districts. First, property owner participation is 100%
voluntary-only those property owners that choose to participate in the PACE program, or
purchase a participating property, pay the costs of the additional assessment. Second, PACE
financing can only be used to pay for prequalified energy efficiency and renewable energy
improvements on participating properties.
Commercial PACE Finance Structures
9
Three main financing structures have evolved to support commercial PACE programs:
1.
Warehoused:
The municipality uses a large line
of
credit (in the millions of dollars),
or other credit facility, to fund qualified projects on an as-needed basis. When
sufficient project volume is reached, the portfolio can be sold through a municipal
revenue bond issuance or other capital markets transaction. The proceeds of the sale
replenish the line of credit and facilitate a new funding cycle. As an alternative to
private capital, local or state governments can choose to fund projects from their
general funds and/or investment portfolios.
2.
Pooled Bond:
Property owner applications for PACE financing are approved during
an aggregation period. When a sufficient pool of approved applications has been
assembled, the local government sells a bond to fund all of the projects and permits
property owners to proceed with their energy upgrades.
3.
Owner Arranged:
Property owners have the flexibility to independently secure
financing for a defined project with a lender of their choice. Financing terms are
negotiated independent of the municipality or state, and are predicated on 1) the
senior lien that the PACE mechanism affords and
2)
the underlying credit of the
owner/building. This model is designed to avoid the timing delays associated with the
pooled bond approach (i.e., waiting to aggregate projects and waiting to issue a bond
in the market). This approach maybe better suited for larger projects (e.g. greater
than $SOOK) and/or buildings with better credit
Background on Federal Regulatory Issues
Most regulatory activity has focused on residential PACE programs as opposed to
commercial PACE programs.
9
More infonnation on the three financing methods is available in the Department of Energy's "Clean Energy Finance
Guide for Residential and Commercial Building Improvements":
htD);lIwwwl.ecrc.energv.gov/wip/solutioncenter/pdfs/revFinal V3Ch 13CommcrcialP ACEDec9.pdf
~
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The Federal Housing Finance Agency (FHFA) issued a statement on July 6, 2010, that PACE
programs with senior lien position
10
"present significant safety and soundness concerns
that must be addressed by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks." In
particular, PACE liens were deemed to "run contrary to the Fannie Mae-Freddie Mac
Uniform Security Instrument ...." -i.e., the standard mortgage contract. This position has
halted most residential PACE programs in the U.S.
The FHFA letter was specific to home mortgage lending. The Office of the Comptroller of the
Currency (OCC), which regulates national banks, also issued PACE guidance in July 2010.
This statement raised additional concerns by specifically mentioning commercial properties
in its statement that "safety and soundness concerns" exist. However, the OCC did not
indicate whether commercial PACE programs could go forward. A detailed discussion of
this issue is included in a recent report by Lawrence Berkeley National Laboratoryll.
Efforts are underway to obtain further clarification from the OCC.
Generally speaking, commercial PACE programs with lender and owner consent and/or
acknowledgement provisions-both the existing lender and property owner must give their
written consent and/or acknowledgement for the PACE financing-provide robust lending
safeguards. PACE programs may also institute more explicit credit underwriting
requirements - such as maximum buildingloan-to-value ratio and maximum lien-to-value
ratio - in an effort to protect existing lien holders and property owners from unnecessary
debt-related risks.
ARRA Uses and Requirements
Many commercial PACE programs are using American Recovery and Reinvestment Act
(ARRA) or other public funds to provide enhanced services and/or credit enhancement.
The funds can provide a valuable tool to reduce program and financing costs, but ARRA
funds come with significant reporting and other obligations.
There are several program design options that can use ARRA or other funds to reduce the
interest rate of PACE financing by reducing risk to capital providers. The most common
options are described below.
• Debt Service Reserve Fund: A debt service reserve fund (DSRF) equivalent to 5%­
10% (or more) of the issuance is commonly created to cover bond debt service (Le.,
payments made to bond investors) in the event oflate payments or defaults by .
property owners.
