PACE Financing Goes Viral, No Thanks to ARRA November 19, 2009 Posted by: johnsoncontrols 11:01 AM
By Derek Supple, Program Manager, Strategic Objectives, Johnson Controls The excitement on the Delta King riverboat in Sacramento was palpable this week as local government leaders and the finance community gathered to discuss the nuts, bolts, and best practices of setting up property assessed clean energy (PACE) financing programs.
Under the PACE model, property owners borrow money from a municipal agency to finance up to 100% of the upfront cost of energy efficiency and renewable energy projects and repay the loan over 5-20 years through an added annual assessment on their property tax bill.
The tax-lien financing model overcomes several well-known barriers to the adoption of energy efficiency improvements. Financing spreads the first cost to create positive cash flow for building owners, so that monthly energy savings exceed their loan payments.Since the loan is attached to the property, not the borrower, it transfers with ownership, enabling owners to take on longer payback projects with deeper energy savings. Tying payment to the property also solves credit and collateral issues that have been a challenge in commercial real estate.It can also overcome the age-old owner/tenant split incentive problem because owners are allowed to pass-through property taxes (and, through PACE, the retrofit costs) to net lease tenants who also benefit from the savings.
The sheer number of attendees from the financial community at this week’s City & County Clean Energy Financing conference—from Wells Fargo to Hannon Armstrong to local community banks— was exciting, because it shows the potential of this model to “commoditize” energy efficiency. By creating standardized PACE bonds, markets can be harnessed to dramatically scale the capital available for clean energy projects.The investment banks are excited because voluntary property assessments provide a very secure investment.Like any tax assessment, PACE loans are senior to private liens, including mortgages.
The highlight of the conference was a panel of the leaders who championed the only four live PACE programs operating today: Boulder County, CO; Palm Desert, CA; Berkeley, CA; and Sonoma County, CA.While programs are being planned in scores of other communities, these four are learning at the “bleeding edge.” Interestingly, there were two main drivers common for each of these four communities:create jobs and reduce climate impact.The Boulder County Commission has adopted a target to reduce annual greenhouse gas emissions 40% below 2005 levels by 2020 within an interim 1.3 million ton reduction by 2012.Even more aggressive, Sonoma County is targeting a 25% reduction below 1990 levels by 2016.These targets are community wide, not just for municipal operations.All panelists pointed out that without addressing existing building stock, which represents over half their emission inventories, they would have no chance at meeting these carbon targets.PACE is the “best tool yet” for local governments to help their residents and businesses save energy and reduce emissions.
PACE has also been an effective way for municipalities to create jobs in their communities without significant financial burden or risk.Sonoma County saw an 8.4% increase in building industry jobs last quarter, while neighboring counties Napa and Marin saw a 2% decrease in jobs in that sector.
With all these benefits, it’s no wonder that PACE is catching on quickly.I think it is safe to say that PACE has “gone viral.”In the last twelve months, fifteen state legislatures have passed enabling legislation for PACE programs including CA, CO, IL, LA, MD, NV, NM, NY, OH, OK, OR, TX, VT, VA, WI.In addition, communities in FL, HI and UT have pre-existing authority to create municipal financing districts. New York actually just passed its legislation on Monday night (to cheers on the Delta King), through emergency legislation so that communities in that state could create programs to leverage stimulus funding. Surprisingly, many communities in attendance expressed deep concerns and even reluctance to use ARRA funding through either the state energy programs or the block grant programs to support their PACE programs. The largest concern was that use of ARRA funds would trigger prevailing wage requirements for all work completed in private homes, buildings, and factories financed through PACE.Section 1606 of the Recovery Act specifies that “all laborers and mechanics employed by contractors and subcontractors on construction projects funded directly by or assisted in whole or in part under the Recovery Act must be paid at least the wage rates prevailing in the locality in accordance with the Davis Bacon Act.”There were other concerns about the recently published federal policy framework for those planning to leverage ARRA funding with PACE financing programs, particularly the savings-to-investment ratio requirement.
Other hot debates at this week’s event included: outsourcing vs. in-house program administration, pooled bonding vs. project-by-project micro bonding, choice of interim financing source, and legal validation proceedings to address concerns outside the power of statute. Who knew that a county could sue itself!
These issues aside, the real question is how quickly the PACE model and best practices from the pioneer communities can diffuse across the thousands of other municipalities across the country, including when we will see less affluent cities and counties bring this option to those who need it most.
