Property Assessed Clean Energy Enabling Legislation

Ten Key Com­po­nents of PACE Legal Authority

Enabling leg­is­la­tion will vary by state, depend­ing on exist­ing state law. Please con­sider the fol­low­ing pol­icy com­po­nents when draft­ing leg­is­la­tion. How­ever, if more guid­ance is needed,
please con­tact Annie Carmichael at annie@votesolar.org or 415–817-5063 with spe­cific
questions.

Pol­icy Com­po­nent #1: Iden­tify exist­ing financ­ing & assess­ment author­ity within state statute.

Research into the state statu­tory law can deter­mine whether local
gov­ern­ments have exist­ing author­ity to finance improve­ments and to impose assess­ments or spe­cial taxes against prop­erty that ben­e­fits from such improve­ments. If such author­ity exists, it is gen­er­ally prefer­able to use such exist­ing struc­tures and amend exist­ing statu­tory pro­vi­sions to pro­vide for the spe­cific aspects of PACE financ­ing, if nec­es­sary. If no such struc­ture exists or if amend­ments to exist­ing struc­tures are too cum­ber­some, stand-alone PACE author­ity can be drafted.

Pol­icy Com­po­nent #2: Ensure that assess­ments are secured by liens on the prop­erty benefitted.

A key fea­ture of PACE is that assess­ments are secured via a lien on the prop­erty ben­e­fited. It is prefer­able to use exist­ing pro­ce­dure for secur­ing, record­ing, col­lect­ing other local gov­ern­ment assess­ments and taxes, and han­dling delin­quen­cies. Typ­i­cally, the assess­ment or spe­cial tax lien is of the same pri­or­ity as other prop­erty tax and assess­ment liens. It is prefer­able that the lien
not accel­er­ate in the event of fore­clo­sure or trans­fer of own­er­ship, and that the lien trans­fer to the next prop­erty owner, if this is not already pro­vided under exist­ing state law. We rec­om­mend that details regard­ing default be spec­i­fied in local gov­ern­ment ordi­nances or poli­cies, rather than in state statute.

Pol­icy Com­po­nent #3: Estab­lish the mech­a­nism for cre­ation of PACE financ­ing dis­tricts and pro­grams.
The improve­ment financ­ing and assess­ment autho­riz­ing statute typ­i­cally spec­i­fies the pro­ce­dure
for estab­lish­ing a dis­trict or pro­gram. This process can be sim­ple or cum­ber­some. In some juris­dic­tions the local city coun­cil or county board of super­vi­sors can pass a city ordi­nance cre­at­ing such dis­tricts by a sim­ple major­ity vote, though a pub­lic hear­ing is often required.
How­ever, some states require a peti­tion or vote of a major­ity of prop­erty own­ers or reg­is­tered
vot­ers. It is less cum­ber­some if the financ­ing dis­trict or pro­gram is estab­lished by the gov­ern­ing body of local gov­ern­ment entity, rather than through a bal­lot ini­tia­tive or pop­u­lar election.

Pol­icy Com­po­nent #4: Autho­rize financ­ing of improve­ments on pri­vate prop­erty. Enabling leg­is­la­tion should autho­rize the financ­ing of improve­ments on res­i­den­tial, com­mer­cial and indus­trial pri­vate prop­erty. It is impor­tant to review state con­sti­tu­tional law to ensure that PACE pro­grams are prop­erly authorized.

Pol­icy Com­po­nent #5: Autho­rize the financ­ing of energy effi­ciency and renew­able energy improve­ments.
Exist­ing state law local gov­ern­ment improve­ment author­ity often spec­i­fies the types of projects that may be financed by the local gov­ern­ment. If spe­cific types of projects (e.g. side­walks, parks, sew­ers) are enu­mer­ated, this list should be expanded to include energy effi­ciency, renew­able energy, and water con­ser­va­tion improve­ments. We rec­om­mend choos­ing broad and flex­i­ble def­i­n­i­tions that do not require state statu­tory amend­ments to adapt to tech­no­log­i­cal change. If exam­ples of spe­cific clean energy tech­nolo­gies are pro­vided, lists should not be exclu­sive (i.e. use the phrase “includ­ing, but not lim­ited to”).

