Started in the green revolution’s holy land, Berkley, California, PACE financing is shorthand for Property-Assessed Clean Energy Financing (Wikipedia entry).

The concept is simple: cities loan money to property owners to install clean energy equipment. The loans are then repaid to the city through annual property tax assessments.

As originally conceived, it’s a win/win/win situation really. Property owners get funds to improve their property, paying back the loan with money saved in the the property’s reduced operating expenses. Cities and communities benefit by upgrading its overall energy efficiency. Businesses and efficient energy investors benefit because the market grows for its products.

All was going very well for PACE Financing. PACE legislation was passing across the country, and President Obama’s administration wholeheartedly supported PACE programs.

This progress came to an abrupt halt in June 2010, when the Federal Housing Financing Authority (FHFA) dropped this news: Properties with PACE loans cannot be purchased by mortgage giants Fannie Mae and Freddie Mac.

Why not?

Well, PACE loans create a lien against properties similar to a tax lien, meaning that the lien has priority over all other debts (including mortgages). The value of these loans can be between $10,000 and $100,000, and sometimes more. The problem for these mortgage holders is obvious, as they are losing priority on their collateral.

The news from the FHFA caused more than $150m in funding to get yanked by the US Department of Energy, and has some predicting the demise of PACE Financing as we know it. And they may be right.

Can PACE Be Saved?

The question now is whether these PACE Programs can be saved. While I believe they can be, I don’t think the programs will be unaffected by the FHFA determination. Here is a few things that are happening to help PACE stage a comeback, and a glimpse at how this might affect the PACE Programs:

1) California is Fighting It: First, Sonoma County and the California Attorney General have both separately filed suit against the FHFA claiming that the determination is wrong, or that FHFA lacks jurisdiction to make the determination on behalf of states and counties.

2) Legislation is Being Proposed: The US Congress (as well as local reps and senators) are introducing bills aiming to protect PACE financing programs. One such bill is the PACE Assessment Protection Act of 2010.

3) Re-Thinking PACE: States may be ready to re-think the way they structure these PACE programs, and provide some protections for mortgage companies. While not passed in response to the FHFA announcement, Louisiana’s new PACE egislation may have predicted these problems, as it greatly accommodated mortgage holders. The PACE legislation from the 2010 session, for example, requires enough equity in the house to support the loan, and requires permission from the mortgage holder for commercial loans greater than $100k (talked about in this post)

4) Commercial Focus: The FHFA restriction really affects the residential markets only. As such, many states and municipalities may be re-focusing their PACE programs on the commercial market. One example of this is New Orleans, who anticipated launching a PACE district with the help of funding from the US Department of Energy’s America’s Solar Cities program. The city says they plan on moving forward with the district, except it will only be for commercial PACE loans.

Hey, What Does This Have To Do With Construction?

The PACE Financing Programs has a lot to do with construction and construction law. You may or may not know, but our firm publishes two blogs that focuses on green building laws: The Louisiana Green Building Law Blog and the Northwest Green Building Law Blog. I am also a LEEP AP, and focus part of my practice on green building issues.

I recently wrote a blog post called: Think Green Building is Irrelevant? Think Again. The post discussed a report published by NPR saying that green building accounts for 33% of new construction in the United States. That’s a remarkable number. And if these PACE Programs get off the ground, the existing construction green building numbers will be driven up significantly.

Stay tuned.

The 2010 Legislative Session closed earlier this summer, and most of the passed laws are now in effect. It was a very active legislative session, and a very interesting one for the “green” interests. This post breaks down some of the more significant green legislation and links to PDFs of each relevant Act.

HB 973 – Amendments to PACE Financing Program

In the 2009 session, the legislature passed Act 348 creating sustainable energy financing districts in the state. As passed in 2009, the program was in the spirit of PACE Financing…but not quite there. The amendments in this Act make the SEFD (Sustainable Energy Financing District) a traditional PACE program. The amendments require all city loans to get paid back through property tax assessments. Now…Louisiana will likely have to wait and see how the Obama / California v. FHFA fight turns out to see if PACE Financing programs are viable any longer. The act amends La. R.S. 130.812. View HB 973. Sponsored by Representative Foil.

