Property Assessed Clean Energy Financing: Financing to Support Sustainability and Resilience in the United States

Stewart Oliver

December 6, 2016

Georgia State University

Andrew Young School of Policy Studies

PMAP 4331/8331: Urban Development and Sustainable Cities

Contents List of Acronyms & Terminology .................................................................................................................... i

What is PACE Financing and Its Role in Sustainability and Resilience? ........................................................ 1

Sustainability and Resilience Challenges of U.S. Building Construction ....................................................... 1

Dispelling the Myths About Slow Adoption of Energy Efficient Buildings .................................................... 5

PACE Financing – Overcoming the Financial Hurdles ................................................................................... 9

PACE Financing Creates Jobs ....................................................................................................................... 13

Challenges for PACE Financing .................................................................................................................... 13

Conclusion & Recommendations ................................................................................................................ 15

Appendix A: Florida Statute §163.08 List of Qualifying Improvements ...................................................... 18

Appendix B: Charts ...................................................................................................................................... 19

Chart 1: CO2 Emissions of U.S. Buildings: U.S. Department of Energy, 2008 .......................................... 19

Chart 2: U.S. Energy Consumption by Sector: Architecture 2030.org .................................................... 19

Chart 3: Disruptions of Electrical Grid: U.S. Department of Energy, 2013 ............................................. 20

Chart 4: Household Median Square Footage versus Household Median Size: U.S. Census Data .......... 20

Chart 5: PACE Project Spending by Sector: PACENation.us Data, 2016 ................................................. 21

Map: U.S. Active and In-Progress PACE Programs (PACENation.US) ...................................................... 21

References .................................................................................................................................................. 22

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List of Acronyms & Terminology eco-consciousness: marked by or showing concern for the environment (Merriam

Webster, 2016) Energy Star: an energy efficiency rating system by the Environmental Protection Agency.

Energy Star is a voluntary program created under the Federal Clean Air Act. The EPA and the Department of Energy regulate requirements for Energy Star certification. (EnergyStar.gov, 2016)

geothermal: of, relating to, or using the natural heat produced inside the Earth; also: produced by such heat (Merriam Webster, 2016). Geothermal energy itself is the naturally recurring heat that is produced from within the earth. There are various forms of technology that can harness this clean, renewable form of heating. Geothermal heating and cooling technologies take advantage of the different temperatures that occur at various depths through heat and cool exchange mechanisms. (RenewableEnbergyWorld.com)

green energy: renewable energy; naturally occurring forms of energy that self-replenish and do not run out; if not renewable energy, green energy can refer to energy that is extremely efficient beyond that which is most typical. (RenewableEnbergyWorld.com)

greenhouse gas emissions: gasses that trap heat in the atmosphere; most common are carbon dioxide, methane, nitrous oxide and fluorinated gasses. (EPA.gov)

land secured financing: financing that is secured by a lien upon the property not upon the property owner; the lien is not severable from the property and passes along with ownership.

LEED (Leadership in Energy & Environmental Design): a certification program that recognizes best-in-class building strategies and practices; the U.S. Green Building Council manages the LEED program. (USGBC.org)

loan underwriting: the process of approving or disapproving a financial institution to make a loan; loan underwriters typically are independent agencies hired by financial institutions to review loan to calculate the amount of risk posed by the loan. Some financial institutions have internal underwriters.

PACE financing (Property Assessed Clean Energy financing): financing that provides for a local government sponsored loan to purchase qualifying energy efficiency or environmentally sustainable property improvements for both residential and commercial property. The debt payments are collected through the tax bill, allowing for clean energy upgrade costs to be spread over a number of years.

property improvements: any addition to a property; may refer to the building on a property itself or later modifications to the buildings or land.

redundancy: safety mechanisms built into a system to reduce the chances of failure; as used in this paper “redundancy” in an energy grid requires having sufficient capacity to absorb the total consumption of one segment of the grid by another segment if the first segment fails.

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return on investment (ROI): the amount of benefit that an investment provides; the amount of time required for the benefits of an investment to equal or surpass the investment.

scalability: an ability to increase the size of something rapidly enough to keep up with demands; as used in this paper, “scalability” refers to an ability to increase the capacity of an energy grid to supply sufficient energy to consumers without any disruption in services.

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What is PACE Financing and Its Role in Sustainability and Resilience?

