PACE stands for Property Assessed Clean Energy Financing. The concept is simple and has been used in many states including California, Colorado and Florida. A home owner or business owner retrofits their property to make it more energy efficient. This can include insulation, HVAC systems and Solar panels. The homeowner or business is provided money upfront through the issuance of bonds which aggregate several retrofits in a designated area or on a statewide basis. In turn an assessment is added to the property tax bill and is used to pay off the upfront costs of the retrofit over a period ranging from 5 to 25 years, depending on the useful life of the improvement. Energy savings offset the cost of this assessment to the homeowner or business. Studies have shown that these types of improvements also increase the value of the property.
The estimated market for PACE nationwide is in excess of $300 billion for commercial and $100 billion for residential. In Illinois there are approximately 4.2 million housing units. Experience with PACE programs elsewhere in the country suggests that if 1% of these homes were to undertake an $18,000 PACE financed improvement project, this could generate over 6,000 jobs and create over $1.4 billion in economic stimulus, while reducing over 2 million tons of carbon emissions.
Despite all this every attempt to initiate PACE legislation in Illinois has be stymied by the banks. This stems from the fact that property taxes are a superior lien to mortgages. They do not want to have taxpayers burdened with additional property taxes while loans are outstanding. However, defaults as a result of PACE taxes have been low in states where it exists. What the banks fail to realize is that their collateral is actually more valuable once homes and businesses have been retrofitted.
A recent development is that the FHA will insure mortgages where PACE loans exist. This should be an impetus for re-igniting PACE legislation. The benefits to the state will be myriad including increased jobs, increased sales taxes and greater energy efficiency. Given the current fiscal condition of the state these are benefits that should not be passed up.
Michael D. Belsky of Highland Park
former Mayor of Highland Park (2003-2011)
Senior Fellow and Lecturer, Harris School of Public Policy at the University of Chicago
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