STRATEGIC PRIORITY: Economic Development
AGENDA DATE: December 13, 2023
COUNCIL DISTRICT(S): All
DEPARTMENT: Office of Economic Development
EXECUTIVE: Majed Al-Ghafry
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SUBJECT
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Authorize a public hearing to be held on January 10, 2024, to receive public comments on proposed amendments to the City’s Property Assessed Clean Energy (“PACE”) Program Report which enables PACE financing of water conservation and energy-efficient improvements for private commercial, industrial, and multi-family properties within the city of Dallas pursuant to the Property Assessed Clean Energy Act, as amended (Texas Local Government Code Chapter 399) - Financing: No cost consideration to the City
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BACKGROUND
The Property Assessed Clean Act (“PACE”) was enacted by the State of Texas in 2013, and Dallas was one of the first municipalities in the state to establish a PACE Program in 2016. Following a competitive procurement process, Texas PACE Authority, a non-profit organization, was selected as the City’s third-party PACE Program Administrator. The Dallas PACE Program is based on the Texas “PACE in a Box” program model and follows any additional “PACE in a Box” guidance, clarifications, or modifications resulting from the program feedback and improvement process.
PACE financing is an innovative program that allows owners of private commercial, industrial, and multi-family residential properties (with five or more dwelling units) to obtain low-cost, long-term loans for long-term or permanent water conservation, energy-efficiency improvements, and renewable retrofits. The PACE Act authorizes municipalities and counties in Texas to work with private sector lenders and property owners to finance qualified improvements using contractual assessments voluntarily imposed on the property by the owner. In exchange for funds provided by a private lender to pay for the improvements, the property owner voluntarily requests that the local government place an assessment secured with a senior lien on the property until the assessment is paid in full.
The term of an assessment may extend up to the projected useful life of the improvement, which can result in utility cost savings that exceed the amount of the assessment payment. As a result, improvements financed through a PACE program may generate positive cash flow upon completion without up-front, out-of-pocket cost to the property owner.
PACE financing enables property owners to overcome market barriers, such as lack of access to capital and the extended time period it takes for utility savings to pay back the cost of a retrofit, which discourage investment in energy-efficiency and water conservation improvements. PACE financing provides the property owner with upfront financing for up to 100% of the cost of qualified improvements and allows the property owner to amortize the debt over the useful life of the qualified improvements.
Over the past seven years, in partnership with Texas PACE Authority, the City of Dallas Office of Economic Development has facilitated (11) PACE financing projects in Dallas resulting in a total PACE investment of $126,852,250.00 as well as an estimated 15,788,976 kWh of energy saved per year, 10,591,500 gallons of water saved per year, 15,319 MMBtu of natural gas saved per year, and 9,028 tonnes of carbon dioxide reduced per year.
The Dallas PACE Program furthers the objectives of the City’s Comprehensive Environmental and Climate Action Plan (CECAP) which focuses on eight sector goals encompassing buildings, energy, transportation, solid waste, water resources, ecosystems and green space, food and urban agriculture, and air quality. Through CECAP, the City is committed to exploring alternative financing mechanisms and partnerships that support accelerated retrofits in the existing building stock. In support of this effort, the Office of Economic Development has been deploying the Dallas PACE Program. Additionally, ensuring affordable access to renewable energy is one of the CECAP’s primary goals. City staff estimates that nearly 15,000 commercial, industrial, or multi-family housing properties in Dallas may be eligible for PACE financing based on building condition.
Over the past three years, the PACE in a Box program model has been updated by Keeping PACE in Texas, a volunteer coalition of stakeholders in the Technical Standards Working Group and the Underwriting Working Group. Updates to the PACE in a Box program model have made new construction and refinancing projects easier to qualify for PACE financing by providing additional clarity and guidance for the statutory interpretation of “intent” and “undeveloped lots” in the PACE Act. Additionally, in December 2022, the United States Department of Housing and Urban Development (“HUD”) authorized the use of PACE financing for HUD and Federal Housing Administration multi-family residential properties in regions where Texas PACE Authority serves as the program administrator. HUD’s approval is the culmination of a 6-year effort by Texas PACE Authority and now empowers developers, owners, and lenders in Dallas to utilize PACE financing to improve, retain, and expand much needed multi-family housing.
As a result of these updates to best practices and technical guidance (as well as refinement of internal processes regarding City staff’s administration of the Dallas PACE Program), City staff is now proposing corresponding amendments to the Dallas PACE Program Report, including the attached template legal documents (Owner Contract, Lender Contract, and Notice of Contractual Assessment Lien). Additionally, City staff is proposing the removal of the City of Dallas administrative fees for future projects as part of the Dallas PACE Program transactional closing process.
PRIOR ACTION/REVIEW (COUNCIL, BOARDS, COMMISSIONS)
On November 6, 2023, tThe Economic Development Committee was briefed on the “City of Dallas Property Assessed Clean Energy (PACE) Program Update” on November 6, 2023 by memorandum regarding this matter.
FISCAL INFORMATION
No cost consideration to the City.