Municipal Interest May Be Key to PACE Program

(from Maine Townsman, July 2010)
By Lee Burnett

Municipal cooperation could be a decisive factor in the success of a novel home weatherization plan, which allows repayment of state energy loans through the property-tax collection system.

The state’s Property Assessed Clean Energy (PACE) program is the most ambitious attempt yet at persuading Mainers to invest in energy conservation in their homes and businesses.

Its use of the property-tax billing process may simplify matters for homeowners – but it could complicate matters for municipal officials.

The program would provide subsidized loans for projects backed up by energy audits. Only projects documented to reduce heating and electricity bills – such as sealing cracks, adding insulation, and installing a more efficient furnace – would be eligible, and the savings generated would be sufficient to pay off the loan at no net cost.

Unlike a home equity loan, which is the sole responsibility of the borrower to repay, the PACE loan stays with the property (repayment is done through a special assessment on property tax bills) and is assumed by the new owner if the property is sold.

The Obama Administration backed PACE with $100 million in Stimulus Act money. While 22 states have taken action on PACE programs, Maine is considered a leader because it snagged a $30 million grant. State officials hope to combine that with $120 million or more in traditional bank loans to finance energy improvements to tens of thousands of existing homes and businesses.

The combined sum is more than 10 times larger than last year’s energy efficiency and conservation block grant program. Weatherization appears to be a priority, although alternative energy projects would be eligible.

Whether Mainers flock to the program or stay away may be in the hands of local municipal officials. Participation in the program would require towns and cities interested in the program to adopt a special ordinance allowing a surcharge to be added to property tax bills.****

**** Clarification: All the rules and regulations for the PACE program have not been adopted.  Municipalities may utilize their property tax billing system to assess and collect PACE loan payments but they are not required to do so.  As the article notes, municipal officials are wary of combining a PACE loan and a property tax bill.  MMA’s best information at this point is that PACE programs may be structured and administered without adding a surcharge to property tax bills.


Participating municipalities have two ways of administering the program: They can do it themselves; or, they can enter into a contract with a state-level organization such as Efficiency Maine Trust to administer some or all functions of the PACE program.

The program would not add to a municipality’s debt or overall tax base and would have no affect on property tax rates. Some details have not been completed, however.

“Towns and cities need to be somehow involved,” said John Brautigam, outgoing director of Efficiency Maine, the predecessor agency to Efficiency Maine Trust. “Municipalities need to be involved in some way, shape or form. What that will be still needs to be ironed out.”

Efficiency Maine Trust is trying to make the program as user friendly as possible, he said. The agency is developing a model ordinance, which locals can modify or adopt as is. It is also convening a stakeholders group to troubleshoot problems before they appear.

“To maximize participation, we wanted to make it simple,” Brautigam said. “The last thing we want is for municipalities to find it burdensome.”

Although investing in weatherization – on paper – looks like a no brainer, it can be a difficult sell in Maine.

Reducing Maine’s reliance on imported foreign oil has been an intermittent priority for more than 30 years. It recently assumed a higher profile with increased awareness of global warming and with the volatility of world oil prices, which spiked to an all-time high of $147 a barrel in June 2008. Maine is considered especially vulnerable to oil price shocks because 85 percent of Mainers heat their homes with oil and 30 percent of Maine residents live in hard-to-heat, pre-1940s homes.

“We have the highest carbon footprint and the highest reliance on oil of any state,” said Ann Goggin, a former Falmouth Town Councilor and an energy consultant.

The situation is expected to worsen, according to the Governor’s Office of Energy Independence and Security. The percentage of Mainers’ income that goes toward energy (which includes transportation fuels, heating and electrical usage) climbed from five percent in 1998 to 20 percent in 2008 and is expected to climb to 45 percent by 2018, according to the Office’s Comprehensive Energy Plan 2008-2009.

Investing in energy conservation is touted as a sure-fire way to reduce energy use. So certain is the payback that energy-services companies working on commercial-scale projects routinely enter into performance contracts guaranteeing utility bill savings deep enough to pay off a loan at no net cost. And, those savings continue indefinitely beyond loan repayment.

Although performance contracts are not available on individual homes, small projects are as bankable as large ones. Dale McCormick, Efficiency Trust board member and director of MaineHousing, says average savings are projected to be $500 to $700 a year (if oil sells for $3 gallon) for the life of the installation.

“We say this is the gift that keeps on giving,” said McCormick. “It’s absolutely the No. 1 thing that people should do. If you’re heartsick about the oil spill in the Gulf, then weatherize your house. It’s the biggest thing you can do.”

Many homeowners and businesses act as though weatherization is a low priority. Good examples are the quotes in a recent Portland Press Herald article about Maine’s new energy code, which requires builders of new homes to add more insulation and seal more cracks than is usually done.

Builder Bill Bisbara, co-owner of Bisbara Bros. in Scarborough, said he expects first-time home buyers will resent the new code’s added cost (another $1,000 or so to the current $2,500 cost for insulation) because they expect to sell the house before they realize all the savings.

“My people would give up energy savings for a hardwood floor or a tile floor any day of the week,” he told the newspaper.