PACE financing (Property Assessed Clean Energy financing) provides for a local

government sponsored loan to purchase qualifying energy efficiency property improvements

for both residential and commercial property. The debt payments are collected through the tax

bill, allowing for clean energy upgrade costs to be spread over a number of years. The

repayment period is typically from five to thirty years (PR Newswire US, 2016). PACE was

developed as a means to increase market demand for energy efficiency and environmentally

sustainable products used in construction. Many people have misconceptions regarding the

cause of the mediocre adoption rate of energy efficiency building improvements, believing that

there is either not enough suppliers to the market or that the total cost is simply too great. This

paper will address these misconceptions while clarifying the role of PACE financing in

sustainability and resilience discussions.

Sustainability and Resilience Challenges of U.S. Building Construction

The marketplace has anticipated that the greening of America would happen faster than

it has, with significant increases in green jobs and green technology for a cleaner environment

and energy independence. We have envisioned that the majority of cars produced would run

on renewable and that increasing amounts of our power grid would be fueled by either

renewables or non-fossil fuel based alternatives. The reality is that today’s electric vehicles are

charged on an energy grid that is mostly dependent on fossil fuel burning plants. The

marketplace has also anticipated a time when the majority of new buildings would be either

Energy Star or LEED (Leadership in Energy & Environmental Design) certified, and that later

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upgrades would favor the most energy efficient options available. However, the built

environment of today does not look very different than it did 20 or even 30 years ago. The

adoption of green energy in building construction and later improvements to property has

lagged in both residential and commercial environments. The slow adoption of energy

efficiency in building design is of major concern to the sustainability and resilience of our nation

because residential and commercial buildings are the largest sector of energy consumption and

environmental impacts. The slow increase in energy efficiency in the built environment is due in

significant part to financial barriers. These financial barriers are why PACE financing can be an

integral part of a sustainability and resilience plan. Before analyzing PACE financing in a

sustainability and resilience context, we should first understand the state of the environment

which makes PACE relevant.

Global warming is now widely accepted as the greatest sustainability threat to both the

United States and the world. While there is some debate about the degree to which human

actions are creating the warming effect, there is little disputing that greenhouse gas emissions

(GHG’s) do play a role. According to the latest release by the EPA, “since 1990, U.S. greenhouse

gas emissions have increased by about 7 percent.” While GHG’s fluctuate with both increases

and decreases in net GHG’s, we are on a current trajectory of 1% net increase in GHG’s per year

(EPA, 2016). To address greenhouse gas emissions effectively, we should direct attention to the

primary sources of GHG’s. In 2008, the U.S. Department of Energy published that residential

and commercial buildings account for 40% of our national energy use, 40% of greenhouse gas

emissions nationwide, and 9% of greenhouse gas emissions worldwide (chart 1). Furthermore,

70% of the energy used by those buildings is dependent on fossil fuels (U.S. Department of

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Energy, 2008). Taking a narrower view of energy use by focusing on electricity consumption

(chart 2), U.S. buildings account for 73% to 75% of the total consumption (LEED.usgbc.org, 2016

and Architecture2030.org). Evidence supports that, as a community, we are not doing enough

to counteract either the rise in GHG’s or our overall energy consumption. According to a 2010

white paper published by Siemens, only 14% of buildings had significant energy improvement

upgrades (Siemens, 2010).

Greenhouse gas emissions and energy consumption resulting from low-efficiency

buildings are often couched in discussions about environmental challenges. However, this

situation also poses an economic and social equity risk. First, consider the economics. Both

overall energy consumption and the per unit cost of energy continue to increase. The cost of oil

(chart 3) is forecasted to increase from $50/barrel in 2016 to $130/barrel by 2040, a 160%

increase overall or 6.7% increase per year. After reaching a high of $154/barrel in 2008, oil

prices dropped significantly, and have remained below $100/barrel since 2014 (Department of

Energy, 2016). Multiple years of reduced energy costs have helped foster increases in average

building size since the per unit cost to operate is lower. Often these larger structures are meant

to accomplish the same amount of utility or production as their smaller predecessors. This is

especially true for residential housing, where the median size of homes increased by 12%

between 2010 and 2015 despite the median household size reducing by 2% in the same years

(chart 4) (U.S. Census Data, 2015). Larger structures consume more energy, and as energy costs

rise, all consumers could potentially face economic hardships operating the property that they

had become accustomed to.

