County PACE Program – A Great Opportunity for Business Owners
PACE programs can work for both, residential as well as commercial properties. While there are some key differences between the two, they both share a common foundation.
A county PACE program enables local and state governments, and other inter-jurisdictional bodies to finance the upfront costs of energy improvements on residential as well as commercial properties which are repaid over time by the owners of the properties.
PACE funding for clean energy projects usually depends on an existing structure named a “land-secured financing district”, normally called a local improvement district, an assessment district, or other similar terms. In such a district, the local government releases bonds to finance projects with a public purpose, like sewer systems, underground utility lines or street lights.
A modern extension of this funding model to renewable energy (RE) and energy efficiency (EE) enables a property owner to make improvements without paying huge upfront cash. Property owners thus voluntarily participate in PACE programs and pay back their improvement costs over a stipulated time period, normally 10 to 20 years, through property assessments which the property itself secures and are paid as an extra to the property tax bills. Nonpayment usually happens in the same set of conditions as that of the failure to pay other portions of property tax bills.
Thus, a PACE is a debt of property. This means that the debt is connected to the property rather than the property owner(s). Therefore the obligation of repayment may transfer with ownership of property if the buyer agrees to take up the PACE repayment obligation and the new first mortgage holder agrees that the PACE obligation to remain on the property. This can give rise to an important hindrance to investing in energy improvements since several property owners hesitate to make property improvements if they are not sure how long they would stay in the property for the consequential savings that can cover the upfront expenses.
Advantages of PACE Programs to Businesses
- Allows for secure funding of complete projects over a prolonged term, making more projects cash flow positive
- Repayment is spread over several years and the need for debt to be paid at the time of sale or refinance is removed
- Can lower interest rates due to the high security of loan repayments linked to property tax bills
- Helps in some cases to reduce income tax liability