• Subordinate Capital: A common capital markets credit enhancement structure is a
"senior-subordinate" structure. In such an approach, the ARRA or other public funds
would be combined with private capital and provided for project financing rather
than held in reserve. In the event of a default, the losses are first borne by the
publicly-funded, subordinate piece of the investment. The private investor's senior
interest remains protected until losses exceed the amount of subordinate capital in
the financing.
10
Senior lien position
refers to a debt having priority over all other debt on a property in the case of foreclosure
(i.e., it gets paid off first before other outstanding debt, including mortgages). Most PACE programs use a senior
lien position for the PACE debt because the PACE assessments are part of the property taxes, and property taxes
are already senior to other property debt. But there are some PACE programs that use a
subordinate
or
junior
position instead, which means the mortgage has priority over the PACE debt.
II
http://cetd.lbl.gov/ea!cms/reportslec-policybricfD81
t
IO.pdf
\:::!..!J
;JO\9
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• Qualified Energy Conservation Bonds (QECBs)lz:
State or local governments that
have access to allocations of QECBs can use them to fund PACE programs at below
market rates. QECBs are a type of qualified tax credit bond that can be used to fund
energy saving projects in public and private buildings (subject to limitation). Tax
credit bonds allow municipalities to borrow at lower effective interest rates because
the federal government subsidizes their interest payments to investors through the
use
of a tax credit or cash-in-lieu of credit.
• Obligation of Government Credit:
While not a use for ARRA funds, it is important
to note that local or state governments can fully or partially guarantee repayment by
placing a general or moral obligation on PACE financings. Under a general
obligation, local or state governments pledge their full faith and credit to the
bonds-effectively guaranteeing that if tax receipts fall short, they will make up the
difference. With a moral obligation, the governmental body pledges to back the
bond, but makes no legal commitment to do so.
The use of federal ARRA funds to support PACE programs can trigger labor and
environmental laws.
• Davis-Bacon and Prevailing Wage:
Many federally supported programs must
comply with the Davis-Bacon Act, which requires the payment of a prevailing wage
to contractors utilizing the program. The U.S. Department of Energy has stated that
loan loss reserves do not automatically trigger Davis-Bacon as federal funds do not
flow to contractors,13 However, commercial PACE programs that use ARRA funds to
directly fund the installation of projects are subject to the requirements of the
Davis-Bacon act and must pay prevailing wages.
14
• National Environmental Policy Act (NEPA):
ARRA funds used for credit
enhancement of a financing program-including a debt service reserve fund,
interest rate buy-down, or third-party loan insurance-are subject to federal
requirements including the National Environmental Protection Act (NEPA).15
Acceleration and Transferability
PACE assessments are generally treated as any other tax obligation and are often
transferred to the new owner upon sale of the property. Consequently, only delinquent
payments of the assessments are due ifthe property is foreclosed upon, instead ofthe
entirety of the assessment. This is referred to as a "non-acceleration" of payments. 16
12
More infonnation available on QECBs at
http://wwwl.eere.cnergy.gov/wip/solutioncenter/financiaiproducts!QECB.htm!
13
http:/tm\fw1.eere.energy.govLeere
faQ./detail search.aspx?IDQuestion-712&pid -10&Spid-1
14
Ilttp:/lw'1;vwl.cere.encrgy.gov/wip/davis-bacoll act.hlml
http://m...w1.eere.energy.gov tWill/nepa guidance.html
16
More information aboutthe non-acceleration of PACE assessments can be found in the May 2010 LBL Policy
Brief by Zimring and Fuller "Accelerating the Payment ofPACE Assessments"
15
http://eetd.lbLgov/ealems/reports/ee-policvbrief 0504l0.pdf
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Pass Through
PACE assessments may be eligible for expense "pass-through" to tenants, depending on
lease structure and local law.
