Loudoun’s Clean Energy Loan Program Hits Technical Stumbling Block

A program to help Loudoun’s commercial property owners invest in clean energy at their buildings is still moving forward after hitting a legal snag over enforcing loans.

The county’s Commercial Property Assessed Clean Energy Program allows commercial building owners to take out loans secured by a voluntary lien against their property to finance clean energy projects, such as solar panels on the roofs of buildings. The program is intended to open up more financing for clean energy projects, which typically take longer to pay for themselves than the typical commercial real estate loan that owners might use. While commercial real estate loans may be paid off over five to 10 years, PACE loans are thought to have terms as long as 25 years.

The county would contract with an outside program administrator to run the program, and loans would come from private lenders. County attorneys have said the program avoids putting the county government at any financial risk—if the borrower defaults, they have not borrowed county money. Board Vice Chairman Ralph M. Buona (R-Ashburn) has suggested that the cost of the program to the county could be recovered entirely through program fees.

Supervisors set the county staff to work setting up the program with a unanimous vote in January. But since then, the program has hit a stumbling block—some lenders have been reluctant to participate, worried that they do not have the legal authority to bill, collect and enforce those loans under state law. County attorneys recommended that the program administrator bill and collect payments, and that the county attorney’s office enforce the liens in the event of a default.

And while they have also said the county would be reimbursed for the cost of that enforcement, the change has made some supervisors wary. Supervisor Geary M. Higgins (R-Catoctin) said he sees it “as a substantial change” and that the goals of the program “can be completely accomplished in the private sector without government involvement.”

“There is no reason for the county to get involved in this program at all,” Higgins said, later adding “while we may recover costs of enforcement, and we may get the money back, it still takes time,” pointing to the time county attorneys would have to dedicate to the program in the event of a default.

The change will also mean the county needs to start its own bid process for a program administrator. Previously, the county planned to piggyback on an Arlington County request for proposals.

But other supervisors continue to support the project, which has won support both for its potential environmental impacts and free-market philosophy.

“I do think overall what we’re doing isn’t so much a government intrusion as trying to facilitate a property rights transaction,” said Supervisor Ron A. Meyer Jr. (R-Broad Run).

“I think this is something that we can do without much cost or expansion of resources that would help us achieve some positive benefits,” said Supervisor Matthew F. Letourneau (R-Dulles).

Supervisor Suzanne M. Volpe (R-Algonkian) also asked legal staff to pursue an opinion from the state Office of the Attorney General to put more legal weight behind the program’s structure.

Supervisors voted 8-1 to move ahead with the program, with Higgins opposed.

Loudoun would be one of the first localities in Virginia to launch a Property Assessed Clean Energy or PACE program. Although PACE programs for residential projects exist elsewhere, and state law would allow including multifamily projects of five families or more, the board is so far sticking with commercial projects. Meyer has said he hopes the program grows to include multifamily projects in Loudoun.

This article was updated at  4:16 p.m. to correct an error in a quote.

rgreene@loudounnow.com

One thought on “Loudoun’s Clean Energy Loan Program Hits Technical Stumbling Block

  • 2018-08-06 at 4:32 pm
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    PACE or Property Assessed Clean Energy is very much needed in both the commercial real estate and residential real estate communities. It’s a program designed to provide a secure environment to fund energy and environmental improvements for up to 30 years. In VA, we have few , if any, energy efficiency or renewable energy incentives at the state or local level. In states with high energy costs or significant incentives, solar paybacks are much shorter and their PACE terms can be limited to shorter time spans. Longer term secure PACE investments can result in consumers “getting paid to go green.”

    Supervisor Higgins is partly correct. There are long term funding mechanisms in the private sector that very much function as PACE type loans. However these are primarily available to the MUSH (Municipalities Universities Schools and Hospitals) sector because these groups enjoy a long term ownership perspective. Corporations are also eligible for these kinds of transactions. The county itself is. We are not. Nor are smaller companies. In commercial real estate, the landlord typically has no interest in how a renter uses energy. PACE bridges this gap.

    Homeowners are quick to take up PACE investments in their property once PACE is available. In California, the residential PACE programs grew 80% year over year since 2008 and now total $5 billion in cumulative investment. A recent transaction sold $103 million in AAA rated long term PACE bonds in the secondary market.

    Girard Gurgick Founder Loudoun PACE in 2010, Affiliated with PACE Equity since 2016

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