Why weatherization is such a hard sell is subject of debate. Some homeowners may be reluctant to invest because they wouldn’t realize all the savings before they sell their homes.

Some may lack the up-front capital and are averse to borrowing. Some may doubt the effectiveness of weatherization. Some may be deterred by the logistics and unfamiliarity of hiring both an energy auditor and an energy contractor. Still others may be cautious by nature.

“What I’ve been told time and time again is that Mainers like to see something work before they do it,” said Steve Erario, a recent Colby College graduate now working as a Clean Air Cool Planet fellow for Cumberland County Council of Governments. “I just think there’s not a lot of experience, especially with retrofits. People are not all too familiar with it yet.”

The caution confounds many of those in the energy-conservation field, such as Tim Vrabel, strategic initiatives specialist at Efficiency Maine. Vrabel says “it’s a mystery to me” why people expect quick payback from energy efficiency investments, when other large investments – such as buying a car – are made with no such calculation.

“It’s just not a logical decision. I can’t explain it. It’s especially true in the business world. They want a payback of two years or less. Otherwise, they don’t even want to talk. It’s just the world we live in. It’s a very odd world. And yet it’s a world where gas could be at $5 gallon next year.”

Although facilitating home weatherization is new territory for most municipalities, some cities and towns already do it. Part of President Obama’s 2009 stimulus package funded the Energy Efficiency and Conservation Block Grant program, providing grants for a variety of municipal energy projects.

Some city and town officials spent their grants to retrofit their own municipal buildings, truck fleets or street lighting. Other local officials – such as in Waterville – launched initiatives that provided weatherization assistance directly to community members.

“Philosophically, we felt there was more need for this money out in the community,” said Mike Roy, Waterville city manager. “The city tends to have more resources, more opportunity to finance [energy conservation and efficiency].”


That Maine was chosen as a PACE pioneer may be testament to its workable population size and reputation for pragmatism, said Vrabel. Maine seems to have impressed three DOE officials, whose visit to the state coincided with a Statehouse press conference on wind energy, he said.

“They saw Democrats and Republicans, representatives, state senators and the governor working together. They were impressed with the informality of relationships, that it was non-partisan, a very collegial environment,” he said.

However, the PACE program ground to a halt nationally in May due to the opposition of Fannie Mae and Freddie Mac, the government-chartered mortgage finance companies that buy and resell most home mortgages, according to a story in the New York Times.

It’s unclear how the controversy will affect implementation in Maine, which has taken preventative steps, according to Vrabel.

At issue is what gets paid first if a borrower defaults – the mortgage or the clean-energy assessment? Property taxes have senior lien status to mortgages, but Fannie Mae and Freddie Mac notified lenders in May that PACE loans could not take priority over mortgages.

That may have less bearing in Maine because in crafting its program, Maine proposed that PACE loans be subordinate to existing debt. Vrabel thinks the whole matter will be resolved satisfactorily because of the public outcry to Fannie Mae’s and Freddie Mac’s opposition.

Because federal the energy efficiency and conservation block grant program was authorized as a grant to municipalities, Maine’s program will necessarily direct a flow of money to municipalities.

Municipal governments would have the authority to administer their own loan programs but Brautigam, the director of Efficiency Maine, thinks municipalities would choose to avoid the administrative burden. He said most would rather redirect the money to a single pool of money administered at the state level, which he said is more efficient anyway.

“The federal statute says this is a repayment program to municipalities,” said Brautigam. “I don’t think anyone’s particularly thrilled with that requirement, but it’s there. We just have to work with it.”

Applicants could apply to a participating bank or directly to Efficiency Maine Trust. An energy audit would be a prerequisite to become eligible for a loan and would help to prioritize the projects. For the loan to be approved, the energy savings from the project would have to be sufficient to pay off the loan at no net cost, he said.

Goggin, the former Falmouth Town Councilor and a private energy consultant, has some insights about how the program would work.

“It could be as simple as receiving information from the PACE administrator, get the documentation and enter into software, collect the money and disperse it. Other than that, they shouldn’t have to do much,” she said. “Properly structured, this shouldn’t involve any increased risk for the community.”

Munis software is capable of handling a special assessment on the property tax, she said.

Waterville City Manager Roy expressed concern about tinkering with the “sanctity of the property tax,” although he considers himself to be a supporter of the PACE concept.


“Sounds like a far out idea but I’d like to know exactly how they would make this special assessment on property-tax bills,” he said. “The property-tax process is one that has been decided, in place, for many, many years. Toying with it is not a simple thing. That’s my concern.”

Roy wonders whether loans would be billed once a year in communities that send out tax bills just once a year. If bills are sent out more frequently than once a year, Roy said, that should be made clear to taxpayers. “It shouldn’t confuse taxpayers about what [payment] is due when. This program needs to be made separate and distinct.”

Roy is also concerned that the tax-foreclosure process not be used if a homeowner falls behind in payment. McCormick says she doesn’t envision the tax foreclosure process ever being used. In an extreme case, a lien could be attached that would have to be paid off in the event the property changes hands.

Energy loans are subordinate to a mortgage so would be paid off only after a mortgage is paid if the house goes through foreclosure, she said.



At deadline for the Townsman, a model ordinance was still being written by officials with Efficiency Maine Trust.