Illinois could get a PACE program for financing energy efficiency and renewable energy in commercial, industrial and multi-family buildings if the governor signs a bill passed overwhelmingly by the state legislature last month.
Advocates are hopeful that Illinois will become the 20th state with an active PACE program, but nothing is a given in a state with a governor and legislature so at odds that a budget has not been passed for three years.
David McEllis, governmental affairs representative for the Environmental Law & Policy Center, noted that Illinois municipalities technically could create their own PACE programs even without the law. “A single paragraph passed [in another bill] a few years back ostensibly authorized municipalities to create PACE programs, but no municipality ever took advantage of that,” he said.
Other states also have PACE-enabling legislation on the books but no operating programs.
Proponents — including clean energy groups, developers and the Illinois Association of Realtors — say that PACE would provide a valuable tool to help businesses and building owners afford energy efficiency overhauls and solar installations.
Under PACE, which stands for Property Assessed Clean Energy, the municipal government or another entity puts up the money for energy efficiency or renewable energy investments, and the property owner pays them off over time through a charge on their property tax bill. If the property is sold, any outstanding payments stay with the property and must be paid by the new owner, who also reaps the benefits of the energy investments.
Typically, the government entity sells bonds to cover the up-front costs itself, the same arrangement which is part of the Illinois bill. Private entities can also provide capital.
The new Illinois bill includes a double opt-in provision, meaning municipalities or counties need to pass their own ordinances or legislation adopting a program before PACE financing can be carried out.
PACE legislation has been proposed for several years now in Illinois, but the version passed by the legislature addresses concerns that some parties had with previous versions. The current legislation does not allow for PACE financing in single-family residential or condominium buildings. Previously there were objections to PACE being used in condos, since that could add charges to the bills of owners who do not want to be part of the project.
The bill also ensures that banks which hold the mortgages for properties are on board with PACE investments.
“There are a lot of safeguards in the bill for the property owner and also for a potential buyer of that property,” said Julie Sullivan, director of legislative and political affairs for the Illinois Association of Realtors. “The assessment is recorded so there’s no secret lien, there is written consent for the owner to enter into the contract, and the mortgage-holder provides written consent” for the work to take place.
The property owner also must verify whether work was properly done before it is added to their monthly bill.
Sullivan said that “the beauty of the bill” is that it includes a wide range of upgrades. “It goes anywhere from insulation to windows to high-energy, high-efficiency heating systems to solar, it runs the gamut.” Water conservation measures are also covered.
In multi-family residential rental buildings, the building owner would be paying for energy efficiency upgrades that would mean energy bill savings for the individual tenants. Since the owner would not see the savings from their investments directly, they would likely raise rents to cover the costs, and tenants would theoretically be willing to pay higher rents for a highly efficient modernized unit.
Meanwhile the sweeping energy bill passed by the Illinois legislature and signed by the governor last fall includes incentives for extensive new distributed solar development.
ELPC legislative director Al Grosboll said PACE could help such development happen.
“We think it goes hand-in-glove,” he said. “We know there’s going to be a substantial increase in solar development, particularly rooftop solar, and you could see these larger buildings taking advantage of that” with PACE financing.
Attractive to Owners
Inland Green Capital LLC is a Chicago-area company that provides capital for PACE projects through eight different programs in four states. Inland’s property development affiliates often use PACE financing for upgrades in their buildings. Inland Green Capital LLC lobbied for passage of the Illinois bill, and senior vice president Mark Pikus said the company would like to work with Illinois municipalities to get PACE up and running.
“Available working capital is precious to many property owners and in many times that available capital, if any, has business priorities other than improving their properties with energy efficient improvements,” Pikus said. “Municipalities can also see benefits from PACE in terms of economic development, job creation, increased property values and the fact that there are zero net costs to the issuer.”
He pointed to an example in Covington, Kentucky, where Inland Green Capital provided the capital for the Ivy Knoll Senior Living Community to install solar panels, automated heating and cooling for each unit and LED lighting, along with upgrading the elevators.
“Putting the energy savings aspect of PACE to the side, just from a capital expenditure standpoint, PACE can also be very beneficial,” Pikus added. “If a property owner simply needs a new roof or windows, PACE can also help in that regard as well.”
Grosboll said that if the Illinois bill is signed, advocates might work to make PACE available for single-family homes in the future. First, they would likely watch how the current bill plays out and help refine it through trailer legislation. While residential programs got a head start nationwide, commercial PACE investments have boomed in recent years, and advocates hope Illinois will see results similar to California’s highly successful program.
However, federal legislation proposed in April could kill or curb PACE financing, advocates warn, by defining it as a mortgage loan and subjecting participating municipalities and other parties to stepped-up requirements, including requiring them to be licensed as mortgage brokers. The group PACE Nation’s website says the proposed bill “is part of a coordinated effort by the banking lobby to kill PACE as a competitor and amounts to the latest attack on clean energy.”
But in Illinois, advocates think PACE has enough widespread support and appeal to be adopted and implemented in the near future.
“It’s been a long hard fight,” said Grosboll. “We’ve been at it on this bill for three years. These things are never easy and always take a while, but we think we’re almost home now.”