Committee reviews plan to expand PACE financing to commercial properties

The Natural Resources & Energy committee turned on Jan. 15 to S.138, a bill to expand Vermont’s existing residential property‑assessed clean energy (PACE) program to commercial and industrial properties. Legislative counsel, financing practitioners and business groups described the draft’s mechanics and urged guardrails to attract private capital while protecting municipalities.

Legislative counsel walked members through the draft, which adds a commercial subchapter to the existing PACE statute. Key features include a municipal vote to designate a PACE district, written agreements between property owners and participating municipalities, and underwriting criteria to be established by the Department of Financial Regulation. The draft requires pre‑project analyses: energy and feasibility studies, cash‑flow and carbon‑impact estimates, and, for resilience improvements, certification by a licensed professional engineer.

The commercial draft includes several material changes from the residential statute. It sets an earliest entry date for commercial agreements (01/01/2027 as drafted), allows a repayment period up to the expected life of the project (but not to exceed 30 years), requires that agreements be filed in land records, and caps the combined assessment plus existing mortgages at 90% of assessed value for a participating property. Counsel also highlighted a change to lien priority: under the proposed commercial subchapter a PACE lien would not be subordinate to later‑filed liens in the same way the residential statute treats liens, a substantive issue counsel said would require additional testimony.

Amanda Samai of Castle Grain Finance, a CPACE lender and servicer, described how other states handle commercial PACE: the program is voluntary and typically depends on written lender consent so mortgagees understand the special assessment. Samai said that written consent, clear rules about collection through municipal tax rolls, and an annual payment structure (rather than acceleration of the entire principal upon default) help lenders underwrite lower‑cost capital. She added that interest rates in current markets for commercial PACE financings often fall in the mid‑single digits to low‑double‑digit range depending on risk; she estimated many deals in the U.S. are priced roughly 7.5–8.5% versus higher mezzanine rates.

Committee members pressed witnesses about municipal exposure. Several senators said small Vermont towns have limited staff and finances, and they asked for statutory language that would avoid requiring municipalities to pledge their full faith and credit or to take on unpredictable administrative burdens. Witnesses and advocates suggested standard contract language, options for third‑party program administration, municipal fees to cover costs, and explicit protections so municipalities are not on the hook for financing losses.

Business groups, including a representative from the Vermont Chamber of Commerce, supported the bill’s objectives: providing financing for energy efficiency, renewable energy, and resilience investments that help modernize older commercial building stock and support local economic development. No formal action was taken; committee members requested additional follow‑up testimony and examples from other jurisdictions, and indicated they expect to refine underwriting, lien, and municipal‑protection language before moving the draft forward.

The committee concluded for the day and will accept additional testimony and drafting suggestions on lien priority, municipal liability protections, and whether to expressly allow third‑party financing structures.