California Court Refuses to Dismiss Lawsuit Over Property Assessed Clean Energy Program

  By J. Cullen Howe, Environmental Law Specialist, Arnold & Porter LLP

A federal court in California recently issued a decision, California ex rel. Harris v. Fed. Hous. Fin. Agency, 2011 U.S. Dist. LEXIS 96235 (N.D. Cal. Aug. 26, 2011), partially denying a motion to dismiss in a case concerning a Property Assessed Clean Energy (PACE) program in the state.  PACE programs allow property owners to obtain loans for energy efficiency retrofits.  More than 20 states and a handful of municipalities have enacted PACE programs in the last several years.

PACE programs reduce the up-front cost of making energy efficiency improvements by allowing owners to borrow the money at a low interest rate to make the necessary energy efficiency upgrades.  The property owners then repay their loans over 15-20 years via an annual assessment on their property tax bill. When the property owner borrows the money, a lien is placed on the property.  These bonds can be issued by municipal financing districts or finance companies.  A PACE lien runs with the land, meaning that if the loan is not fully paid off before the property is sold, the remaining payment obligation passes to the purchaser. PACE programs have been widely touted as an innovative way to improve energy efficiency in existing buildings because it means that property owners do not have to front the money to do so.  They have also proven very controversial.

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