Recently introduced Senate Bill (S.B.) 185 could simplify Property Assessed Clean Energy (PACE) financing in Ohio by providing Ohio property owners with an alternative option to creating or joining an Energy Special Improvement District (ESID) in order to use PACE financing.
Ohio property owners can use PACE financing to pay the costs of special energy improvement projects constructed on their properties. Rather than pay the projects’ costs up front or as repayment of a loan, PACE allows property owners to pay the costs over time as special assessments due with their property tax bills. Under Ohio law, a property owner who wants to use PACE financing must create or join an ESID, get the approval from the township or municipal corporation in which the property is located and have the ESID authorize the project. S.B. 185 would give property owners another choice, significantly simplifying PACE financing in Ohio.
S.B. 185 at a glance
- Removes the requirement to create or join an ESID to use PACE financing
- Retains the option to create a new or join an existing ESID
- Allows property owners in non-contiguous townships and municipal corporations to create or join the same ESID to take advantage of economies of scale and administrative expertise
- Adds express statutory authorization for Ohio port authorities to cooperate with ESIDs and property owners for the provision of energy special improvement projects and PACE financing
- Revises Chapter 1710 of the Ohio Revised Code to provide standalone provisions for each of (1) traditional special improvement districts, (2) PACE ESIDs and (3) PACE financing without ESIDs
- Unlike HB 72, currently pending in the House Public Utilities Committee, S.B. 185 does not expand lists of special energy improvement projects eligible for PACE financing or give port authorities the ability to create ESIDs
Ohio property owners may use PACE financing to pay the costs of a special energy improvement project, which is a project that either improves the energy efficiency of the structures on the property or involves renewable or advanced energy technologies. PACE financing allows Ohio property owners the ability to pay for the special energy improvement project as special assessments. Special assessments are current tax obligations on the property tax bill, and, therefore, they do not represent long-term indebtedness. They are also secured with the State of Ohio’s highest priority lien for the collection of property taxes. Under most net leases, lessors can pass special assessments through to their tenants. Tenants, however, also benefit from decreased utility bills due to the energy savings related to the special energy improvement projects. In most cases, the energy savings completely offset the costs of the special energy improvement projects.
Ohio property owners and communities have used PACE financing due to its substantial benefits. Most prominently, the Northwest Ohio Advanced Energy Improvement District, in partnership with the Toledo-Lucas County Port Authority, has created one of the largest PACE programs in the nation. The program has administered over 48 special energy improvement projects and is in the process of funding several more. The City of Cleveland and its interior suburbs have partnered in the creation and administration of the Northeast Ohio Advanced Energy District, which has administered 17 special energy improvement projects. In several other communities, such as Lake County, Boardman Township and the City of Hilliard, individual property owners have been able to establish ESIDs and use PACE financing to construct special energy improvement projects on their properties. Other communities, like Cincinnati, Dayton, Columbus and Beachwood are in the process of establishing ESIDs or funding special energy improvement projects.
Ohio property owners have used various financing models to leverage the special assessments and pay the costs of special energy improvement projects. Some property owners have borrowed from ESIDs to pay the costs of the projects and pledged the special assessments to the ESIDs as repayment of the up-front funding. Others have borrowed from private lenders and pledged the special assessments as repayment to them. Still others have taken loans as part of broader financing packages and pledged the special assessments only as back-up security in the event they fail to pay the amounts due on the loans. Some property owners have even self-funded the costs of special energy improvement projects and used the special assessments to recover the costs of the capital from their tenants under net leases.
PACE’s costs under the current model
PACE’s benefits, however, come with significant costs under the current model. In order to use PACE, a property owner must either create or join an ESID. While ESIDs can include properties in multiple townships or municipal corporations, the townships or municipal corporations must be contiguous, limiting the ability of long-established and well-functioning ESIDs to administer additional projects. In order to create or join an ESID, a property owner must petition the township or municipal corporation in which the property is located and request that the township or municipal corporation either create an ESID or add the property to an existing one and then levy special improvements on the property. The ESID must meet to authorize the project.
The steps currently required to use PACE financing create significant costs for property owners. Time and resources must be expended in creating and administering the ESIDs. As functioning special purpose governmental entities, Districts also require some operating funds for expenses like public officials insurance and audits. Those funds must be provided as part of the PACE financing, increasing the cost of using PACE for property owners.
S.B. 185 simplification and cost reduction of PACE financing
S.B. 185 would simplify and reduce the costs of PACE financing in Ohio. It would give property owners the option to have special assessments levied without the creation of an ESID or the need to join an existing ESID. Instead, property owners could simply petition the township or municipal corporation in which the property is located to have the special assessments levied.
Existing and newly created ESIDs would be allowed to administer projects in any townships or municipal corporations that chose to submit property to the ESID without regard to continuity. Long-established and well-functioning ESIDs would therefore be able to aggregate projects and provide their administrative expertise and economies of scale without being limited by a contiguity requirement.
Ohio port authorities have acted as valuable partners in PACE financing. S.B. 185 would bolster their ability to provide special energy improvement projects and participate in PACE financing by adding express statutory authorization to do so.
S.B. 185 would revise Chapter 1710 of the Ohio Revised Code to separate the two options for PACE financing – with an ESID or without an ESID – from the provisions in Chapter 1710 related to traditional special improvement districts. Traditional special improvement districts, PACE financing with an ESID and PACE financing without an ESID each would have standalone provisions in Chapter 1710, making PACE financing easier to understand and implement.
Unlike H.B. 72, which is currently pending in the House Public Utilities Committee, S.B. 185 would not retain the requirement for ESIDs. In addition, S.B. 185 would not give port authorities a primary role in creating ESIDs and would not expand the list of special energy improvement projects eligible for PACE financing.
S.B. 185 would significantly simplify PACE financing in Ohio, because it would allow Ohio property owners to reduce the costs of PACE financing by removing the requirement to create or join an ESID in order to use PACE financing. In addition, it would reduce costs by allowing long-established and well-functioning ESIDs to administer projects in non-contiguous townships and municipal corporations. Adoption of S.B. 185 would have the potential to impact Ohio property owners, economic developers, energy consultants, conduit financing entities and lenders participating in or considering PACE financing.