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This combination of increasing energy prices with increased consumption could be the

underpinning of the next major recession. Energy costs for operating property (heating, cooling,

and electricity) are non-discretionary spending that has a dramatic impact on residential

owners. Additionally, the commercial sector ultimately passes all costs onto individual

consumers and employees. Commercial operators react to rising energy costs by either

charging more for products and services or cutting other costs, including labor. Therefore,

increased energy prices upon the commercial sector can result in higher prices, higher

unemployment, reduced salaries, and reduced competition. Even the fortunate employee who

remains employed and receives cost of living adjustments of three to four percent per year will

have to absorb an increase in energy costs of 6.7% per year. Because consumers will absorb the

total additional costs from the commercial sector, the individual could effectively face more

than a 6.7% increase in cost per year. A compounding concern is the socioeconomic disparity

that these increased costs introduce. Increased energy costs affect the lowest income earners

most harshly. Low-income earners have little to no discretionary income and, therefore, there

is little or no change in their behavior that will help them absorb such increases in the cost of

living.

There is an additional sustainability issue to consider in this conversation about energy

consumption. That issue is that the current United States energy grid is insufficient to support

present consumption, and infrastructure improvements are not keeping pace with future

demands for energy. According to a 2013 report published by the Department of Energy, the

United States is experiencing historically high temperatures, increasingly unpredictable and

destructive weather events as well as droughts. These effects, coupled with the expanding

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demand for energy, has resulted in an energy and water infrastructure that is decreasingly

resilient. According to the report, “more than 60% of the country experienced drought during

the summer of 2012” and energy grid disruptions have increased almost 300% between 2002

and 2013, with a 3 year rolling average increasing from 24 disruptions per year to 97

disruptions per year (U.S. Department of Energy, 2013).

Clearly, there is a need to address this sustainability and resilience concern. Reducing

our dependence on fossil fuels is essential to reduce GHG emissions. Reduced dependence can

be achieved by replacing coal and gas fired plants with renewable sources and by making

buildings more energy efficient. However, to more fully improve sustainability and resilience,

we must also further decentralize our energy grid. We currently have an overly centralized

energy grid with insufficient scalability and redundancy. The impact of this is evidenced by the

300% increase in energy disruptions noted above. Therefore, as a country, we should look to

solutions that both reduce overall consumption and further decentralize energy. Modern

energy efficiency building improvements serve these needs. Energy-efficient upgrades can

range from as simple as improving insulation and installing energy efficient windows, to as

complex as adding solar panels or windmills or changing the façade to reduce heat penetration.

Some improvements address the energy consumption issue, while others help decentralize

from a fossil fuel based, centralized grid.

Dispelling the Myths About Slow Adoption of Energy Efficient Buildings

Despite a continued increase in the amount of options for energy efficient building

improvements, adoption of efficiency remains slow. Some people suspect that the payback on

green upgrades is still non-advantageous and the cause of the slow uptake. However, typical

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return on investment (ROI) timeframes for energy efficient options have shortened.

Considering solar panels, those produced today are as much as 20% more efficient than their

predecessors from pre-2000 (Fraunhofer Institute for Solar Energy Systems, 2016). Adding in

the increasing cost of energy makes clear that the typical payback period has shortened

significantly, which improves the arguments for energy-efficient building improvements. Thus,

neither a lack of options nor the total cost is a compelling explanation for why the adoption of

energy efficient improvements has lagged. The principle obstacles diminishing further greening

in residential and commercial sectors are financial issues of a different character.

First, consider the commercial sector. There is an emerging pattern in the commercial

sector where an increasing number of new construction projects (i.e. from the ground up) are

either LEED-certified or Energy Star compliant. However, later green retrofits to existing

commercial property remain constrained. How do we explain the divergent pattern of investing

in energy efficiency between new construction versus upgrading older construction? In the

financing of commercial capital projects, the time in which a project must be fully paid is a

critical factor. Capital projects are typically debt funded, freeing up liquid assets to invest in

greater human capital or other investments that directly increase production. A frugal

commercial operator will not take on debt that must be repaid in five years to pay for an energy

efficient upgrade that will take 15 to 20 years to pay for itself. They almost certainly are

unwilling to pay cash for that same upgrade. Those same funds are instead invested in other

capital that will have a significantly shorter ROI. This explains why corporations do not invest in

high-efficiency upgrades on older buildings. With new construction, however, the increased

costs of energy efficiency are driven by an increasing willingness on the part of commercial

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tenants to pay more for LEED and Energy Star rated property. In fact, data now shows

Commercial tenants are willing to pay a rental premium of 7% for energy efficient buildings

(Kok, Miller &Morris 2012), with greatest preference for better indoor air quality and more

natural lighting (Robinson, Simons, Lee, & Kern, 2016).

