Kalamazoo County is considering whether to join a program that’s meant to help businesses become more energy-efficient.
It’s called Property Assessed Clean Energy or PACE and it aims to transform the otherwise unfavorable lending environment for those projects. Advocates say it’s a simple and effective way to boost local business while shrinking its carbon footprint.
But they still have to convince local merchants and the county that it’s as good as it sounds.
One person who’s already convinced is Art Toy of Four Elements Energy, near Lawrence in Van Buren County.
In the basement of his home, which also houses Four Elements,
monitors on the wall track the output of two dozen solar panels in Toy’s front yard. His business partner, Dan Alway, says he can tell from the numbers that the sun just came out.
“There’s a period of time when there’s a bounce of light off the cloud and it increases the solar output to higher than the rating on the solar panels,” he says.
Toy and Alway consult on and build solar systems for clients across southwest Michigan. They work on wind projects, too. Alway says he thinks they would see a bump in business if Kalamazoo County becomes a PACE District.
“Of course the number of jobs would increase which would mean that we would need help and so forth and that. I really do see the potential of significantly more solar inputs in the Kalamazoo area and that would keep us – that would keep us busy – busier – and we always would like to hire people.”
More than two dozen states have established PACE programs. Michigan passed its legislation at the end of 2010. It covers a number of upgrades to commercial and industrial buildings and apartments, though not private homes.
But it’s up to local governments – cities, townships and counties – whether they want to participate.
“A really wide range of counties have joined,” says Andy Levin of Lean and Green Michigan, which administers programs for Michigan’s local districts.
He lists them: “Huron County on the tip of the thumb, Grand Traverse County – Traverse City area – Ingham County, our state capitol area, Saginaw County and in Metro Detroit, Washtenaw, Wayne and Macomb.”
A company in Southfield has just begun work on the state’s first PACE-based project.
Energy improvements can be hard to finance. Even when they lead to big savings, they can take a dozen years or longer to pay off. That’s too long for a typical three-to-five year commercial loan.
“Imagine how frustrating it is for businesses who hate waste, they don’t want to waste money. But they haven’t had a finance mechanism that works to do this kind of improvement to their property,” he says.
Levin says PACE is that mechanism. It works because it makes the debts for those projects more secure than they normally would be. It does that by tying them to a tax authority. Repayments on a private loan become a “special assessment” on the borrower’s property tax bill.
“And it is the county who then collects it with the typical tax bills and pays it back,” says Bill Rose of the Kalamazoo Climate Change Coalition, the group behind the push for a local PACE district.
He says a PACE-based loan – which puts a lien on the property – is the kind of debt you can’t shake.
“If there was a business that went bankrupt, the first business to get paid back or the highest priority payback would be against this lien related to the property assessed clean energy and the energy upgrades – energy-efficiency upgrades that were made,” he says.
Those layers of security help lenders feel better about loaning money for the long term – 15 to 20 years, which some projects might require. Rose says it’s working in states with established PACE programs. And he adds that it could make a real difference for the environment.
“Because if we can save on energy, we’re using less energy, it means less carbon dioxide being released to the atmosphere, less greenhouse gas in the atmosphere, hopefully that begins to slow down, and hopefully someday we can get to the point where we can reverse global climate change,” he says.
According to Levin, 10 percent of global energy use is to “heat, cool and light” buildings in the United States, and 30 percent of that use is “unnecessary.”
Rose says the Climate Change Coalition’s current task is to explain the program to businesses, elected leaders and the public, and to emphasize that it’s not a tax. The Climate Change Coalition brought Levin to speak on PACE at the Kalamazoo Rotary Club earlier this summer.
“And I would say right now currently we’re involved in further education because when you hear about it, you hear about PACE and what it can do and how it works, in some ways it almost seems to be too good to be true. And so there’s a little bit of sometimes skepticism, there’s a little bit of questioning,” he says.
Rose says several local businesses have expressed interest in PACE. He declined to name them, saying they prefer to remain anonymous while they study the details.
Kalamazoo County Administrator Peter Battani says there’s much to like about the program’s emphasis on clean energy.
“But there’s some detail questions we need to try to get to the bottom of, before we make some sort of recommendation or have a larger public discussion about it,” he says.
Battani and his staff will eventually make a recommendation to the county commission on whether they should adopt PACE. He says his top concern is whether the special assessment puts the county on the hook if a borrower defaults.
“I begin to wonder if what they’re really looking for is the full faith and credit of the county to essentially back the loan – now that would be very problematic if that’s the case. So – but I don’t know that that’s the case,” he says.
Levin says it’s not the case. If an owner were to stop making payments on a PACE loan, he says, the loss would fall on the lender.
If the county seized the owner’s property for unpaid taxes and managed to sell it, the lender might recover some money, since the PACE lien sticks with the property.
But even then the payments merely pass through the county.
Battani and his staff are set to meet with Levin and with Rose of the Climate Change Coalition within the next few weeks. Battani says he expects the commission to take up the PACE question by the end of the year. Rose says he’s prepared to wait longer, but hopes to hear a decision by next summer at the latest.