HB 699 – Oversight and Audit Additions to Performance Based Energy Contracts

How can a company guarantee the city will see energy savings? How does a city keep up and audit this? These are questions that Louisiana’s Performance-Based Energy Efficiency Contracts have struggled with, and that this law hopes to answer. The Act adds an “Energy Efficiency Procurement Support Team,” a few additional lawyers of administration and more rigid auditing requirements. The Act amends La. R.S. 39:1496. View HB 699. Sponsored by Louisiana Representative Geymann.

SB 103 – Alternative Fuel Vehicle Revolving Loan Fund

Senator Gautreaux wants Natural Gas to be a big deal in Louisiana. Why? Because Louisiana is the nation’s largest source of natural gas. Natural Gas vehicles are an excellent use of the natural gas resource, but the old “chicken or the egg” problem persists. Without natural gas fueling stations, folks won’t buy the vehicles. Without the vehicles, there’s no need for fueling stations.

The concept of this Fund is to create below market interest loans for public entities and subdivisions, for use of them to purchase or convert their fleets to CNG vehicles. This fund is not “funded,” meaning the state hasn’t allocated any money to actually offer these loans yet. But, they are getting ready to make the offering to give cities state-wide incentive to convert their fleets. Act enacts La. R.S. 33:1419. View SB 103. Sponsored by Louisiana Senator Gautreaux.

SB 183 – State Leases for Alternative Energy Production

Previously, the Louisiana Department of Natural Resources and State Mineral and Energy Board could only lease state land for the production and development of oil, minerals and gases. This law changes this slightly, allowing state land to also be leased through these departments for the development and production of “alternative energy sources.” The Act amends La. R.S. 30:124. View SB 183. Sponsored by Louisiana Senator Gautreaux.

SB 624 – Energy Rebates for Mega-Projects

This bill applies only to mega-projects in Louisiana. A mega-project is defined as one that brings 500 direct new jobs to the state, or a $500m facility. If a major operation cost for the mega-project is energy consumption, and if energy savings is a priority factor to get the mega-project in Louisiana, this law allows the state to offer a rebate of severance taxes equal to the natural gas consumption of the mega-project. The Act enacts La. R.S. 51:2366. View SB 624. Sponsored by Louisiana Senator Marionneaux.

SB 648 – Changes to Louisiana Appraisal Law

A simple bill making a change to the definitions portion of the Louisiana Appraisal Law. The change requires an appraiser to consider the energy efficiency of a property when estimating its value. The Act amends La. R.S. 37:3392. View SB648. Sponsored by Louisiana Senator Hebert.

HB 751 – Right to Install Solar Collectors

A simple bill prohibiting “unreasonable restrictions” on a property owner’s right to install solar collectors at its property. The Act enacts La. R.S. 9:1255. View HB 751. Sponsored by Louisiana Representative Foil

HB 733 – Carbon Sequestration

A bill authorizing the Department of Agriculture and Forestry to participate “to the fullest extent possible” regarding carbon sequestration and reduction of emissions of carbon dioxide. Enacts La. R.S. 3:1221. View HB 733. Sponsored by Louisiana Representative Anders.

Read our summary of the 2009 Green Legislation here and here.

Tomorrow, I’ll be presenting the 2010 “Green” Legislation Briefing at the Federal Reserve Bank of Atlanta (New Orleans Branch) on St. Charles Ave. The event is being put on by the Greater New Orleans, Inc. / Green N.O., the Greater New Orleans Home Builder’s Association and the Federal Reserve Bank of Atlanta.

The presentation will focus on the legislation passed in Louisiana during the 2010 session, specifically focusing on “green” legislation (related to sustainable practices, energy credits and incentives, PACE Financing, etc.).

The slides have now been published on SlideShare and can be viewed below, or at my Slideshare account.

By the way the city is feverishly writing parking tickets, it seems like Orleans Parish is in need of some new revenue streams. One possible green solution would be to mimic the actions of Maryland’s Montgomery County Council, who just a few weeks ago passed a Carbon Tax.

Montgomery County is the first in the nation to pass such a forward thinking tax. Although, this tax will only apply to one coal powered energy plant, it is a step in the right direction. A Carbon Tax defined as a “tax on carbon dioxide emissions from burning fossil fuels.”

This action may be viewed as anti-business, it places a value on carbon emissions and will encourage big business spend less by polluting less. Keith Harrington was present at the counsel vote in Maryland and his blog post describes a riot like atmosphere.

