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PACE financing

Property Assessed Clean Energy (PACE) financing is a mechanism that allows commercial and residential property owners to fund upfront costs for energy efficiency upgrades, renewable energy installations, water conservation measures, and resiliency improvements by adding a special assessment to their annual property tax bill, which is repaid over an extended period typically spanning 15 to 30 years.^[1]^[2] The assessment attaches to the property rather than the owner, transferring to future buyers upon sale and theoretically aligning financing with the asset's enduring value, with private investors providing capital backed by local government enforcement through tax collection.^[3]^[4] Originating as a pilot in Berkeley, California, in 2007 and gaining legislative traction statewide in 2008, PACE has since proliferated to over 30 states, predominantly in commercial applications (C-PACE) where it finances billions in projects without requiring personal credit checks or upfront payments.^[5]^[6]^[7] Proponents argue PACE facilitates otherwise unattainable improvements by leveraging property tax authority to secure low-interest, long-term loans, potentially yielding energy savings that exceed repayment costs and supporting local job creation in green sectors, with empirical analyses indicating accelerated adoption of solar photovoltaic systems in participating jurisdictions.^[8]^[9] However, residential PACE (R-PACE) programs have drawn sharp criticism for embedding risks such as superpriority liens that outrank mortgages in foreclosure, aggressive marketing leading to unaffordable assessments, and instances where projected energy savings fail to materialize, exacerbating default rates and prompting federal scrutiny from agencies like the Consumer Financial Protection Bureau, which has documented over 50 consumer complaints since 2015 primarily tied to misrepresentation and financial distress.^[10]^[11]^[12] Major mortgage financiers including Fannie Mae, Freddie Mac, and FHA have restricted or prohibited R-PACE due to heightened bankruptcy and foreclosure risks, while commercial variants face fewer barriers but still encounter underwriting challenges amid variable empirical evidence on net energy reductions, with some evaluations revealing only partial offsets to financed costs.^[2]^[13]^[14] Despite these hurdles, C-PACE endures as a viable tool for property-level decarbonization and resilience, with program designs emphasizing third-party verification of savings potential to mitigate overpromising, though broader adoption hinges on resolving inter-creditor conflicts and ensuring assessments do not inflate property taxes beyond verifiable benefits.^[1]^[15] Regulatory responses, including proposed Truth in Lending Act disclosures for R-PACE, underscore ongoing efforts to balance innovation with consumer safeguards, revealing PACE's dual nature as both an enabler of targeted upgrades and a vector for fiscal pitfalls when causal assumptions about savings outpace rigorous validation.^[11]^[10]

Overview and Mechanism

Definition and Core Features

Property Assessed Clean Energy (PACE) financing is a mechanism that allows property owners to fund eligible energy efficiency, renewable energy installations, water conservation, seismic retrofits, and resilience improvements without requiring upfront capital, with repayment structured as a special assessment added to the property's annual tax bill.^[1]^[16] This assessment is levied by local governments or special districts under enabling state legislation, typically spanning 15 to 30 years to align with the useful life of the improvements, and remains attached to the property rather than the owner, facilitating transfer to new owners upon sale.^[8]^[17] Key features include its non-recourse nature, where the financing is secured solely by the property assessment and not by personal guarantees or liens subordinate to existing mortgages, reducing owner risk while prioritizing repayment through tax collection processes.^[16]^[7] In commercial PACE (C-PACE) programs, the assessment often holds senior lien status relative to mortgages, providing lenders with enhanced security backed by projected energy savings that are verified to exceed financing costs via third-party audits.^[8]^[18] Funding sources vary, including municipal bonds or private capital providers, with programs administered through public-private partnerships that leverage property tax authority for low-interest rates often below 7%.^[1]^[17] Eligibility requires improvements demonstrating measurable benefits, such as at least 10-20% energy reduction or equivalent savings, certified by engineers to ensure the assessment payments are offset by operational cost reductions.^[7]^[18] While originally designed for both residential and commercial properties, residential PACE has faced limitations since 2010 due to concerns from federal housing agencies like Fannie Mae and Freddie Mac over lien priority, leading to predominant use in commercial sectors across over 30 states with active programs as of 2023.^[16]^[8]

How PACE Assessments Function

Property owners initiate PACE financing by applying through a local program administrator, typically authorized by municipal ordinance, to fund eligible improvements such as energy-efficient HVAC systems or solar installations.^[1]^[19] Upon approval, which includes verification of project feasibility and energy savings projections, third-party capital providers advance 100% of the upfront costs directly to contractors.^[20]^[17] The financing amount is determined based on the projected useful life of the improvements, often spanning 5 to 30 years to align payments with energy cost savings.^[21]^[22] The core mechanism involves levying a special assessment on the property's tax bill, equivalent to the financed amount plus administrative fees and interest, which is repaid in fixed annual installments collected alongside regular property taxes.^[23]^[4] This assessment functions as a voluntary lien on the property, enforceable through the same processes as delinquent taxes, including potential foreclosure by the taxing authority if payments lapse.^[24]^[19] Unlike traditional loans, the obligation transfers automatically to new owners upon property sale, as it is tied to the real estate rather than the individual borrower, facilitating seamless continuity without refinancing.^[16]^[8] Historically, PACE liens held super-priority status over mortgages, subordinating private lenders and prompting federal concerns over foreclosure risks, as noted in a 2010 U.S. Department of Housing and Urban Development assessment.^[23] Many programs now incorporate subordination agreements, where the PACE lien yields to primary mortgages upon lender consent, mitigating default risks while preserving repayment security through tax collection authority.^[25]^[26] Program administrators often require savings-to-investment ratios exceeding 1:1, verified via engineering audits, to ensure assessments do not exceed realizable benefits.^[19] This structure leverages the low default rates of property tax payments—typically under 2%—to attract private capital at rates competitive with municipal bonds.^[13]

Eligible Projects and Improvements

Eligible projects under Property Assessed Clean Energy (PACE) programs generally include improvements that promote energy conservation, renewable energy production, water efficiency, and, in some jurisdictions, resiliency against natural disasters, with eligibility determined by state statutes and local program guidelines.^[1]^[27] These projects must typically demonstrate measurable benefits, such as energy savings exceeding financing costs over the assessment term, verified through engineering analysis or approved standards.^[28] Common energy efficiency improvements encompass upgrades to heating, ventilation, and air conditioning (HVAC) systems, including high-efficiency chillers, boilers, furnaces, and heat pumps; lighting retrofits to LED or other efficient technologies; building envelope enhancements like insulation, windows, and sealing; and operational optimizations such as automatic controls, variable frequency drives, and high-efficiency water heating systems.^[28]^[20] Renewable energy installations qualify broadly, featuring solar photovoltaic panels, solar thermal systems, and on-site generation or storage solutions like batteries, which enable properties to offset grid dependency and reduce operational costs.^[27]^[20] Water conservation measures, such as low-flow fixtures, efficient irrigation, and leak detection systems, are eligible in programs addressing resource efficiency, while resiliency projects—including seismic retrofits, wind-resistant roofing, impact windows, and flood mitigation—apply in hazard-prone areas under expanded statutory authority.^[1]^[29] Variations exist; for instance, some states limit eligibility to commercial properties or exclude certain cosmetic upgrades, requiring pre-approval and contractor certification to ensure compliance.^[5]^[30]

Historical Development

Origins and Early Adoption (2007–2010)

