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Matt Harris is the Marketing and Outreach Coordinator for the Environmental Finance Center. Adam Parker and Jeff Hughes wrote the paper referenced below, which is available on the Environmental Finance Center website at:

While watching the presidential debate last night I was particularly struck by one contentious issue that surfaced as a sharp disconnect between the two candidates: the age-old debate between the role of federal government versus the role of state and local governments. Although not entirely surprising to see in a presidential race, the plea by former Massachusetts Governor Mitt Romney for states’ autonomy and President Barack Obama’s fierce defense of federal oversight sounded like two men on soap boxes at the turn of the nineteenth century, perhaps with anti-federalist and federalist papers respectively in hand. So it’s fitting to post today about a financial tool for clean energy that remains beholden to the variance in policy landscapes across states.

A new white paper written by 2012 UNC Law Clerk Adam Parker and Director of the Environmental Finance Center Jeff Hughes, examines three states: North Carolina, Georgia, and Florida in depth and details their drastically varied legislative environments for the same local government financial tool–the Property Assessed Clean Energy Programs, better known as PACE.

PACE is a recently developed method for financing renewable energy and energy efficiency installations based on an “old-school” local government finance tool, the special assessment (for more about special assessments, click here for a previous blog post from the School of Government). The special assessment is only charged to directly benefited property owners for any public project, the logic being the entirety of the tax base shouldn’t pay for projects that benefit only a certain portion of the public.

In the typical PACE model, the special assessment is used to finance the installation of PV or solar thermal panels, or energy efficient insulation materials for businesses and homeowners, all of which capital funds would be acquired through a special assessment.

If the special assessment is not paid and there is a default, the owner(s) will risk losing the entire property.  As the paper explores, the differences in who has lien priority i.e. who can actually take the property upon default, varies from state to state.

For example, in Georgia liens for counties issuing special assessments are given higher priority than “special tax districts” & municipalities, and are co-equal with property taxes; while in North Carolina all special assessments are junior liens to all public debt and given priority only over private debt in the case of default.

Lien priorities are just one of the features considered in the paper. Additional differences examined include the units of government allowed to utilize PACE programs, available debt financing instruments, and the length of PACE terms. This helpful chart compiled by Parker and Hughes breaks down these differences between the three states examined in the paper:

PACE Chart, NC, GA, FL
Click on the image to view in full size

The variance between states in implementing policy hearkens back to the classic interplay between state and federal level efficiency for implementing programs designed to achieve success nationally.  It leads one to wonder how to measure the success of the special assessment as a financial tool for clean energy nationally, when it is a national idea limited to state and local applications.Of course imagining a standardized PACE program across states with guidelines from the federal government would most likely be an unpopular mind-exercise—at best.   But perhaps this paper illuminates the disparate statutory landscape that exists, and the possible root cause of PACE’s limited success—as illustrated by only one of thee three states examined having actual clean energy projects underway using PACE.

One Response to “Three States, Three Different Statutory Frameworks for PACE Programs”

  1. Update: Changes to PACE and Special Assessments in North Carolina « Environmental Finance

    […] In 2012, Jeff Hughes and I published a paper that compared PACE and the culture of special assessments in three states: North Carolina, Georgia and Florida. Several items have occurred that are relevant to PACE and special assessments in North Carolina, which are updated in a revised version of the paper found here. For a brief summary of the paper, please also see Matt Harris’s blog post here. […]

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