For the residential sector, the financial considerations are very different than in the

commercial sector. This is because homeowners do not view their property as profit centers,

but as long term investments where they are most interested in two factors – the appreciating

value of real estate over time and minimizing their cost to own. Furthermore, microeconomics

teaches us that rational consumers make buying decisions that maximize their utility. With

these understandings, and controlling for any additional motivations such as high levels of eco-

consciousness, we expect consumers to make building improvement decisions that minimize

their total cost, including both the upfront cost as well as the cost to operate. However, studies

have indicated that residential consumers do not act in their own self-interest, choosing lower-

efficiency options more frequently. In 2007, one such study concluded that even where “life

cycle cost analysis shows short payback periods for the required capital investment in these

technologies, . . . they remain underutilized” and that one of the main barriers is “limited access

to capital,” including financing (Wilson & Dowlatabadi, 2007, p. 172). To help illustrate that a

lack of financing is the obstacle which hinders residential green technology, consider other

green technology goods which have been adopted much more quickly – home appliances (i.e.

washers and refrigerators) and alternative fuel vehicles. If consumers were generally

unmotivated to choose environmentally conscious consumer goods, the demand for these

items would be similar to home improvements – which is not true. The difference is the access

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to financing. In the case of appliances, the upfront cost is relatively low and in-store financing is

readily available. For automobiles, financing is also readily available and down payments are

minimal to zero. However, energy efficient building improvements have been adopted much

more slowly.

The number of homes built with super-efficient green systems such as solar panels,

geothermal heating and cooling or insulation and windows that far exceed minimum building

codes are a small minority. This is principally due to mortgage constraints. The vast majority of

home purchases require a mortgage, which requires both an appraisal and underwriting (risk

auditing of the loan). Homes built with extra efficiencies will have a higher upfront price than

their lesser efficient counterparts. From the bank’s and underwriter’s perspective, assurances

are needed that, in the event of a foreclosure, the home can be sold for a price sufficient to

recoup the full amount of the mortgage. Unfortunately, there is both a lack of qualified

appraisers trained to value these energy efficiency upgrades and there is a very limited number

of comparable properties that can be used in a region to support those valuations (Zero Energy

Project, 2016 and Doyle & Bhargava, 2012). This requires the homeowner who wishes to build

green to pay an even greater down payment. The typical down payment for first-time

homebuyers is now 3%, so there are very few buyers that have sufficient funds to pay for

additional green upgrades (RealtyTrac, 2016).

Later efficiency improvements to residential properties is certainly an area we expect to see

greater adoption of green technology and options. Mechanical systems to homes typically wear

out after 15 to 20 years and must be replaced. While the average efficiency of all mechanical

systems being sold improves over time, we see relatively few cases where homeowners make

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the more substantial investment to install Energy Star compliant heating and air or water

system, or especially such items as solar or geothermal. Again, the main problem is a financial

one. According to a survey conducted in 2010 by Siemens Technology, 34% of respondents

stated they did not have the sufficient budget to choose high-efficiency options (Siemens,

2010).

PACE Financing – Overcoming the Financial Hurdles

Property Assessed Clean Energy Financing was specifically designed to make inroads to

addressing the sustainability and resilience challenges posed by the United States construction

trends. If the financial dilemmas that face both residential and commercial sectors can be

overcome, then there may be a marked increase in both building and upgrading properties to

consume less energy. Furthermore, if the measures can simultaneously encourage the

production of renewable energy at the consumption site, such as through solar panels, wind, or

other means, this would also further decentralize our power grid. Decentralizing our power grid

is a key component to enhanced resilience. PACE financing does provide a way to overcome

those financial dilemmas and to reduce strain on the energy grid.