The concept of Property Assessed Clean Energy (PACE) financing originated in Berkeley, California, where the City Council approved the establishment of a Sustainable Energy Financing District in November 2007 to enable property owners to fund renewable energy and efficiency improvements through voluntary special assessments added to property tax bills.^[31] This approach leveraged existing land-secured financing mechanisms, such as municipal bonds repaid via assessments for infrastructure like sewers, adapting them to clean energy projects with repayment terms up to 20–25 years tied to the property rather than the owner.^[32] The first operational PACE program, known as the Financing Initiative for Renewable and Solar Technology (FIRST), launched in Berkeley in November 2008, allowing homeowners to finance up to 100% of solar installations with no upfront costs, repaid via annual assessments averaging 1–2% of property value.^[31]^[33] This initiative was facilitated by California's Assembly Bill 811, enacted in July 2008, which empowered cities and counties statewide to form assessment districts for energy upgrades, marking the statutory foundation for PACE expansion.^[31] Early participation focused on residential solar photovoltaic systems, with Berkeley issuing initial assessments totaling several million dollars by 2009. Early adoption accelerated within California, as Sonoma County launched one of the first county-level programs in mid-2008, targeting both residential and commercial properties for efficiency retrofits and renewables.^[34] By 2010, programs had proliferated to additional municipalities, including San Francisco's GoSolarSF initiative, which began offering PACE loans up to $50,000 on March 1, 2010, emphasizing seismic and energy upgrades.^[31] Outside California, initial state authorizations emerged—such as Colorado's in 2009—but operational programs remained limited, with uptake driven by local pilots demonstrating repayment security through the property lien structure, which prioritized assessments over mortgages in foreclosure scenarios.^[33]^[32] These early efforts financed modest volumes, on the order of tens of millions in bonds, primarily for solar and basic efficiency measures, setting the stage for broader replication amid rising energy costs and policy interest in decarbonization.^[31]

Expansion and Federal Involvement (2010–2015)

Following the initial pilots in California and a handful of other localities, PACE-enabling legislation proliferated across states amid the economic recovery efforts post-2008 financial crisis. By early 2010, 16 states had enacted such laws in the preceding 18 months, with additional states like Florida authorizing the nation's first statewide PACE program in 2010 to facilitate energy retrofits using federal stimulus funds from the American Recovery and Reinvestment Act of 2009.^[35]^[36] The U.S. Department of Energy bolstered this momentum by issuing "Guidelines for Pilot PACE Financing Programs" on May 7, 2010, providing model standards for program design, underwriting, and consumer protections to encourage safe implementation.^[23] These developments aligned with broader federal incentives, including ARRA allocations totaling hundreds of millions for state energy efficiency initiatives, some of which supported PACE deployment for clean energy improvements.^[35] Federal involvement took a restrictive turn on July 6, 2010, when the Federal Housing Finance Agency (FHFA), as conservator of Fannie Mae and Freddie Mac, issued a directive prohibiting underwriting of mortgages secured by properties with first-position PACE liens, citing risks to mortgage holders from the superior repayment priority and potential default scenarios.^[37] The Office of the Comptroller of the Currency echoed these safety and soundness concerns for national banks participating in PACE lending.^[23] This action, reinforced by FHFA's February 28, 2011, letter, effectively curtailed residential PACE expansion nationwide, as most homeowners rely on conforming loans backed by these entities; programs in states like California, which had funded early residential projects, faced jeopardy for existing and planned financings tied to stimulus dollars. By mid-decade, residential PACE activity dwindled, with California programs funding $1.8 billion in improvements from 2010 to 2015 but shifting emphasis away from solar-heavy residential uptake due to lien subordination requirements.^[38] Commercial PACE, unaffected by residential mortgage constraints due to subordinate lien structures, emerged as the primary vector for expansion during this period. Enabling legislation grew to 32 states by 2015, enabling local programs to finance efficiency upgrades and renewables for non-residential properties. Federal support persisted through DOE technical assistance and policy frameworks promoting commercial applications, fostering market maturity; for instance, second-quarter 2015 saw $22.8 million financed across 33 projects in five states.^[39] States like Alabama enacted PACE statutes in 2015 explicitly for commercial use, reflecting a broader trend toward resilience and efficiency financing amid ongoing federal emphasis on energy independence.^[40] This pivot sustained PACE's viability, with cumulative commercial deployments demonstrating repayment reliability through property tax mechanisms despite the residential setback.

Stagnation and Reforms Post-2015

Following the period of rapid expansion from 2010 to 2015, which saw increased state adoptions and federal support through the Department of Energy, Property Assessed Clean Energy (PACE) programs encountered significant stagnation, particularly in the residential sector. The primary barrier stemmed from opposition by major mortgage lenders and guarantors, including Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), which viewed PACE assessments as super-priority liens that could jeopardize mortgage security in foreclosure scenarios.^[41] This led to underwriting restrictions and program suspensions in many jurisdictions, halting residential PACE growth despite cumulative financing reaching approximately $8.4 billion from 2015 to 2022 across 344,000 homes.^[42] Commercial PACE (C-PACE), less affected by residential mortgage dynamics, bucked the trend with steady expansion, originating over $2 billion in loans since 2015 and achieving record volumes in 2023 amid broader capital market constraints.^[43] Stagnation was exacerbated by documented consumer protection shortcomings in residential PACE, including aggressive contractor marketing, lack of ability-to-repay assessments, and high-pressure sales tactics that disproportionately impacted vulnerable homeowners, such as seniors.^[12]^[10] In locales like Los Angeles County, these issues prompted lawsuits and settlements, with affected borrowers receiving $12 million in redress for misleading financing practices tied to unneeded solar installations.^[44] Empirical analyses further revealed adverse effects, such as reduced mortgage approval rates in areas with active PACE programs, signaling market friction and borrower risk.^[45] While proponents highlighted environmental benefits, critics argued that without rigorous oversight, PACE deviated from its clean energy intent, financing low-impact upgrades at inflated costs.^[46] Reforms post-2015 aimed to address these vulnerabilities, focusing on enhanced disclosures, underwriting standards, and regulatory integration. At the state level, some jurisdictions introduced subordinated lien options for residential PACE to mitigate lender concerns, though adoption remained limited.^[47] Federally, the Consumer Financial Protection Bureau (CFPB) finalized a rule on December 17, 2024, extending Truth in Lending Act (TILA) requirements to residential PACE transactions, mandating ability-to-repay evaluations, standardized mortgage-like disclosures, and exemptions for smaller assessments under $33,500 in 2025.^[48]^[49] This reform, implementing provisions from the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, seeks to curb predatory elements while preserving PACE's structure, potentially revitalizing uptake by aligning it with conventional lending safeguards.^[50] Industry data indicate these changes coincide with C-PACE's resilience, suggesting a bifurcated path forward where commercial applications continue expanding—cumulatively reaching $7.2 billion by 2023—while residential reforms test barriers to broader deployment.^[51]

Commercial PACE Programs

Structure and Implementation

Commercial Property Assessed Clean Energy (C-PACE) programs operate through enabling legislation at the state or local level, which authorizes municipalities to levy special assessments on commercial properties for financing qualified improvements such as energy efficiency upgrades, renewable energy installations, water conservation measures, and resilience enhancements.^[52] These statutes typically grant local governments the authority to create assessment districts or programs without requiring voter approval, distinguishing C-PACE from general obligation bonds by relying on voluntary property owner participation and dedicated revenue streams from assessments.^[17] Program administration may be handled directly by municipalities or delegated to third-party providers, who manage applications, compliance verification, and assessment collection in coordination with county tax collectors.^[1] The core mechanism involves private capital providers—such as banks, institutional investors, or specialized PACE financiers—supplying upfront funds for approved projects, with repayment secured by a voluntary special assessment added to the property's annual tax bill.^[53] Assessments are calculated to match project costs plus administrative fees and interest, amortized over terms typically ranging from 10 to 30 years based on the useful life of improvements and projected savings, ensuring payments align with verified energy cost reductions via a savings-to-investment ratio (SIR) exceeding 1.0.^[17] The assessment creates a lien on the property subordinate to existing mortgages in most jurisdictions but senior to mechanic's liens, transferable to new owners upon sale, which facilitates long-term repayment without personal recourse to the initial borrower.^[52] Implementation begins with property owners submitting project proposals, often including engineering reports demonstrating net savings, followed by approval from the program administrator and capital provider.^[1] Upon verification, funds are disbursed directly to contractors for eligible improvements, after which the assessment is recorded and collected via the property tax system, with delinquencies enforceable through standard tax foreclosure processes.^[17] As of 2023, over 30 states had enacted C-PACE-enabling laws, with programs like California's Open PACE and New York's NY-Sun facilitating billions in financing, though adoption varies by local ordinance and market demand.^[52] Private providers often underwrite based on property cash flows and improvement performance, pricing loans at rates around 6-9% as of 2024, reflecting the low-risk profile due to tax-backed repayment.^[54]

