Property Assessed Clean Energy Financing for Commercial Building Upgrades
James Hamill is a program manager for California Communities, a joint powers authority sponsored by the League and California State Association of Counties. He can be reached at jhamill@ cacommunities.org. For more about California Communities, visit www.cacommunities.org.
In the United States, commercial and industrial buildings account for more than 70 percent of all energy consumption. Efforts to achieve greater energy efficiency in commercial and industrial buildings are often hampered by substantial upfront costs associated with improving energy efficiency and water conservation as well as implementing renewable energy measures.
To help the business community overcome upfront cost barriers, California cities and counties can take advantage of an innovative solution available through CaliforniaFIRST, a Property Assessed Clean Energy (PACE) financing program offered by California Communities.
Originally created as a tool to help homeowners finance solar and energy-efficiency improvements, the residential PACE program’s implementation has been delayed until Federal Housing Finance Agency regulatory issues are resolved. However, a growing number of communities nationwide are using PACE as a way to help businesses finance commercial building energy-efficiency upgrades.
How PACE Works
The PACE program uses a traditional local government financing tool, the land-secured financing district. After a local government or joint powers authority establishes the district, the property owner voluntarily agrees to place a lien on the commercial property undergoing efficiency upgrades. A bond, secured by the property, is then issued to finance the project. The property owner repays the bond over the course of 10 to 20 years via a special line item on his or her property taxes.
Property owners may use the program to finance solar photovoltaic systems; heating, ventilation and air conditioning (HVAC) systems; cool roofs; lighting; insulation; retrocommissioning and water-efficiency upgrades.
Key Benefits to Property Owners
PACE financing offers a number of important advantages that appeal to commercial property owners:
- Because it is a property-tax assessment, the repayment obligation for the PACE assessment remains with the property if it is sold;
- PACE assessments qualify as an operating expense under most triple-net lease agreements. This means payments (as well as the energy savings) can be passed along to tenants;
- It allows owners to finance improvements while incurring no additional debt on a property; and
- Generally, PACE allows projects to be cash-flow positive from the outset because the financing offered is relatively low cost and payable over an extended period of time (up to 20 years). Thus, the energy savings can more than offset the property tax increase.
Creating Jobs and Reducing Energy Use
In addition to helping achieve the goal of reduced energy consumption, PACE is gaining popularity due to its significant potential to create local jobs. A 2011 study conducted by the Portland-based econometrics firm ECONorthwest shows that $1 million in spending on PACE projects would create 60 jobs, generate $10 million in gross economic output and generate $1 million in combined federal, state and local tax revenue.
According to a landmark report by Johnson Controls, cost-effective measures can reduce energy usage in commercial buildings by more than 20 percent.
CaliforniaFIRST: Nation’s Largest PACE Program
The CaliforniaFIRST commercial PACE program, which operates under the auspices of the California Statewide Communities Development Authority (CSCDA), is currently active in 14 counties and 127 cities throughout the state. Three additional counties recently voted to join the program. Local government members of CSCDA can participate in the PACE program through a simple majority vote of the city council or county board of supervisors.
For more information, visit www.californiafirst.org.