After Eight Years, PACE Program Poised to Launch in Virginia

The long road to financing energy efficiency improvements on the tax bills of commercial properties in Virginia is reaching the home stretch.

Arlington County in northern Virginia has secured a program administrator – Sustainable Real Estate Solutions – a critical step in getting started with the state’s first Property Assessed Clean Energy, or PACE, program. Managers there are preparing to submit final guidelines to the county’s Board with the goal of launching a program this summer.

Virginia lawmakers originally authorized local governments to pursue PACE programs in 2009. But procedural glitches hampered Arlington County’s implementation that weren’t corrected until lawmakers fine-tuned the authorizing legislation until 2015. Two years later, Charlottesville, Hampton Roads, Richmond and Roanoke are municipalities keeping a close eye on Arlington’s progress, as is Loudoun County, also in northern Virginia.

PACE enables property owners to borrow funds for energy improvements on existing buildings such as installing more efficient air conditioning systems, better insulation and solar panels. The participants then pay back the money together with property taxes as an adjunct to the property tax bills. The terms on pace loans can vary up to 20 years. The interest rates typically are slightly above market rates for mortgages.

Savings from lower heating and cooling bills can be large enough to cover the full cost of repaying PACE loans from the outset. That means the owner has no outlays upfront and no added costs in making the property improvements. Communities also gain because banks and contractors get new business and they can lead by example in developing increasingly sought-after “smart city” real estate developments.

“It can cover 100% of a building project’s hard and soft costs, meaning the materials, the labor and the analysis and energy audits,” said Richard Dooley, Arlington County’s Community Energy Coordinator. “The owner is given the ability to improve a property without having to tap into its capital.”

Dooley said the longer terms – up to 20 years on a PACE loan versus 7 years on a conventional loan – make the deals more attractive for financial officers. “That allows for these projects to often be cash-flow positive from day one; or cash-flow positive in the very early years,” Dooley said.

PACE programs have struggled to get a footing in the Southeast U.S. largely due to the lack of a critical mass of advocates, lawmakers willing to learn and private sector allies. They often find themselves at odds with bankers wary of the mortgages they grant having to compete with another lien in the event of a default.

Several other states have moved relatively quickly launching PACE programs. Typically, where lawmakers enable markets for renewable energy, competitive electricity supplies and efficiency products and services, those states have or are becoming active with PACE programs. These include California, Colorado, Connecticut, Ohio, Minnesota and Texas, to name a few. This week, PACE advocates and professionals are gathering in Denver for their annual summit.

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