T&E ITEM #1
July 8, 2013
Worksession
MEMORANDUM
July 3,2013
TO:
FROM:
SUBJECT:
Transportation, Infrastructure, Energy, and Environment Committee
Amanda Mihill, Legislative
Attorne~
Worksession: Bill 11-13, Commercial Property Assessed Clean Energy Program
- Established
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.
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 (©8) 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
commercial property owners to finance energy efficiency projects and certain renewable energy
projects
15).
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
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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 (©25).
Correspondence
The Greater Washington Commercial Association of REALTORS® sent a
letter to the Council with its strong support for Bill 11-13 (©40).
Issues for Committee Discussion
Executive stal/policy paper
The Executive has not taken a position on Bill 11-13, but Executive
staff have prepared a policy paper that discusses the bill and PACE options (©41). 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.
This packet contains:
Bill 11-13
Legislative Request Report
Fiscal and Economic Impact Statements
State Law
Policy Brief
GWCAR letter of support
Executive staff policy paper
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Bill No. -:--_,------'-'-'-"'-::-_---::-:::--_-:­
Concerning: Commercial
Prooertv
Assessed Clean Energy Program ­
Established
Revised:
4/11/2013
Draft No. 1
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:
(I)
establish a Commercial Property Assessed Clean Energy Program to assist qualifYing
commercial property owners to make energy improvements;
(2)
establish a revolving loan fund to provide property owners loans under the Program; and
(3) generally amend the environmental sustainability law.
By adding
Montgomery County Code
Chapter 18A, Environmental Sustainability
Article 5
Sections 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 unaffected by bill.
The County Council for Montgomery County} Maryland approves the following Act:
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BILL
No. 11-13
1
2
3
4
Sec.
1.
Article 5 of Chapter 18A (Sections 18A-33, 18A-34, 18A-35,
18A-36, 18A-37, and 18A-38) 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 real property other than
£!
residential dwelling with less than five dwelling units.
Commercial Property Assessed Clean Energy Program
or
Program
means
£!
program that facilitates energy improvements and requires repayment through
£!
surcharge on the owner's property tax bill.
5
6
7
8
9
10
11
12
Department
means the Department of Environmental Protection.
Director
means the Director of the Department or the Director's designee.
Eligible cost
means the net cost of buying or installing an energy
improvement, including any part, component, or accessory necessary 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 improvement
means:
13
14
15
16
17
18
19
20
21
ill
ill
£!
renovation or retrofitting of qualifying commercial real property to
reduce energy consumption; or
the installation of
£!
renewable energy system to servIce qualifying
commercial real property.
Qualifying commercial real property
means any commercial or industrial
property, regardless of ownership, that meets the qualifications established for
the Commercial Property Assessed Clean Energy Program.
22
23
24
25
26
18A-34. Commercial Property Assessed Clean Energy Program established.
The Director must create and administer
!!
Commercial Property Assessed
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27
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BILL
No.
11-13
28
29
Clean Energy Program.
18A-35. Eligibility;
~
of funds.
30
31
(ill
The Director may loan funds to an owner of
~
qualifying commercial
real property to fund eligible costs to make an energy improvement on
the property,!!p to the maximum loan amount set
Qy
regulation.
32
33
34
ili)
Eligibility.
To be eligible for
~
loan under this Program,
~
property
owner must:
35
36
ill
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;
37
38
39
ill
provide 30 days' written notice to any existing mortgage holder
of the property of the owner's intent to finance the energy
improvement under the Program;
40
41
42
43
44
45
ill
obtain the consent of any existing mortgage holder for the loan;
and
ill
agree to repay the loan amount borrowed through the County tax
bill for that property, as required
Qy
Section 18A-36.
46
47
48
49
ill
Use QffundsfOr an energy improvement.
ill
Q)
A person may borrow funds for eligible costs to make an energy
improvement.
Except as provided in (c)(3), funds must be loaned only for an
energy improvement for which the energy cost savings of the
energy improvement over the useful life of the improvement
exceed the costs of the improvement.
50
51
52
53
54
ill
Funds may be loaned for an energy improvement that does not
meet the cost criteria in (c)(2) if that improvement is part of
~
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BILL No. 11-13
55
56
package of improvements financed under the Program that
cumulatively meets that criteria.