In
the case of net lease agreements, the pass-through of
assessments would allow owners and tenants to more equitably share in the costs and
benefits (e.g. lower utility bills) of the energy project. However, no accounting firm has
categorically determined the proper accounting treatment of PACE assessments, so owners
must rely on their own accountants' interpretation.
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GREATER
WASHINGTON
COMMERCIAL
ASSOCIATION
liiiiiiiiii_ _
OF REALTORS®
June 25, 2013
Council President Nancy Navarro
100 Maryland A venue
Rockville, MD 20850
RE:
Bill
11-13,
Commercial Property Assessed Clean Energy Program - Established
Position: Support
Council President Navarro and members of the County Council:
I am writing to you on behalf of the Greater Washington Commercial Association of
REAL TORS® (GWCAR), a 500-member regional trade association committed to supporting
commercial real estate interests throughout the District of Columbia, Suburban Maryland and
Northern Virginia. GWCAR would like to voice its strong support for Bill
11-13.
GWCAR strongly supports energy efficiency measures and we believe that the commercial real
estate market has been and continues to demand that commercial properties move in that
direction. As commercial real estate brokers we see energy efficiency, conservation and the
environment as very important issues that are not only important to us as REAL TORS®, but as
citizens and neighbors. We have always expressed concern about mandatory requirements
related to energy audits or other energy efficiency requirements but we are very happy to work
with Councilmember Berliner and the entire county council on measures such as Bill 11-13. We
believe that this helps to encourage the county to look at policies that provide more market-based
solutions on a voluntary basis instead of mandates that are triggered by or hinder consumer
decisions to buy or sell a commercial building.
Again, we would like to thank Councilmember Berliner specifically and the entire council for the
vision in addressing this very important issue. GWCAR looks forward to continuing to work on
this issue to find the best way to encourage all commercial sector properties to improve their
energy efficiency. Thank you for your consideration of GWCAR's perspective and we look
forward to attending the committee worksessions for further discussions.
Thank you,
Mark Sullivan
2013 GWCAR President
@
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Bill 11-13 and PACE Options for Montgomery County
I. Background:
Property Assessed Clean Energy (PACE) allows a business or resident to finance a range of energy
efficiency or renewable energy improvements and pay for the costs over time via an assessment on the
County property tax bill.
PACE has been widely promoted as offering the following benefits depending on the program design:
• Enables financing availability and lower interest rates due to high security of repayment, and
possibly access to lower cost municipal funds and/or subsidies.
• Extends financing over long periods of time, commensurate with the return on investment of a
project.
• Passes remaining loan balance to subsequent property owners.
Another potential advantage of PACE is that is addresses the "split incentive" problem that exists in
some commercial leases. The split incentive arises when a building owner pays for energy efficiency
improvements, but it is the tenants that reap the benefits of those improvements through reduced
energy costs. Under leases where property taxes and other assessments on the property tax bill are
passed through to the tenants, the cost of improvements financed by a PACE assessment can be passed
through to tenants as well.
Similar to other programs that provide financing or incentives for building energy performance
improvements, PACE enables a range of job creation, economic development, building valuation, and
environmental benefits.
Currently 28 states have passed enabling legislation allowing the creation of PACE and similar programs,
and approximately 10 programs are operating or near release. Most of the programs focused on
commercial properties, particularly those in communities with building stock similar to Montgomery
County (e.g., DC, San Francisco, Los Angeles, Connecticut), are in their relative infancy with few financed
projects.
Montgomery County passed legislation in 2006 creating the Home Energy Loan Program which would
have offered PACE benefits to County homeowners. The program was indefinitely suspended due to
directives by the Federal Housing Finance Agency (FHFA) to lenders regulated by the agency prohibiting
mortgages for properties encumbered with PACE assessments.
1
Commercial properties are not subject
to regulation by FHFA but may be subject to regulation by other government entities.
Note the FHFA restrictions would apply to condominiums, which may preclude offering PACE to this type of
commercial/multi-family building. Rental communities are generally considered businesses.