Pol­icy Com­po­nent #6: Leg­isla­tive find­ings that improve­ments are in the pub­lic inter­est.
PACE enabling leg­is­la­tion should include a leg­isla­tive find­ings sec­tion not­ing that local gov­ern­ment financ­ing of renew­able energy, energy effi­ciency and water con­ser­va­tion projects has a valid pub­lic pur­pose and is in the pub­lic inter­est. The pub­lic ben­e­fits of such improve­ments, such as energy secu­rity, local job cre­ation, clean air, and cli­mate change mit­i­ga­tion are well documented.

Pol­icy Com­po­nent #7: Cre­ate opt-in assess­ment fea­ture.
The PACE financ­ing author­ity also must include an “opt-in” fea­ture through which will­ing and inter­ested prop­erty own­ers vol­un­tar­ily elect to receive financ­ing and have assess­ments made against their prop­erty. State law should clar­ify that financ­ing is not to be pro­vided and assess­ments are not to be made unless prop­erty own­ers first con­sent in writ­ing. This opt-in fea­ture does not typ­i­cally appear in exist­ing local gov­ern­ment improve­ment financ­ing authority.

Typ­i­cally, such pro­grams only autho­rize improve­ments that result in shared ben­e­fit among all prop­erty own­ers within that con­tigu­ous geo­graphic area, and tax all prop­erty own­ers within that geo­graphic area. Under the PACE finance model, how­ever, only prop­erty own­ers who choose to par­tic­i­pate join the dis­trict or pro­gram and then receive financ­ing and incur assess­ments against their prop­erty. Exist­ing state law usu­ally needs to be amended to pro­vide that financ­ing and assess­ments are con­tin­gent on prop­erty owner approval.

Pol­icy Com­po­nent #8: Autho­rize Bond­ing and the use of bonds or grants to finance improvements.

State law should autho­rize local gov­ern­ments to issue and sell bonds. This is per­haps the most com­pli­cated com­po­nent of enabling leg­is­la­tion, and pol­icy mak­ers should con­sult with local
bond coun­sel to deter­mine whether addi­tional statu­tory pro­vi­sions relat­ing to debt are required. In gen­eral, we rec­om­mend that state statute not include specifics regard­ing inter­est rates, admin­is­tra­tive fees and other details, and instead allow local gov­ern­ments to sup­ply such details in ordi­nances or poli­cies imple­ment­ing PACE pro­grams. Also note that enabling
leg­is­la­tion should pro­vide cities and coun­ties author­ity to accept fed­eral, state and local gov­ern­ment grants and loans to pro­vide up front financ­ing for cre­at­ing and/or admin­is­ter­ing a PACE program.

Pol­icy Com­po­nent #9: Enabling statewide or multi-jurisdictional PACE programs.

PACE legal author­ity should autho­rize groups of cities and
coun­ties and joint pow­ers author­i­ties
to coor­di­nate under a sin­gle pro­gram or financ­ing dis­trict to allow for greater economies of scale in the financ­ing and admin­is­tra­tion of PACE programs.

Pol­icy Com­po­nent #10: Bonds not backed by full faith and credit of local/state government.

It is prefer­able that debt issued to finance PACE improve­ments not be a gen­eral oblig­a­tion or backed by the full faith and credit of the local or state gov­ern­ment, but instead be secured by the assess­ment or tax lien on the ben­e­fit­ted prop­erty.
Key poli­cies to avoid as they make PACE pro­grams ineffective:

1. Treat­ing PACE assess­ments as junior to tax assess­ments, pari passu or junior to mort­gages [link to Bar­clays memo on PACENow]

2. Hav­ing PACE assess­ments be gen­eral obligation/credit risk for munic­i­pal­i­ties
One of the great advan­tages of PACE is that it presents no credit risk to municipalities.

3. Requir­ing that PACE pro­grams be funded with monies from the fed­eral gov­ern­ment.
PACE pro­grams should be funded with pri­vate cap­i­tal and not con­strained by the small monies avail­able from gov­ern­ment programs.

Con­tact Infor­ma­tion:
Annie Carmichael, Vote Solar
annie@votesolar.org
W. (415) 817‑5063

Vote Solar and Renew­able Fund­ing express our thanks to Wil­son Son­sini Goodrich & Rosati, P.C. for its assis­tance in prepar­ing this fact sheet.