Property Assessed Clean Energy (PACE) Financing
The Great Lakes Environmental Law Center is working to support Property Assessed Clean Energy legislation
Granholm signs PACE Act
On December 15, 2010 Michigan Governor Granholm signed the Property Assessed Clean Energy Act (Act No. 270, Michigan Public Acts, 2010). Under the leadership of Representative Rebekah Warren, Washtenaw County Commissioner Jeff Irwin and support form Johnson Controls, the bill moved relatively quickly through the House and Senate. The GLELC was fortunate to have an opportunity to draft substantial portions of the bill with input from various local and national lawyers, public interest groups and municipalities.
The legislation is designed to allow property owners to pay for energy efficiency and renewable energy improvements over a number of years as a special assessment on their tax bill. One key feature is that in the event of a property transfer the payback obligation stays with the land, not the original property owner. Earlier in the year residential PACE programs were largely slowed by concerns from Fannie and Freddie Mac.
The Michigan PACE bill was changed in two significant ways to account for the concerns raised by Fannie and Freddie. First, the mortgage holder must consent to the assessment being placed on the property. Second, residential properties are not eligible for PACE programs. Commercial and industrial property are only eligible for PACE assessments in Michigan.
The PACE Act will offer a tool for building owners and municipalities to lower the cost of ownership and reduce dependence on traditional energy sources.
What is PACE?
PACE is a financing tool that allows property owners to install small-scale renewable energy systems and make energy efficiency improvements to their homes and pay back the cost of the improvements on their property tax bill.
Does PACE exist in Michigan or elsewhere?
See above for information on Michigan's PACE legislation. Nineteen states have already passed PACE legislation and fourteen additional states are considering similar bills.
How does PACE work?
- A municipality voluntarily decides to operate a PACE program and they raise funds from a bond sale or other sources.
- A homeowner voluntarily decides to make a qualifying improvement to their home, such as installing a geothermal heating system, insulation, or energy efficient windows.
- The contractor that installs the improvements is paid from the proceeds of the bond sale or other sources.
- The homeowner pays back the cost of the improvements on their property tax bill over a number of years. For example: if a homeowner invests in a geothermal heating and cooling system, they would pay back the cost over 15-20 years on their tax bill; or if a homeowner invested in insulation and new windows the payback period would be 5-10 years.
- The programs are designed to be cash positive to the participants; or in other words the savings from making the improvements should be greater than the payback obligation.
- If the property is sold before the cost of the improvement is paid in full, the payback obligation transfers with the property and becomes the responsibility of the new owner.
What are the benefits of PACE?
- Creates local jobs that cannot be shipped overseas
- Lowers cost of home ownership by reducing utility bills
- Decreases pollution by promoting the adoption of renewable energy and energy efficiency
- Protects homeowners from fluctuating energy costs
- Increases property value
- Reduces dependence on foreign energy sources
Fore More Information:
Property Assessed Clean Energy Legislation in Michigan, a presentation developed by GLELC Clean Energy Fellow Eric Jamison.
PACE Best Practices recommended by the Department of Energy
Requirements for a PACE program under the Michigan legislation
Endorsement Letter for HB 5640