Will Indiana Set The PACE With Bonds for Energy Efficient Improvements?

By:  William E. Kelley, Jr., LEED AP

The Indiana General Assembly is currently considering a bill that would put into place a bond and financing program based upon the Property-Assessed Clean Energy (PACE) model.  The proposed legislation would allow local governments to establish “clean energy improvement financing districts” that would provide a mechanism for financing energy efficient improvements on public and private construction projects, including installation of clean energy improvements utilizing solar energy, photovoltaic cells and panels, geothermal heating and cooling systems, and energy from waste heat recovery systems.  Once established, the districts would administer applications from project owners seeking financing to incorporate “clean energy improvements” into their projects.  Approved projects would receive financing from the district for the energy efficient improvements, and those projects would then be subject to special assessments against the real estate to secure repayment for the financing.  The districts would be authorized to issue low interest bonds to finance the installation of clean energy improvements in buildings, and the proceeds of the bonds would be used to pay the costs of the clean energy improvements financed by the district.

One of the stated justifications for using the bonds to finance the energy efficient improvements is the idea that the cost savings to the property owner over the useful life of the clean energy improvement will exceed the actual cost of that improvement.  In other words, the project owner gets up-front financing for energy efficient improvements to its project, pays back the financing through property tax assessments against the real estate, and—in theory—still comes out money ahead with cost savings realized over the useful life of the clean energy improvement.  In turn, the clean energy improvement financing district issues low interest bonds to finance the improvements, then secures its investment in the improvements in the same manner as property tax assessments.  Thus, in the event of a transfer in title or even a default by the property owner, the district’s interest is still secured by a tax lien on the property.

Indiana’s legislators have considered several bills relating to energy efficiency and green building over the last several years, including bills that would have required public projects to achieve certification under LEED, ENERGY STAR, or Green Globes.  This time around, the legislation is aimed at incentivizing and financing energy efficient improvements, as opposed to mandating those same improvements.  Several organizations, including AIA of Indiana, have already publicly declared their support for this particular bill, as a means to stimulate construction and economic growth in Indiana.  All eyes are now on the Indiana General Assembly to see if the legislators believe that use of the PACE model will be a means to potentially promote both energy efficient improvements and new construction throughout Indiana.