South Louisiana is not a beacon for its green initiatives, but we have many polluters with deep pockets. Ideas like the one in Montgomery County could spur much needed income for cash strapped, cities, parishes, and the state government.

This innovative idea by the Maryland County has caught the eye of green leaders like former Vice-President, Al Gore in a recent post. According to Gore, other cities have passed similar taxes but Montgomery is the first County. Who will be the first State?

With all of the talk in South Louisiana being focused on the oil spill and cleaning up the damage to our environment, government leaders should be looking for proactive means to put Louisiana back in a positive light. Passage of similar types of litigation is good for the air we breathe and our pocketbook.

For more information on Carbon Taxes visit the Carbon Tax Center.

The International Energy Agency (IEA) has recently indicated that it expects solar power to generate between 20-25% of electricity production for the entire world by 2050. What does this mean? This is a potentially HUGE market.

Folks in Louisiana like to mock their state as being backwards and corrupt. Without commenting on that, I can tell you that Louisiana is very forward-thinking when it comes to solar power and solar panel installations. In fact, the state is leading the nation in tax credit offerings and other legal benefits to installing solar power generation equipment at your home or business.

This is not a secret to readers of the Louisiana Green Building Law Blog, as it’s been posted about frequently in the past.

It’s also no secret to companies in Louisiana already taking advantage of the tax credit structure, like South Coast Solar, who posted this recent post: Louisiana Has Top Tax Credit for Solar Panels.

Solar energy is a great opportunity for businesses and consumers. Learn more about the tax credits offered by the above-provided links.

The U.S. Department of Energy has a “Solar America Cities” program, whereby it works in partnership with U.S. cities to accelerate the adoption of solar energy technologies for a cleaner, more secure energy future. There are 25 major U.S. cities on the list, and New Orleans is one of them.

If you’re in or around the city, it’s hard not to notice that we’ve got a vibrant market for solar energy technologies. Here are just a few companies offering solar products and installations (and doing well at it):

• South Coast Solar
• Gulf South Solar
• Louisiana Solar Works
• Joule Energies

Why so much hype about solar energy products? Well, for two reasons really.

First, solar energy is cheaper than the energy you get from Entergy because you’re getting it from the sun. Second, government tax rebates and credits make it super affordable and practical to invest in solar technology for your home or business.

The State Tax Credit

What’s great about the state tax credit is that Louisiana will actually write you a check if the credit results in an overpayment of your state income taxes.

Right now, the credit applies to residential and apartment projects, and provides a credit of 50% the cost of the system & its installation. The available credit is maxed out at $12,500.00, but you can install multiple systems on the same building and claim an additional credit.

How To Apply for State Tax Credit

Applying is a synch. You’ll need to fill out Louisiana Department of Revenue form R-1082, and file it.

You also need to provide the Department of Revenue with the following “proof of purchase:”

1. type of system applying for the tax credit;
2. output capacity of the system:
   1. Solar Electric System: total nameplate listed kW of all installed panels;
   2. Solar Thermal Systems: listed SRCC annual BTU or equivalent kWh output;
   3. Wind Electric Systems: total rated kW of all alternators and generators;
   4. Wind Mechanical Systems: shaft horsepower as rated by manufacturer, licensed contractor or licensed professional engineer.
3. physical address where the system is installed in the state
4. total cost of the system as applied towards the tax credit separated by:
   1. equipment costs;
   2. installation costs;
   3. taxes;
5. make, model and serial number of generators, alternators, turbines, photovoltaic panels, inverters, and solar thermal collectors applied for in the tax credit.
6. name and Louisiana contractor’s license number of installer.
7. copy of the modeled array output report using the PV Watts Solar System Performance Calculator developed by the National Renewable Energy Laboratory and available at the website www.nrel.gov/rredc/pvwatts. The analysis must be performed using the default PV Watts de-rate factor.
8. copy of a solar site shading analysis conducted on the installation system using a recognized industry site assessment tool such as a Solar Pathfinder or Solmetric demonstrating the suitability f the site for installation of a solar energy system.