The wave of PACE programs coming has great potential and couldn’t arrive at a better time.After all, energy efficiency has never been more important.If you have thoughts on how Johnson Controls can help local communities and our customers to leverage the PACE model to rapidly scale energy efficiency and renewable energy investments, please share your ideas.
Impressions and a Challenge from Greenbuild 2009 November 16, 2009 Posted by: johnsoncontrols 09:29 AM
by Steve Thomas, Johnson Controls, Inc.
Excellent educational sessions, inspirational speakers, and more exhibitors than ever marked last week’s Greenbuild conference in Phoenix. The Phoenix Convention Center is an outstanding facility, and rooms for the conference sessions were easy to find and accommodating – although there were still plenty of sessions that were standing room only. The number of exhibitors grows every year, which made it necessary to have two levels of exhibitors in Phoenix – the only possible negative to this year’s event. Still, there was good traffic in the exhibits, and the quality of the attendees was outstanding.
The Green Buildings movement continues to grow and to spread around the world, a point made clear by Rick Fedrizzi, the President of the US Green Building Council, during the opening plenary session on Wednesday night. His comments were brought home by the in-person comments from leaders of Green Building Council chapters from around the world. How quickly this movement has taken hold both here and abroad. For our own part, Johnson Controls has been pleased to be involved with the launch of several Green Building Council chapters in South America – and we now have nearly 800 LEED credentialed employees worldwide.
Al Gore’s talk during Wednesday’s plenary session was at times folksy, often inspirational and ultimately motivational. He called on the thousands in attendance at Chase Field to go beyond what they’ve already done – imploring them to get involved with pushing Congress to pass clean energy legislation in time for Copenhagen. He acknowledged that this would be getting involved with politics – but said this involvement should not be about politics. Rather, it was about doing the right thing for our children and our grandchildren and for generations far into the future.
To paraphrase the crux of his talk, Gore asked, “If you were writing a letter that would be read by your children and your grandchildren at some point in the future, would you rather write a letter about all the reasons why you didn’t get involved in this effort to combat global warming -- or would you like it to be a letter about why you did get involved and about what you did to play a part in making the world and our environment better for the generations to come?”
So which is it? Which letter are you writing?
(Go here to learn about how Johnson Controls is greening new and existing buildings worldwide, and here to read about Johnson Controls activities at Greenbuild.)
Main Street Green: Connecting to the Conversation at Greenbuild 2009 November 09, 2009 Posted by: johnsoncontrols 12:01 PM
This week in Phoenix, an estimated 25,000 will walk through the doors at Greenbuild 2009, the annual conference sponsored by United States Green Building Council (USGBC). It’s one more sign that commitment to greener buildings remains strong as companies, government organizations and others continue to see efficiency as the first and fastest way to cut their energy use and greenhouse gas emissions.
The theme of this year’s conference is "Main Street Green: Connect to the Conversation," and as a Green LEED-er sponsor, that’s precisely where Johnson Controls is as the 2009 conference opens. We’re as committed as ever to helping spread the word that green buildings help make communities – large and small, in the U.S. and around the world – more prosperous and sustainable.
And here are some of the highlights of what we’ll be conversing about at Greenbuild this year:
·Feet on the street: We'll report on our goal (announced at last year's Greenbuild conference) of employing 500 Leadership in Energy & Environmental Design (LEED®) Accredited Professionals. These are our highly-trained people on the streets of communities everywhere who are helping building owners and facilities managers understand the importance and benefits of green buildings.
·Growing our green portfolio: Johnson Controls now manages more than 11 million square feet of LEED certified facility space on Main Street and countless other roads, avenues and boulevards around the globe.
·Making America’s best-known building a model: New York’s Fifth Avenue and West 34th Street may not be what you think of when you hear the words “Main Street,” but the energy efficiency upgrades to the Empire State Building currently underway at that storied intersection will be a model for buildings everywhere.
·Soaking up the sun: What could be more “Main Street” than your local city hall or neighborhood school? That’s where more and more municipal governments and school boards are adopting solar photovoltaic technologies to lower their energy usage and greenhouse gas emissions.
If you’re headed to Phoenix and Greenbuild, look us up at booth #3344. And check out our Greenbuild 2009 web page for more information.
Those are just some of the visions of the future that CEO Steve Roell shares in a recent article in Chief Executive magazine as he "drives a turnaround at Johnson Controls."
