PACE Financing

Sijia Qiu and Jocelyn Durkay 1/26/2016

installing solar panelsProperty Assessed Clean Energy (PACE) financing programs allow local governments to provide financing for energy efficiency, renewable energy and water efficiency projects that building owners pay back through property tax assessments.

According to the U.S. Energy Information Administration, 40% of total U.S. energy consumption was consumed in residential and commercial buildings. However, high up-front costs have been widely recognized as a significant challenge to improving energy efficiency or installing renewable energy systems in homes or businesses-- and building owners may not desire to or be able to assume traditional debt. Additionally, residents move every six to nine years on average so home or building owners may be reluctant to spend large sums on energy improvements if the investment will not be recovered before they sell their property.

In recent years, PACE has stimulated energy saving investments and rapidly spread across the United States. PACE legislation has been authorized in 33 states and Washington, D.C. and 16 states and Washington, D.C. have active PACE programs.

State Action map of PACE

What is PACE?

PACE programs allow participants to finance energy efficiency and renewable energy projects through property assessments that last the functional life of a project, typically five to 20 years. One of the benefits of the PACE model is that it is built from a municipal financing model that has been used for decades for spaces that serve the public good, such as street paving, parks, water and sewer systems, or municipal street lighting.

Establishing a PACE program typically requires the state legislature’s authorization, except in local control or "home rule" states. Legislation typically stipulates a number of program characteristics. Legislation establishes that PACE programs serve a public purpose, such as job creation, air quality improvements or economic development. States are also responsible for establishing program basics, such as which improvements are allowed; which types of properties are eligible; minimum and maximum thresholds for borrowing; and loan-to-value ratios. State legislation must authorize local benefit districts or voluntary charges for financing so localities to have the authority to develop land or real property secured benefits districts. Local governments must also have bonding authority.

PACE financing is available to residential or commercial property owners within local jurisdictions that "opt in" to or create a program. For localities to establish a PACE program, a local government must create a PACE assessment through a land or real property secured benefit district. Localities will issue bonds to finance projects, while administrative costs are usually paid by bond interest. As long as the bond issuance is designed properly, financing a program will not impact state or local budgets or general funds. Localities can choose to administer programs, contract an administrator or allow private organizations administer programs. Municipalities can also develop a list of pre-approved contractors that can conduct energy audits or complete projects for weather sealing, insulation, window replacements, HVAC, roofing, low-flow toilets or renewable energy projects, such as solar panels or solar thermal. Programs may include education for building owners, contractors and lenders, as well as program evaluation and quality assurance measures.

Building owners interested in participating in local PACE programs must live in a localities where PACE is offered. If a building owner is approved for a PACE loan, a local government or PACE program provides low interest financing for projects and adds an assessment to the building owner's property tax bill. Building owners receive a separate charge on their annual property tax bill for an agreed-upon amount of time, typically between 5 and 20 years. Monthly increases in property taxes remain equal to or less than amount of energy savings, creating decreased energy bills and operational costs. Programs may require existing building owners to give notice to or receive approval from existing mortgage lenders. Additionally, PACE programs attach the repayment obligation to a property, making it legally transferrable if the property is sold.


PACE allows building owners to realize the benefits of improvements immediately through decreased energy bills. Although PACE does not reduce project costs, the program makes projects more affordable by spreading financing over the functional life of a project. Pay back periods are flexible, depending on program design and the size of the upgrade. PACE loan amounts are typically based on the tax capacity of the property rather than the traditional approach of a property owner’s credit. PACE financing is an alternative to a traditional loan, and the timing of payments are aligned with timing of benefits, so savings will equal the amount of the loan or exceed it. Programs typically require that projects to be cost-effective. Only building owners who participate in PACE programs pay costs.

The PACE model can also provide a number of benefits to municipalities and building owners. In 2011, the U.S. Department of Energy conducted a regional economic study of 598 homes in Boulder County, Colo. Of the $9 million spent on residential energy retrofits, the program saw outcomes of more than $7 million in earnings, approximately $20 million in economic activity and roughly 125 short-term jobs statewide. In 2011, ECONorthwest, an economic consulting group, found that $4 million invested in four selected cities would generate $10 million in gross economic outputs, including $1 million in tax revenue and 60 new jobs. According to the Brookings Institute, $279 billion in residential PACE investments would yield more than $1 trillion in energy savings in 10 years across the states. Beyond economic gains, increased efficiency can cost-effectively reduce carbon emissions, as buildings are responsible for approximately 49 percent of total energy consumption and 50 percent of carbon emission in the states. PACE serves states with an older building stock. Increased PACE activity can lead to an increase in energy security and independence.