Empirical Outcomes and Success Metrics

Commercial PACE programs have facilitated substantial financing volumes, with cumulative investments exceeding $10 billion nationwide by late 2024, including $2.57 billion in originations for that year alone.^[55] ^[56] In specific states, such as California, programs originated over $709 million in 2024 across 33 initiatives, reflecting robust growth of more than 40% year-over-year in recent periods.^[57] This expansion has supported upgrades in over 2,400 commercial buildings since 2015, often funding energy efficiency, renewable installations, and resilience measures that might otherwise face capital constraints.^[58] Default rates remain exceptionally low due to the senior lien position of assessments, with only one recorded default among approximately 1,870 projects since 2008.^[52] Delinquencies, when they occur, typically range from 1% to 3% in related securitizations, but foreclosures are rare as payments integrate with property taxes.^[59] This structure provides non-recourse financing with terms up to 30 years and interest rates of 5-10%, enabling repayment aligned with project cash flows and property value enhancements.^[1] Reported energy savings metrics indicate positive outcomes, though often based on projections rather than universal ex-post verification. Cumulative savings from commercial PACE projects reached 6.3 billion kWh by 2019, equivalent to the annual consumption of about 25,000 office buildings.^[60] Individual program analyses show average payback periods of 8.8 years against measure lifetimes of 12.7 years, with examples including $21.5 million in energy cost reductions and 82,856 metric tons of carbon emissions avoided across financed portfolios.^[61] ^[62] Economic multipliers from these investments, such as in California, generate roughly 2.5 times the financed amount in gross output, alongside job creation nearing 50,000 from select providers' projects.^[13] ^[63] Peer-reviewed evaluations remain limited, primarily focusing on adoption impacts rather than long-term causal savings attribution, highlighting a need for more rigorous, independent measurement protocols.^[9] ^[64]

Challenges and Limitations

One primary limitation of commercial Property Assessed Clean Energy (C-PACE) programs is their restricted geographic availability, confined to jurisdictions with state-level enabling legislation and local government authorization. As of 2023, such programs operate in more than 35 states and the District of Columbia, but coverage remains patchy, excluding many areas without municipal adoption, which hinders broader market penetration.^[65] Administrative complexity poses another barrier, particularly for smaller projects under $500,000, where high upfront costs for engineering assessments, energy audits, and program compliance deter participation. Lack of program awareness among small business owners exacerbates this, as does the need for sufficient property equity to secure financing without diluting returns.^[66] Variability in program design—spanning eligibility criteria, repayment terms (typically 10-30 years), and eligible improvements—creates inconsistency across municipalities, complicating due diligence for multistate property owners.^[67] Securing consent from existing mortgage lenders remains a frequent hurdle, as C-PACE assessments attach as tax liens potentially senior to future encumbrances, raising concerns over foreclosure risks if payments default and trigger tax authority action. This requirement involves negotiations with diverse lenders, from local banks to national institutions, often delaying or derailing deals.^[68] Although empirical evidence indicates low default rates—with commercial borrowers rarely missing payments—the non-recourse nature limits lender recourse to the property, amplifying perceived risks in illiquid markets.^[69] Property transfers can also be impeded, as unpaid assessments transfer to new owners unless prepaid, potentially reducing buyer pools and complicating sales in competitive commercial real estate environments. Unlike portfolio-level financing options, C-PACE is inherently property-specific, limiting efficiency for investors managing multiple assets.^[65] These factors contribute to underutilization, with early programs financing only modest volumes, such as 71 projects totaling $9.7 million across select initiatives by 2011, reflecting scalability challenges tied to regulatory and market fragmentation.^[68]

Residential PACE Programs

Program Design and Uptake

Residential PACE programs structure financing as a voluntary add-on to property taxes, allowing homeowners to fund improvements like energy-efficient HVAC systems, insulation, solar panels, water conservation measures, and seismic retrofits without initial out-of-pocket expenses.^[70] The financed amount is repaid via a special assessment levied on the property tax bill, collected by the local taxing authority and remitted to private capital providers that fund the upfront costs.^[71] Repayment terms generally span 15 to 25 years, with assessment amounts calibrated to align with projected energy savings through a savings-to-investment ratio (SIR) of at least 1.0, ensuring the annual assessment does not exceed verifiable reductions in utility bills.^[70] The assessment attaches as a lien on the property, which is transferable to subsequent owners upon sale and, in most designs, has superpriority status over mortgages to mitigate investor risk, though this feature has drawn scrutiny from federal housing agencies.^[71] Program implementation requires state enabling legislation to authorize local governments or special districts to administer assessments, often in partnership with third-party administrators for underwriting, contractor verification, and savings projections.^[72] Best practices emphasize consumer protections, such as independent home energy audits, contractor licensing requirements, and caps on financing amounts relative to home equity (typically 10-20%) to prevent over-leveraging.^[70] Unlike commercial PACE, residential variants incorporate stricter affordability checks, including credit reviews and income verification in some jurisdictions, to address borrower vulnerability.^[73] Federal guidelines from the Department of Energy recommend integrating R-PACE with existing utility rebate programs and requiring post-installation verification to substantiate savings claims.^[70] Uptake of residential PACE has remained limited, with active programs concentrated in California, Florida, and Missouri as of 2024, alongside pilot or localized efforts in states like Hawaii and Michigan.^[74] These jurisdictions account for the majority of originations, driven by state laws enabling assessments for residential properties, but broader expansion has been constrained by mortgage lender resistance—particularly from Fannie Mae and Freddie Mac, which subordinate loans to PACE liens—and federal concerns over foreclosure risks.^[75] Cumulative residential PACE volume reached approximately $1.5 billion by mid-2023, representing less than 10% of total PACE financing, compared to over $15 billion in commercial programs.^[59] Annual originations hovered around $200-300 million in recent years, with California dominating early growth (peaking at over $1 billion in 2017) before reforms in 2018 imposed stricter disclosures and equity safeguards, leading to a subsequent decline.^[75] Adoption metrics show modest penetration: In Florida, programs financed upgrades on roughly 50,000 properties by 2020, focusing on hurricane resilience alongside energy measures, while Missouri's initiatives emphasized seismic and efficiency projects in earthquake-prone areas.^[71] Overall, residential PACE has supported improvements on fewer than 100,000 homes nationwide through 2024, far below initial projections, attributable to high interest rates (often 6-9%), lengthy approval processes, and competition from unsecured home improvement loans or federal tax credits.^[59] Empirical tracking from 2009-2017 across programs revealed average project costs of $20,000-30,000 per home, with solar installations comprising about 30% of financed measures, though sustained uptake requires addressing lender integration and equity subordination issues.^[76]

Key Controversies and Borrower Risks

Residential PACE programs have drawn significant criticism for subordinating traditional mortgage liens, as the PACE assessment functions as a super-priority tax lien enforceable by local governments, potentially leading to foreclosure for non-payment even if the underlying mortgage is current.^[77]^[75] This structure exposes borrowers to heightened risks during financial distress, as unpaid assessments can trigger tax sales or foreclosures prioritized over mortgage recovery, complicating refinancing or home sales.^[1] Mortgage Bankers Association analyses highlight that this upends standard lien priorities, amplifying loss severities for homeowners with limited equity.^[77] Empirical data indicates elevated borrower distress post-PACE enrollment, with Consumer Financial Protection Bureau (CFPB) research from 2014–2020 showing PACE households facing a 35% higher likelihood of mortgage delinquency within two years compared to similar non-PACE households.^[75] Average annual property tax hikes from PACE assessments reach approximately $2,700, representing an 88% increase for affected properties, often without corresponding affordability assessments.^[48] Interest rates typically range from 6% to 9%, plus origination fees up to 7%, rendering PACE financing about 5% more costly than comparable first mortgages or home equity loans, with repayment terms extending 20–30 years that amplify total costs.^[48]^[46] Predatory practices have fueled controversies, including door-to-door solicitations by contractors promising exaggerated energy savings, opaque terms, and markups that inflate project costs, disproportionately affecting Black and Hispanic neighborhoods.^[78] In Florida, 63% of residential PACE loans funded non-energy disaster repairs, prompting legislative reforms in 2024 to curb misuse amid reports of contractor abuse.^[78] Los Angeles County settled lawsuits in 2024 over deceptive PACE marketing leading to unaffordable liens, while a 2022 FTC-California action halted Ygrene Energy Fund operations for misleading consumers on lien risks.^[79]^[80] Collier County, Florida, terminated its residential program in 2019 following documented predatory lending and high default risks.^[81] In response, the CFPB finalized a rule on December 17, 2024, effective March 1, 2026, mandating mortgage-like disclosures, ability-to-repay evaluations, and civil liability for violations to mitigate these risks, fulfilling a 2018 congressional directive amid evidence that most PACE borrowers qualified for cheaper alternatives.^[48]^[82] American Bankers Association endorsements underscore the need for such federal oversight, given uneven state protections and the absence of standardized underwriting in many programs.^[83]