1
July 2, 2013
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II. Types of PACE Programs:
There are three primary types of PACE programs, classified by the source of capital. Each of these may
have a number of subtypes or may blend components of different models into one program.
Private Financing and Owner Arranged Financing Models
Examples: San Francisco, Los Angeles/California First
These programs use private capital from a variety of lenders, subject to certain conditions. The County
or municipality then services the Joan by collecting debt through the property tax bill. A jurisdiction's
program management processes are limited to co-marketing the program, collecting the loan and
paying the debt holder, and monitoring the program. The sponsoring jurisdiction could select one
financing partner, or allow property owners to partner with lenders of their choice. Under private
financing and owner arranged models the pool of available funding and the terms of the financing are
only limited by the tolerance of the capital partners. San Francisco is operating on this model and DC
and Connecticut hope to transition in this direction. The County is currently precluded from collecting
private capital via the property tax bill. Maryland Senate Bill SB1016 sought to remedy this but did pass
in the 2013 session of the General Assembly. However, the bill passed by a unanimous vote in the State
Senate and the Senate approved version is not opposed by the Maryland Bankers Association.
Quasi Government Facilitated Programs
Examples: Connecticut C-PACE, Florida Green Finance Authority
These programs utilize a quasi-government entity with the authority to issue bonds or engage private
capital to provide financing to projects. Programs of this type typically use the quasi-government
organization to market the program, arrange the projects, and facilitate financing via their balance
sheet. The organization may also arrange projects via an Energy Services Company (ESCO). The
jurisdiction's role is to collect the repayment via the property tax assessment, enforce defaults via tax
sale, and perhaps co-market the program. Maryland currently has an organization in place, the
Maryland Clean Energy Center (MCEC), with the existing authority to issue bonds and debt for energy
efficiency and renewable energy projects throughout the state. MCEC currently is providing financing,
via energy services agreements and tax-exempt bonds (though they can issue taxable bonds as well), to
Coppin State University and has several similar projects underway via its Maryland Clean Energy Capital
(MCAP) program.
2
It is possible, subject to discussions with the MCEC, that this program could be
expanded into commercial taxable bonds if coupled with PACE if specific legal barriers can be overcome.
2
http://www.rnddeanenergy.org/rna ryland-ciean-energy-ca pita l-financing-prograrn-FAQs
July 2,2013
Page 2
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Municipally Financed Programs
Examples:
DC PACE (transitioning to Private Capital or Owner Arranged)
These programs derive funding from municipal bonds, revolving loan funds capitalized from a public
bene~t
charge or energy tax, internal reserve and pension funds, or other appropriated funds. Most
commercial programs have transitioned from or abandoned this model due to the large capital costs of
most commercial projects, which could be millions of dollars each. In addition, these programs hope to
use government funding as a conduit that would be replenished when projects were fully securitized
and sold into the capital market, such as Washington D.C. Ultimately, however this would entail the
County repaying private debt via the property tax bill, which we are precluded from doing.
III. Best Practices/Common Themes
While program designs and capital sources vary, several key themes have emerged as good policies or
best practices to create successful programs, build capital market interest in purchasing securities based
on PACE assessments, and enhance the overall market for PACE assessments.
Lender Consent - Requires lender(s) with liens on a financed property to consent to a PACE
assessment before one can be levied on a property. A slow process, but essential to ensuring
that PACE assessments do not affect existing project financing. Commercial lenders are
generally familiar with mUltiple sources of financing being used for projects. (This requirement
is included in Bill 11-13)
• Enable Owner Arranged Financing - Commercial properties often have existing lenders that
Will
need to be involved providing in consent, and may want to be part of the financing process (e.g.,
first right of refusal). Allowing owners to arrange their own financing provides the opportunity
to leverage a variety of capital sources. As noted previously, state law currently prohibits the
use of the tax bill to collect private debt. In addition, this approach would likely result in
different interest rates for different projects; Finance should assess whether this would be an
issue during the debt collection process if the tax bill prohibition is lifted.
