DC PACE Security Structure: Overview
Background on PACE Assessments
The Property Assessed Clean Energy (PACE) program of the District of Columbia
provides financing for energy and water saving infrastructure upgrades through a
special real estate tax assessment administered by the DC District Office of Tax and
Revenue (OTR). These projects are underwritten to ensure that utility savings
exceed the cost of debt service payments, and consent to the PACE assessment is
secured from any primary lien holders on the property as part of the approval
process.
A PACE agreement establishes a special assessment similar in its administration and
structure to many other common tax assessments that repay the cost of installation
for infrastructure upgrades, including gas mains, sewer lines, and curb
improvements. The special PACE assessment is administered by the DC OTR,
through the same administrative mechanism with which they manage repayment of
Tax Increment Financing (or TIF) notes. The billing and management of the PACE
program is also modeled directly on the implementation of Business Improvement
District (or BID) taxes. An additional corollary for the PACE note can be found in
Payment In Lieu of Taxes (or PILOT) agreements, which were used as the precedent
structure for establishing the legal documents underlying the PACE note. In
addition, PACE is very similar to “Front Foot Benefits Charges” attached to real
estate taxes for repayment of water lines and other private infrastructure
investments.
The District of Columbia’s PACE assessment is recorded as an “agreement” in the tax
record, and does not establish a tax lien on the property, except in the event of
default. Like a TIF note, PILOT agreement, or Front Foot Benefits Charge, if a default
in payment occurs, only the outstanding semi-­‐annual charges are deemed to be
delinquent. The remaining PACE assessment does not accelerate, and instead
transfers with the title to subsequent property owners as an ongoing annual tax
obligation.
DC PACE Commercial
Core Closing Documents
The PACE transaction structure allows a special property tax assessment from the
District of Columbia’s Office of Tax and Revenue, to secure repayment of private
financing for energy and water saving building upgrades.
Governing PACE Transaction Documents – Five key documents, developed by the
District of Columbia and DC PACE, are required for establishment of the PACE
security and repayment structure. These are as follows:
1. Energy Efficiency Funding Agreement: Agreement between the
property owner, the capital provider, and the District government that
initiates the flow of funds from the capital provider to the property owner
and provides the foundation for the other four documents.
2. PACE Consent Agreement: This agreement between the property owner
and the DC Government allows for the creation of a special assessment on
the tax bill.
3. Memorandum of Special Assessment: This PACE assessment is
attached to the property title and establishes the tax collection authority
on the property.
4. PACE Revenue Note: This revenue note is issued by the DC Government
to the capital provider to secure their investment in the PACE
financing. The note has recourse to the remedies provided by the Special
Assessment.
5. Paying Agent Agreement: Allows for management of funds by the
Paying Agent for orderly repayment of the PACE Assessment with
proceeds received from the Property Owner in repayment of the PACE
Assessment.
Further documents may also be requested at the discretion of the capital provider,
the property owner, or other parties, to structure and secure the financing
agreement and terms of repayment. Such additional documentation would not be
required by the DC PACE Commercial program, and would be project specific. These
documents might include construction contracts, draw schedules, settlement
statements, or other such documents refining the terms of the agreement.
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Overview of DC PACE Security Structure & Collections:
The following flow charts provide a schematic description of the PACE assessment
structure within the District of Columbia.
The property owner pays the PACE assessment in conjunction with District of
Columbia real estate taxes. Payment is collected and enforced as a tax bill, by the
District Office of Tax and Revenue (OTR).
The mortgage lender may achieve added security by establishing an escrow of PACE
assessment payments along with property taxes, and the lender retains the right to
pay any outstanding balance of these obligations, to avoid tax delinquency.
In the event that the property owner fails to make timely PACE assessment
payments, but funds are advanced by the mortgage lender, the lender will then have
access to the same remedies as in a failure to make real estate tax payments, and
could declare a default on their existing mortgage agreement.
In the event that both the property owner and mortgage lender do not make timely
payment of the PACE assessment, a tax certificate will then be established by the
District OTR. This tax certificate can be assigned to the mortgage lender in exchange
for agreement to make payment on any outstanding PACE assessments.
Security Structure: A PACE assessment in Washington, DC, is secured by five key
transaction documents issued by the District government. These legal agreements
establish the security and repayment mechanisms underlying the PACE assessment,
and are based on the structure of a Payment in Lieu of Taxes (PILOT) agreement.
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Collection Process: In the event of delinquency in payment of the PACE tax
assessment amount, the enforcement mirrors real estate tax collection procedures,
with the exception that the tax certificate can be assigned to the lender (or other
party) agreeing to make payment of delinquent PACE assessments, without
requiring a tax auction.
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Legislative Foundation for DC PACE Commercial:
The statutory basis for the DC PACE Commercial program is contained in two pieces
of legislation: The Energy Efficiency Finance Act of 2010, and the Sustainable DC
Amendment Act of 2012. The history of these laws is as follows:
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Legislative History of Law 18-183
Law 18-183, the "Energy Efficiency Financing Act of 2010", was introduced in
Council and assigned Bill No. 18-580, which was referred to the Committee
on Finance and Revenue and the Committee on Government Operations and
the Environment. The bill was adopted on first and second readings on
March 2, 2010, and March 16, 2010, respectively. Signed by the Mayor on
April 7, 2010, it was assigned Act No. 18-382 and transmitted to both Houses
of Congress for its review. DC Law 18-183 became effective on May 27, 2010.
Legislative History of Law 19-262
Law 19-262, the "Sustainable DC Amendment Act of 2012," was introduced
in Council and assigned Bill No. 19-756. The Bill was adopted on first and
second readings on Dec. 4, 2012, and Dec. 18, 2012, respectively. Signed by
the Mayor on Jan. 16, 2013, it was assigned Act No. 19-615 and transmitted
to Congress for its review. Law 19-262 became effective on Apr. 20, 2013.
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