What’s a PACE bond? And why do New York homeowners want to know?

What’s a PACE bond? And why do New York homeowners want to know?

In November 2009,the New York State Legislature passed Property Assessed Clean Energy (PACE) legislation.
 
As of November 23, 2009, the bill had not been signed by the Governor, although he has indicated his support for it.  The legislation allows municipalities to establish a PACE program in order to apply for more than $400 million in federal funds to issue as loans to qualifying homeowners and businesses to install energy efficient retrofits and renewable energy systems.  Energy efficiency improvements contained in the legislation include window and door replacements, insulation and heating and cooling system upgrades.  Renewable energy systems covered in the bill include solar, thermal, geothermal, wind and fuel cell technologies. 
 
A PACE bond is a debt instrument (i.e. lien) where the proceeds are lent to property owners to financing energy efficiency retrofits who then repay their loans over 15-20 years via an annual assessment on their property tax bill.  These bonds can be issued by municipal financing districts or finance companies.  The PACE lien is senior in right to a mortgage, making them attractive to investors.  The bill allows municipalities to create financing districts and to float bonds to investors to raise the money for the program. 
 
A.     40004 is available at http://assembly.state.ny.us/leg/?bn=40004.
 
J. Cullen Howe is the author of Green Financing: Governmental and Private Programs Concerning Financing of Green Buildings, Ch. 2M, in Real Estate Financing (Lexis treatise), and will be discussing this development in his next update for the treatise.