Empirical Evidence on Housing Market Impacts

A 2024 peer-reviewed study analyzing the rollout of residential Property Assessed Clean Energy (PACE) programs across U.S. counties found that program introductions predict a statistically significant decline in home sales volumes and slower house price appreciation, with effects concentrated in the year of rollout and the subsequent year. The estimated reduction in sales was approximately 1-2% relative to county averages, while annual price growth fell by 0.5-1 percentage points, controlling for local economic factors and housing trends. Authors attributed these outcomes primarily to the super-senior lien status of PACE assessments, which equals tax liens in priority and subordinates traditional mortgages, thereby increasing underwriting risks for buyers and lenders. This lien structure has prompted restrictions from federal entities: since 2010, the Federal Housing Administration (FHA) has denied insurance on properties with PACE liens unless subordinated, while Fannie Mae and Freddie Mac guidelines similarly limit financing, reducing marketability and potentially suppressing values for lien-encumbered homes. Empirical evidence from transaction data supports reduced liquidity; for instance, properties with active PACE liens transact at lower volumes compared to unencumbered peers in the same markets, as buyers face higher effective costs due to limited mortgage options.^[84] Countervailing evidence from individual property sales suggests potential value uplift from financed improvements. A 2016 analysis of over 1,000 PACE-upgraded homes in California found they resold at net premiums of $199 to $8,882 above comparable non-PACE properties, after accounting for remaining lien balances, implying partial recoupment of energy efficiency gains at point-of-sale. However, this study relied on hedonic regression of completed transactions, potentially overlooking unsold or distressed PACE properties and broader spillover effects on neighborhood pricing.^[85] A 2023 Consumer Financial Protection Bureau (CFPB) examination of nearly 5 million PACE loans revealed elevated delinquency rates—up to 10-15% higher than comparable unsecured home improvement loans—and patterns of multiple successive loans on the same properties, correlating with increased mortgage default risks that could amplify foreclosure spillovers and depress local values by 5-10% per incident, based on general housing studies. Recent research on PACE-enabled counties indicates mixed post-adoption dynamics: while aggregate price growth lags initially, liened properties sold after program maturity showed price premiums, and mortgage credit availability expanded, suggesting adaptation by lenders to improved recovery prospects despite seniority risks.^[10]^[86] Overall, causal evidence leans toward net negative short-term housing market impacts from program uncertainty and lien frictions, outweighing isolated transaction premiums in program diffusion phases.

Claimed Benefits and Effectiveness

Theoretical Advantages

The primary theoretical advantage of PACE financing is its provision of full-cost coverage for energy efficiency, renewable energy, water conservation, and resiliency improvements, eliminating the need for property owners to provide upfront capital or down payments.^[42] By structuring repayments as special assessments added to property tax bills, PACE addresses the capital barrier that often prevents adoption of long-lived upgrades, such as insulation or solar installations, whose benefits extend over decades while initial costs deter investment.^[87] Repayment terms typically span 15 to 30 years, matching the expected lifespan of the assets and allowing owners to capture ongoing savings from reduced utility bills over the same horizon.^[87] The senior lien status of PACE assessments—prioritized above mortgages and other encumbrances—creates a low-risk profile for financiers akin to secured tax collections, which theoretically lowers the cost of capital relative to subordinate or unsecured options.^[88] This security leverages municipal tax enforcement mechanisms for collection, reducing default probabilities and administrative overhead, while minimizing underwriting demands like personal credit evaluations, thereby expanding financing availability to diverse property types and owners.^[88] In principle, the resultant interest rates enable projects where energy savings exceed assessment payments, adhering to a savings-to-investment ratio exceeding unity for net positive returns.^[87] By binding the obligation to the property itself rather than the owner, PACE facilitates transferable financing, allowing sellers to offload repayments to buyers who inherit the value-enhancing improvements without additional transaction costs.^[88] This mechanism theoretically incentivizes upgrades that boost property values, as the lien secures repayment against the added asset worth, promoting efficient resource allocation toward durable enhancements without distorting personal liability or requiring ongoing public subsidies.^[42]

Data on Energy Savings and Cost Recovery

A Lawrence Berkeley National Laboratory analysis of residential PACE projects in California, based on normalized metered energy consumption data from over 25,000 electric meters and 15,000 gas meters for installations through 2019, found that energy efficiency measures reduced average household electricity consumption by approximately 3% and natural gas consumption by 3.5%; excluding new HVAC systems, these figures rose to 5% for electricity and 6% for gas.^[89] Solar photovoltaic installations under the same programs offset roughly 69% of pre-project household electricity use on average.^[89] Cumulatively, residential PACE-financed projects in California yielded annual electricity savings of 506 GWh—equivalent to the consumption of about 74,000 households—and 2 million therms of natural gas savings, comparable to 4,700 households.^[89] These savings were verified through post-installation comparisons against control groups, though the study noted variability due to factors like installation quality and behavioral changes. For commercial PACE programs, empirical verification of savings remains less robust, with most data derived from program-reported projections rather than widespread metered analysis. Nine surveyed commercial PACE administrators collect savings data, primarily via deemed estimates, utility bill comparisons, or energy simulations, but only four actively leverage it for verification or reporting.^[61] The Texas PACE Authority's tracking system aggregates reported impacts, including energy reductions and emissions cuts, across participating projects, but participation covers less than 50% of programs, limiting representativeness.^[61] Cost recovery in PACE hinges on energy savings exceeding annual assessment payments, typically structured with 10- to 20-year terms to align with project lifespans.^[1] In residential cases, solar offsets often support positive cash flow, but efficiency measures' modest verified reductions—frequently below 5%—may fall short of recovering full costs including interest (often 6-9%) after accounting for upfront financing premiums.^[89] Commercial programs emphasize projected internal rates of return and simple payback periods in eligibility assessments, yet independent post-audit data confirming consistent outperformance of projections is scarce, with some analyses indicating extended paybacks for certain efficiency upgrades due to overestimation of baseline usage or underperformance.^[90] Peer-reviewed evaluations highlight that while PACE facilitates installations, realized net benefits vary widely by project type and location, underscoring the need for site-specific verification over generalized claims.^[9]

Critiques of Overstated Returns

Critics argue that PACE programs often rely on unverified engineering projections for energy savings, which systematically overestimate actual returns and fail to account for real-world variables like installation quality and behavioral factors.^[91] In residential PACE, particularly for solar installations, contractors frequently base financing approvals on modeled savings without mandatory pre- or post-installation audits, leading to cases where promised reductions do not materialize; for instance, nonfunctional solar panels have resulted in zero savings despite annual tax assessments exceeding $2,700.^[12] This absence of verification processes, unlike in commercial PACE or other efficiency programs, enables inflated claims that justify long-term liens, with empirical analyses indicating average household electricity savings of only 1.3% to 3% from financed projects in California through 2019—far below typical projections used to market payback periods of under 10 years.^[92]^[93] High administrative fees, interest rates averaging 7.62%, and lien terms up to 30 years further erode net returns, often rendering the financing uneconomical even when modest savings occur.^[12] Legal analyses highlight that without third-party inspections, substandard work—such as improperly installed water heaters or unconnected systems—compounds the issue, as homeowners bear ongoing costs without corresponding benefits; one review of over 80 cases found widespread discrepancies between projected and delivered outcomes, including ineligible or ineffective upgrades.^[12] Federal guidelines from the Department of Energy recommend data collection for post-project evaluation, yet many programs omit this, perpetuating reliance on ex-ante estimates known to overstate savings by factors of 2-3 in broader energy efficiency initiatives.^[70]^[91] Proponents' emphasis on "cash flow positive" outcomes assumes savings exceed payments, but causal assessments reveal this holds only under optimistic assumptions; actual grid-tied reductions from PACE upgrades average below 2% annually, insufficient to offset financing costs in many installations, especially amid declining utility rates or rebate changes.^[92]^[93] These discrepancies underscore a structural flaw: programs prioritize uptake over rigorous impact measurement, leading to overstated aggregate benefits in promotional materials despite limited peer-reviewed evidence of superior ROI compared to conventional financing.