PACE provides a loan to finance clean energy upgrades. The loan repayment is added to

the property tax bill as a lien spread over five to twenty years (PR Newswire US, 2016). Because

these loans are funded by state or county issued bonds, enabling legislation must be passed at

the state level to support the programs. The local government does not typically manage the

loan sourcing or the product installation. Instead, lenders and installers are approved to act as

intermediaries to secure funds from the local government and install the products. The

resulting lien is then placed on the property assessment. While the term PACE was not

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developed until 2008, PACE is built on a legal framework that has existed for over 100 years,

known as land secured financing. It is the same template that supports community

improvement districts and tax allocation districts (Pauker, 2010). The earliest cited cases of land

secured financing identified for this research were developed in California between 1880 and

1911 as a series of acts to strengthen a necessary water system. Much like PACE is used to

support private owners in addressing energy needs today, then bonds were issued to support

private owners developing water support systems that were financially secured by their own

lands (Henley, 1957).

PACE is making progress. Today, 33 states are classified as PACE Enabled (e.g. enabling

legislation has been passed). Of those 33, sixteen states have active, funded projects, and 12

states are in the early development phases. In total, there are 38 active programs nationwide,

where each “program” identifies an approved lender coupled with approved equipment

resellers and installers. Some programs are for residential properties, some are for commercial,

and some can serve either residential or commercial. Of the total 38 programs, 36 (95%) make

funds available for commercial projects while only 11 (29%) make funds available for residential

projects. However, in terms of projects completed, there has been vastly more residential

projects completed than commercial. To date, there have been 130,000 residential projects

completed versus 820 commercial projects. Regarding funding, there has been $304 million

spent in the commercial sector compared to $2.9 billion spent in the residential sector (chart 5).

Fifty-eight percent of all projects have been energy efficiency improvements, 37% have been

renewable energy projects, and 5% have been a combination of the two (PaceNation.US

program map, 2016).

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The two states which have led the way for PACE financing are California and Florida.

PACE was first introduced in Berkeley, California in 2008 through a small pilot program called

BerkelyFIRST. This pilot used land secured financing to offer funding for solar panels to be

installed on 40 existing, privately owned, residential properties. The pilot had mixed results as

net reductions in energy consumption were lower than expected, resulting in negative returns

to the consumers. This means that the energy savings were not sufficient to outpace the

interest rates in the loans. However, one thing that was learned in Berkeley was that demand

for PACE-funded projects was extremely high, which led to great interest in how PACE funding

could be better structured for successful results. Researchers determined two major flaws in

the pilot was that the pilot was too small and too specific. The pilot only funded 40 projects and

all projects were residential solar panel installations. From this, it was determined that if future

programs were significantly larger and included sustainability enhancements other than solar,

then the interest rates on loans could be reduced. Additionally, energy savings increased at an

increasingly greater rate as the solar installation increased in size. Funded projects had to

include large commercial installations because they increase total energy savings. Furthermore,

commercial owners offer greater loan security, and by their inclusion, lower overall interest

rates by diversifying risk (City of Berkeley: BerkeleyFIRST Evaluation, 2010). That result partially

explains why 95% of PACE programs are targeted for the commercial sector; because only by

including this sector can both the environmental and financial goals be met. Those findings

paved the way for PACE and have aided the California Public Utilities Commission to set lofty

sustainability and resilience goals. Namely the goals of reducing energy consumption by

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California buildings by 40 percent and installing energy efficient HVAC in 50 percent of

California properties by 2020 (Fuller, Portis and Kammen, 2009).

In 2010, Florida Statute §163.08 was enacted, enabling local governments to create

PACE programs. As stated in the legislation, this PACE financing was integral to supporting

Florida’s goal to “reduce its energy requirements through enhanced conservation and efficiency

measures in all end-use sectors and reduce atmospheric carbon dioxide by promoting an

increased use of renewable energy resources” (Florida Statute §163.08). The legislation

authorizes PACE financing specifically for energy conservation, renewable energy improvement,

and wind resistance improvement. Wind resistance improvement is not common to all state’s

PACE programs but is a tailoring to addresses a resilience issue specific to coastal states such as

Florida. The list of all improvements that can qualify in these three categories is extensive and

included in Appendix A for reference. Since that time, five PACE programs were launched and

are active in Florida. Of the five, all support commercial financing and two support residential

financing. PACE financing in Florida has provided for large commercial projects, such as two

large Brandsmart locations (Palmetto Bay, FL and Miami Garden, FL). Here, PACE financing

provided for heating and air efficiencies, LED lighting and energy control systems that are

providing a 35% reduction in energy consumption plus over $3 million dollars in maintenance

cost savings (Ygrene Energy Fund Inc., Brandsmart Case Study, 2016).

