The Nebraska State Capitol in Lincoln.

Rick McCharles / Creative Commons

The Nebraska State Capitol in Lincoln.

Nebraska hopes to close efficiency gap with PACE legislation

Nebraska, historically one of the worst-performing states in the U.S. for energy efficiency, may take a step forward with the state legislature’s approval last week of Property Assessed Clean Energy (PACE) financing.

LB 1012 was passed out of the Nebraska legislature on April 7, and now awaits Gov. Pete Ricketts’ signature. He is expected to endorse it.

Nebraska will join 32 states, including Illinois, Michigan, Minnesota, Missouri, Ohio and Wisconsin, that also have approved PACE legislation. Similar bills were introduced in the Iowa and Kansas legislatures this session, but made no headway.

PACE financing enables businesses and, in some states, homeowners, to fund energy efficiency upgrades and renewable generation through a property tax assessment, similar to a street repair or other improvement.

PACE loans offer several advantages over more conventional loans. They typically can be repaid over about 20 years, a longer time horizon than some lenders offer. And because the loan is attached to the property, rather than the borrower, it can work even for someone who anticipates selling a property before the loan has been fully repaid. The property assessment is passed along to the new owner, along with the reduced utility bills.

“The upfront cost for energy efficient improvements is the single largest barrier preventing property owners from making meaningful upgrades to their homes and businesses,” said state Sen. Heath Mello, who shepherded the bill through the legislature this season.

“By authorizing cities to implement an alternative financing method through the creation of energy assessment districts, we can spur the further development of the energy efficiency and renewable energy industries, while creating new, living-wage jobs across Nebraska.”

Two PACE funders – PACE Equity, which mostly deals with commercial projects, and Renovate America – which funds residential projects, have expressed interest in bringing Nebraska’s PACE program to fruition, said Elizabeth Hertzler, a legislative aide to Sen. Mello.

Passage of state legislation is only the first step. Before lending can begin, a municipality must pass an ordinance creating a clean-energy assessment district. That allows the lender, whether a government entity or a private lender, to bundle loan payments in with the annual property tax bill.

Setting up a PACE program can be complicated, and the logistics have stalled PACE programs in some other states.

The Nebraska bill was passed unanimously, except for a few members who were absent. It was a different story six years ago, when Sen. Mello first attempted to get a PACE bill through the assembly. Nebraska’s bankers marshaled their influence to stop the bill, concerned about losses in the event of a foreclosure.

The current PACE bill makes clear that in the case of a residential loan, the holder of the first mortgage has the first claim on assets in a foreclosure. In a commercial project, however, the PACE lender would be first in line, along with other taxing entities.

Nebraska’s bill provides some protection to holders of commercial mortgages: it requires that the applicant for PACE funding obtain permission first from its mortgage lender.

In addition, Mello agreed to put a $5 million cap on the size of any single PACE bond issue made by a municipality. To make a larger bond issue, a city or county would have to get a public vote approving it. The bill also requires a public vote before PACE funding could be extended to any publicly-owned building.

Hertzler said a PACE program is likely to take shape quickly.

“I know the PACE financiers have been on the ground and are already meeting with interested cities in anticipation of this passing,” she said. “The City of Lincoln is very interested in it. Omaha also is a likely candidate. Some communities in rural Nebraska have expressed interest. I think they were waiting to see where the legislation went.”

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