57
58
59
G2
@
Funds may be loaned only for an energy improvement that is
permanently fixed to
f!:
qualifying commercial real property.
Disclosure to property owner.
The Director must disclose the following
60
61
to
f!:
property owner:
ill
any cost or risk associated with participating in the Program,
including any risk related to the failure of the property owner to
Pf!:Y
the loan and;
62
63
64
65
66
67
68
ill
the interest rate of the loan, including any fees charged to
administer the Program, and any risk associated with variable
interest rate financing.
ill
Ability to rescind.
The Director must notify
f!:
property owner that the
owner may rescind any fmancing agreement entered into under this
Article no later than
1
business days after the agreement is made.
18A-36. Repayment of funds; lien.
69
70
71
72
73
74
ill
The owner of qualifying commercial real property must agree to repay
the loan amount borrowed through the County property
tax
bill for that
property.
ill
1£1
If
the property owner sells the property, the seller must disclose that the
75
76
77
78
79
buyer must continue to repay the loan through the property tax bill.
The loan amount and any accrued interest constitute
f!:
first lien on the
real property to which the loan applies until paid. The loan amount and
accrued interest are collectable
Qy
suit or tax sale like all other real
property taxes, to the extent allowed
Qy
State law. Ifthe property owner
does not
Pf!:Y
the loan and accrued interest as required, the property may
be certified to the Department of Finance and the lien may be sold at the
f:llaw\billsI1311 commercial pace\bill1.doc
80
81
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BILL
No. 11-13
82
tax sale conducted
Qy
the County.
18A-37. Regulations.
83
84
85
86
87
88
89
90
91
The Executive must adopt regulations under Method
Program, including:
ill
to administer the
ill
(hl
i£.)
lending standards and priorities;
minimum and maximum loan amounts;
interest rates, terms, and conditions;
application procedures, including necessary supporting documentations;
criteria for adequate security;
procedures to refer applicants to other sources of funds, and to
cooperate with other public and private sources of funds;
@
ill
ill
(g)
92
93
94
procedures to ask the Director to reconsider any denial of g loan or any
decision on interest rates, terms, and conditions;
95
96
97
98
99
100
101
102
103
104
105
106
107
108
{h)
procedures for nonpayment or default;
procedures and requirements for post-installation inspection;
disclosure requirements for real estate transactions; and
criteria for loan disbursement.
ill
ill
®
ill
18A-38. Revolving loan fund.
Definitions.
In
this Section, the following words have the meanings
indicated:
Department
means the Department of Finance.
Revolving loan fund
or
Fund
means the special, nonlapsing fund to
finance the Commercial Property Assessed Clean Energy Program
established under this Article.
{hl
The Fund consists of:
ill
ill
money appropriated in the County budget for the Program;
money received from any public or private source;
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BILL No. 11-13
109
110
111
112
113
114
ill
ill
ill
l.f}
interest and investment earnings on the Fund;
repayments and prepayments of principal and interest on loans
made from the Fund; and
any other available funds to support the Program.
The Department must:
ill
ill
Approved:
disburse funds and collect payments for
Program; and
~
loan made under the
115
116
117
maintain loan records and provide an annual report to the
Department of Environmental Protection.
118
119
Nancy Navarro, President, County Council
Date
120
Approved:
121
Isiah Leggett, County Executive
Date
122
This is a correct copy ofCouncil action.
123
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:
Bi1l11-13 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
property, 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:
NI
A
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-
AY'rI
ROCKVILLE, MARYlAND
072832
MEMORANDUM
June 10,,2013
TO:
Nancy Navarro, President, County Council
.FROM:
SUBJECT:
Iennifer A.
Hughes,
Direc"'r, OftI..
Joseph F. Beach,
Directo~;Department
of Finance,
'OCJ
ofMana_~udget ~
(J
Council Bill 11-13, Commercial Property Assessed CJean Energy Program - Established
. Please find attached the fiscal and economic impact statements for the above-referenced
legislation.