Locating environmental impacts of PACE is difficult. However, states’ actions indicate

faith that PACE will help them achieve GHG and energy consumption reduction goals. For

example, Michigan, who has adopted PACE, has PACE financing as part of a goal to reduce

GHG’s by 8%. In Connecticut, a single solar installation has reduced GHG’s by 3,000 metric tons

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(PACENation Q3 2015 update). In writing this paper, I reached out for any published findings on

how much PACE financing has reduced GHG’s or energy consumption and was unable to

receive or locate the data.

PACE Financing Creates Jobs

PACE addresses sustainability and resilience issues of energy consumption, GHG

emissions, and increasing capacity to the energy grid. However, there is still an additional

benefit to PACE. PACE financing has created many jobs. According to the latest published

results, PACE created 28,650 new jobs nationwide (PACENation.us, 2016). Some jobs come in

the way of financial lenders adding positions to support PACE programs. The bulk of jobs

created are for contractors who perform the installations.

Challenges for PACE Financing

Despite the many benefits of PACE, there are challenges that slow its development.

PACE loans are not available everywhere because they are funded by government issued bonds.

Government bonds require both political and voter support because initiating a bond is a ballot

measure. Many voters may view PACE financing simply as another entitlement program and

expansion of government. Consider that 33 of 50 states (66%) have passed the enabling

legislation that would create the framework to move forward with securing bond financing and

creating PACE programs, however, only 16 states have been successful in securing bonds and

launching programs.

Another significant challenge to PACE is that lenders have actively fought against PACE,

feeling it creates challenges and additional risks to the normal lending practice. Federal statutes

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allow for states to have PACE programs and provides a legal framework for lien priority in the

event of any foreclosure or bankruptcy (Deady, 2016). After funds are expended for a property

improvement, a lien is placed on the property with repayment terms to pay off the lien. As with

any lien, PACE-financed liens transfer with the property until fully repaid. This means that even

if the full amount of the loan has not been repaid, the new owner will assume the repayment,

just as the new owner assumes responsibility to pay the property taxes and other government

fees associated with the property. Because PACE funds are a government issued lien, they

receive the same repayment priority as property taxes, which is superior to a mortgagor’s

priority. In the event of a foreclosure, any funds from the sale of the property must pay off the

PACE lien before funds can be paid to the lender. Throughout 2010 and 2012, Fannie Mae and

Freddie Mac refused to approve loans that involved any PACE liens and required existing PACE

liens to be paid off before they would lend on a property. Both Florida and California fought to

have these federal lending practices ruled “unfair business practices; violations of the National

Environmental Policy Act (NEPA); and violations of the 10th Amendment to the U.S.

Constitution (reserving to the states all powers except those granted to the federal)” (Deady,

2016, p. 114). Florida and California state regulators lost their legal battles against federal

lenders allowing those lenders to continue denying loans involving PACE (Deady, 2016).

These legal battles slowed residential PACE lending from 2010 through 2015. However,

in 2015, the new head of FHA delivered new lending guidelines to reopen the way for PACE.

These lending guidelines instruct how PACE lending can be written to make them a second lien

priority, subordinate to a federal loan (Hales, 2015). Such subordinating clauses allow the

mortgage to be repaid before the PACE lien is repaid, which gives the lender greater security. In

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a 2015 press release, Ed Golding, head of FHA, stated, “PACE programs have the potential to

increase the accessibility and affordability of energy saving measures, consequently lowering

energy bills to residents and reducing the environmental footprints of participating localities”

(Golding, 2015). It was clear that this was a compromise aimed at addressing the concerns of

federal lenders regarding risk while also recognizing the importance of the PACE programs and

the rights of states and counties to take measures they feel are in the best interest of their

government and communities.