Risks, Criticisms, and Failures

Financial and Foreclosure Risks

Property Assessed Clean Energy (PACE) financing imposes assessments treated as tax liens, which typically receive super-priority status over existing mortgages in foreclosure proceedings.^[25]^[54] This seniority means that upon default on PACE payments, the lien can trigger property tax foreclosure ahead of mortgage repayment, potentially wiping out homeowner equity even if mortgage obligations are current.^[22]^[95] The super-senior lien structure has led major mortgage underwriters, including Fannie Mae and Freddie Mac, to restrict financing on PACE-encumbered properties unless the PACE lien is subordinated to the mortgage, which is rare in practice.^[25] This restriction complicates home sales and refinancings, as buyers or refinancers face higher lending risks and costs, often resulting in discounted property values or stalled transactions.^[96] Empirical analyses have linked residential PACE adoption to elevated mortgage delinquency rates, with borrowers in programs showing delinquency risks up to three times higher than non-PACE peers, particularly among lower-income or credit-constrained households.^[97] Foreclosure risks materialized notably during economic stress; for instance, in 2020 amid the COVID-19 downturn, consumer advocates warned of a potential wave of PACE-related foreclosures, as unpaid assessments compounded property tax delinquencies.^[98] Specific cases in California, such as Los Angeles County's PACE program, involved predatory lending practices leading to a $12 million settlement in 2024 for affected homeowners, including instances of unauthorized loans and elder financial abuse that heightened default exposure.^[99]^[100] In response to these vulnerabilities, the Consumer Financial Protection Bureau (CFPB) finalized regulations in December 2024 mandating ability-to-repay assessments and mortgage-like disclosures for residential PACE transactions, explicitly citing their ties to increased delinquency and foreclosure hazards.^[48]^[97]

Oversight Gaps and Predatory Practices

Residential PACE programs have historically operated with significant oversight gaps, particularly in underwriting and consumer protections, due to decentralized state-level implementation without uniform federal standards prior to 2025. Unlike traditional mortgages, many programs assessed eligibility based primarily on property value rather than borrowers' creditworthiness or ability to repay, enabling financing for homeowners unable to afford added tax assessments.^[12] ^[101] This approach overlooked income levels and existing debt burdens, disproportionately affecting low-income, elderly, and non-English-speaking households who faced unaffordable payments exceeding expected energy savings.^[102] State variations in program design further exacerbated gaps, with some jurisdictions lacking mandatory contractor licensing, energy audit verification, or caps on assessment amounts relative to home equity.^[8] These deficiencies facilitated predatory practices by PACE administrators and contractors, including deceptive marketing that overstated energy savings and downplayed the super-priority lien's risks, which could prime mortgages and trigger foreclosures. In California, Ygrene Energy Fund faced federal and state actions in October 2022 for high-pressure door-to-door sales, forgery of signatures, and inducing liens without full consent, affecting thousands of homeowners with misrepresented financing terms.^[80] ^[103] The company settled for over $2.9 million in consumer refunds distributed by the FTC in July 2025, highlighting tactics that prioritized volume over suitability.^[104] Local programs amplified these issues through inadequate vetting of partners. Los Angeles County's PACE initiative led to a $12 million settlement in March 2024 after lawsuits alleged complicity in predatory lending that burdened vulnerable residents with tax hikes, resulting in defaults and home losses.^[105] Critics, including consumer advocates, argued that the program's structure incentivized overselling unnecessary or low-value improvements, as repayment tied to property taxes persisted even upon sale or refinancing, trapping owners in escalating costs.^[106] Such practices prompted the CFPB's final rule on December 17, 2024, mandating ability-to-repay assessments and mortgage-like disclosures to curb abuses, though implementation lags left prior gaps unaddressed for existing loans.^[48]^[82]

Broader Economic Distortions

The super-priority lien structure of PACE financing distorts traditional real estate credit markets by subordinating mortgage lenders' claims, thereby transferring default risks from PACE providers to senior lienholders and potentially elevating overall mortgage borrowing costs or lending standards across affected jurisdictions.^[88] This risk shift functions as an implicit subsidy to PACE participants, funded indirectly by higher mortgage rates or reduced credit availability for non-PACE properties, which undermines competitive neutrality in financing options.^[88] PACE programs encourage resource misallocation toward energy-related improvements that may fail cost-benefit tests in unregulated environments, as the mechanism's ease of access—often without mandatory energy audits or verification of savings—facilitates installations of marginal or ineligible projects, such as unnecessary appliance replacements or non-efficiency additions like accessory dwelling units.^[12] For instance, cases documented in California involved PACE assessments exceeding $47,000 for overpriced or superfluous upgrades, tying capital to low-yield or illusory returns rather than higher-productivity uses elsewhere in the economy.^[12] Local government administration of these programs further exacerbates inefficiencies, imposing unrecouped overhead costs that strain public budgets or necessitate fee hikes embedded in assessments.^[88] In the housing market, PACE liens impair property transferability by requiring buyers to assume ongoing assessments or sellers to discharge them at closing, which can depress sale prices, prolong transaction times, or deter investment in lien-encumbered properties, thereby reducing overall market liquidity and efficiency.^[88] This effect compounds with empirical evidence of heightened mortgage delinquencies following PACE uptake, as reported in analyses covering 2014–2020, signaling broader ripple effects like tightened underwriting that curb housing supply responsiveness to demand.^[75] Such dynamics prioritize localized clean energy financing over undistorted capital flows, potentially hindering scalable private-sector innovation in energy efficiency.^[88]

Securitization and Capital Markets

Securitization Process

In Property Assessed Clean Energy (PACE) programs, securitization transforms streams of future assessment payments into marketable securities, enabling program administrators and local governments to access capital markets for funding additional projects. Local governments or special-purpose entities, such as counties or joint powers authorities, first issue nonrecourse bonds backed by PACE assessments levied on participating properties as a supplemental property tax line item.^[107] These assessments carry a super-priority lien senior to most other encumbrances, ensuring repayment priority from tax collections, and transfer with property ownership upon sale.^[108] The process begins with program setup, where administrators vet property owners, underwrite improvements, approve contractors, and record liens upon project completion. Assessments are then aggregated from multiple properties into a pool, often held in a warehouse facility to build scale. This pool serves as collateral for issuing asset-backed securities (ABS) or taxable municipal bonds, structured as limited obligations repaid solely from assessment revenues.^[107] For commercial PACE (C-PACE), securitizations must comply with taxable mortgage pool rules under U.S. tax code, sometimes using real estate mortgage investment conduit (REMIC) structures to facilitate investor participation.^[109] A trustee holds the securities on behalf of investors, collecting payments from tax authorities and enforcing remedies like acceleration of missed installments or foreclosure in default cases, though full liens do not accelerate upon delinquency.^[107] Early examples include Ygrene Energy Fund's $318 million securitization of residential and commercial PACE assets in 2020, part of over $2 billion in transactions by late 2021, demonstrating the mechanism's role in scaling programs by recycling capital.^[16] By 2023, C-PACE securitized debt reached approximately $800 million, reflecting growing investor interest despite the assets' niche status and lack of ratings in many issuances.^[108] Securitization volumes remain modest relative to overall PACE origination, which exceeded $5 billion in 2022, primarily due to state-specific variations in lien priority and mortgage lender consent requirements.^[108]

