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PACE Act May Help Municipal Units Advance Energy Efficiency Goals

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FOCUS: Bond Counsel Corner
Janene McIntyre
Foster Swift Municipal Law News: MTA Edition
January 2011

Michigan’s recently enacted Property Assessed Clean Energy (PACE) Act made Michigan one of the 22 states that allow municipal units to fund loans to commercial and industrial property owners for energy efficiency projects. Through establishing a property assessed clean energy program, a local government would be able to enter into contracts with such property owners who voluntarily choose to finance energy efficiency improvements or renewable energy systems through the program.

The Act defines an "energy efficiency improvement" as equipment, devices or materials intended to decrease energy consumption, including but not limited to insulation in walls, roofs, floors, foundations or heating and cooling distribution systems; storm windows and doors; multi-glazed windows and doors; automated energy control systems; caulking, weather-stripping and air sealing; energy recovery systems; and day lighting systems.

Local governments are authorized, under the Act, to:

  • adopt property assessed clean energy programs and create districts to promote the use of renewable energy systems and energy efficiency improvements by owners of commercial and industrial (but not residential) real property;
  • repay the improvements’ costs from voluntary assessments on benefited property and provide that an assessment imposed under a property assessed clean energy program would constitute a lien against the property;
  • provide for financing such programs through voluntary property assessments, commercial lending and other means; and
  • issue bonds, notes and other evidences of indebtedness, and use the proceeds to pay the cost of the renewable energy systems and energy efficiency improvements.

In issuing bonds, as security for their payment a local government would use payments on assessments on benefited property or other moneys lawfully available for such purposes. The bonds may not be issued as general obligations of the local government.

In order for a local government to take advantage of the PACE Act, it must fulfill a number of procedural requirements, including establishing the program.