BRATTLEBORO — “The first thing people need to know about PACE is that it's not PAYT,” said Peter Falion of the Brattleboro Town Energy Committee.
PACE, Property Assessed Clean Energy, is an opt-in program enabling commercial and residential property owners to pay for energy improvements through property taxes. In Vermont, five towns have voted in PACE and 30 more are considering the program.
“This is a completely optional program. It won't raise anyone's taxes,” said Paul Cameron, town energy coordinator and director of Brattleboro Climate Protection.
The Town Energy Committee - along with Peter Adamczyk -the energy finance and development manager at Vermont Energy Investment Corp. - presented the energy-financing program to the Selectboard on June 1.
The program met with more resistance than the energy committee anticipated. Some Selectboard members said they needed more time to review the program's financing structure.
“If we can't get PAYT through, there's no way we can do this,” said Selectboard member Jesse Corum.
“If the Selectboard approves the motion, all you're doing is allowing the process to go forward and signing onto a network [of other towns] who can help [citizens] understand the program,” said Cameron.
How it came to be
In 2008, the Vermont Legislature passed Act 92, which created Clean Energy Assessment Districts, allowing property owners to pay for improvements through property taxes.
Cameron said PACE helps bypass some of the barriers to energy improvements. Many of the property owners who want to make their homes or businesses more energy efficient can't afford the upfront money. Other financing options, such as home equity loans, have too short a repayment period to make projects equitable.
A PACE district includes an entire town allowing home or business owners who qualify for the program participate.
PACE is a two-step process, according to Adamczyk. First, residents vote to establish a town-wide special assessment energy district, then individual property owners decide to opt-in to the program.
“It's a pretty exciting program. The more people who do it the better. It's not another tax,” said Putney Energy Committee Chair Daniel Hoviss.
PACE is the national name equivalent to Vermont's Clean Energy Assessment Districts.
VEIC spearheads the PACE program on behalf of the state. VEIC also manages Efficiency Vermont, another program created by the legislature.
Nationally, 14 states have PACE programs. According to VEIC, Boulder County in Colorado has had great success with its programs, with 393 projects worth approximately $7.5 million.
Under Vermont law, the cost of a PACE financed project can't exceed 15 percent of the property's assessed value. Also, the loan-to-value ratio of any mortgages plus the PACE assessment amount can't exceed more than 90 percent of the assessed property value. The repayment period is 20 years.
Setting up energy districts
Act 92 also sets the goal that 25 percent, or roughly 80,000, of the state's homes to be energy efficient by 2020.
“We're way behind,” said Adamczyk.
Adamczyk estimates it will take $40 million a year for 12 years for Vermont to reach the 2020 goal. He says he is not aware of other funding options that could bring nearly $500 million into Vermont to help reach this goal.
Special assessment districts have been around for nearly a century. They allow towns to pay for improvements, such as sidewalks, through property taxes. Adamczyk, a former resident of California, said his property tax bill used to have as many as eight lines of assessments.
“The major difference between PACE and other assessment districts is that homeowners can opt-in,” he said.
He explains those who want to make energy efficiency improvements to their homes or businesses pay for the work through their property taxes and receive the benefits. Those who don't want to make improvements don't join and don't pay.
Hoviss said Putney's PACE program has 10 property owners interested in the program and Putney has yet to advertise it.
Ann Livingston, Sustainability Coordinator for Boulder County, Colorado, said her organization has hosted homeowner workshops on the best way to make energy improvements and to decide if PACE is the right fit.
Whereas California's PACE funding tends to go towards solar projects, Boulder County's focuses on energy efficiency.
“We tell workshop participants to eat your energy-efficiency vegetables before your renewable dessert,” she said.
Money flow
PACE takes advantage of a town's taxing infrastructure to make funds available and collect repayments.
“This is a good option and meets a need for people in the town,” says Town Manager Barbara Sondag.
Towns do not raise money for PACE improvements. They act as a conduit for PACE monies between the financer and contractors making the improvements.
“Each dollar has a home,” says Adamczyk.
Adamczyk describes the money flow as an upside down funnel with funds flowing from the financer, like the Vermont Bond Bank, through the town and out to individual PACE projects.
Once the voters agree to a PACE district, residents wishing to opt-in to the program contact the town to begin the approval process.
Property owners go through an approval screening process similar to applying for a mortgage. One financial goal of PACE is to create a “cash flow positive” situation where monthly energy savings from the improvements exceed the monthly repayment.
Each town, according to Adamczyk, designs its own approval criteria. For example, Burlington requires homeowners maintain a record of paying property taxes on time for three years.
After a property owner receives approval, an energy audit is performed on the property. The property owner receives a full report with recommendations and estimated costs. A copy is also filed with the deed for future reference since assessments stay with the property.