JAH:nm
c: Kathleen Boucher, Assistant Chief Adminjstrative Officer
Lisa Austin,
Offices of the County Executive
Joy
Nurmi, Special Assistant to the County Executive
Patrick Lacefield, Director, Public Information Office
Josepb F. Beach, Director, Department of Finance
Michael Coveyou, Department of Finance
Alex Espinosa, Office of Management and Budget
Matt Schaeffer, Office ofManagement and Budget
Naeem Mia, Office
of
Management 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 prl?vide property owners loans under the program.
2. An estimate of changes in County revenues and expenditures
reg~rdless
of whether
the revenues or expenditures are assumed in the recommended or approved budget.
Includes source of information, assumptions, and methodologies nsed.
The BilI requires
the
Db'ector 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, including PACE programs, to design a program for
the County. DEP believes a consultant wouJd 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:
Program
Washington,
DC
Projects Interested
12 large. 20 smaIl
Up to $7 million in
projects.
120
projects, staff
estimate
70%
convertible to projects
Unknown
Unknown
San
Projects Financed
One 140 unit residential property valued at
$340.000 in final
stages
of underwriting.
One
$1.4
million project.
One complete, two near final. Collectively
$3.5
million.
0
58, but most are small projects
Francisco
Connecticut
Florida
Sonoma
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:
Proeram
Washington, DC
San Francisco
Type
of Fund
Initial Funding
$250 million
Unlimited. but short term
limits due to credit
enhancements
-
$20miUion
Conduit Bond
Private Capital/Owner
Arranged
Public Benefit
Funds/Owner Arranged
f~ancing_"
__._
Private Funds
TreasuryJPrivate Funds
I
I,
:.
Connecticut
Florida
Sonoma
$500 million
Over $67 million
Currently. S,tate law (Article 24, Section 9-1501 et seq. of the Maryland Annotated Code)
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 irifonnation 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-tenn staffing/consultant support
in
other jurisdictions:
Program
Inc
San Francisco
Connecticut
Implementation Funds
$800,000
$600,000
$1 million
On2oinl! FTEs/Consultants
1+ consultants
2+ consultants
2+ consultants (6 to 8
individuals and other
specialized consultants as
I
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needed)
Unknown
Volunteer commissioners
Florida
f-:--'"
Sonoma
Unknown
2
A specific cost estimate for a commercial PACE program in Montgomery County cannot
be determined until a program is designed, but the information from other jurisdictions
. 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 (AJtic1e
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 wou1d 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 least the next 6 fiseal years.
See number 2.
An
initial expenditure of
$100.000 - $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 stafftime 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
wouM 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 the addition of new staff responsibilities would affect other
duties.
Not Applicable.
8. Later actions that may affect future revenue and
expend~tures
if
the biB authorizes
future spending.
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Not Applicable.
9. A description of any variable that could affed 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
avaiJable on commercial
PACE
programs,
sufficient long-term trend data is currently unavailable to accurately estimate revenues
and expenditures of a fullyfimctioning 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 impact, 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 of Environmental Protection
Robert Hagedoom, Department of Finance
Michael
Coveyou, Department
ofFinance
Alex
Espinosa,
Office
of
Management
and
Budget
Matt
Schaeffer.
Office
ofManagement and
Budget
Dale '
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,
.
Economic Impact Statement
BiII!1
~
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, assllmptions, and methodologies used•.
According to the Department ofEnvironmental Protection (Department), the amount .
of data on the
types
of projects 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 speclfic implementation guidelines and the amount of funding to
detennine with any certainty
the
economic impact ofBi111l-l3.
2. A description of any variable tbat cOllld affect the economic impact estimates.
To estimate the economic impact with any degree of certainty, the analysis requires
the munber 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'
from a reduction in energy consumption will exceed the cost of the project. This bill
wou1d not apply to condominiums. However without specificity on the types of
projects to be implemented,
it
is premature to determine the economic benefits of the
bilL
3. The Bill's positive or negative effect, if any on employment, spending, saving,
Investment, incomes, and property values in tbe County.
As
stated in item
#2,
the total economic effect
will
depend on the amount of financing
available,1he number 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 tbat the case?
Please see item #3
Page
10f2
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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.
A2/4,.,--~
Jos~j,irec'r
.......
Department
ofFhiance
Date
. b
/s:-'
/~o_~~
Page 20f2
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Page 1
LexisNexis®
1 of 7 DOCUMENTS
Annotated Code of Maryland
Copyright 2013 by Matthew Bender and Company, Inc., a member of the LexisNexis Group
All rights reserved.
