Lexington-Fayette County approves special assessment district to finance energy-efficiency improvements for commercial properties

PACE financing can pay for energy upgrades in new construction, older buildings

LEXINGTON, Ky. (April 17, 2018) — The Lexington-Fayette Urban County Council recently approved legislation creating a county-wide Energy Project Assessment District (EPAD) that will allow property owners to obtain special financing to make energy-efficiency upgrades to commercial, industrial, nonprofit, agricultural, and multi-family properties throughout the county.

In 2015, the Kentucky General Assembly passed legislation that allowed cities and counties to create EPADs, special assessment districts where commercial property owners can obtain Property Assessed Clean Energy (PACE) financing to pay for energy-efficiency improvements made to these properties.

“PACE financing covers 100 percent of the hard and soft costs of energy upgrades, such as solar panels, LED lighting, energy-efficient air conditioning and heating systems, and water conservation projects,” said Chris Jones, director of PACE financing for Energize Kentucky, a nonprofit organization that will administer the program in Fayette County.

“This is done through fixed-rate, long-term loans that require no down payment or personal or business guarantees. The loan is repaid annually through a voluntary special assessment on the property owner’s tax bill.”

About a dozen local governments in Kentucky— including Campbell County and the cities of Covington, Newport, Bellevue, Bowling Green, Owensboro, and Frankfort — have passed legislation creating EPADs within their jurisdictions. With passage of the Urban Council ordinance, property owners or developers of new or existing commercial, industrial, nonprofit, agricultural, and multi-family properties can seek to obtain PACE financing for energy upgrades to these properties.

“I am committed to doing everything possible to make our community more energy efficient,” said Urban County Council At-large representative Kevin Stinnett, who initiated the Council action to create the EPAD in Lexington. “The ability to attain PACE financing will have a significant positive impact on our ability to improve the energy efficiency of new construction projects and renovations.”

For property owners or developers who wish to use of this type of financing, the Urban Council will need to pass separate legislation to approve the use of this financing for each building or project.

“PACE is a flexible financing tool that gives developers a new source of revenue for both new construction projects and building renovations,” Jones said. “Having access to PACE financing is changing how developers think about energy efficiency.”

“To be able to instantly increase your capital stack for these improvements removes the financial burden that this new technology sometimes brings to development projects and makes the goal of an energy-efficient project more attainable.”

How PACE Financing Works

  • A property owner decides to use PACE financing to purchase and install energy-efficiency equipment in new construction of a commercial, industrial, non-profit, agricultural, or multi-family structure or the rehabilitation of an existing building with these uses.
  • If the local government where the property is located is not an Energy Project Assessment District (EPAD), the local legislative body (city or county) must adopt an ordinance creating this district in all or part of its jurisdiction.
  • A PACE program administrator like Energize Kentucky can help property owner find qualified energy-efficiency contractors for the project. The property owner and contractor then agree on a project scope.
  • The property owner submits an initial eligibility form, then an application with an energy project summary to PACE program administrator.
  • If qualified, the program administrator then facilitates financing for the project with PACE lenders. This financing does not require a down payment and covers 100 percent of all of hard and soft costs of energy upgrades with long-term, fixed-rate financing, generally with terms between 15 and 25 years.
  • Program administrator works with local government to approve appropriate PACE financing legislation for this particular project.
  • Local government adds EPAD assessment to the property tax record.
  • PACE lender distributes funds to contractor.
  • Local government places special tax assessment on the property tax bill each year until the loan is paid off.

Local governments also like the PACE program because it promotes economic development in their communities, including the rehabilitation of older buildings with outdated energy systems, which helps to retain existing businesses, Jones said.

The City of Covington was first municipality in the state to create an EPAD after the law went into effect in 2015. Last month, the Campbell County Fiscal Court approved a county-wide EPAD in that county.

“This really speeds up the process for property owners who are interested in pursuing this financing tool,” Jones said. “A process that sometimes took many months to complete can now be completed in just a few weeks with this legislation in place.”

Jones said that Energize Kentucky is speaking with officials in other Kentucky counties to see if they have interest in passing countywide legislation similar to the ordinance approved by the Urban Council Thursday night.

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