It Matters Who Installs Your System

Not just anybody can install your renewable energy system. The Notice of Intent Letter from the Louisiana Department of Revenue regarding these credits provides the following requirement about contractor qualifications:

All installations must be performed by a contractor duly licensed by and in good standing with the Louisiana Contractors Licensing Board with a classification of Solar Energy Equipment and a certificate of training in the design and installation of solar energy systems from an industry recognized training entity, or a Louisiana technical college, or the owner of the residence

You Can Get Federal Credits Too

In addition to the 50% Louisiana Tax Credit, you can also apply for the 30% federal tax credit for the same system. The details for this is for another time and place, but for now, take a look at the Legal Guide I published on Avvo.com in March 2010 here: How to Claim A Federal Tax Credit for Solar or Renewable Energy.

Well we may not be the most “green” state in the union; but according to Green Scene Magazine we are the most favorable and offer the best rebates on solar additions to your home.

According to the magazine the Louisiana Legislature in 2007 enacted some of the most progressive legislation in the country giving up to a 50% rebate on your taxes on solar and wind systems installed (up to $25,000 per system). The best part is that if you reach how much you owe in taxes, then the state will send you a check for the rest. This is truly remarkable and seems almost too good to be true.

For more information See La. R.S. 47:6030 and its subparts.

This 50% savings from the Louisiana government can be lumped with the 30% by the Federal government as provided by the recent economic stimulus bill.

There are two Louisiana companies that are leading the way in this solar revolution, Gulf South Solar and South Coast Solar. These two leaders are experienced with the technology and they can aid in the paperwork regarding the refunds.

WWL recently wrote an article on the Louisiana Legislature offered refund. According to this article the new legislation opened the door, not only to residents but to developers and third parties to get the credit. WWL describes somewhat of a lease to own system whereby you lease and pay the solar company a monthly bill until a certain amount then you simply purchase the system for a dollar.

This is an effort to help spur developers when they are planning communities in the future. Who would have ever thought that Louisiana would be a pioneer in re-useable and renewable resources. The only way that we will ever see the benefits of this legislation is to get out and take advantage of it before it is too late. So instead of complaining about the heat all the time, try making it work for you and let the Sun save you cash.

A May 2009 press release from Louisiana Senator Neil Gautreaux’s office explains that the proposal of Senate Bill 91 gained unanimous support after a group of fifth graders testified on behalf of the legislation and urged state legislators to “go green.”

While still pending in Baton Rouge and not yet on its way to the governor’s desk, the “green building” bill is one of the more aggressive green building tax credits proposed in the nation.

Senator Gauthreaux’s office sells the bill in their press release with the following:

This tax credit, combined with the federal tax credits, will make our state a leader in incentives for the promotion of alternative energy…Besides promoting the adoption of resources that generate safe, efficient and clean energy, the tax incentives will also be a boon to economic development by creating new “green jobs.”

Summary of Senate Bill 91

Summary: Grants a transferable tax credit until January 1, 2013 for income and franchise franchise taxes of 25% of the costs and expenses attributable to the construction or for the installation of certain qualified energy systems on and after January 1, 2009 limited to $450,000 per system.

Status: Pending in Conference Committee

Qualifying Energy Systems: Wind, Solar Energy, Small irrigation power, Open-lop and closed-loop biomass, geothermal energy, and more.

Read the full text of Senate Bill 91.

Are you absolutely confused about “green tax credits?”

We hear the terminology enough, as green building and green products aren’t short on press coverage. Too often, however, it seems that the tax credit system isn’t actually explained, and one is left to wade through Google searches to understand how to qualify for these tax breaks.

Tax Credits for Home Builders

Yes, you read that correctly….there are tax credits available to home builders who build homes to certain energy standards. These tax credits apply to builders of new manufactured or non-manufactured homes.

This is a great way for home builders to make extra money on a home building project, and can be especially beneficial to home builders who build tens or hundreds of homes each year.

Each new home that achieves 50% more energy savings from the 2004 International Energy Conservation Code (IECC) qualifies for a $2000 tax credit. A 30% energy savings qualifies for a $1000 credit. Builders simply need to fill out and return IRS Form 8908.

To qualify for these credits, the home must be completed after August 8, 2005, and sold between Jan. 1 2006 and December 31, 2009. Builders who have built qualifying homes, but did not apply for the credit, can still apply.

We’re still waiting to see whether these credits are extended past the end of the year. More detailed information about the IECC and the tax credits can be found at this link: http://www.energystar.gov/index.cfm?c=tax_credits.tx_hm_builders

Tax Deductions for Commercial Buildings

Environmental tax credits are not just for residents and residential builders.