***
Current through all Chapters Effective January 1,2013, of the 2012 General Assembly Regular Session, First
Special Session, and Second Special Session.
***
***
Annotations through March 7, 2013
***
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 following 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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Page 2
LexisNexis®
2 of 7 DOCUMENTS
Annotated Code of Maryland
Copyright 2013 by Matthew Bender and Company, Inc., a member of the LexisNexis Group
All rights reserved.
***
Current through all Chapters Effective January
I, 2013, of the 2012 General Assembly Regular Session, First
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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:
(l)
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 finance 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.
(fjg)
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§
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
(1)
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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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,
§
9-1503
(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:
(l)
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:
(l) 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 form 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 determines 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:
(l)
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 ofinstruments.
(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 of sale. -­
(l)
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 of a 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
§
9-150 I of this article.
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Policy Brief
Property Assessed Clean Energy (PACE) Financing:
Update on Commercial Programs
RENEWABLE
FUNDING
INITIATIVE
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) However, actions taken by
the Federal Housing Finance Agency (FHFA), the Office of the Comptroller of the 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:
Table ES-1. Summary of Approved PACE Commercial
• 71 projects have been
Projects
approved and financed in
Average
Range of
Approved Total Approved
the four active commercial
Project Size
Project Sizes
Projects
Funding
PACE programs,
$2K-$2.3M
$9.69M
$138K
71
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.
I
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 commercia! 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.g(lv/caiems/rcpolts/ee-policybrief08111 O.pdf
PACE
Financing:
Updat~
1 of 14
March 23, 2011
on Commercial Programs
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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. £S-l. Number of Approved Projects by Program
&
Type
Placer County
Palm Desert
II
Renewable Energy Only
Boulder
COU!'lty
Sonoma County
III Energy Efficiency Only
/I
Energy Effitieney
and
Renewable Energy
o
5
10
15
20
25
30
»
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 £S-2. Commercial
PACE Programs
Operational Programs
Programs in Design
Preliminary Planning
Total
4
9
4
17
PACE Financing:
Update on Commercial Programs
20f14
March 23,2011
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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,
DCC
and other financial regulators in the
summer of2010, 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
Approved
Range of Project
Total
Average
Projects
Approved
Project
Sizes
Funding
Size
71
$9.69M
$138K
$2K-$2.3M
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.
For more information regarding PACE please see "How to Guide on PACE Financing" (Fuller, Kunkel, Kammen
2009): httlJ:I/rael,berkelev,edu!financiug/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
@)
PACE
Financing:
Update
on
Commercial Programs
30f14
March 23, 2011
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Table 2. Commercial PACE Programs in Operation Have Financed 71 Projects
Term
Source of
Average
Program
Approved
Interest
Total
Funding
(in
Projects
Approved
Project
Rate
years)
Funding
Size
County
Sonoma
$7.27M
$196K
Up to
37
7%
Treasury
County,
20
CA
Moral
5 or
$51K
Boulder
29
$1.52M
1.04% or
2.29%5
Obligation
County,
10
Bond
CO
Issuance
wi
QECB
County
Placer
2
$319K
$160K
7.25%
Up to
Treasury
County,
20
CA
City
Palm
$575K
$192K
Up to
7%
3
Backed
Desert,
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
25 Renewable Energy Only
Project Mix
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
Coun
Source of Funds
financing for a wide variety of
Lender Consent andlor
Yes
Acknowledgment
renewable energy, energy
He
uired
efficiency and water efficiency
Acceleration
No
projects, 95% of funds for
commercial building projects have gone to
Fig. 1. Sonoma County Percent of Funds
fund solarPV (48%) and cool roofs (47%)
by
Project
Type
(see Figure 1). The 25 solar PV projects will
Other
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
0%
10%
20%
30%
40%
from $7,000-$2.3 million. The remaining
commercial building projects are solar
Interest rates are 1.04% or 2.29% for projects with a five-year or ten-year term, respectively. In
addition to the interest rate, capital expenses equal to 8.09% (five-year term) and 4.27% (ten-year tenn)
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.
