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Council discussion flags legal risk, but city attorney sees protections if CPACE loan added to Trenton Mill financing
Summary
At the consent-agenda discussion, staff outlined a proposed Commercial PACE (CPACE) loan for a downtown mill rehabilitation. City attorneys said the CPACE statute may not subordinate the city's existing lien; staff and attorneys described scenarios and protections if the CPACE loan is added.
During consent-agenda questions, council members asked for clarification of a proposed CPACE (Commercial Property Assessed Clean Energy) loan that would finance energy and efficiency improvements for the Trenton Mill redevelopment. The project includes an existing city loan of $495,000 owed to the city and a first mortgage of about $6.3 million; the developer proposed a $5.6 million CPACE loan.
City staff and the city attorney explained the legal structure and risk. Under CPACE statutes discussed at the meeting, a CPACE loan is structured so that its lien position and enforcement differ from conventional financing. City Attorney Eric Edgerton said sections of the enabling statutes suggest a CPACE lien "shall be inferior to all prior and subsequent state, local, federal taxes or liens," creating an argument that the CPACE lien may not "bump" existing local liens such as the city's prior loan. Edgerton said he had not received a definitive legal opinion that would absolutely rule out priority complications, but the statutory language and the fact that CPACE loans do not allow acceleration of the full loan upon foreclosure provide significant practical protections to existing lienholders.
Practically, staff explained, the CPACE funding is not a city loan and does not require city capital; it will be provided by a private or program lender under the CPACE structure and will be used by the developer to retrofit and upgrade the building. If the developer defaults, the CPACE lender's remedies are limited by statute in ways that reduce the risk of an immediate, full-amount claim that would displace the city's previously issued loan.
Council members asked questions about the relative lien positions, the risks if the project enters foreclosure, and whether the city should provide any approval. Staff said the county had approved participation and the city's approval was required because of the prior local lien and the project's location inside city boundaries. The manager and attorney indicated they would continue reviewing statutory language and finalize conditions for the city's approval on the consent agenda; no separate ordinance or detailed legal opinion was adopted at that time.
Ending note: The council accepted staff explanation for the consent agenda item and approved the consent agenda; staff will finalize legal language and report back as needed on the CPACE structure before any loan is executed.