The maximum repayment period for PACE improvement is 20 years. Any costs cannot exceed the life of the improvement. For example, a property owner cannot use PACE monies to buy a water heater that will only last 10 years, but spend 20 years paying it off.
Based on the energy audit, the property owner decides what improvements to make and contacts the town.
The town approaches a financer, like the Vermont Bond Bank, with the total of all improvements for property owners in the program.
The town pays the contractors after improvements are completed and the property owner is satisfied. The town attaches a tax lien to PACE properties.
Come property-tax bill time, PACE participants pay their property taxes, plus the respective assessments. Nothing changes for non-PACE participants.
One misconception about PACE is that the town will lose property tax money. The PACE program adds repayment as a surcharge to other property taxes.
The assessment stays with the property, so if an owner decides to sell, he or she can negotiate with the buyer. The seller can pay off the PACE assessment in full, or the buyer can take over paying the assessment.
“The buyer also takes over the benefits of the energy improvements,” said Adamczyk.
Adamczyk said property owners do not need to set a higher asking price for a property to cover the cost of the improvements, because they never shelled out the money in the first place.
“Even when someone opts in [to PACE], they're still eligible for state and federal rebates,” said Hoviss.
Results
Cameron said PACE's benefits are three-fold.
The program can help improve Vermont's housing stock by making homes more comfortable and less costly, he said. It can help reduce Vermont's dependence on foreign oil. The program helps keep more money in the local economy.
“You can't do an energy retrofit from China,” said Adamczyk, adding that 80 percent of the money spent on energy in Vermont leaves the state.
Adamczyk said much of Vermont's housing is old and energy inefficient. The average Vermont household spends 60 percent more to heat and power their home than the rest of the country. PACE can also free up participants' income, he said, because the energy savings are more than the monthly assessment.
Livingston said Boulder County has generated $10 million in projects and seen almost $1 million pumped into the local economy.
Challenges
“We're certainly excited, but there are a lot of gotchas,” said Hoviss.
He explained that since PACE is new, the committee doesn't know the whole process. The reporting requirements are high and “there are a lot of i's to dot and t's to cross.” Also, the committee is deciding how to organize the nuts and bolts of the program - such as what interest to charge, if any -to make the program fair for all.
The Putney Energy Committee applied for and was awarded a $50,000 grant to jump start PACE in that town.
Livingston said the program took more staff time than first anticipated. Towns need to be committed to making the program work. Administrators must be motivated to provide leadership.
“No single town can do this alone. The more towns onboard, the better,” said Hoviss.
Economy of scale is one challenge facing Vermont, Adamczyk said. States like California and metropolitan areas like Boulder County have an easier time finding investors and financing programs because they are operating on a larger scale.
One of VEIC's proposed solutions is to consolidate and funnel the participating towns' administration and personnel costs through the agency, reducing costs by consolidating and streamlining the process.
Adamczyk also acknowledged the program has met with skepticism.
“It is a new concept and sometimes complicated to explain,” he said.
Recently, government-sponsored mortgage lenders Fannie Mae and Freddie Mac both took positions against PACE. According to Adamczyk, both lenders claim that in the event of a foreclosure, energy assessments or loans cannot be paid off before mortgages.
Adamczyk feels these arguments are “nonsense.” He said there is a clear national law prioritizing taxes, assessments and mortgages. In a foreclosure, taxes have the superior position, then assessments then mortgages. Also, PACE is classified as an assessment, and assessments are not loans.
Livingston said they are “watching and waiting” to see how the situation develops.
PACE faces another wrinkle at the state level.
Last year, Vermont passed a law in conjunction with the banks establishing that PACE assessments as superior to mortgages except in the case of foreclosures. Therefore, banks can demand a town release its lien should a property go into foreclosure.
Adamczyk says VEIC and legislators are working to change this but in the meantime, they are setting up a reserve fund so towns won't be held responsible for assessments on foreclosed properties.
Money for the fund would come out of a one-time payment taken from the amount requested for a PACE projects. Adamczyk also reminds people that Vermont ranks 49th nationally in foreclosures.
“[The reserve fund] is a great idea and will work as long as there's enough money,” said Adamczyk, adding that building up the fund will be hard for the first few years of the program.
Putney is setting up such a reserve fund locally.
“It's unfortunate, because [putting money into the reserve fund] takes away from what can be loaned,” said Hoviss.
“These are improvements made directly to the structures. [PACE assessments] aren't a new mechanism,” said Livingston.
She said when people are considering PACE, they need to decide what motivates them to make the improvements and take on paying the assessment. Do they want to save on bills, increase the comfort of their home, or do they want to be green? Next, they need to take action and be willing to see the process through.
Adamczyk said there is no rush for Brattleboro to sign on to the PACE program and he will be available should town representatives have questions.