5
Finance Structure
SO"At
PACE
Financing:
Update on Commercial Programs
40f14
March 23, 2011
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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
i
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
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 Consentandjor
Yes
using a portion of its
Acknowledgment
Qualified Energy
Required
Conservation Bond
Lender Consenting
7 National Bank
(QECB) allocation.7
5 Regional Bank
Boulder collected data
on the value of
participating properties,
Average Ratio of Financed
allowing program
Amount
to
Actual Property
administrators to track
Value
Acceleration
Yes
the Iien-to-value ratio
Building Type
9 Office
(LTV) of the
6 Multi-family
assessments.
90%
of
5 Food Service
the assessments have a
Z 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
Solar Hot Water
are high and the financing amounts are low
Insulation
relative to other programs.
Insulating Doors and Windows
Cool Roof
Boulder's PACE program has financed a
Solar PV
wide range of building types and measures
OtI1er Energy Efficiency
(see
Figure
2).
The diversity of building
HVAC
types in the pool suggests that PACE
financing may have wide applicability
0% S% 10% 15% 20% 25% 30%
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
5 Community Bank
3 Other Lending Institution
8 Properties have no mortgage
1 Unspecified
4.42%
6
7
For more infonnation on the pooled bond PACE model, see Appendix
A.
For more infonnation on QECBs, see Appendix A.
PACE
Financing:
Update on Commercial Programs
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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 ofProiect Size
Min $23K; Max $S22K
climate makes solar, HVAC,
Project Mix
1 Renewable Energy Only
and other efficiency
2 Energy Efficiency Only
measures especially cost
Finance Struetnre
Warehoused
Source of Funds
effective for many building
• Municipal Funds and
Redevelopment Agencv 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
0
f Proiect Size
funding for both energy efficiency
2 Renewable Energy Only
Project Mix
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
I
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 PV and 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.
Acceleration
Building Type
No
1 Plant Nursery
1 Motel
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.
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.
PACE Financing:
Update on Commercial Programs
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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 ofAnn 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 ofthe 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 of the program is
to enable PACE financing of single building projects under the "owner-arranged" model,S 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-for-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 oftheir 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
8
For more infonnation on the owner-arranged PACE model, see Appendix A.
PACE
Financing:
Update on Commercial Programs
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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 of 2011.
Melbourne,
AustraUii::r~eCity"ofMelbourllel~fi~ch~crtlu!:i2PoBr1ildmgsprogram
ill
March
201pd~th the;ClitnPf~ataiYZingther'~trO~tQf.at)eistl,.260
predominantly
1l0n-residentialbu!ldingsJn the municipality. The progran'listhe first,ofits kind in
Australia. The llltiIiiate gqal oftheprogramiis to savenve gig'aHtt:es
ofp~§?lewater
and redu&erierijY tiseiIlthese buildings
?¥;38%;
mitigating
~83
kilotons
of" '. ' '
.
greenhousegasen1~si~~s.
The program
.i(feI1tifiedaI~ck
of commercial funding as '
one
of
the
keybarri~rs tO~~le~w~tit1~;n\liroriIitenta(llpgrades
toexi.sting';
buildings. The,
t;itY.~f M"~l~b~iqe~'JIlsmpv~~p,dm~' ~is
ban-ier
by
paft11~ririg
with
property ()WIiers
forthepurpq~epf s~cufingprojectfina~cing.Thefinariced
amount
.for each projectisdeclared 19ciinst the propertY
as
an
BnVir~nniental
Upgrade'Charge
CEUC)
and the City of Melboumelevies this chargeai¥iIally.The
1200
Buildirigs' .
Program
is
managed tIirougha strategic partnershipbetWeenthe CityofMelbourne
and the Sustainable Melb94rne!:"und
rSMF). ' .
..,.,
.
AustraHan#nai1cicllin.st(~ti9~s,l:i?:~fenter§~into\TQlllntar¥arrangenI~titS
with
"
PACE Financing:
Update on Commercial Programs
80f14
March 23, 2011
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Conclusion
Preliminary data from the four operational programs indicates that PACE financing has the
potential to serve a variety of building 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 1:10 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.
