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Property Assessed Clean Energy (PACE) Financing

PACE financing allows property owners to borrow money from a local government entity to pay for renewable energy or energy efficiency improvements, thereby overcoming the high, upfront costs of such systems or improvements.  The amount borrowed is usually paid back through a special assessment on the owners’ property taxes.

PACE financing typically requires state legislation and 27 states have done this.  However, in July 2010, the Federal Housing Finance Agency ordered Fannie Mae, Freddie Mac, and the Federal Home Loan Banks to stop underwriting mortgages with PACE assessments. Together, these agencies represent the vast majority of residential mortgage lending in the U.S. This shut down residential PACE programs, leaving only a few commercial PACE programs in operation around the country.

A recent legislative event may change this situation.  The first is a bill introduced in the U.S. House of Representatives on July 20, 2011, called the “PACE Assessment Protection Act of 2011”  (H.R. 2599) was introduced in the U.S. House of Representatives in July 2011 with bipartisan sponsorship.  The bill is intended to undo the decision made by the Federal Housing Finance Agency and protect PACE programs from adverse federal housing mortgage policies.  If passed, the bill will set requirements for PACE programs, such as limits on project size and home equity thresholds.  The goal of the bill is to encourage local job creation and economic development.  The bill’s authors project that if 1% of U.S. homes participated in PACE, the projects would generate 226,000 jobs, $42 billion in economic output, and $4.2 billion in combined federal, state and local tax revenue.