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By Donald I. Resnick, Kristen M. Boike and Lynn S. Fradkin
Commercial Property Assessed Clean Energy (PACE) financing is an innovative program designed to incentivize commercial businesses to undertake green efforts. By utilizing PACE financing, governmental bodies encourage commercial entities to invest in improvements or technologies that will save energy, produce renewable energy, and/or, in some states, conserve water. This concept is growing in popularity because it is a creative method to efficiently and effectively provide capital for sustainability projects.
How Does Commercial PACE Financing Work?
A potential borrower interested in securing commercial PACE financing must first determine whether the state in which the project is located has passed commercial PACE financing enabling legislation and, if so, whether the applicable municipality or county has established a program for which the project qualifies. A state must pass authorizing legislation to enable a governmental entity or other inter-jurisdictional authority to form a special tax district or special assessment district to operate a commercial PACE program. This is a key feature of the PACE financing model because the model requires the imposition of assessments or special taxes against the property that benefits from such improvements.
PACE enabling legislation has already been adopted in 32 states, including Illinois, California, and New York, as well as the District of Columbia. Once the state legislation has been passed, a program sponsor (a state, consortium of governmental entities, or a single local governmental body) must design and implement a commercial PACE program to achieve its objectives, which may include economic and workforce development and greenhouse gas reduction targets. Accordingly, there may be numerous programs within a particular state, each with its own customized parameters. For example, in California there are 11 different commercial PACE programs and, as a result, PACE financing is available in most California municipalities.