Frequently Asked Questions. Property Assessed Clean Energy (PACE) Sept. 20, 2011

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1 Frequently Asked Questions Property Assessed Clean Energy (PACE) Sept. 20, 2011 PACE What is PACE? PACE stands for Property Assessed Clean Energy (PACE) is a voluntary special assessment which can be levied on a developed parcel for the purpose of investment in energy efficiency or renewable energy projects. How will PACE work in Ann Arbor? As regulated by Michigan law, PACE is only currently available to commercial property owners. A report required by the enabling State Act, City of Ann Arbor, Report on Proposed Property Assessed Clean Energy Program, details how the program will be administered in Ann Arbor. What are special assessments? A special assessment is a charge that a government can levy against real estate parcels to pay for installation of projects that serve a public purpose. This charge is levied in a specific geographic parcel known as a Special Assessment District, only on parcels that have received a direct and unique benefit from the project. PACE assessments are only available to property owners who voluntarily choose to participate. How long have special assessments been used? Special assessments have a long history of use. Nationwide, assessments can be traced back to a 1691 levy for street and drain construction in New York City. The first special district was established by Benjamin Franklin on December 7, 1736, when he created the Union Fire Company of Philadelphia, a volunteer fire department. Residents in a designated neighborhood paid a fee to receive fire protection services. Any resident not paying the fee had no fire protection services. As one can imagine, using special assessments to secure fire fighting services became very popular among the citizens of the day. Why is PACE considered to service a public purpose? A public purpose is a governmental action or direction that provides a benefit to the populace as a whole. The State legislature has determined that PACE serves a public purpose by reducing energy costs, stimulating the economy and economic development, improving property valuation, reducing greenhouse gas emissions and creating jobs. Who else is doing this? Twenty-seven states have passed enabling PACE legislation. PACE programs are currently operating in states and localities: such as, Berkley, CA; Fresno, CA; Palm Desert, CA; San Diego County, CA; San Francisco, CA; Sonoma County, CA; Tulare, 1

2 CA; Riverside County, CA; Boulder County, CO; Annapolis, MD; Montgomery County, MD; Town of Babylon, NY; and the states of Vermont and Maine. There are many localities currently establishing or considering establishing PACE programs. How is commercial defined? Commercial is defined for this PACE program as any property that must comply with the Michigan Building Code rather than the Michigan Residential Code. Single family, duplexes and certain townhouse fall under the Michigan Residential Code, the remaining types of structures are covered by the Michigan Building Code. What properties are eligible? The property eligibility requirements are as follows: Property meets the definition of commercial or industrial property Property is developed and within the current City of Ann Arbor ultimate jurisdictional boundaries Property title is vested in the applicant(s) without federal or state income tax liens, judgment liens or similar involuntary liens on the property Property owner is current on property taxes Property owner is current on mortgages Property owner is not in bankruptcy and the property is not an asset in a bankruptcy proceeding What projects are eligible? Energy projects that may be eligible for PACE assessments include: Projects with a cost range of $10,000 - $350,000 o Improvements should not exceed 20 percent of the State Equalized Value before energy improvements o Lien to value of property cannot exceed 99% of 2 times the State Equalized Value Energy analysis Insulation, weather sealing Efficient lighting and lighting controls Heating, venting, and air conditioning (HVAC) High-efficiency shower/faucet upgrades Energy Star appliances Replacement of doors and windows Solar electricity/photovoltaic systems or unit on existing rooftops and parking shade structures; or a 60 kw system or smaller unit installed on the ground within the boundaries of an existing facility Wind turbine 20kW or smaller Solar thermal (passive) Solar thermal hot water Ground source heat pump 5.5 ton or smaller, horizontal/vertical, ground, closed loop system Combined heat and power system boilers sized appropriately for the buildings in which they are located 2

