Author: Chairman Birdwell

Referred: Senate Committee on Natural Resources and Economic Development

Purpose: to improve uniformity, ease of use, and best practices for the Texas PACE Act and to reduce burdens on local governments

What is PACE?

Property Assessed Clean Energy (TX-PACE) is a proven financial tool that incentivizes Texas’ property owners to upgrade facility infrastructure with little or no capital outlay. Approved by State legislation and established by 25 local governments, TX-PACE programs enable owners to lower their operating costs and use the savings to pay for eligible water conservation, energy efficiency, resiliency, and distributed generation projects. Owners gain access to private, affordable, long-term (typically 10-20 years) financing that is not available through traditional funding avenues. A county or municipality must establish a PACE program before it is available. There is no cost to the local government, and the local government has no liability for PACE projects. Statute: Texas PACE Act, Chapter 399 of the Local government Code (R83, SB385)

What is Texas PACE in a Box?

Plug and Play Model program: PACE in a Box (TX-PACE), established in 2014 by over 130 volunteers (business organizations, local governments, contractors, property owners, lenders, etc.) who looked at best practices and lessons learned in other states and designed a turn-key solution (program, process, standards & documents) with a high bar of program design, underwriting, and technical standards protections while protecting local governments (no cost or liability) and minimizing impact on staff. This effort, the equivalent of a modern day barn raising, resulted in a flexible, free market PACE model that other states are copying.

Proving the Concept:

26 local jurisdictions reaching over 43% of the Texas population adopted PACE in a Box programs. $42.7 million invested in 17 projects to date bringing new investment in Amarillo, Austin, Bryan, Cedar Park, Cypress, Corsicana, Dallas, El Paso, Elgin, Houston, Round Rock & San Marcos. In December, a Texas community bank closed the first local lender funded PACE project, proving the concept that TX-PACE can benefit all sectors of local economies.

So why change the current system?

The current expansion of the PACE program one local government at a time is inefficient, is burdensome to local governments, and is beginning to strain the commitment to the core principles of the PACE in a Box model program (Uniformity, ethical administration, high bar of UNIFORM underwriting and technical standards, one set of documents, ensuring that investment capital is focused solely on energy and water saving measures, ensuring that the PACE program is available across Texas.

Colorado took the TX-PACE in a Box model to the next level by issuing an RFP for a state-wide program administer reporting to the Colorado Energy Office in the Governor’s Office and counties desiring to participate can opt into the program. This is a good evolution for a Texas-sized economic development tool.

Next Steps, S.B. 1281

With 254 counties and over 1,200 municipalities, it doesn’t make sense to keep asking each local government to establish its own program, create uniform documents and policies and oversee a local program in order to bring state-wide uniform benefits to its local business community.

A common sense adjustment/ evolution is to establish and administer one state-wide PACE program of best practices and invite local governments to opt-in if they so choose. The program will be overseen by the State Energy Conservation Office (SECO) in the Comptroller’s Office using its existing authority. By amending the PACE Act to rely on SECO to issue an RFP selecting a third-party to administer the program, this bill will create the most efficient, cost effective way to bring the Texas sized PACE Economic Development program to all of Texas.

By eliminating the burdens of establishing and administering local programs and enabling local governments, instead, to opt into one inclusive program, this bill is intended to expedite the availability of the PACE program in all parts of Texas, so that rural and urban businesses can take advantage of PACE to address deferred maintenance with energy and water saving improvements.

One uniform program has significant advantages:

• Eliminating multiple local program overheads will spread costs to a more efficient, larger market, reducing cost for all participants
• Ease of use and lower transaction costs result when stakeholders have to learn only one program; avoids confusion when programs differ along county/city lines
• Owners of property throughout Texas can close multiple PACE projects in multiple jurisdictions with ease and economies of scale
• One Texas market enable local lenders (banks and credit unions) to offer PACE financing to their customers and sell the long-term projects in a large scale secondary market, overcoming the challenges of holding the projects for 20+ years.
• Local lender participation will enable PACE financing to be more readily available in smaller communities, rural areas and agriculture

• Facilitate expansion into rural and border areas where standing up a local program in a small market is more difficult, yet vital; rural communities, farmers, and industrials – all market areas where water and energy savings can be significant to these businesses and the communities
• Uniform underwriting and technical standards across the state will result in uniform training, review of projects, quality control and application by keeping quality program protections in place;
• Uniform application of the program will enable uniform collection of statewide project data (resulting energy and water savings, impact on clean air, jobs, etc.) using the TX-PACE Energy and Emissions Tracker data base created by the Houston Advanced Research Center. The data will be valuable in establishing measurable energy efficiency improvements in Texas.

Oversight by SECO in the Comptroller’s Office has significant advantages:

• SECO can execute the RFP and oversee the third party administrator using existing statutory authority and with deep expertise of energy and water efficiency, on demand and distributed generation technologies and implementation.
• SECO has deep expertise in oversight of energy and water saving projects in the public sector. SECO has administered the LoanSTAR Revolving Loan Program, for over 20 years. The program has loaned over half a billion dollars with a zero default rate.
• SECO leadership chaired the working group that designed the Technical Standards for the PACE in a Box program and has a deep knowledge of the TX-PACE program
• Oversight of this financing program by SECO in the will ensure the highest ethics to ensure that the third-party administrator is acting only as a government representative and does not engage in any market activity that it oversees.
• Because the PACE in a Box market is already underway reflecting SECO’s expert advice, oversight will require minimal staff time and should not result in a minimal fiscal note, if any.