Property-Assessed Clean Energy (PACE) financing effectively allows property owners to borrow money to pay for energy improvements. The amount borrowed is typically repaid via a special assessment on the property over a period of years. In May 2009, Maryland enacted legislation permitting counties and municipal corporations to adopt resolutions or ordinances establishing clean energy loan programs based on the "PACE" model. The legislation includes provisions permitting local governments to issue bonds to fund such financing programs. If adopted by a local governing body, the program allows local property owners to opt in to a renewable energy or eligible energy-efficiency loan program and repay the loan through a surcharge on their property tax bill. The surcharge remains attached to the property upon a change in ownership and is limited to the amount needed to recover costs associated with issuing bonds, financing the loans, and administering the program.
The authorizing legislation describes a series of details that must be included in the local legislation implementing such financing programs, although specific details are largely left at the discretion of the local government. Local governments may generally specify property owner eligibility, eligible improvements or technologies, and loan terms and conditions. However, the state legislation specifically prohibits commercial renewable energy projects larger than 100 kilowatts from participating in local clean energy loan programs. In addition, it dictates that local eligibility requirements for property owners address their ability to repay a loan through a process similar to mortgage loan approval. For a bond issuance, the local government may specify the principal amount, interest rate/variable rate, terms of sale, payment intervals, conditions for redemption before maturity, and other details as necessary. Bonds (serial or term) issued under this provision must mature no later than 40 years after their issue date.
The Federal Housing Financing Agency (FHFA) issued a statement in July 2010 concerning the senior lien status associated with most PACE programs. In response to the FHFA statement, most local PACE programs have been suspended until further clarification is provided.
In 2014, the Maryland legislature passed HB 202 (Chapter 473 of the 2014 Law of Maryland) that grants local governments the power to enact a surcharge on a clean energy system owner’s property tax bill to recover the cost associated with financing the loan and administering the loan program. Unpaid surcharges become liens on the property until paid. The bill also gives local authorities greater leeway work with private lenders to make loans to property owners under a local loan program. The changes enabled by H.B. 202 will help local governments implement programs.