Establish Supporting Framework for Property-Assessed Clean Energy Financing Program
The second step in launching a property-assessed clean energy (PACE) financing program involves laying a solid foundation for the program in the areas of team composition, goals, legislation, and assessment district formation. Key activities include:
- Forming a program team
- Designing program to meet specified goals
- Determining authority for PACE
- Initiating formation of an energy financing district.
The process of developing a commercial PACE program to the point of launch should take 6 to 12 months once there is enabling legislation, but the timeframe depends on approval schedules and the level of resources a local government is able to direct toward the effort.
Form Program Team
Each local government should evaluate whether capacity exists in-house to set up and manage the PACE program or whether it will need to engage financial or administrative partners. Partnerships can range from a turnkey administrative and financial partner that handles all of the processing and bond sale, to the targeted use of outside expertise. The decision on how to manage the program launch and administration will be tied to the unique capacity and preferences of each local government.
Important team members for planning and implementation include:
- Senior managers and analysts from the mayor or city manager’s office, the county administrator’s office, and the department that will be administering the program
- Legal counsel representing the jurisdiction and/or bond counsel
- A finance/auditor-controller department representative and/or a financial consultant
- A climate, energy, or sustainability program staff person (if available)
- Staff from energy efficiency and renewable energy programs operated by the government, utility, or local nonprofit
- Staff from the county recorder and/or tax collector’s offices.
Administrative functions include:
- General management, oversight, and coordination
- Marketing the program and responding to public requests for information
- Processing and approving applications
- Collecting appropriate documents and recording the tax liens
- Bond issuance and/or other financial transactions necessary to fund projects
- Property tax administration, levying special tax or assessment
- Customer service and assistance
- Program evaluation.
Design Program to Meet Specified Goals
Planning for the commercial PACE program should integrate the local government’s goals (e.g., greenhouse gas reduction targets, economic development, and workforce development goals, if applicable). It is also important to engage local stakeholders and potential partners to assist in determining program goals, key program design elements, and criteria for eligible property improvements. Relevant stakeholders include contractors, auditors, investors, lenders, potential program participants, and financial administrators.
Planners should examine and, to the extent they are combining American Recovery and Reinvestment Act funds with PACE programs, follow the relevant DOE Guidelines for Pilot PACE Financing Programs as they design underwriting standards, choose eligible measures, and determine other program details.
Determine Authority for PACE
Most communities will require authorization from their state legislature to allow local governments to collect a special tax or assessment to pay for energy efficiency or renewable energy improvements on private property. Local governments in California, for example, already have this authority under Chapter 29 of the 1911 Assessment Act through AB 811 and through Mello-Roos (for charter cities).
The key features that often must be added to existing state law to enable energy financing districts include the following:
- Authority to finance improvements on private property
- Authority to finance renewable energy and energy efficiency improvements
- An opt-in feature
Initiate Formation of an Energy Financing District
This step is likely to require several actions by the city council or county board of supervisors and various approvals. As this is a lengthy process, starting it as early as possible is a good idea.
New Mexico passed authorizing legislation for residential and commercial PACE programs to finance renewable energy projects. The districts in New Mexico’s PACE programs are referred to as Renewable Energy Financing Districts (REFDs). Santa Fe County, as an example, established a REFD in about 6 months, with the following process:
- Identify a champion (typically an elected official to support the program)
- Determine staff resources
- Coordinate the effort with bond counsel
- Identify administrative and financial partners
- Determine which geographical regions the REFD will include
- Determine the composition of the REFD Board
- Adopt a resolution of intent to form the REFD
- Conduct a formation hearing
- Adopt the formation ordinance.