C-PACE, Coming to a Municipality Near You...Soon!
The information contained in this article is not intended as legal advice and may no longer be accurate due to changes in the law. Consult NHMA's legal services or your municipal attorney.
With unanimous support by both the New Hampshire House and Senate, a dramatically rewritten C-PACE statute will become law in 2015. The C-PACE acronym stands for Property Assessed Clean Energy financing for Commercial buildings. C-PACE enables municipalities to create special assessment districts so that owners of privately held commercial buildings can voluntarily finance cash-positive energy-efficiency upgrades and/or install renewable energy systems on their properties, then tying repayment of project costs to the properties through special-assessment liens.
House Bill 205, as amended, removed enabling language in RSA 53-F for municipalities to provide financing through bonding or other means and eliminated risk to municipalities and tax payers. These steps resonated with numerous legislators who previously had concerns about constitutionality and risk. Although RSA 53-F has been on the books since 2010, the statute had not been effectively implemented because of other obstacles in the language. HB205, and HB532 in the 2014 legislative session, addressed those obstacles, including permitting private investors and institutions to finance projects, removing the cap of how much projects could be financed for (previously $60,000), and eliminating the requirement for a loan loss reserve, which would require significant public money for capitalization.
The Jordan Institute, a Concord-based non-profit focused on energy efficiency and renewable energy solutions, has been championing the concept of PACE for many years. In fact, Jordan Institute recently designed a C-PACE program that fits within the new statutory requirements and taps the private financial market to provide the capital needed to implement projects across the state.
Starting this summer, Jordan Institute will work with selected city councils, building owners, and contractors and installers to encourage the adoption of RSA 53-F, and to administer a program that will qualify, train, connect, and coordinate C-PACE projects. Jordan Institute is developing template language for Town Meeting towns to adopt in March 2016, with the hope that by 2017 any municipality that wishes to adopt this program can.
Jordan Institute recognizes that New Hampshire’s municipalities have limited resources of staff and funds and that this type of program should be consistently administered across the state. RSA 53-F includes quality-control standards that will ensure projects perform the way they are designed, and will require oversight that most municipalities would find burdensome and beyond their scope of expertise. Jordan Institute and its C-PACE team have a deep bench to implement the requirements of the statute and are mission-driven to ensure success for each project.
Municipalities that adopt RSA 53-F can delegate the vast majority of program oversight and coordination responsibilities of the program to the Jordan Institute. Municipalities will receive nominal fees to cover the costs of the work they will undertake, such as registering each C-PACE lien with the county and acting as a conduit for C-PACE bills and payments. These fees will be part of the project cost borne by the borrower. C-PACE municipalities will be able to market this program to attract and retain businesses that want to own and occupy significantly more efficient, cost-effective, and comfortable buildings.
Conventional loans have historically focused on projects with very fast payback, are tied to the borrower, and must be paid off at time of the sale of the building. Often coupled with a significant down payment, this scenario has not encouraged the deep energy retrofit work that New Hampshire’s buildings desperately need. Many building owners flip their buildings every 5, 7, or 10 years, and most loans are for 5 – 7 years and are repaid out of capital budgets. Most “low-hanging fruit” energy projects have payback periods of 5 – 7 years, and appraisers and assessors rarely value those upgrades so investment is not recaptured at time of sale. Moreover, because these types of projects have been rare historically, there are not many “comps” to value the projects by. Ultimately, that means that building owners rarely get to experience the cost savings from the upgrades they undertook.
Tying qualifying C-PACE projects to the property instead of the property owner through a (junior) lien is a crucial step in C-PACE. These liens do not accelerate at time of property sale, so there is no balloon payment due. The C-PACE project is seen as an asset to the building instead of a capital expenditure and in many cases can be off-balance sheet, much like taxes and energy bills. The building owner is therefore paying for the energy efficiency he/she uses, as will subsequent owners of the improved building. Moreover, the C-PACE statute requires vetting and quality control of the project—before, during, and after the project, with energy audits, building commissioning, and energy monitoring and verification—to ensure that projects perform the way they are designed.
Even more enticing is that terms can extend up to 30 years, a variable that will ensure that projects are cash positive, where the energy cost savings are projected to be more than the repayment costs. Participating building owners will therefore have a vastly improved building as well as more cash in their pockets. Occupancy of buildings will most likely improve because energy costs are stable and lower, buildings are more comfortable, and the extra cash on hand can support core business functions, rather than core business functions supporting the building sheltering it. Occupied buildings and profitable businesses lead to a stronger tax base which in turns supports the municipality and all taxpayers.
Only privately-owned commercial buildings in municipalities that have adopted RSA 53-F can participate in this program. This includes for-profit and non-profit entities, multi-family buildings with five or more units, and agricultural buildings.
Thirty one states have adopted PACE, but a big difference between the New Hampshire program and others is the lack of public funding in New Hampshire’s program. For more information about C-PACE, go to www.jordaninstitute.org.
Laura Richardson is executive director of the Jordan Institute.