On a PACE to a Greener Future? Are Property Assessed Clean Energy Bonds the Solution to Weatherization and Green Jobs?

In November 2009, the New York State Legislature approved enabling legislation permitting municipalities to create their own programs to finance the installation of renewable energy systems and energy efficiency improvements using Property Assessed Clean Energy (“PACE”) bonds. Through PACE, upfront costs for cost effective energy improvements would no longer be a barrier because property owners can pay for the improvements over 15 or 20 years, at a fixed interest rate, through an assessment on their property tax bill. Over a dozen states have passed enabling legislation similar to New York's.

The New York Law (Chapter 497) refers to “window and door replacement, lighting, caulking, weatherstripping, air sealing, insulation, and heating and cooling system upgrades” as acceptable renovation and retrofitting measures. Proponents claim that PACE bonds will assist municipalities in achieving statewide energy efficiency and renewable energy goals, reduce greenhouse emissions, advance a clean energy economy, save residents money on their energy usage, and create “green” jobs – all without raising state and local taxes .

The money to pay for the energy efficiency measures comes from federal grants or federal credit support. So far, the only amounts set aside for PACE have been through the Energy Efficiency and Conservation Block Grant program, which brought $175 million to NY through the American Recovery and Reinvestment Act (“ARRA”) in April 2009. While this money can be used for a variety of energy programs in addition to PACE, the municipalities which have been granted access to the money include: Albany, Binghamton, Brookhaven, Buffalo, NYC, Niagara Falls, Poughkeepsie, Rochester, Schenectady, Syracuse, Troy, Utica, White Plains, and Yonkers. Additional money will be made available in the climate change bill, currently pending in Congress, as well as an additional $75 million from the not-yet-allocated ARRA “retrofit ramp-up program”. The Town of Babylon, on Long Island, has come up with a creative way to kick off its PACE program – tap into Babylon’s more than $25 million solid-waste reserve fund.

Congressman Steve Israel has introduced a bill, HR 3836, which would require the federal Department of Energy’s indirect loan guarantee program to provide 100% guarantees for PACE bonds. According to Rep. Israel: “PACE bonds are an innovative way to help property owners across America ‘go green.’ With a little help to finance energy efficient retrofits, property owners reap an immediate savings on their monthly energy bills.”

In February 2010, the Albany County Legislature took advantage of the state’s legislation and approved its own PACE grant program. The steps to implement the program will now be designed by the County Executive.

In a short period of time, PACE bonds have become a popular vehicle for achieving energy conservation, weatherization, and green jobs. Former President Clinton has included PACE as part of his Clinton Global Initiative. The biggest challenge to PACE’s success may be sufficient, steady funding to ensure it makes a significant impact.

On the other hand, there could be implementation problems too. According to a just-released report by the Department of Energy's Inspector General, only 280 of the 45,400 housing units scheduled to be weatherized in New York with non-PACE weatherization funding from the ARRA stimulus package were completed as of December, which is a completion ratio of only 0.62%.

On top of this, with better energy efficiency measures being developed all the time, will a prospective home purchaser want to incur the additional property tax assessment for an “improvement” by the current owner which was state-of-the-art 10 years ago, but is considered woefully inadequate today? Also, will homeowners embrace PACE when the PACE assessment creates a lien on the property?

Lou Manuta