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Property Assessed Clean Energy Act (PACE Act)

The 83rd Regular Session of the Texas Legislature enacted the Property Assessed Clean Energy Act, Texas Local Government Code Chapter 399 (the “PACE Act”), in June of 2013.  This statute replaced older PACE-enabling legislation (H.B. 1937) passed in 2009 that had been rendered ineffective due to inherent limitations within the original bill’s language and scope.

The PACE mechanism is an extension to the land-secured tax assessment process used by local American jurisdictions for over 100 years to finance improvements in the public interest.  However, unlike typical tax assessment districts, participation in a PACE assessment is completely voluntary.  Under the existing legislation, commercial, industrial, agricultural, mulifamily (with 5 or more units), and non-profits can qualify for PACE financing.  PACE assessments are limited to fixed energy efficiency, renewable energy, and water conservation measurements that pay for themselves over either the life of the improvement or 20 years (whichever is less).  The improvements are typically financed by a private lending institution through a special agreement with the taxing jurisdiction allowing use of the taxing jurisdiction’s right to assess property taxes by acting as a conduit for project funds.  Financing is repaid by the property owner as a special assessment on their property taxes and secured by a senior lien on the property.  The improvements and repayment obligation transfer with ownership of the property. 

PACE solves a number of specific issues unique to the commercial real estate market that have historically stymied investment in energy efficiency and renewable energy improvements.

  • Funding is available for 100% of the project costs.  Both hard and soft costs (eg. audit, engineering, inspection, program fees, etc.) can be amortized into the assessment thereby allowing realization of an immediate positive cash flow.
  • Funding does not rely on the credit worthiness of the property owner (secured instead by a senior lien on the property)
  • Funding may be considered as “off the balance sheet” thereby not impacting an owner’s borrowing capacity
  • Assessment payments can be transferred to tenants in typical triple net leases (avoids “split incentive” issue that discourages investment by an owner on improvements where the tenant reaps all benefits)
  • Interest rates are competitive with traditional financing, fixed, and can extend out to 20 years which improves project economics
  • Repayment obligation is transferred with ownership of the property and does not accelerate at time of sale thereby eliminating fears the investment may not be recouped with uncertain ownership periods 

Go to www.texaspaceauthority.org for additional project requirements and an online calculator comparing PACE to a traditional loan or self-funding.  

The state statute requires an independent, qualified and properly licensed individual to review that project savings (energy, demand, water, and cost), expected project life, and costs are reasonable and in compliance with the PACE program guidelines and standard engineering practices.  This individual is involved throughout the process and must verify that improvement measures are installed and operating as intended. 

  

PACE program guidelines define an independent, qualified and properly licensed individual as having the following characteristics:

  • Has no relationship with or financial interest in the project
  • Is a state licensed Professional Engineer
  • Has demonstrated experience in energy retrofit projects as evidenced by holding one of six recommended certifications

Criterium-Williams Engineers is uniquely qualified to provide independent third party review services for PACE projects.  Mr. Williams has been involved with PACE since the beginning, having served on the Technical Standards Working Group that originally developed project technical guidelines for the PACE in a Box program. As a Certified Energy Manager, he anchors our team of licensed Professional Engineers that will walk you through the PACE process while providing state mandated independent third party review services.