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FAQs about PACE

1.) Why is PACE necessary?


In the United States, 35% of our energy use and carbon emissions come from buildings. The barriers to retrofitting and making these building more energy efficient are high up-front costs and tight credit. Innovative funding is needed to accelerate energy retrofits.

There are also issues with existing financing options that include:

Low participation rates
Limited applicability to households most in need
Limited support for comprehensive retrofits
Inability for programs to recoup their costs

2.) What is PACE?


PACE is Property Assessed Clean Energy. It allows property owners to borrow money from newly established municipal financing districts to finance energy retrofits (efficiency and renewable energy measures) and repay the loan through an annual special tax on their property bill.

3.) What are the key components of Minnesota's legislation?


Legal authority/structure

Permits cities, counties, towns to establish program
Revenue bond authority, secured by senior lien
Qualifying projects can be energy efficiency, renewable energy, HVAC or electrical upgrades
Program requirements

Energy audits and/or renewable energy feasibility study
Qualified contractors perform work, 100% inspected, 10% performance verification
Maximum 10% load to assessed value of property, maximum 20-year term
Owners must be current on mortgage and taxes and demonstrate ability to pay assessment

On-demand bond financing for small projects
Pooled or interim financing structures

4.) What are the typical steps for PACE?


State enabling legislation allows for special municipal taxing districts
Municipality (city or county) creates a special "PACE" district
PACE district issues a PACE master bond
Commercial/residential real estate owners apply for PACE funds to install energy efficiency measures and renewable energy production
PACE funding treated as senior property tax

5.) What are the two core elements in PACE best practices?


Savings-to-investment ratio greater than 1; expected energy savings should exceed investment cost.
Property Equity Evaluation - there should be sufficient equity in the property to justify debt placement.
View DOE best practices here.

6.) What are potential issues with PACE?


Lender opposition
Resistance by major lenders whose priority in bankruptcy may be reduced. See FHFA press release.

Limits on what can be funded
Must be fixed to property and last at least as long as the financing term; potential limitation if required to be "cash flow positive."

Cost of setup
Often administratively difficult to set up, especially for limited local government staff; however, it will become easier/cheaper as trail blazers develop templates.

A city, town or small county is probably too small to bring down costs; fixed costs need to be spread over hundreds or thousands of assessments each year.

Access to cheap funds
Need volume and standardization to bring down cost of capital; "on demand" funding important but more expensive.

7.) What are the advantages to PACE for property owners?


Allows property owners to install renewable energy or energy efficiency measures and pay for the cost over its functional life through a property tax assessment.
Helps eliminate "up-front" cost barrier.
Positive cash flow on retrofits (annual savings > cost) which frees up household income for mortgage payments.
Participants pay only for the project cost and nominal fees to administer the program.
Lower energy bills and lower vulnerability to spiked energy prices.
Debt obligation is attached to the property, allowing for transferability upon change in property ownership.
100% voluntary.

8.) What are the advantages to PACE for lenders?

Virtually no risk of loss as property tax liens are senior to mortgage debt 97% of property taxes are current, and losses are less than 1%.

9.) What are the advantages to PACE for states, cities, and municipalities?


Promotes local job creation No credit or general obligation risk
Obligation is liability of real estate owner
Helps meet energy efficiency goals
Opt in program: only those real estate owners who opt in pay for it Improves property values.

10.) What are the advantages to PACE for existing mortgage lenders?


Borrowers cash flow/credit profile improves (energy savings > annual tax cost)
Property/collateral value increases

PACE Minnesota Initiatives

Background information on Minnesota's process and the partners involved.

Minnesota Legislation

Details on the 2010 legilsation that allows local governments to offer PACE programs.

Minnesota enacted legislation (H.F. 2695) allowing cities, counties and towns to offer PACE financing programs that provide loans to residents for energy conservation improvements, including certain renewable energy systems. Subsequent legislation (H.F. 3729) allows a local government to designate another authority -- the "implementing entity" -- to implement such a program.

CHAPTER 216--H.F.No. 2695
Section 4. (216C.436) - Voluntary Energy Improvements Financing Program for Local Government
View Chapter 216 of Minnesota Session Laws for details.

CHAPTER 389--H.F.No. 3729
Article 7 - Public Finance
View Chapter 389 of Minnesota Session Laws for details.

PACE National Developments

Latest information from the Federal Housing Finance Agency and other national financial organizations.

Fannie Mae Letter
Letter to lenders issued by Fannie Mae on May 5, 2010.

Federal Housing Finance Agency Statement
Letter on energy retrofit loan programs issued by FHFA on July 6, 2010.

Freddie Mac Letter
Letter to lending industry issued by Freddie Mac on May 5, 2010.

Joint letter issued to members of Congress by the National Association of Counties and the National League of Cities on February 9, 2011.

PACE Presentations

Presentations given by the Office of Energy Security and other organizations related to PACE.

About PACE Presentation
Information on PACE combined from three presentations to the Metropolitan Energy Policy Commission on June 3, 2010.

PACE Minnesota Presentation
Presentation on PACE given by Stefanie Galey from Faegre and Benson.


Links to useful resources related to PACE.

Guidelines for PACE Programs

Best practices for developing PACE financial programs. Designed for local governments. Provided by U.S. Department of Energy.  

U.S. DOE Solution Center

Description of PACE model, transaction points, links to resources, and archived webinar presentations.