New Resource for Local Governments on Roles and Risks in Financing Energy Upgrades for Commercial Buildings Using C-PACE Financing

July 8, 2019

Nearly three-fourths of U.S. states have authorized local governments to use a voluntary special assessment on commercial property tax bills to help finance energy improvements that may boost economic development, create jobs, increase property values and advance energy goals. “Commercial Property Assessed Clean Energy,” or “C-PACE,” financing allows building owners to repay the borrowed capital — from private or public sources — over time using their property as security.

Special assessments typically are charges that property owners pay for publicly owned goods that provide a public purpose (e.g., roads). In the context of C-PACE, commercial building owners choose to have a special assessment levied on their property to pay for privately owned goods that provide a public purpose such as energy efficiency.

A new issue brief by Lawrence Berkeley National Laboratory (Berkeley Lab), Commercial PACE Financing and the Special Assessment Process: Understanding Roles and Managing Risks for Local Governments, provides a framework for understanding local government roles in C-PACE and the special assessment process — establishing a lien on the property, recording the payment obligation, billing, collecting payments and remitting them to the lender, and addressing any nonpayment. The brief also evaluates the level of effort required for local governments to participate, and offers strategies for managing potential risks.

Key findings include:

Reduced local government effort

  • Local governments may be able to join an existing C-PACE program, such as a statewide program, largely avoiding administrative tasks other than those necessary for the C-PACE special assessment process.
  • The trend is toward third-party administration of programs, even for special assessment process tasks that are traditionally the responsibility of local governments such as recording, billing, collections, remittances and even enforcement.
  • C-PACE projects represent a small fraction of total special assessments in any jurisdiction, so local government effort in the special assessment process is generally minimal.

Low level of default and minimal consequences for local governments

  • Of 1,870 C-PACE projects completed between 2008 and March 2019, only one defaulted. Although default rates will likely remain low, as program volumes grow, the possibility of defaults will increase.
  • Late payments are more common, but stakeholders can work together to get payments back on track.
  • Unless the local government has directly provided capital or credit enhancement for projects, a foreclosure will not impact the jurisdiction’s financial standing. Local governments are not responsible for making C-PACE payments to third-party lenders, even if the participant misses payments.

The authors are Greg Leventis and Lisa Schwartz in Berkeley Lab’s Electricity Markets and Policy Group.

The U.S. Department of Energy's Office of Weatherization and Intergovernmental Programs funded this research to support the Commercial PACE Working Group. The issue brief can be downloaded here, and at https://www.energy.gov/sites/prod/files/2019/06/f64/DOE-CPACE-Issue-Brief-Special-Assessment.pdf.  

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