What is the PACE Program and Where Are They Offered?

Read Time: 5 minutes

PACE (Property Assessed Clean Energy) financing allows you to borrow money for home improvements by increasing your property tax payment. You can finance several types of improvements focusing on energy efficiency, renewable energy, and many others.

PACE programs are available for residential and commercial properties, but terms and qualifications will vary by state. State legislation enables these programs, and local governments, in partnership with public-private partnerships, administer them with one or more PACE providers.

PACE programs are not loans. They are assessments added to existing property taxes that pay for specific types of property improvements.

While PACE programs can offer significant benefits, they are not without an element of risk.

Here’s what you should know.

What is the PACE Program?

PACE (Property Assessed Clean Energy) financing gives you a way to borrow money for home improvements. You’ll often be approached by door-to-door salespeople or contractors in your community who will make you aware of the benefits.

While government entities approve these programs, the U.S. government does not pay for or insure PACE financing.

You pay for PACE financing projects through an added assessment collected with your property taxes. You won’t need to put any up-front cash down but will be assessed fees later as part of y our property bill.

PACE financing is treated as a traditional property tax lien, and you could lose your home if you don’t keep up with payments. PACE assessments can also make it more difficult to sell or refinance a property because a lien is placed on it until the PACE obligation is paid off.

However, PACE programs can be an attractive option for property owners because a long-term repayment of up to 30 years makes projects’ cash flow positive immediately and buildings more valuable.

Only a few states offer residential PACE programs, but commercial PACE programs are offered in 38 states as of late 2023.

Commercial building financing is referred to as Commercial PACE or C-PACE loans and residential building financing is referred to as Residential PACE or R-PACE loans.

Types of Projects That Qualify for PACE Programs

  • Lighting upgrades
  • HVAC systems
  • Building insulation
  • Automatic building controls
  • Variable frequency drives
  • Boilers and hot water heating
  • Roof replacement 
  • Water Conservation
  • Seismic resiliency
  • Hurricane resiliency
  • Fire resiliency
  • Stormwater management
  • Solar PV
  • Solar thermal
  • Microgrids
  • EV charging stations

Eligibility varies by state, and you should contact your local PACE program to verify what is covered.

How Does Financing Work?

PACE programs allow a property owner to finance the up-front cost of energy or other eligible improvements on a property and then pay the costs back over time through a voluntary assessment. PACE financing gives homeowners an attractive alternative for certain upgrades and repairs instead of financing through a home equity loan or putting costs on a credit card. 

PACE program projects are 100% financed and don’t require a credit check. Homeowners must show they have home equity in their home, have a good mortgage payment history, and enough income to afford payments on the debt.

The costs are repaid at interest rates of 7-9% through an assessment added to property taxes. Like property taxes, a PACE assessment is attached to the property and not the individual and is transferred with the sale of the property to a new owner.

PACE Program Benefits

  • Can apply to commercial property owners and homeowners
  • Oversight by state and local governments
  • Immediate cash flow benefits and an increase in the building’s value
  • Covers 100% upfront financing
  • Preserves working capital for other uses
  • Reduce energy bills and make a property more efficient and resilient
  • Results in more comfortable buildings and improved indoor air quality
  • Lowers carbon footprint and improves the environment
  • The repayment obligation may transfer with property ownership if the buyer agrees to assume the PACE obligation and the new first mortgage holder allows the PACE obligation to remain on the property
  • Allows municipalities to encourage energy efficiency and renewable energy without putting general funds at risk
  • Taps into significant sources of private capital
  • PACE programs help cities reach climate goals

PACE Program Limitations and Risks

  • Not available in all states or areas
  • Only available to property owners
  • Considered a lien which could lead to a loss of the property if not paid in a timely fashion
  • Private companies get a lien against a residential house and prioritized payback. 
  • Cannot finance portable items such as some appliances, etc. 
  • May require high legal and administrative setup obligations
  • Homeowners may be asked to approve incomplete work, allowing a contractor to be paid before the homeowner has approved the quality of the work or materials.
  • Contractors may try to upsell owners on additional upgrades that do not qualify for PACE financing
  • Property taxes can increase substantially with the added cost of a PACE contract
  • Projected energy savings and tax rebates or refunds can be deceptively overestimated
  • Contractors may pad project bills with more expensive materials and extra time to inflate a total cost
  • Because the PACE financing is structured as a tax assessment instead of a loan, PACE programs have not provided homeowners the same disclosures about the financing costs that traditional lenders must provide
  • PACE assessments usually appear on a title report, but some buyers find out about the assessments after the sale, which may force them to pay money out-of-pocket unexpectedly

States with PACE Programs

Residential PACE financing is offered in California, Florida, and Missouri. Other states have PACE programs, though most only offer them to commercial properties.

As of late 2023, PACE is enabled in at least 37 states and Washington, D.C., covering more than 80% of the U.S. population. From this statewide approval, PACE programs have actively launched and operate in 30 states plus Washington, D.C.

State

Status

Alaska

C-PACE available – no current programs

Arkansas

Available in some locations

California

Available in some locations

Colorado

Available

Connecticut

Available

District of Columbia

Available

Illinois

Available

Georgia

Under development

Hawaii

Under development

Kentucky

Under development

Louisiana

Under development

Maine

Available in some areas

Maryland

Available

Massachusetts

Under development

Michigan

Available

Minnesota

Available

Missouri

Nebraska

Available in Omaha and Lincoln

Nevada

Under development in Las Vegas and Reno

New Hampshire

C-Pace under development

New Jersey

Available, but no current programs

New Mexico

Under development

New York

Available

North Carolina

Available, but no current programs

Ohio

Available

Oklahoma

Available, but no current programs

Oregon

Under development

Pennsylvania

Available in some areas

Rhode Island

Available

Texas

Available

Utah

Under development

Virginia

Available

Washington

Available

Wisconsin

Available

Wyoming

Available, but no current programs

Source: Wikipedia

Dan Rafter

Dan Rafter has covered real estate, mortgage and personal-finance news for more than 15 years, writing for the Chicago Tribune, Washington Post, Consumers Digest and many others. A graduate of the University Illinois with a degree in journalism, he is editor of Midwest Real Estate News magazine and blogs on commercial real estate for that publication at rejblog.com, in addition to being a contributor for Refi.com.

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