Senate Finance reviews bill to expand Vermont's PACE program to commercial properties

Senate Finance on Feb. 17 reviewed S.138, a bill that would expand Vermont's property assessed clean energy (PACE) framework to commercial and industrial buildings and create a separate CPACE subchapter to govern those projects.

Ellen Tchaikovsky of the Office of Legislative Council, presenting draft 3.1 (the Senate Natural Resources committee's committee amendment), said the bill's goal is to allow municipalities to submit to voters the question of designating a CPACE district and to permit private lenders to finance eligible renewable-energy, efficiency, or resilience upgrades that are repaid through a special assessment added to the property tax. "Currently in Vermont statute, we have something called a PACE program. It's property assessed clean energy projects," Tchaikovsky said, summarizing the existing residential model and the changes proposed for commercial properties.

Why it matters: the bill would create a different legal and financial structure for commercial projects than exists for residential PACE. Under the draft, municipalities would not themselves incur indebtedness for CPACE projects; instead, third-party lenders would provide financing and the municipality would collect assessments and remit payments. The bill also would add CPACE obligations to a Title IX exemption that allows lenders and parties to contract interest and deposit terms outside the usual Title IX caps.

Key provisions and constraints

- New subchapter and voter approval: Section 1 would create a CPACE subchapter in Title 24, chapter 87, and permit a municipality's legislative body to submit the designation of a CPACE district to voters. Only property owners who enter written agreements under the subchapter would be subject to a special assessment.

- Eligibility and required analyses: Before entering an agreement (per draft language), a property owner must furnish engineering or qualified professional analyses quantifying project costs, energy savings, estimated carbon impacts and, where applicable, feasibility studies or resiliency certifications. The draft specifies that entry into CPACE agreements may occur only after Jan. 1, 2027.

- Filing, disclosure and privacy: A written agreement or a notice attaching the required analyses must be filed with the municipal clerk and disclosed to potential buyers. Tchaikovsky noted that personal financial information provided to a municipality would remain protected under the Public Records Act exception cited in the draft.

- Repayment terms and liens: The draft caps repayment terms so they do not exceed the life expectancy of projects (the draft elsewhere notes a maximum repayment term of 30 years). At transfer or foreclosure, past-due balances must be paid at closing, while future payments remain as a lien and transfer to the new owner.

- Mortgage consent and priority: The bill requires property owners to obtain and furnish written statements from mortgage or deed-of-trust holders consenting to the assessment and indicating it is not an event of default. The draft also includes a provision that commercial CPACE liens, upon lender consent, would not necessarily be subordinate to all existing liens at the time of filing, marking a key difference from the residential PACE priority scheme.

- Financial limits and protections: The draft limits the combined amount of the assessment plus outstanding mortgage obligations to no more than 90% of assessed property value. It also allows the private financing agreements for CPACE projects to include prepayment penalties if the parties so contract (residential PACE has no prepayment penalty under current law).

Questions and concerns raised in committee

Committee members asked how CPACE differs in practice from an ordinary third-party loan, who bears default risk, and how liens interact with bankruptcy or foreclosure. Tchaikovsky said municipalities would generally not be on the hook for project performance and that a state reserve fund exists for limited coverage in certain default scenarios, but recommended the committee also hear witnesses from the CPACE industry and mortgage lenders for technical detail.

One committee member asked about the origin of the 90% cap. Tchaikovsky said early drafts drew from residential PACE language and industry input but recommended follow-up with witnesses and staff to confirm the policy history and comparative benchmarks from other states.

Committee members also noted that Vermont's residential PACE program has seen low uptake and municipal skepticism in the past, and they recounted foreclosure-era concerns about equipment removal from properties; they said commercial CPACE uptake in other states appears higher but asked the committee to gather statistics and testimony.

Next steps

No formal vote or motion was recorded on Feb. 17. The committee planned to hear witnesses later in the session (the chair noted the next witnesses, including Megan Sullivan, were expected) and to collect comparative data on other states' CPACE programs before further action.