U.S. Department of Energy Energy Efficiency and Renewable Energy

Key Features to be Added to Existing State Law to Enable Energy Financing Districts

Several key features often must be added to existing state law to enable energy financing districts. This page contains details on those features.

Authority to Finance Improvements on Private Property – In some states, the statutes authorizing local governments to create assessment districts specify that the improvements to be financed by such assessments must serve a “public purpose” (i.e., must benefit the general public in some way, such as reducing pollution, improving health, etc.)  It is, therefore, sometimes necessary to amend the state code to specifically state that renewable energy and energy efficiency improvements on private property are a valid public purpose.

Other states expressly prohibit the use of assessment districts to develop or improve private property. In those states, the code sections authorizing assessment districts must be amended to authorize the financing of renewable energy and energy efficiency improvements on private property.

Authority to Finance Renewable Energy and Energy Efficiency Improvements – State law already authorizing the creation of assessment districts often limits the authority of local governments to financing only certain enumerated types of improvements, such as sidewalks, parks, sewers, and the like. In those states, to enable the authority to create energy financing districts, it is necessary to expand that list to specifically include renewable energy and energy efficiency improvements.

Opt-In Feature – In most states, when the governing body of a municipality creates assessment districts, it must designate their geographic boundaries; and all parcels of property on the tax roll for such designated area are included in the district. In the energy financing districts model, a particular parcel of property is not assessed unless that property owner “opts-in” and applies to participate in the PACE program.

 To create the legal authority for this “opt-in” mechanism, the code section authorizing assessment districts must usually be amended to provide that, when creating an energy financing district, the governing body of the municipality may initially designate a geographic area comprised solely of properties proposed for annexation into the district. Once the district is created, properties join the energy financing district (and thereby become eligible for financing of clean energy improvements and subject to special assessments) only when all of the owners of a particular property voluntarily decide to annex their property into the district.