• Energy Cost Savings Equal Financing and Project Costs -In principle, the energy savings from a
PACE-financed project over the finance term should exceed the financing and project costs. This
ensures that PACE provides an overall positive societal benefit, puts lenders at ease, and
minimizes the chance that a PACE assessment interferes with future property transactions.
coaching, and project review are essential to ensuring a steady flow of viable projects.
• Conduct Energy Measurement and Verification (EM&V) - EM&V monitors a projects
performance over an extended period of time (the standard for guaranteed savings projects is
the life of the equipment) to ensure the anticipated savings. Over time, strong EM&V helps
convince lenders to offer consent and owners to engage in projects. Finally, on a national. scale,
3
3
• Provide Adequate Administrative Resources - Resources for rapid administration, approval,
Water savings are also often included in PACE. Other valuations of property may be included, but need to be
viewed with caution due to variances in the propertyappraisal process.
July 2,2013
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projects with a proven return on investment will be easier to package into specialized PACE
securities. Most programs conduct some form of EM&V at substantial cost.
Couple PACE with Utility Incentives - Utility incentives are essential to reducing the initial
financed amount which assists with matching cost savings with project costs. Maryland has
extensive energy savings incentives that could bolster the business case for PACE.
IV. Interest in Commercial PACE - Local and National
Data collected by organizations such as PACE Now and local data collected via the Montgomery County
Commercial and Multi-Family Building Study indicate a strong general interest in PACE as a financing
tool to address large, costly retrofits that take a long time for savings to offset project costs. For
Montgomery County, approximately 60% of surveyed building owners and operators indicated an
interest in participating in PACE. Specific responses to common PACE benefits are outlined in figure
1.
Figure 1. PACE Benefits
'·Abilitytt;~~~trofit;;·
·lWnpro;lM
~~n::ll~pi'<;.
,costs;on to Ie mints •. :•..•
·~deratriple~tlease
..... ...
.
...•. [e.g.,
overcome
theother~takehold~r'5
..; .•.. split incentive) .
{11",is} ..... .
r..
4
,-
.-'
....,
..
--'.
_
....
: .
AbiHtyto extend
financingofcapital­
intensive improvements
overa longl:!rtime
OtherStakeholders
(n=25j
horizonle.g., 10-20 Vrs}
.
unpaid
luan principal
to
..... •. ....
t
ow
ners of
other~tak~hold~rs··
.
5ubseque!1
theproperty
.
·.i
..
(ry=26) ..
i
..
. Ability
to
transfer
liVery
Appealing
!l.1Somewhat
Appealing
o
Neutral
EttSomewhat
unappealing
liVery
Unappealing
Despite interest, many existing programs have not shown rapid results or suffer from a lack of viable
projects due to the following issues:
Interest in PACE is often high at initiation, but declines depending on the appropriateness of the
project, ability of applicant to meet underwriting criteria, and final terms of the agreement.
• The pipeline for identifying, designing, and financing projects is long, often a multi-year process.
Interest rates for PACE, while generally low compared to "unsecured" commercial financing that
is not tied to the property, is not necessarily cheap.
Lenders have limited motivation to consent and those that do are often slow to do so.
4
http://www6.montgomerycountymd.gov/content/dep/downloads/Energy/FINALCommercialandMulti­
FamilyStudy,pdf
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Based on information from other jurisdictions with active PACE programs, a limited number of projects
have been financed to date:
Program
DC
San Francisco
Connecticut
Projects Interested
12 large, 20 small
Up to $7 million in
projects.
120 projects, staff
estimate 70%
convertible to projects
Unknown
Unknown
Projects Financed
One 140 unit residential property valued at
$340,000 underwritten and project underway.
One $1.4 million project.
One complete, two near final. Collectively
$3.5 million.
0
58, but most smaller projects
Florida
Sonoma
i
V. Fiscal Impacts and Costs:
Programs vary in fiscal impacts and costs extensively based on size, design, capital source and other
factors. Costs can generally be categorized as follows:
Capital-
Fiscal impacts vary depending on the type of program adopted, the cost of capital, and the
amount of capital needed.