To protect both property owners and mortgage lenders, PACE programs are limited to investments with a savings-to-investment ratio greater than one, where the monthly utility savings are greater than the monthly increase in tax assessments. If the property owner fails to repay the assessment, local governments or authorized parties may choose to foreclose on the delinquent property. Programs typically require that building owners be current in property taxes and have no delinquencies for at least the past three years; not be in bankruptcy; and have a mortgage in good standing.

Residential PACE Programs

The first residential PACE program was launched in 2008 in Berkeley and Palm Desert, California. As other states were promoting similar programs, residential PACE financing was put on hold by the Federal Housing Finance Agency (FHFA). Residential PACE loans originally took precedence over existing mortgages, consequently, if a building owner defaulted PACE lenders recovered funds before mortgage lenders. In July 2010, the FHFA issued a statement concerning the financial risks of the first-lien PACE financing, advising Fannie Mae and Freddie Mac to avoid buying residential PACE program mortgages. Since then, most states have suspended residential PACE programs.

A number of states have revised PACE programs or challenged the Federal Housing Authority (FHA) to continue residential PACE programs. For example, California created a reserve fund to compensate first mortgage lenders in case of a foreclosure or a forced sale that are attributable to a PACE loan. Oklahoma and Vermont have passed legislation to downgrade PACE from senior lien to junior lien. Currently, residential PACE programs are implemented in California, Florida and Missouri. Maine offers residential programs without holding a lien against properties. Additionally, several states, including California, Florida and New York, have filed suit unsuccessfully against the ruling. There have also been congressional attempts to revise residential PACE programs at the federal level, including the 2014 PACE Assessment Protection Act.

Commercial PACE Programs

Commercial PACE programs (or C-PACE), which are not opposed by the FHA, are more widespread than residential programs. Commercial PACE programs can include multi-family residences, as well as agricultural, non-profit and government facilities. The first commerical PACE program was developed in Boulder County, Colorado followed by PACE programs in Sonoma, Palm Desert and Placer Counties, California. According to PACE Now’s 2013 annual report, 180 commercial buildings have been funded energy efficiency or renewable energy upgrades in seven states and Washington, D.C. In 2013, C-PACE investments totaled $33 million, with $100 million in project activity in 25 active commercial programs.

State Examples


California has heavily utilized PACE programs to meet aggressive greenhouse gas emission reduction targets. In response to the FHFA’s ruling, California authorized the $10 million PACE Loss Reserve Program in 2013 to compensate possible losses by first mortgage lenders that are attributable to a PACE loan. At present, California has atleast eight PACE programs, two of which are statewide and six of which are municipal.

The HERO Program is a leading example of a public-private partnership supporting both residential and commercial properties throughout California. Under state law, HERO is managed by the Western Riverside Council of Governments and funded by two partners. The program has a market driven interest rate, supporting projects over $5,000 for up to 25 years. HERO has resulted in emissions reductions of over 14,000 tons and resulted in more than $6 million in utility savings through approximately 5,600 projects.

CaliforniaFIRST, covering 14 counties and 126 cities, is the nation’s largest PACE program. The program is administrated by the California Statewide Communities Development Authority (CSCDA) and backed by $250 million of private capital. Currently, CaliforniaFIRST supports only commercial projects.


Connecticut launched the first statewide PACE program in 2012, managed by the Connecticut Green Bank (formerly the Clean Energy Finance and Investment Authority), enabling commercial PACE assessments with senior lien status. CEFIA developed standards and a list of capital providers to aggregate all the transactions at the state and local level. As Connecticut is a relatively small state with no county government, the CEFIA plays a central role and actively works with banks and lenders. The state’s PACE program is currently supported by 20 lenders and the program’s website features numerous projects.


Florida enacted PACE legislation through House Bill 7179 in 2010, and currently has one program established and two in development. The legislation approved local governments to provide the up-front funds to cover the costs for the qualifying energy efficiency or renewable energy projects for property owners. In fall 2013, Ygrene launched the Green Corridor District plan, offering $230 million for both commercial and residential PACE financing in south Florida—with the possibility of expanding the program elsewhere. The program website claims green ratings rent for six percent higher than less efficient buildings and a command a 16 percent higher selling price. Florida Green Energy Works, managed by EcoCity Partners, L3C, offers commercial PACE. The program requires an energy savings audit and assessment. The program is the only open-market-based PACE Program in the state, which uses both capital providers and an open-market approach to maintain low interest rates. The Florida PACE Funding Agency, created for statewide residential and commercial PACE financing in 2010, received validation for up to $2 billion in 2013 and earned $200 million through its E|VEST Program in 2014.


