Frequently Asked Questions
PACE, which stands for Property Assessed Clean Energy, allows commercial property owners to pay for energy-related improvements to their properties using a municipal finance program that offers low fixed rates and longer repayment periods than traditional loans. The cost of the energy project, initially funded by special financing available from the city, is repaid annually by the property owner through a special assessment. Repayments are structured to be equal to, if not less than, the amount of money the property owner is saving on utility bills due to the energy savings achieved by the project.
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.
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.
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.
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.
Twenty-seven states have passed enabling PACE legislation. PACE programs are currently operating in states and localities: such as, Berkeley, CA; Fresno, CA; Palm Desert, CA; San Diego County, CA; San Francisco, CA; Sonoma County, CA; Tulare, 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.
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.
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
In order to be eligible for PACE financing, energy projects must fall within the cost range of $10,000 - $350,000, and this cost cannot exceed 20% of the property’s State Equalized Value. The lien to value of the property cannot exceed 99% of 2 times the State Equalized Value. Possible projects include:
- Energy analysis
- Insulation, weather sealing
- Efficient lighting and lighting controls
- Heating, ventilation 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
- Biomass Thermal – 3 MMBTUs per hour or smaller system with appropriate Best Available Control Technologies (BACT) installed and operated
Yes, you will need a building permit from Ann Arbor Planning and Development Services.
The initial federal grant being used as the loan loss reserve fund must be expended not later than September 2012. Additional funding will be made available if demand exists. The program is designed to last for many years.
All special assessment payments are billed on June 1st of each year and the annual installments are due no later than August 1st. Special assessments may be paid in full prior to the end of the assessment term without penalty.
The interest rate will be 1% above the rate being charged to the City. This rate is set by City Council. Interest rates will vary depending on the bond market, but PACE applicants will be notified of their interest rate prior to entering into a formal agreement for PACE financing, at which time they have the opportunity to decline to continue the process.
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.
There will likely be a lag time between application approval and notification of availability of funding. The City plans to pool applications in increments of $1 million and will only bond when this limit is reached. When each $1-million bond has sold and the interest rate is set, applicants enter into formal agreements with the City. Once these agreements are finalized and all the necessary documentation has been recorded, the projects may proceed immediately.
Not unless your home would meet the definition of commercial property in the Michigan Building Code.
The Ann Arbor PACE program requires a comprehensive energy analysis be performed prior to application submittal, unless:
- The Program Administrator determines the property is eligible for a limited energy analysis during the pre-application step.
- An energy analysis meeting one of the following standards has been performed on the property:
- Energy analysis performed under the energy efficiency program sponsored by the Ann Arbor Downtown Development Authority
- Energy analysis conducted using AHSRAE Level II or III protocols that is less than three years old
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.
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 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 this website, and contact the Program Administrator to begin the pre-application step.
The City is keenly interested in economic development and the creation of jobs. PACE will do both. The added benefit of such a program is that most of the money spent on energy efficiency upgrades and the installation of renewable energy systems - as well as the money saved on energy costs - will remain in the local economy.
No, the City will be issuing revenue type bonds that are secured by property and/or a loan loss reserve fund.
The City plans to sell revenue bonds.
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.
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.
No, the addition of energy efficiency improvements such as insulation, lighting or replacement of equipment will not increase your 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.
The Michigan legislature passed enabling legislation, Public Act 270 of 2010, which only covers commercial or industrial property.
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.
The energy savings from each project will be measured to verify savings estimates.
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.
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.
A renewable energy source is a resource that naturally replenishes over a human, not a geologic, timeframe that is ultimately derived from solar power, water power or wind power.
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.