Local Government
How California’s Property Assessed Clean Energy (PACE) Model Just Got Stronger

How California’s Property Assessed Clean Energy (PACE) Model Just Got Stronger

By: Kate Meis, Executive Director, Local Government Commission.

Reducing energy use in the housing sector is one of the most effective ways for communities to lower their carbon emissions. Individual homeowner investments in emissions reductions – like upgrading an outdated HVAC system, installing energy-efficient windows and doors, or going solar – are already playing a key role in helping California to meet our ambitious climate goals. And the long-term energy-bill savings of these green improvements create an extra incentive.

But just because homeowners want to reduce energy waste at home doesn’t mean they can afford to. That’s where Property Assessed Clean Energy (PACE) financing comes in. And following overwhelming approval by the Legislature, Governor Jerry Brown just signed into law a landmark regulatory and consumer protection framework that will further bolster PACE.

PACE was originally approved by the Legislature in 2008 to help homeowners overcome the biggest obstacle to investing in efficiency: high upfront costs. When an air conditioner breaks in the middle of summer, repair or replacement is a health-related necessity, not a luxury.

PACE financing makes it possible for homeowners to upgrade to a more efficient system in these critical moments by allowing them to pay over time through their property taxes, instead of using credit cards to purchase the cheapest model available. More efficient systems are typically more cost-effective in the long run by bringing down utility bills. By spreading out improvement costs over up to 25 years, depending on the expected useful life of the product being installed, PACE allows homeowners to follow their hearts and their wallets when making important home improvement decisions.

The benefits PACE has brought to California communities are many. More than 150,000 California homes have invested in their homes using PACE. PACE-financed improvements are projected to save homeowners billions of dollars on their utility bills and reduce carbon emissions by more than 5 million tons over the expected lifetime of the products installed. That’s equivalent to taking more than 1 million cars off the road for a year.

What’s more, it’s estimated that PACE financing has led to the creation of more than 30,000 local, clean-energy jobs – many of which can’t be offshored or automated. And because the overwhelming majority of PACE activity is privately financed, these benefits accrue to communities across the state at no cost to local government budgets. PACE is currently available to most California households, from Del Norte and Siskiyou counties down to San Diego and Imperial.

Recent research by Lawrence Berkeley National Laboratory supports the idea that PACE is a significant driver in individual adoption of efficiency-oriented improvements. The study showed that in 2014, almost half of nationwide residential energy efficiency gains could be credited to the activity of just one of the PACE financing providers in California and one state-run program in Massachusetts.

Despite PACE’s clear successes, some rocky spots were encountered in the early days. In response, leaders in the industry have embraced stronger consumer safeguards and have pushed to codify them in state law.

Last year, the California legislature passed AB 2693 to require written disclosures for PACE modeled on the federal Know-Before-You-Owe mortgage lending form. Now, the legislature has taken another step to strengthen PACE. AB 1284, which was signed by Governor Brown and starts taking effect on Jan. 1, 2018, goes even further in codifying protections for PACE borrowers. The bill includes the industry’s first income-based, ability-to-pay underwriting standards for homeowners. It establishes a licensing and regulatory framework for the PACE industry and it codifies contractor training and accountability standards that the top PACE providers already follow. Importantly, AB 1284 makes PACE providers liable for contractor misrepresentation or fraud and empowers the California Department of Business Oversight with enforcement authority. These measures will ensure that only the PACE providers and contractors who promote the interests of consumers are offering this financing option.

SB 242, which the governor also signed into law, adds other important consumer safeguards to PACE, further differentiating this model from other forms of financing. Included are a requirement for live phone calls to confirm financing terms; restrictions on contractor compensation; protections against overcharging consumers for projects; and data reporting requirements to local government partners.

These two companion pieces of legislation were supported by a wide array of local elected officials, including Republicans and Democrats, from across California. State associations that represent mortgage bankers, escrow and title businesses, tax collectors, and chambers of commerce also supported the bills. More than a dozen prominent clean energy and environmental groups are on board, too. These unlikely partners supported this legislation because it will make PACE an even stronger and more effective mechanism to advance local and state public policy objectives.

The Local Government Commission is dedicated to building thriving communities that integrate civic engagement with environmental, social and economic priorities. Property Assessed Clean Energy has proven to deliver results important to California cities and counties on multiple fronts, including reducing greenhouse gas emissions, lowering homeowner utility bills and creating good-paying jobs. The Legislature’s work on these bills will help strengthen this already successful program for homeowners and communities across our state, and should serve as a model for other states seeking to leverage the power of PACE in a responsible, sustainable way.

Kate Meis is Executive Director at the Local Government Commission

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