Michigan passed PACE legislation in 2010. The state launched its first regional PACE program in Ann Arbor, and has an additional state-wide program, Lean & Green. Ann Arbor’s PACE program is available to pre-screened commercial properties, with financing packages between $10,000 and $350,000. The city is expected to utilize $4-10 million per year in bond revenue for energy projects. The program will assist the city in reaching its goals of reducing greenhouse gas emissions by eight percent from 2000 levels by 2015 while increasing city-wide renewable energy use by five percent by 2015. Michigan Lean & Green was created in Wayne County, the largest county in Michigan, and provides financing to commercial, industrial and multi-family properties. Lean & Green allows municipalities to create a PACE district, with access to private capital, by voting to pass a local ordinance. The open-market or owner-arranged financing model has now expanded to six counties and two cities, covering 37 percent of total population in Michigan, and is still expanding.


Vermont authorized PACE financing in 2009 with House Bill 446, and made substantial amendments later in response to the FHFA’s statement. 2011 legislation (H.B. 56) downgraded PACE assessments to subordinate liens and created a reserve fund supported by participating property owners. Under the law, Efficiency Vermont provides financing for both commercial and residential properties. PACE programs are currently available in approximately 30 municipalities.

For an update on 2015 state action, please visit our 2015 Energy Efficiency Legislative Update. For an update on 2014 state action, please visit our 2014 Energy Efficiency Legislative Update.

2014 State Legislation






A.B. 77;

A.B. 102;

S.B. 72; S.B. 84;

S.B. 96





Enacted (2013)

Requires the California Alternative Energy and Advanced Transportation Financing Authority to develop and administer a PACE risk mitigation program to increase acceptance of PACE loans in the marketplace and protect against the risk of default and foreclosure.


A.B. 1883


Revises the provisions of PACE financing. Authorizes a public agency to voluntarily transfer its right, title and interest in contractual assessments if bonds have not been issued, subject to a transfer period not to exceed three years. Establishes that a foreclosure is required to enforce senior lien status. Authorizes bond proceeds to be used to establish a reserve fund for debt service or paying the costs of foreclosure.


A.B. 2597



Amends existing provisions of the PACE Reserve Program to requires the California Alternative Energy and Advanced Transportation Financing Authority to consider PACE financing programs which provide financial assistance that is less than 15 percent of the value of the property, for up to the first $700,000, and less than 10 percent of the remaining value of the property above $700,000. Limits the total mortgage-related debt and PACE financing from exceeding the value of the property.



S.B. 357


Requires the Connecticut Green Bank submit a feasibility study of a residential PACE program by January 2015. The report must include a legal framework for the program and identify the need for a residential PACE program.


S.B. 150


Establishes an advisory council composed of members of the state's Sustainable Energy Utility (SEU) and other stakeholders. Tasks the council with expanding cost-effective energy programs in collaboration with electric and gas utilities, including energy efficiency programs. Tasks the council with recommending financing mechanisms, including on-bill financing, PACE models and other innovative financing tools.


H.B. 202; S.B. 186


Authorizes local governments to enact a surcharge on a clean energy system owner’s property tax bill to recover the cost associated with financing the loan and administering the loan program. Unpaid surcharges become liens on the property until paid.



H.B. 5417


Revises the Property Assessed Clean Energy Act’s requirements for establishing local PACE programs. Authorizes local governments to establish a reserve fund to secure bonds or notes issued and to pay for the administrative costs associated with the program.

New Hampshire H.B. 532 Enacted Requires municipalities to adopt additional requirements to determine the credit-worthiness of applicants. Requires the notification other lienholders before proceeding with a PACE loan. Creates stipulations for foreclosures regarding priority, collection and enforcement. Increases the cap on loans to $1 million dollars and added waste heat to the definition of clean energy improvements.

New Jersey


A.B. 1758



Authorizes municipalities to establish renewable energy financing districts after holding public hearings. Municipalities may use the special assessment revenues to secure bonds issuance, debt service and administrative costs. Projects would be financed over 20 years, and solar improvements may be financed over 15 years with repayment of the obligation wholly or partially offset by solar renewable energy certificates.


H.B. 4041


Requires that property owners provide written notification to all mortgagees of intent to enter into a loan agreement. Property owners must receive written consent before entering into a loan agreement.



H.B. 1339


Authorizes municipalities to develop PACE financing program for energy efficiency and renewable energy improvements for residential and commercial owners. Authorizes municipalities to provide that loan is repaid through property owner's property tax bill. Establishes program requirements and provisions.