PACE Financing:
Update on Commercial Programs
90f14
March 23, 2011
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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, CCI 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 oflarge 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, induding electric power system reliability, energy
efficiency, demand response, renewable energy, distributed energy resources, and energy
sector modeling. For more information, visit: http://eetd.lbl.govIEA/EMP lemp.html
PACE Financing:
Update on Commercial Programs
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March 23, 2011
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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 may be better suited for larger projects (e.g. greater
than
$500K)
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.
More information on the three financing methods is available in the Department of Energy's "Clean Energy Finance
Guide for Residential and Commercial Building Improvements":
~
http://www I.cere.energy. gov/wip/solutioncenterhJdfs/revFinal V 3Ch 13CommercialP ACEDec9.pdf
~
9
PACE
Financing:
Update on Commercial Programs
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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
Rosition instead, which means the mortgage has priority over the PACE debt.
I
@
http://cctd.lbl.gov/ca!cmslrcpOlts/ec-policvbricf08111 O.pdf
\:::.V
PACE Financing:
Update on Commercial Programs
12ofl4
March 23, 2011
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• Qualified Energy Conservation Bonds (QECBs)1Z: 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.1
3
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).ls
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 if the property is foreclosed upon, instead of the
entirety of the assessment. This is referred to as a "non-acceleration" of payments.
16
More information available on QECBs at
http://I.nvw
I.eere .energy.gov/wi p/solutioncenterlt1nanc
ia
lproductsiQECB.
htlTI1
12
13
14
http://wwwl.eere.energy.gov!eere faQldetaiI search.aspx?IDQuestion =712&pid= 1O&spid= 1
htt,p:llwvvwl.eere.energy.gov/wip/davis-bacol1 act.html
htl:]: 1/W\V\v1.eere,energy.goy!wip/nepa gUidance.html
16
More information about the non-acceleration of PACE assessments can be found in the May 2010 LBL Policy
Briefby Zimring and Fuller "Accelerating the Payment of PACE Assessments"
15
http://eetd.lbl.govicalems!rcportslee-policybrief 050410.pdf
PACE
Financing:
Update on Commercial Programs
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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.
PACE
Financing:
Update on Commercial Programs
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GREATt:R
WASH INGTOI\J
COMMERCIAL
ASSOCIATION
liiiiiii_ _
OF REALTORS®
June 25, 2013
Council President Nancy Navarro
100 Maryland Avenue
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
REALTORS® (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.
G WCAR 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 REALTORS®, 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 Council member 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
Page 1
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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 loan 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.mdcleanenergy.org/maryland-clean-energy-capital-financing-program-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
benefit 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 ofthe 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 property appraisal process.
July 2, 2013
Page 3
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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 PACENow 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
4
Abl,itytopass
retrofit, owners/Msnagers
, costsontotenants '"
(n""~)
undera triple net lease
[e.g",overcomethe
otherStakeholders
37%
36%
splltlnamttve)
Ability
to
extend
finandng of capltal-
(n=25)
OWners/Managers
(n:35)
intensive improvements
overa longertime
otherStakeholders
horizon (e.g., 10-20
yrs)
(n=25)
Abilitytotmnsfer
ownerS/Managers
unpald
loan prim::lpal
to
(n=35)
31%
3'.
26%
• •
23%
14%
subsequenlowners
of
Other
Stakeholders
the
property
'(n:=26)
• Very
Appealing
f.3
Somewhat
0 Neutral
Appealing
In
SOmewhat
Unappealing
.Very
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;flwww6.montgomerycountymd.govlcontent/dep/down loads/E nergyIFI NALCom merciala nd MuIti­
FamilyStudy.pdf
July 2,2013
Page 4
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Based on information from other jurisdictions with active PACE programs, a limited numberof 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
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/Private
Funds
Initial Funding
$250 million
Unlimited, but short
term limits due to
credit enhancements
$20 million
Connecticut
Florida
Sonoma
$500 million
Over $67 million
July 2,2013
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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
Interest Rate
(Range)
Gt07%
Gto 7%
4toG%
Credit Enhancements
DC
San Francisco
Connecticut
Florida
Sonoma Energy
Independence Program
Gt07%
7%
None
Loan Loss Reserve Fund
Low Cost Capital Pool from Public Benefit Funds
($20
million). Considering credit enhancements.
None
None
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, if the
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.
July
2,2013
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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 ond 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.
5
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.
July 2,2013
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