To understand these available deductions, it’s important to read about and understand the ASHRAE Standard 90.1 2001.

Commercial buildings qualify for a tax deduction up to $1.80 per square foot when new or existing commercial buildings save 50% of the heating and cooling energy of a building that meets ASHRAE standards.

The amount of deduction depends on the building savings. The deduction can be made to the owner or designer of the building. They are available for HVAC systems placed in service from Jan 1 2006 through Dec 31, 2013.

Check out IRS Notice 2006-52 for guidance on how to make these deductions. Check out this link for more details: http://www.energystar.gov/index.cfm?c=tax_credits.tx_comm_buildings

Tax Credits for Homeowners

Far and away, the most available tax credits are available to homeowners.

For existing homes in 2009 and 2010, homeowners can get up to 30% of the cost for energy efficient installations of windows and doors, insulation, roofs, HVAC systems, water heaters and biomass stoves.

For new and existing homes through the year 2016, tax credits are available to homeowners of up to 30% the cost of energy efficient installations of geothermal heat pumps, solar panels, solar water heaters, small wind energy systems, and fuel cells.

Information on each available credit is available at this link, in easy to understand language: http://www.energystar.gov/index.cfm?c=tax_credits.tx_index

How to Get A Better Grip

Learning more about available tax credits is both easy and hard for the same reason: there is a of information on the subject out there.

Here are some good resources:

http://www.energystar.gov/taxcredits (the BIBLE of energy tax credits – including a summary chart of tax credits for homeowners)

The Tax Incentive Assistance Project (TIAP)

Read about pending Tax Credit Legislation

Check Out this Residential Flyer from the TIAP

Check Out this Commercial Flyer from the TIAP

Governor Bobby Jindal signed two Green Building bills into law this July 2009.

The first, Act 348, authorizes the creation of sustainable energy financing districts and was authored by Senator Nick Gautreaux. The second, ACT 520, authorizes a tax credit for certain green job industries, and was authored by Representative Walt Leger.

The two acts provide green building contractors and businesses, and the purchasers of those products and services, some of the most beneficial tax incentives in the nation. The new laws also help Louisiana hold its ground in the national green building boom.

Act 348 – Gautreaux (LA R.S. 33:130.790 – 793)

The digest of Act 348 only scratches the surface for the green building opportunities created by this act. Here is the official summary for the Act:

Authorizes creation of sustainable energy financing districts by local governmental subdivisions and provides for issuance of bonds and property assessment programs for solar and energy efficiency projects.

The effect of this act, in plain english, is to allow local governments and subdivisions to incur debt for the purposes of providing these “energy financing districts” with necessary funds to cover the cost of energy efficiency improvements or renewable energy improvements.

These loans are made directly by the district to the home or property owner, and can be paid back over a twenty year period. Property owners can even make arrangements to pay back loans through its payment of annual property taxes.

On July 7, 2009, Governor Bobby Jindal caused Act 348 to become law. Time will tell whether local government subdivisions will take advantage of the new law and start offering loans to homeowners and property owners who are interested in making green building improvements to their properties.

If these loans become available, and used, it could lead to an enormous amount of green building projects throughout Louisiana. Read the full text of Act 348

Act 520 – Leger (La R.S. 47:6035)

According to the New Orleans’ Times Picayune article on Act 520, the tax credit system created by this proposal is similar to the tax credits offered to filmmakers in Louisiana. State Representative Walt Leger hopes to lure green businesses to Louisiana through the same trick that helped coin New Orleans’ “Broadway South.”

The tax credits are explained in the Times Picayune Article as follows:

Working on a tiered system that offers 10 percent to 25 percent, based on how much companies spend, the tax credit applies to the start-up costs of a new green business as well as to the payroll of each new green job…As defined in the bill, green jobs and industries can include a wide range of potential businesses, including renewable energy services, green building and construction, weatherization, energy rating, biofuels, energy-efficient transportation, deconstruction and green product manufacturers.

The potential reach of the new legislation – known as the Louisiana Green Jobs Initiative – is wide.

With the post-Katrina construction silver lining, the injection of stimulus cash, and the national (and local) green building boom…Louisiana’s Green Market may be in for a perfect storm in 2009 and 2010.

Read full text of Act 520.