PACE in Texas

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In an effort to improve the aging and inefficient infrastructure found within many industrial and commercial properties around the state of Texas, congress and the governor recently passed the PACE statute. These “Property Assessed Clean Energy” (PACE) loans would offer simple financing options to companies wishing to improve facilities with environmentally friendly designs. These loans come from private lenders and are handled through cooperation with local tax authorities.

As part of Senate Bill 385, the PACE program is the first successful introduction of this type of initiative in the state. Passage in the governments of many states has occurred, but every state with successful passage of a PACE bill hasn’t yet seen full implementation of the statute.

Numbers Behind PACE Development

Numbers released by the United States Energy Information Administration suggest that over 40 percent of energy consumption in the United States comes from residential and commercial properties. Most of the energy used to power these properties comes from fossil fuels, and energy consumption is high due to old construction and inefficient design.

High costs associated with the redevelopment of such properties toward more energy-efficient designs have been a strong barrier to improvement. PACE initiatives around the country have been implemented to make it easy to finance upgrades to commercial and residential infrastructure. Those initiatives haven’t been fully implemented in every state where a PACE vote was on the state legislature’s ballot, but widespread activity on such measures remains with at least 30 states passing a PACE-related statute.

How PACE Works

Obtaining financing under the PACE program requires the following steps:

1. Options for the refurbishment of inefficiencies within a property are identified, and the potential cost savings of replacing those systems is calculated by the property owner. GreenEfficient can help through our consulting services.

2. The property owner sends an official application to the program to a PACE administrator, who is locally chosen and is an independent representative of the program.

3. The PACE administrator approves the project and calculates the tax assessment connected to repayment of the loan.

4. The administrator draws up a contract, and the property owner submits the project to a lender participating in the PACE program.

5. The property owner receives funds for the project from the lender and hires a contractor to begin work on the project. We can provide a turn-key solution to retrofit.

6. A lien is created by the local administrator, which will guide repayment of the loan to the official PACE lender.

Benefits of PACE

Texas is not the first state to consider special financing options to improve energy efficiency and eco-friendly building of its industrial and commercial properties. A number of other states in the country have enacted PACE legislation including Arkansas, Connecticut, and California. Strong support for PACE-like programs has been seen across the nation and at the federal level as well, where the American Recovery and Reinvestment Act of 2009 fueled interest in state level initiatives.

Some states, like California, have even expanded on the state program by providing insular programs at the local level. California was the first state to start retrofitting properties, and activity in that state opened the door for similar statutes to head to the congressional ballots in many states across the country. Proponents of the PACE program suggest the following benefits to consumers and citizens:

1. Creates jobs
2. Zero tax cost to citizens
3. Energy savings for consumers

The benefits for citizens aren’t the only reimbursements touted by supporters, however. Benefits for property owners exist as well, and those benefits include:

1. Tax incentives
2. Higher property value
3. Lower operating costs
4. Smaller energy bills
5. Low cost up-front investment

The most attractive benefit of PACE program availability for local property owners usually regards to the availability of funds for various conservation-minded improvements. Such improvements tend to require significant capital investment, and most companies don’t have access to that level of funding or the cash flow required for those improvements.

In addition to benefits for commercial or industrial property owners and local citizens, the benefits of PACE for the environment shouldn’t be forgotten. The reduction of greenhouse gas emissions offers an important benefit for future environmental health, and the program also makes future investment for new properties in green building practices a more attractive venture.

Concerns about PACE

Like all initiatives that include significant levels of funding, government support, and major construction, various concerns have been raised regarding the potential success of PACE and its implementation in Texas. These concerns aren’t unusual, however, and have been raised in most states where passage of a PACE program has hit Congress and the governor’s desk.

One of the concerns regarding financial institution participation in PACE is the fact that, in the event of a financial collapse, the first loans paid would be those granted under the PACE program. This has led some mortgage lenders to withdraw support for the initiatives. The potential risk to lenders like Fannie Mae and Freddie Mac was the primary concern from those connected to mortgage lending.

This has meant that the potential for commercial funding related to PACE implementation has been wrought with much less controversy than funding connected to residential properties. Interestingly, this has meant some local governments around the nation in states where PACE is on the books have begun funding initiatives for commercial properties, but have placed residential improvements on hold.

Studies on PACE Success

In states where PACE initiatives have passed and become normal practice, studies have found that the money spent on improvements offers an impressive return on investment. For example, a study looking at the PACE program in California found that $54 million dollars spent resulted in an impressive $142 benefit to communities. In addition, over 800 jobs were created as a result of the spending.

Although some residual resistance to PACE measures exists, strong incentive for participation has been shown through studies on programs around the country. In Texas, Governor Rick Perry’s signature on June 14th, 2013 should usher in the design and adoption of PACE measures at the local level.

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