Property Assessed Clean Energy (PACE) programs provide a financing solution for energy efficiency upgrades using special property tax assessments. This approach tackles the significant barrier of high upfront costs that can prevent property owners from implementing clean energy improvements.
Special assessments are established municipal financing tools traditionally used for public infrastructure. These assessments are “special” because they target specific property groups smaller than the entire municipality—like neighborhoods funding street lighting or sidewalks, or larger areas extending wastewater services.
PACE innovates by applying this mechanism to individual properties for improvements that benefit both the owner and the environment.
Key PACE Characteristics
In the PACE model, improvement costs become a special assessment on the property, repaid through the existing property tax system. This arrangement offers several advantages:
- The assessment attaches to the property, not the owner personally.
- The obligation transfers with the property when sold.
- Payments are classified as operating expenses, like other property taxes.
- Repayment terms extend up to 30 years, aligning with the improvements’ useful life.
Innovative Financing Mechanism
PACE’s innovation lies in leveraging municipal authority without requiring public funds. Municipalities use their legal power to issue municipal securities, raising private capital while providing the framework to issue debt and collect property taxes.
Importantly, municipalities incur no expenditures, as all administrative costs—issuing bonds, program management, and tax collection—are incorporated into property owners’ loans. The bonds are secured exclusively by special tax assessments on participating properties.
Implementation Process
PACE implementation follows these steps:
- States enact enabling legislation,
- Local governments choose to participate,
- Property owners in participating areas apply for financing,
- Approved projects are completed by contractors,
- Municipal bonds are issued, typically bundling multiple projects for efficiency,
- Assessment liens are recorded on properties,
- Contractors receive payment, and
- Property owners repay through increased property tax payments over the term.
PACE in New Jersey
New Jersey passed PACE legislation in 2021 with strong bipartisan support after several previous attempts. The New Jersey Economic Development Authority (NJEDA) finalized program regulations in 2024 and is now implementing the Garden State C-PACE Program. For properties to qualify, municipalities must opt in by passing an ordinance and signing a Program Agreement with the Authority.
PACE represents a creative adaptation of traditional municipal financing tools to address modern energy and environmental challenges. By combining established assessment mechanisms with private capital, it creates an accessible financing pathway for property owners while distributing costs over the long term.