3 Biomass Thermal 3 MMBTUs per hour or smaller system with appropriate Best Available Control Technologies (BACT) installed and operated Do I need a building permit? Yes, you will need a building permit from Ann Arbor Planning and Development Services. How long will the AA PACE program last? The initial federal grant being used as the loan loss reserve fund must be expended not later than September, Additional funding will be made available if demand exists. The program is designed to last for many years. How are special assessments collected? All special assessment payments are billed on June 1 st of each year and the annual installments are due no later than August first. Special assessments may be paid in full prior to the end of the assessment term without penalty. What will the interest rate be? The interest rate will be 1% above the rate being charged to the City. This rate is set by City Council. Do special assessments remain with the property? Yes, special assessments remain with the property. The new owner will continue to pay the special assessment and will reap the benefits of reduced energy use. However, in some situations the bank may require that the assessment be repaid at the time of closing. How long after my application is approved will I wait to get permission to proceed? There will be a lag time between application approval and permission to proceed, Permission to proceed will be noticed when the actual funds are available and the interest rate is known. It is likely that the City will collect applications and only bond when there is a sufficient pool to sell bonds. I run my business out of my home, am I eligible to use PACE? Not unless your home would meet the definition of commercial property in the Michigan Building Code. I have an energy analysis; do I need to perform another? The Ann Arbor PACE program requires a comprehensive energy analysis be performed prior to application submittal, unless: 1) The Program Administrator determines the property is eligible for a limited energy analysis during the pre-application step. 3

4 2) An energy assessment meeting one of the following standards has been performed on the property: 1. Energy analysis performed under Ann Arbor s Downtown Development Authority s energy efficiency program 2. Energy analysis conducted using AHSRAE Level II or III protocols that is less than 3 years old What costs are included in the assessment disbursement? Costs eligible to be included in the special assessment include the cost of equipment and installation. Installation costs may include, but are not limited to, energy analyses, consulting, attorney fees, labor, design, drafting, engineering, project management, permit fees, and inspection charges. How do I apply for a PACE assessment for my commercial property? General The application process consists of five basic steps: pre-application, application, review, installation and tracking. Pre-application is designed to assist the property owner in determining whether or not the property is a good candidate for a PACE assessment and the likely size of the energy project. To start the process download the application forms from the website, and contact the Program Administrator to begin the pre-application step. Why is the City getting in this business? The City is keenly interested in economic development and the creation of jobs. PACE will do both plus most of the money spent on energy efficiency or the installment of renewable energy systems and the money saved on energy costs will remain in the local economy. Does the City have any obligation to pay for the losses due to any defaults? No, the City will be issuing revenue type bonds that are secured by property and/or a loan loss reserve fund. How will the money be raised? The City plans to sell revenue bonds. Will the bonds have any guarantees for the lenders? The guarantee for the lenders will only extend to the amount of the loan loss reserve fund. The City will have the same rights to collect delinquent special assessment payments as it does with the collection of delinquent property taxes. How does PACE program fit with the Ann Arbor Energy Challenge? PACE is one program that Ann Arbor is implementing to provide the business community with tools to reduce energy consumption. The use of PACE by commercial property owners will enable them to reduce their energy costs and help to meet Ann Arbor s energy efficiency goals. 4

5 Will energy efficiency improvements increase my property taxes? No, the addition of energy efficiency improvements such as insulation, lighting or replacement of equipment will not increase your property taxes. Will the addition of an alternative energy system to my property increase my property taxes? Currently, yes, alternative energy systems, such as solar panels, are being assessed and property taxes are adjusted to reflect the assessment change. However, there are currently bills that have been introduced in this session of the Michigan State Legislature that address the taxation of alternative energy systems. Some of the bills exempt alternative energy systems permanently; some exempt them for a period of time. Will the public be able to look up projects on line? Yes, the public can look up all permits using e-trakit. Why aren t single family homes eligible? The Michigan legislature passed enabling legislation, Public Act 270 of 2010, which only covers commercial or industrial property. Why does the City care about the energy efficiency of buildings? The City cares because energy efficient buildings are cheaper to operate and that s good for any business s bottom line. The additional circulating money is good for economic activity. How will we know this program worked? The energy savings from each project will be measured to verify savings estimates. Why are some of the projects allowed in Public Act 270 of 2010 not allowed as Ann Arbor PACE projects? The allowable projects are based upon current Federal requirements for use of the grant funds. Subsequent funding would not have those same requirements and the list of allowable energy projects would expand to match the list in the Act. How will citizens know that a project is completed? Citizens may follow the progress of projects by logging onto e-etrakit which is found at What is energy efficiency? Energy efficiency is simply using less energy to provide the same level of energy service. For example, if you insulate and weather seal your building, you will use less energy, pay lower energy bills, and keep the temperature the same. What are renewable energy sources? 5

6 A renewable energy source is a resource that naturally replenishes over a human, not a geologic, time frame that is ultimately derived from solar power, water power or wind power. What is an energy analysis? The energy analysis provides the property owner with detailed information on the energy use of a property and condition of the equipment, doors, roof and windows to make an informed decision as to which energy conservation measures should be implemented. Where can I get additional information? Go to where you find information about the PACE program. Alternately you may PACE@a2gov.org or call x