• Owner arranged programs or programs that use private capital are essentially unrestricted as
the funds are a pass through to the government and not obligations on the jurisdiction's books.
The capital pool is only limited by the willingness of lenders to provide funding.
Quasi-government run programs are limited by the amount of capital that the organization is
authorized to raise in bonds or through agreements with private lenders.
• Government revolving loans or conduit bonds, may be limited in the amount of exposure the
government has backing the bond. However, to be sustainable given the scale of commercial
projects, all programs using this approach hope to ultimately package the bonds for sale to
capital markets to replenish loan funds available.
Program
DC
San Francisco
Type of Fund
Conduit Bond
Private
Capital/Owner
Arranged
Public Benefit
Funds/Owner
Arranged
Financing
Private Funds
Treasury/P rivate
Funds
Initial Funding
$250 million
Unlimited, but short
term limits due to
credit enhancements
$20 million
i
Connecticut
Florida
Sonoma
$500 million
Over $67 million
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Credit Enhancements and Subsidies
-
Most programs employ some form of credit enhancement to
either ensure timely payment to lenders or offset losses. Under PACE, the most significant credit
enhancement is a primary position on a loan; however additional enhancements and subsidies may be
necessary to make loans palatable to customers (building owners) and sources of capital. Credit
enhancements include:
Loan Loss Reserve Funds"':' Funds to cover payments to lenders until missed payments can be
recovered during tax sale. To minimize drain a jurisdiction must be willing to send a property to
tax sale promptly, with no exceptions. Lost reserve funds are always recovered after a tax sale
if the PACE loan is primary.
Monthly/Quarterly Payments - County taxes are only paid annually or twice a year. Liquid funds
may be needed to ensure timely payment of capital. Funds are recovered ultimately via
payments.
• Interest Rate Buy Downs - Funds used to pre-payor buy-down interest to reduce the rate
realized by projects. Funds are not recoverable and must be funded annually.
Program
DC
San Francisco
Connecticut
Florida
Sonoma Energy
Independence Program
Interest Rate
(Range)
6to7%
6to 7%
4to 6%
6to 7%
7%
Credit Enhancements
None
Loan Loss Reserve Fund
Low Cost Capital Pool from Public Benefit Funds
($20 million). Considering credit enhancements.
None
None
I
Start-up Costs
-
Most programs incur some form of start-up costs to set-up the program, prepare
materials, develop underwriting standards, develop web infrastructure and manage the workflow of
applications. Conceivably these costs could be recovered through fees added to future loans, iHhe
program is successful. However, to avoid burdening loans which already may have higher than
preferred capital costs, most programs have chosen to use federal grant funds, public benefit funds, or
local funds to offset these costs upfront. Dedicated staff or specialized consultants are generally needed
to guide program set-up from the beginning.
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Program
DC
San Francisco
Connecticut
!
Implementation Funds
$800k
$600k
$1 million
Florida
Sonoma
Unknowns
Unknown
Ongoing FTEs/Consultants
1+ consultants
2+ consultants
2+ consultants (6 to 8 individuals
and other specialized consultants
as needed)
Volunteer commissioners
2
Ongoing Administrative and Program Monitoring
-
Most programs assume that once a program reaches
a certain scale, costs for administrative staff to process assessments, market the program, coordinate
underwriting, etc. will be entirely funded by a small surcharge on each loan. Connecticut's budget for
staff and consultants is $1 million annually. Additional funds may be needed depending on the degree
of initial project review that is conducted to determine if energy costs savings can realistically match
financing and capital costs. Monitoring of savings over time, which programs such as Connecticut
perform, adds additional
costs
and specialized labor which may not be realistic to encompass in loan
proceeds.
Program development funds, operational funds and other needs are currently being paid for by a relationship
with
SAle.
After implementation,
SAle
will recover initial investment and ongoing costs via a surcharge on the
loans.
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