The ultimate goal of this pre-launch stage is to ensure that when the program is operational, PACE program Best Practices are met. Best Practices are those operational policies that produce the program benefits described in Chapter One. In short, they will ensure:
• Homeowner Protection
• Mortgage Lender Protection
• Project Investor Protection
• Local Government Protection
• Sustainability of Program and PACE
Fundamentally, Best Practices are intended to result in a successful PACE program. Some of these, with referenced resources for others, are discussed below.
STRATEGIC PLANNING
The strategic plan that is referred to throughout this manual is a highly
recommended best practice prior to designing and developing a PACE program.
The strategic plan defines the goals and measurable objectives of the program and should integrate the local government’s greenhouse gas reduction targets or economic development and workforce development goals. To ensure strategic thinking, it is important to engage local stakeholders and potential partners to assist in determining program goals, key program design elements, and criteria for eligible improvements. From this plan will follow the design details and task lists for developing the program itself. Alternatively, a local government may create a program charter that will serve the same purpose.
The Sonoma County Energy Independence Program and Sonoma County Energy and Sustainability Division Strategic and Business Plans are provided in the
“Resources” section of this manual.
TIME AND BUDGET
This Best Practice is the result of a Lesson Learned from the Sonoma County experience. Sonoma County was fortunate to have the funding resources
available to finance a program when it was determined that a PACE program was feasible for the County. In its eagerness to feed a large need in the community for energy efficiency and renewable energy alternative financing, the County embarked on an aggressive program launch schedule. The end result has been an extremely successful program, but the workload on staff prior to and in the months after launch was tremendous. Certain planning exercises were
compromised and program adjustments were made weekly, if not daily which caused some confusion for line staff and contractors.
It is a recommended Best Practice for a local government to take the time to plan comprehensively and budget realistically.
STRONG CONTRACTOR STANDARDS
Adopting strong contractor standards has multiple benefits. Contractor standards will promote quality PACE improvements that can achieve the
County’s GHG goals and improve the value of property. Finally, enforced criteria for program participation incentivize best practices for quality work and
professional customer service within the contractor community. SCEIP’s Contractor standards include:
• Valid license in good standing as required by law for specific improvements
• Business license as required by city jurisdiction
• Liability Insurance
• Workers’ Compensation insurance
• Requirements for workers
• Compliance of projects with program requirements
• Notice to Proceed authorization from program
• Documented quality assurance inspection of work by licensed inspectors prior to funding improvement (e.g. permit for work signed off by licensed building inspector)
The SCEIP Contractor Standards is provided in the Document Library.
STRINGENT UNDERWRITING CRITERIA
Certain measures can be required by a PACE program that limit risk to investors and lending institutions, and property owners. These include, but are not limited to:
• Sizing the financing to the property value
• Setting a maximum loan to value ratio or minimum equity requirement
• Proof of clear title
• Matching the length of financing term to useful life of improvement
• Checking default history and property tax status
• Documented energy efficiency gains of improvement, in order to be eligible for financing
SCEIP’s underwriting criteria are incorporated into its Program Policies manual, provided in the Document Library.
LENDER ACKNOWLEDGEMENT
Opinions vary on whether requiring lender acknowledgement, or consent, is a Best Practice for a PACE program. In a residential program, it is virtually impossible to obtain a lender’s consent to PACE financing. First, the Federal Housing Finance Agency (FHFA) has instructed Fannie Mae and Freddie Mac not to purchase any loans where a PACE assessment is in place. The result has been that no residential lender will accept a mortgage with a PACE lien in place, and no lender will consent to a PACE lien. Second, for residential loans, banks are frequently only the servicing agent for the mortgage: the mortgage itself has been sold to either Fannie Mae or Freddie Mac, or another investor. Thus it is impossible to determine who has the authority to consent. The better position is that no consent or acknowledgement is required, because the PACE lien results from a local government assessment. Lenders have never required consent for local government assessments, and indeed, it would contravene public policy to have mortgage lenders block public improvements that had been authorized by governmental entities. There may be benefit to providing notice to mortgage lenders, as many lenders pay property taxes from escrow accounts maintained by the lender on behalf of the property owner. Notice would allow the lender to adjust the monthly payment to cover the increase needed to pay the
assessment.
Commercial loans, however, differ significantly. Unlike residential loans, most commercial loans are both serviced and held by the bank making the loan. Thus the property owner has a relationship with the bank that is mutually beneficial and enduring. Generally, the banks’ interest have been to assure that the switch from utility payment to assessment payment is at least cost neutral for the property owner.
An advised, associated Best Practice for any non-residential PACE program is to allocate adequate staff time to reaching out to the lender community prior to program launch in order to educate this business sector and respond to any concerns or misperceptions that may exist. Several benefits of PACE financing exist for mortgage lenders, as listed in the Introduction; SCEIP has experienced a positive reception to outreach efforts.
The practice of requiring lender acknowledgement prior to financing a non-residential project seems to have been incorporated into most if not all
programs. A March, 2011 policy brief by the Clinton Climate Initiative found that
“in all active and planned programs, the existing mortgage holder must provide written consent or formal acknowledgement for the property to participate in
the program. Mortgage lenders from local, regional and national banks have provided their approval for these projects.”22
Lender Acknowledgement form
Sonoma County has always required Lender Acknowledgement prior to accepting an application for
non-residential property. This is provided in the
Document Library.
EXISTING GUIDELINES FOR PROGRAM DESIGN
Policy guidelines for PACE programs have been written by an assortment of agencies and organizations, and more are being developed as an increasing number of states adopt PACE-enabling legislation and programs in
demographically different areas of the county emerge. Some of the Best Practices documents that have been published are provided in the “Resources”
section of this manual.
22 Lawrence Berkeley National Laboratory, “Property Assessed Clean Energy (PACE) Financing:
Update on Commercial Programs Policy Brief”, March 23, 2011 may be found in the Resources