Market Growth and Investor Appeal

The securitization of Property Assessed Clean Energy (PACE) financing, particularly commercial PACE (C-PACE), has shown robust growth in recent years, transitioning from niche status to a more established asset class within structured finance. Issuance volumes for C-PACE asset-backed securities (ABS) totaled approximately $362 million through early June 2024, setting the stage for a record-setting year amid recovering market conditions following a slower 2023. By mid-2025, issuance was on pace to exceed $1 billion annually, reflecting increased originator participation and larger deal sizes, with average C-PACE transactions rising from $8.4 million in 2023 to $11.4 million in 2024. Cumulative C-PACE originations reached about $2.57 billion in 2024 alone, contributing to overall PACE investments surpassing $15 billion by the end of 2023, though securitized portions represent a subset focused on pooled liens for capital market distribution.^[58]^[110]^[55] This expansion is driven by broader adoption in commercial real estate, where C-PACE fills lending gaps amid tighter bank regulations and higher interest rates, enabling developers to fund energy efficiency, renewables, and resilience upgrades without diluting equity. Market participants anticipate continued acceleration into 2025, supported by enabling legislation in over 40 states and growing institutional interest, though growth remains concentrated in states like California and Colorado, which accounted for significant portions of national volume in 2024. Securitization facilitates scaling by transforming illiquid property assessments into tradable securities, attracting repeat issuers and expanding the investor base beyond initial municipal bonds.^[55]^[57]^[111] Investor appeal stems primarily from the structural safeguards of PACE liens, which hold super-senior priority over mortgages and are repaid via non-bypassable property tax assessments, yielding historically low default rates—often reported as zero across major programs due to the involuntary nature of tax collection and foreclosure remedies. Rating agencies frequently assign investment-grade ratings to senior tranches, citing stable cash flows uncorrelated with broader credit cycles and minimal loss severity from the self-amortizing, long-term structure (typically 20-30 years). This profile offers insurers and other yield-seeking investors a blend of safety and returns competitive with municipal bonds but with potentially higher spreads, amid supply constraints that support pricing. However, appeal is tempered by liquidity limitations in the secondary market and exposure to property value fluctuations, though empirical data shows resilience even in distressed scenarios.^[112]^[113]^[42]

Risks to Investors and Systemic Issues

Investors in PACE asset-backed securities (ABS) face primarily non-credit risks, as historical delinquency and loss rates on underlying assessments have remained low. In commercial PACE (C-PACE) securitizations, delinquency rates have been low with zero recorded losses as of early 2025, while residential PACE (R-PACE) delinquencies ranged from 1% to 5% across rated transactions.^[114]^[110] This performance stems from the superpriority lien status of PACE assessments, enforceable via tax foreclosure, which prioritizes repayment over other liens except ad valorem taxes.^[107] However, liquidity represents a key vulnerability for PACE ABS holders due to limited secondary market depth and obligor concentration, particularly in C-PACE where large borrowers dominate pools and property types vary widely (e.g., hotels, industrial).^[115] Recovery timing uncertainty from diverse assets can disrupt cash flows upon default, exacerbating illiquidity compared to more diversified ABS like auto loans.^[115] Additionally, execution risks have risen in C-PACE for speculative new construction projects, where larger assessment sizes test loan-to-value limits despite conservative underwriting (average lien-to-value around 25%).^[114] Systemic concerns arise from PACE's superpriority mechanism, which subordinates mortgage liens and erodes borrower equity cushions, potentially increasing loss severities in mortgage-backed securities.^[24] The Mortgage Bankers Association (MBA) highlights that this upends traditional priorities, exposing Fannie Mae, Freddie Mac, and FHA guarantors to heightened losses without standardized consumer protections in most states.^[116] Empirical data from the Consumer Financial Protection Bureau (CFPB) indicates PACE origination correlates with a 2.5 percentage point rise in mortgage delinquency (a 35% relative increase) and 0.5 percentage point increases in foreclosures and bankruptcies over two years, amplifying spillover risks to broader credit markets.^[10] These dynamics complicate loss mitigation and escrowing in defaults, fostering moral hazard by encouraging unverified energy savings claims that may not materialize, thus straining property tax collection reliability in downturns.^[117] Only two states subordinate PACE to mortgages, leaving trillions in existing mortgage debt vulnerable and prompting calls for federal bans on PACE in government-sponsored programs to avert financial instability.^[116] Regulatory scrutiny, including a January 2025 CFPB rule targeting high-cost PACE loans, further heightens uncertainty for securitized pools by potentially curbing origination volumes.^[118]

Legislation and Adoption

State Enabling Laws and Variations

State enabling laws provide the statutory authority for local governments, such as municipalities or counties, to establish Property Assessed Clean Energy (PACE) programs, including the creation of special assessment districts, imposition of liens on properties, and collection of repayments via property tax bills.^[1] These laws typically specify eligible improvements—such as energy efficiency upgrades, renewable energy installations, water conservation measures, resiliency enhancements, and in some cases seismic or wind resistance retrofits—and outline the mechanics of assessments, which remain with the property regardless of ownership changes.^[119] The first state-level enabling legislation was enacted in California through Assembly Bill 811, signed into law on October 9, 2008, authorizing local PACE pilots for energy efficiency and renewables; this followed a 2007 municipal initiative in Berkeley, California, that operationalized an early program in 2008.^[40] As of 2024, 40 states plus the District of Columbia have enacted PACE-enabling legislation, enabling local programs primarily focused on commercial properties (C-PACE), with active programs operating in 32 states plus the District of Columbia.^[74] While at least 22 states authorize residential PACE (R-PACE) in statute, active R-PACE programs exist only in California, Florida, and Missouri, largely due to federal mortgage lender and agency resistance stemming from the super-priority lien status of PACE assessments, which can prime existing mortgages and complicate refinancing or sales.^[120] ^[74] C-PACE, by contrast, faces fewer barriers as commercial lending practices accommodate such liens more readily, leading to broader adoption; for instance, states like Georgia, Idaho, Hawaii, New Jersey, and New Mexico enacted C-PACE-specific legislation between 2022 and 2024.^[121] Key variations across state laws include differences in lien priority, assessment durations, and eligible project scopes. Most states grant PACE liens super-priority over mortgages, but some, such as Colorado and New York, permit voluntary subordination of the PACE lien to primary mortgages for R-PACE to align with federal housing finance requirements from entities like Fannie Mae and Freddie Mac.^[119] Assessment terms typically range from 15 to 40 years, calibrated to the expected useful life of improvements, with administrative fees capped at 5-10% in many jurisdictions to cover program costs.^[1] Eligible projects under C-PACE often extend to multifamily residential, industrial, and nonprofit buildings, emphasizing measurable energy savings or resiliency benefits verified through engineering reports, whereas R-PACE statutes in active states like Florida (enacted 2010) additionally cover wind resistance in hurricane-prone areas.^[40] ^[1] State laws may also differ in administrative structure: some, like Connecticut's 2013 legislation, enable statewide programs, while others mandate local government opt-in and voter approval for assessments.^[122] Recent federal developments, including the Consumer Financial Protection Bureau's December 19, 2024, final rule under Regulation Z, impose ability-to-repay requirements on R-PACE lenders and classify such financing as credit, potentially influencing state-level expansions by addressing consumer protection gaps without altering core lien mechanics.^[50] However, state variations persist in oversight, with some requiring third-party verification of savings and others relying on local enforcement, reflecting differing emphases on fiscal prudence amid criticisms of potential over-lending.^[1]

Geographic Distribution and Program Status

As of April 2025, 185 Property Assessed Clean Energy (PACE) programs were operating across 33 U.S. states and the District of Columbia, reflecting uneven adoption despite broader legislative enabling in 40 states and the District of Columbia.^[123]^[74] Programs are absent in states including Alaska, Arizona, Connecticut, Georgia, Hawaii, Idaho, Maine, Minnesota, Mississippi, Montana, Nevada, New Hampshire, South Dakota, Utah, Vermont, West Virginia, and Wyoming.^[123] Commercial PACE (C-PACE), focused on non-residential properties, predominates geographically, with active implementations in at least 25 states including Colorado, Connecticut, Delaware, Florida, Illinois, Kentucky, Maryland, Massachusetts, Michigan, Missouri, New York, Ohio, Oklahoma, Pennsylvania, Texas, Utah, Virginia, Washington, and Wisconsin, often covering multiple counties or municipalities and financing projects totaling billions in cumulative investments.^[124] Residential PACE remains restricted to California, Florida, and Missouri, constrained by lien subordination issues raised by federal entities like Fannie Mae and Freddie Mac, which prioritize mortgage security over PACE assessments.^[74] Program concentration is highest in populous states with early enabling laws: California leads with 24 programs, followed by Pennsylvania (18), Michigan (13), and New York (10), accounting for a significant share of national activity driven by local government initiatives and private capital participation.^[123] All documented programs maintain active status per industry associations, though deployment varies by local ordinances and market demand, with no widespread suspensions reported as of mid-2025; however, isolated limitations persist in high-risk areas due to insurance and foreclosure concerns.^[123]^[74]

