Committee hears testimony on S138 to authorize commercial PACE financing amid lender and municipal questions

The House Energy and Digital Infrastructure committee heard testimony April 1 on S138, a bill that would let Vermont municipalities authorize commercial property-assessed clean energy (CPACE) financing for energy-efficiency, renewable energy and resiliency projects.

Chris Dia, president of the Vermont Bankers Association, told the committee that CPACE uses "the property tax collection system" as the repayment mechanism and warned that lenders view PACE assessments as a lien that can have priority over commercial mortgages. Dia said the bill’s consent language — which requires mortgage holders to consent to a PACE assessment — is essential to maintain commercial lending in affected districts. "Without this language... they would never do a commercial loan in that district," he said.

Why it matters: CPACE can lower upfront costs for large, long-lived investments by letting financing run with the property, but it changes lenders’ security expectations. Witnesses said consent and careful statutory drafting are the primary tools to prevent disruption of existing commercial lending.

Bankers and committee members focused on administration and default remedies. Dia told lawmakers that third-party administrators are likely necessary because municipalities generally will not want to originate or hold loan pools; lenders that originate PACE loans often must keep them in portfolio because many secondary-market buyers will not buy loans encumbered by PACE liens. "The repayment mechanism is using the property tax collection system," he said, and if a borrower defaults the lender would pursue remedies including foreclosure or curing a tax delinquency to preserve its collateral.

Local government perspective: Josh Sanford, director of intergovernmental relations at the Vermont League of Cities and Towns, said VLCT supports S138 as an optional tool local governments may choose to adopt. Sanford said municipal attorneys reviewed the bill and identified liability protections he described as adequate, but he acknowledged open questions about who will administer programs and whether small towns will have capacity to participate.

Business and economic development view: Megan Sullivan, vice president of government affairs for the Vermont Chamber of Commerce, said CPACE is valuable in a context of reduced federal funding for efficiency projects and could help commercial redevelopment and larger multifamily housing projects. "CPACE is one way that states have done that. I think there's about 38 other states that have CPACE programming," she said. The Chamber asked for a technical tweak to the bill’s 90%-of-assessed-value cap so that the cap references completed-project value rather than unimproved land.

Points of tension and common ground: Committee members repeatedly pressed whether municipalities could become financially responsible if properties with assessments went to tax sale and no bidder emerged. Witnesses said the contractual relationship is between the lender and the property owner, not the municipality; lenders generally pursue foreclosure or tax-sale remedies, and municipalities’ exposure is limited to existing tax-sale rules. Still, lawmakers noted the political and administrative challenges small towns can face dealing with delinquencies and tax sales.

Process and next steps: Committee members signaled plans to hear additional witnesses, including the Legislative Research Service and the CPACE Alliance, and to consider technical fixes to statutory placement and the 90% cap. The committee recessed and said it would reconvene at 11:30.

Quotes used in this article are taken directly from witness testimony delivered to the House Energy and Digital Infrastructure committee on April 1.