Who Can Participate in PACE?
PACE is voluntary. In Texas, any owner of commercial, industrial, or residential property with five or more dwelling units that is located within a PACE region is eligible to participate in PACE financing.
What Types of Improvements Qualify for PACE Financing?
PACE financing may be used to pay for permanent improvements to the property that are intended to decrease water or energy consumption or demand, including a product, device, or interacting group of products or devices on the customer’s side of the meter that use energy technology to generate electricity, provide thermal energy, or regulate temperature. Eligible improvements will vary based on the PACE program created by the municipality and county, but typical examples of qualified improvements include:
- HVAC upgrades
- High efficiency chillers, boilers, and furnaces
- High efficiency water heating systems
- Energy management systems and controls
- Renewable energy systems
- Mechanical system modernization
- High efficiency lighting upgrades
- Building enclosure/envelope improvements
- Water conservation systems
- Combustion and burner upgrades
- Fuel switching
- Heat recovery and steam traps
- Wastewater recovery and reuse systems
- Systems to capture and use alternate, on-site sources of water (A/C condensate, rainwater, Reverse Osmosis reject water, foundation drain water, etc.)
- On-site improvements to accommodate the use of municipally reclaimed water
- Water management systems and controls (indoor and outdoor)
- Switching from water cooled systems to air or geothermal cooled systems
- High efficiency irrigation equipment
Why is PACE so Innovative?
PACE enables property owners to overcome market barriers, such as extended payback periods and lack of access to capital, that discourage investment in energy efficiency and water conservation improvements. PACE provides the property owner with upfront financing for 100% of the cost of a qualified improvement, and allows the property owner to amortize the debt over the useful life of the improvement. The improvements will usually reduce utility costs more than enough to cover repayment obligations; therefore, the improvements should prove to be cash-flow positive upon completion of the work. PACE provides a new source of property-secured financing for energy efficiency and water conservation retrofits that does not affect conventional lending sources and does not compete for capital with other investment opportunities.
What are the Benefits of PACE?
The benefits of PACE are multi-faceted, leading to a win-win-win scenario for virtually all stakeholders. Improvements financed with PACE loans will enable commercial and industrial properties to achieve greater energy efficiency and help conserve the state’s water resources. Among other things, these improvements will:
- enhance the value and efficiency of existing buildings, enabling some buildings to become LEED certified
- save substantial amounts in utility costs
- promote local job creation
- reduce demand on the energy grid
- support the state's water plan
- reduce greenhouse gas emissions
- mitigate split incentive issues between landlords and tenants, as to investments in energy efficiency and water conservation improvements, and
- establish significant business opportunities for engineers, construction contractors, commercial lenders, and investors.
PACE is tax neutral and does not impose a burden on the local government's general fund. In the aggregate, PACE improvements will promote long-term economic development in Texas by helping the state obtain energy and water security.
Has Anyone Done This Before?
Yes. Currently 30 states and the District of Columbia have enacted PACE laws, many of which have established or are in the process of establishing operational PACE programs.
How Does PACE Work in Texas?
The steps required to implement PACE financing in Texas are summarized below.
- A city or county establishes a local PACE program, enabling PACE loans to be made within a designated PACE region.
- The property owner identifies a permanent improvement that is projected to decrease water or energy consumption or demand.
- An independent third party conducts a review of water or energy baseline conditions on the property and the proposal to confirm the projected water or energy savings.
- The property owner selects a lender for the project.
- The property owner submits the project to the local PACE program administrator for approval.
- If the property is encumbered by any mortgage liens, the property owner secures each lienholder’s written consent to the PACE assessment.
- The program administrator executes contracts with (1) the property owner specifying the terms of the PACE assessment and the source of financing for the project, and (2) the PACE lender creating an assessment lien on the property securing the debt service payments owing to the lender.
- The property owner engages a contractor to perform the work.
- The PACE lender advances up to 100% of the funds required to pay all costs and fees incurred by the property owner in connection with the work.
- After the work is completed, the PACE administrator obtains verification from an independent third party that the project was properly completed and is operating as intended.
- The property owner pays the installments due on the PACE assessment to the county tax assessor-collector or other entity designated by the local government.
- The PACE assessment lien runs with the land and not with the property owner.
- The PACE lien has the same priority status as a lien for any other ad valorem tax and is not eliminated by foreclosure of a property tax lien.
How Can We Help?
As a non-profit association, Keeping PACE in Texas relies on funding from various sources, including companies and individuals, who support its mission of facilitating PACE financing programs in Texas. By becoming a member of KPT, you will help insure Texas will have viable, efficient, and uniform PACE programs. Contact our Executive Director by clicking here, and help us make PACE a reality in Texas and a model for the entire country. For up-to-date information on all aspects of PACE in Texas, please follow the Texas PACE Update Blog.