Federal Policy Interactions

Federal housing agencies, including the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA), impose significant restrictions on Property Assessed Clean Energy (PACE) financing due to the senior lien priority typically granted to PACE assessments over mortgage liens, which undermines the security of federally insured or guaranteed loans. In 2010, FHA initially suspended underwriting for properties with PACE liens superior to the mortgage, citing risks to loan insurability and foreclosure processes. By 2016, FHA clarified that it would insure mortgages on properties with existing PACE obligations only if the PACE lien is subordinated to the FHA-insured mortgage and limited to the delinquent installment amount in foreclosure scenarios, allowing the lien to transfer with the property but not accelerate full repayment. Similarly, the VA and government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac prohibit or severely limit PACE on financed properties to protect lender primacy.^[125] The Consumer Financial Protection Bureau (CFPB) has addressed consumer protection gaps in residential PACE (R-PACE) through Regulation Z amendments, finalized on December 17, 2024, which classify certain PACE loans as closed-end credit subject to Truth in Lending Act disclosures, enabling borrowers to compare costs against traditional financing.^[48] This rule responds to findings that R-PACE often leads to higher property tax burdens—averaging $2,700 annually or 88% increases—and elevated default risks without adequate transparency, particularly for solar and home improvement projects marketed aggressively.^[10] Commercial PACE (C-PACE) faces fewer federal consumer mandates, as it was exempted from 2019 CFPB proposals, though proponents argue state-level programs suffice.^[6] On taxation, the Internal Revenue Service (IRS) ruled in 2016 that interest portions of qualifying PACE assessments may be deductible as home mortgage interest, subject to limits under Section 163(h), provided the financing meets secured debt criteria and funds eligible improvements. This treatment aligns PACE with conventional loans but does not confer direct federal incentives like investment tax credits, positioning PACE as a complement rather than substitute for programs such as those under the Inflation Reduction Act.^[126] The U.S. Environmental Protection Agency (EPA) endorses C-PACE as a tool for energy and resilience projects but does not enact binding federal policy, deferring to state implementations.^[1] Overall, these interactions highlight tensions between PACE's innovation in clean energy financing and federal priorities for mortgage security and borrower safeguards, with no overarching federal enabling statute.