Conclusion & Recommendations

It is a common theme of public policy that sustainability and resilience issues are a

complexity of interrelated and commingled issues. Overcoming sustainability and resilience

challenges effectively requires approaches that address the three pillars – environment,

economics and equity. This paper has illustrated how PACE financing is an approach that does

balance all three pillars. As a primary goal, PACE was developed in 2008 to address the

environmental concern of rising GHG’s and the economic concern of increasing burdens on the

central energy grid. The findings from the BerkelyFIRST initiative allowed other cities

nationwide to address local concerns and bolster their local economies. PACE financing has

created over 28,000 jobs and cycled $3 billion back into the national economy. Unfortunately,

the majority of research on PACE has focused on studying the legislation and economics, and

there is little published on the reduction of GHG emissions. However, it is more than reasonable

to believe the environmental impact has been significant. PACE has also provided multiple

socioeconomic benefits. Many of the jobs that PACE creates are low to middle-skill jobs.

Additionally, commercial PACE improvement can lower the cost of rents which can favor those

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of lower income. Lastly, much of the socioeconomic benefit was threatened during 2010 to

2015 when federal lenders refused to support PACE lending. Over 90% of loans for low and

middle-income homeowners are written by either HUD, Fannie Mae or Freddie Mac. Therefore,

this challenge by the federal lenders disproportionately affected low to middle-income

Americans. The fact that the federal position was reversed in 2015 was significant. Even more

significant was the published statement by the head of FHA that recognized PACE as a valuable

tool to address economic and environmental hazards at the local level. PACE financing can now

be considered well accepted and widely adopted by policymakers at the state and federal level.

However, as with many sustainability and resilience challenges, work is still needed to educate

the voting public about the value of PACE so that more states can pass PACE bond initiatives

and start programs of their own.

As a final note, intensive education of the public regarding energy consumption and its

effects on both sustainability and resilience is needed in order for PACE, as well as energy

efficiency improvements in general, to have long lasting, intergenerational benefits. Evidence

has shown that consumers are motivated more often by their own financial benefits than by

the slow creep of GHG emissions. One of the more concerning discoveries from the

BerkeleyFIRST pilot was that changes in human behavior can counteract reductions in energy

consumption. Data from the study showed that as savings increased, total usage began to creep

upward (City of Berkeley: BerkeleyFIRST Evaluation, 2010). An additional set of data that

supports this is the before mentioned trend in average home sizes increasing as household sizes

decrease. The indication is that if people can afford to consume more, they will consume more.

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Whether someone agrees with the concept of man-made global warming or not, our

consumption trend as a nation is unsustainable. Creative solutions such as PACE are required.

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Appendix A: Florida Statute §163.08 List of Qualifying Improvements

(b) “Qualifying improvement” includes any: 1. Energy conservation and efficiency improvement, which is a measure to reduce

consumption through conservation or a more efficient use of electricity, natural gas, propane, or other forms of energy on the property, including, but not limited to, air sealing; installation of insulation; installation of energy-efficient heating, cooling, or ventilation systems; building modifications to increase the use of daylight; replacement of windows; installation of energy controls or energy recovery systems; installation of electric vehicle charging equipment; and installation of efficient lighting equipment.

2. Renewable energy improvement, which is the installation of any system in which the electrical, mechanical, or thermal energy is produced from a method that uses one or more of the following fuels or energy sources: hydrogen, solar energy, geothermal energy, bioenergy, and wind energy.

3. Wind resistance improvement, which includes, but is not limited to: a. Improving the strength of the roof deck attachment; b. Creating a secondary water barrier to prevent water intrusion; c. Installing wind-resistant shingles; d. Installing gable-end bracing; e. Reinforcing roof-to-wall connections; f. Installing storm shutters; or g. Installing opening protections.

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Appendix B: Charts

Chart 1: CO2 Emissions of U.S. Buildings: U.S. Department of Energy, 2008

Chart 2: U.S. Energy Consumption by Sector: Architecture 2030.org

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Chart 3: Disruptions of Electrical Grid: U.S. Department of Energy, 2013

Chart 4: Household Median Square Footage versus Household Median Size: U.S. Census Data

2.4

2.5

2.6

2.7

2.8

2.9

0

500

1000

1500

2000

2500

3000

Household Median Sqft Vs. Household Median Size

Median Sqft Household Size

21

Chart 5: PACE Project Spending by Sector: PACENation.us Data, 2016

Map: U.S. Active and In-Progress PACE Programs (PACENation.US)

-

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

3,500,000,000

$ spent

PACE Project Spending by Sector

commercial residential

22

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