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To date, nearly. 50,000 jobs have been created from NGC's C-PACE financed projects, according to the American. Council for an Energy-Efficient Economy (ACEEE).
[64]
[PDF] Current Practices in Efficiency Financing: An Overview for State and ...
C-PACE-Commercial Property Assessed Clean Energy ... However, to date, there is little empirical evidence from process or impact evaluations that PACE financing ...
[65]
About C-PACE financing: Pros and cons of energy efficiency loan ...
Jul 28, 2023 · C-PACE programs allow a property owner to finance up to 100% of the improvement costs via a long-term loan. Funds financed through C-PACE ...
[66]
[PDF] IMPROVING ACCESS TO C-PACE FOR SMALLER BUSINESSES
The strategies detailed in these case studies provide potential solutions to increase small business access to C-PACE financing and help realize the many ...
[67]
Optimizing Capital Stacks with C-PACE Financing - Thesis Driven
Jun 6, 2024 · Challenges and Considerations with C-PACE · Lack of Standardization: The programs vary state by state and are implemented at the municipal level.Missing: limitations | Show results with:limitations
[68]
Property Assessed Clean Energy (PACE) Financing
Property Assessed Clean Energy (PACE) Financing: Update on Commercial Programs ... challenges across programs. The policy brief also includes a summary of ...
[69]
Study: Nonpayment risk remote for commercial clean energy loans
Jul 31, 2019 · Commercial building owners very rarely miss payments on property assessed clean energy loans, a federal lab found.Missing: empirical | Show results with:empirical<|control11|><|separator|>
[70]
[PDF] Best Practice Guidelines for Residential PACE Financing Programs
Nov 18, 2016 · This document provides updated best practice guidelines to help implement the Policy. Framework for PACE Financing Programs, ...
[71]
[PDF] Residential Property Assessed Clean Energy (R-PACE) - NASEO
R-PACE program design requires unique attention and consideration on the part of state legislatures, state and local governments, and private sector ...
[72]
[PDF] STANDARDS FOR RESIDENTIAL PACE PROGRAMS - RMI
It is our belief that continued development of standards and baselines for PACE program design will serve to enhance the scaling and liquidity of resources.
[73]
[PDF] Residential PACE Best Practices: Designing and Implementing ...
May 16, 2017 · DOE recommends the Best. Practice Guidelines for. Residential PACE Financing. Programs be incorporated and followed by States, Local.
[74]
PACE Programs - PACENation
PACE-enabling legislation is active in 40 states plus D.C., and PACE programs are now active (launched and operating) in 32 states plus D.C. Residential ...
[75]
Property Assessed Clean Energy (PACE) Financing and Consumer ...
May 1, 2023 · This report documents research findings on the impact of PACE financing on consumer financial outcomes from 2014 through 2020.Missing: uptake statistics
[76]
Tracking the PACE of household energy usage
Our analysis covers projects that occurred through an R-PACE program between 2009 and 2017 and includes more than 25,000 electricity meters and 15,000 gas ...
[77]
Property Assessed Clean Energy (PACE) Lending | MBA
PACE loans upend traditional lien priority, exposing investors and guarantors to increased loss severities. MBA supports the continued ban on PACE loans.Missing: reforms | Show results with:reforms
[78]
Crackdown on Predatory Green Loans - The American Prospect
May 5, 2023 · Borrowers were more likely to live in Black and Hispanic neighborhoods, the report finds, and PACE loans charged “substantially higher” interest ...
[79]
LA County settles 'PACE' loan lawsuits - NBC4 Los Angeles
Mar 26, 2024 · ... PACE” program, which provided loan payments for energy improvements that resulted in predatory lending. Ted Chen reports for the NBC4 News ...
[80]
FTC, California Act to Stop Ygrene Energy Fund from Deceiving ...
Oct 28, 2022 · When a consumer uses PACE financing to pay for a clean energy project, a first-priority lien is placed against the consumer's home, and the ...Missing: residential | Show results with:residential
[81]
Florida funding agency defends financing program some call ...
Oct 9, 2023 · In 2019, Collier County pulled the plug on the residential side of the program, following reports of contractor abuse and predatory lending, ...
[82]
Residential Property Assessed Clean Energy Financing (Regulation Z)
Jan 10, 2025 · PACE financing is financing to cover the costs of home improvements that results in a tax assessment on the real property of the consumer.
[83]
ABA: Residential clean energy loan rule would curb PACE abuse
Jul 28, 2023 · ABA has long called for the Truth in Lending Act's ability-to-repay requirements and civil liability penalties to be applied to PACE loans, ...
[84]
[PDF] FHA Clarifies Financing on Properties with PACE Loans
Jul 19, 2016 · Under current rules, residential PACE improvements are typically assessed with property taxes and have a lien priority on par with tax liens, ...
[85]
PACE Loans: Does Sale Value Reflect Improvements?
This article determines how the resale value of homes with PACE (Property-Assessed Clean Energy) improvements and financing compare with similarly situated ...Missing: Goodman Zhu
[86]
[PDF] Picking Up the PACE: Loans for Residential Climate-Proofing
May 15, 2024 · Our work provides an empirical microfoundation for the macroeconomic modeling simulations of commercial PACE loans in Rose and Wei (2020) by ...
[87]
[PDF] Benefits and Challenges, Energy Analysis (Fact Sheet) - NREL
As of January 2010, 16 states have passed legislation in the last 18 months ... enabling legislation. The majority of the PACE programs in the market ...<|separator|>
[88]
[PDF] THE CASE AGAINST PROPERTY ASSESSED CLEAN ENERGY ...
A. Transfer Risks Associated with PACE Financing. This Part critically analyzes the argument that use of property tax financing removes the property transfer ...
[89]
https://doi.org/10.3390/en14238060
[90]
[PDF] Commercial Property Assessed Clean Energy (PACE) Eligible ...
Calculate the return on investment (e.g., simple payback period, internal rate of return). Specify the expectable useful life of the system.
[91]
[PDF] A Cautionary Tale About Energy Efficiency Initiatives - Cato Institute
Mar 8, 2019 · Graff Zivin and Kevin Novan provide empirical evidence to the contrary. They find ex-anteenergy savings projections to be grossly high and ...
[92]
Tracking the PACE of household energy usage - eScholarship
We find that projects consisting of energy efficiency technologies save, on average, about 3% of household electricity usage and 3.5% of household gas usage. R- ...
[93]
[PDF] Empirical Estimation of the Energy Impacts of Projects Installed ...
Dec 2, 2021 · We estimate that. California R-PACE projects installed through the end of 2019 produce annual reductions in grid-tied electricity consumption of ...
[94]
Hidden Cost of PACE Lending for Energy Efficiency Improvements
Jan 12, 2022 · Louis foreclosure rate among all residential properties was far lower, 0.43 percent in 2019. ... cases where construction was shoddy ...Missing: statistics | Show results with:statistics
[95]
How Big a Collateral Risk Are PACE Loans?
Nov 17, 2016 · But PACE loans create what is known as a super-senior lien. The funds are lent by municipalities and repaid through multiyear assessments ...
[96]
CFPB finalizes rule on risky PACE loans linked to mortgage ...
Dec 18, 2024 · These loans, repaid through property tax assessments, have been linked to heightened risks of mortgage delinquency and foreclosure, especially ...
[97]
Coronavirus fallout: a foreclosure wave tied to PACE loans
Jun 29, 2020 · Consumer groups are raising concern over a potential foreclosure wave tied to PACE home improvement loans.Missing: residential statistics
[98]
$$12 Million Settlement Reached in Los Angeles Clean Energy ...
Mar 26, 2024 · Los Angeles County and Renew Financial Holdings have agreed to pay homeowners millions over Property Assessed Clean Energy (PACE) loans.
[99]
Court Affirms LA County Can Be Sued for Elder Abuse in PACE ...
Sep 22, 2025 · Foster sued the County and its registered PACE home improvement contractors—the contractors for forging her signature on the contracts and ...
[100]
ISSUES WITH PROPERTY ASSESSED CLEAN ENERGY ...
Jan 19, 2012 · In July 2010, FHFA issued a statement raising three concerns regarding PACE programs, particularly those where the PACE lien takes priority over ...
[101]
Homeowners File Class Actions Against County of L.A., California ...
The lawsuit alleges the County of L.A. is complicit in the failings of the PACE program, leaving thousands of low-income, elderly, and non-English fluent ...
[102]
Attorney General Bonta and FTC Announce Settlement with Clean ...
Oct 28, 2022 · Ygrene is alleged to have engaged in forgery, high-pressure sale tactics, and other misconduct to induce homeowners to utilize the PACE ...Missing: residential | Show results with:residential
[103]
FTC Sends More Than $2.9 Million to Consumers Harmed by Home ...
Jul 8, 2025 · FTC, California Act to Stop Ygrene Energy Fund from Deceiving Consumers About PACE Financing, Placing Liens on Homes Without Consumers' Consent ...
[104]
L.A. County settles PACE lawsuits; homeowners to get millions
Mar 26, 2024 · Los Angeles County has agreed to a $12-million settlement to resolve allegations that its home improvement lending program wrecked the finances of many ...
[105]
Property Assessed Clean Energy (PACE) - Public Counsel
Poor oversight and the structure of the program have left thousands burdened with unaffordable property tax bills and at risk of foreclosure. Public Counsel's ...Missing: gaps | Show results with:gaps
[106]
PACE securitizations | Norton Rose Fulbright - October 2018
Oct 23, 2018 · Securitizations are becoming a more common technique to raise low-cost debt for energy projects. To understand securitization structures, take Macy's ...
[107]
Credit FAQ: ABS Frontiers: The C-PACE Space Explained
Dec 13, 2023 · Mortgage holder consent is required before PACE applications are approved and assessments are placed. They are transferrable; if the building is ...
[108]
Commercial PACE Loans Get a Boost in Securitization
Aug 8, 2024 · Dechert noted that for commercial PACE loans to be securitized, they must meet “taxable mortgage pool” rules, with the securitization structured ...Missing: process | Show results with:process
[109]
PACE Snapshot - Morningstar DBRS
Jul 3, 2025 · "C-PACE securitization issuance is on track to have one of its best years yet, with volume expected to easily exceed $1.0 billion by year-end, ...
[110]
Is C-PACE Multifamily Borrowers' New Ace? - PACE Loan Group
Apr 2, 2025 · C-PACE financing reached a record $9.7 billion in investment in 2024, a 33 percent year-over-year increase. This figure is projected to increase, as 40 states ...Missing: program 2023
[111]
The Benefits to Insurance Companies of Investing in C-PACE Loans
Jul 19, 2024 · Reduced Default Risk. The structure of C-PACE loans inherently reduces the risk of default. Since the loans are repaid through a property tax ...
[112]
[PDF] Setting the pace - Nuveen
Nov 30, 2024 · With highly rated bonds, low default risk, a continued supply and demand imbalance and attractive correlations to other market segments ...
[113]
U.S. PACE ABS 2025 Outlook - Morningstar DBRS
Jan 2, 2025 · Morningstar DBRS has a stable credit outlook on the commercial property assessed clean energy (C-PACE) and residential PACE (R-PACE) sectors for 2025.
[114]
Risk Evaluation of Commercial PACE Securitizations Differs From ...
Sep 28, 2017 · Liquidity is a primary risk in commercial PACE-backed securitizations because of potential concentration of large obligors and less certainty ...<|separator|>
[115]
https://www.linkedin.com/pulse/risk-evaluation-commercial-pace-securitizations-differs-stephanie-mah
[116]
Letter to FHFA on Property Assessed Clean Energy (PACE) Program
Mar 16, 2020 · Loans with a super priority lien also complicate both escrowing and loss mitigation, which increase the risk of harm to borrowers and increase ...
[117]
The CFPB Crosses the Finish Line to Regulate Property Assessed ...
Jan 13, 2025 · In the Final Rule, the Bureau indicates that PACE transactions allow consumers to receive funding for home improvement projects and repay those ...Missing: reforms | Show results with:reforms
[118]
Property Assessed Clean Energy (PACE) - Solar United Neighbors
May 23, 2024 · PACE legislation varies by state. Some states have enabled residential PACE programs, while others enable PACE for commercial properties. To ...
[119]
Financing Clean Energy Projects Through Property Assessments
States can authorize Property Assessed Clean Energy (PACE) programs, which permit property owners to take on a tax assessment for clean energy upgrades, ...
[120]
List of States That Offer PACE Financing - USA Home Improvement
Mar 24, 2025 · Learn how Florida, California, and Missouri use PACE for hurricane preparedness, energy efficiency, and more.
[121]
Connecticut To Launch First Statewide Commercial Clean Energy ...
Governor Dannel P. Malloy signed the bill into law on June 15. In a recent interview, Kerry O'Neill, a senior advisor at the Clean Energy Finance Center ...Missing: date | Show results with:date
[122]
[PDF] April 2025 There are 185 PACE Programs operating in 33 states ...
Apr 1, 2025 · There are 185 PACE Programs operating in 33 states and the District of Columbia. ... . States without a PACE program: Alaska, Arizona ...Missing: adopting | Show results with:adopting
[123]
Map of C-PACE Programs
Expanded to a total of 40 counties with ~96% of the state's commercial building stock. Continue to add C-PACE lenders (C-PACE specialty, community banks, credit ...
[124]
https://c-pacealliance.org/active-cpace-programs/
[125]
IRS says PACE interest falls under mortgage deductibility guidelines
Jul 11, 2016 · The IRS finds that subject to various restrictions, the interest portion of a PACE payment can be treated as a deduction to personal income taxes.