Senate committee advances draft CPACE bill after lenders, regulators press for safeguards

A Senate committee on March 12 reviewed a new draft of S.138 that would let municipal legislatures designate a Commercial Property Assessed Clean Energy (CPACE) district enabling property owners to finance renewable energy, efficiency and resilience projects via special assessments.

The committee’s draft—presented by legislative counsel—creates a new subchapter (section 3275) that authorizes a legislative body of a town, city or incorporated village to vote to designate a municipality as a CPACE district rather than putting that question to a popular vote. It restricts participation to commercial and industrial buildings (defined in the bill as structures with five or more units) and requires property owners to enter written agreements and obtain pre-enrollment analyses of proposed energy, water or resilience improvements performed by licensed professionals. The bill sets an earliest enrollment date of January 1, 2027.

Why it matters: supporters say CPACE helps businesses fund large clean-energy retrofits that otherwise would be difficult to finance; critics and staff flagged lender protections, foreclosure mechanics and program oversight as central hurdles.

DFR and lenders: the Department of Financial Regulation (DFR) told the committee it has not finished reviewing the draft but is willing to consult closely. Aaron Bar, deputy commissioner for banks at DFR, said the agency could provide a consultative vetting role for potential program administrators and help develop criteria rather than serve as a gatekeeper that must formally ‘approve’ administrators. "We certainly want to help and consult in whatever ways we we certainly can," Bar said, emphasizing a mix of oversight and practical limits for state involvement.

Lender protections and foreclosure mechanics drew sustained attention. The draft treats a CPACE assessment as a first-and-prior lien on property subordinate only to property tax liens and includes provisions that, in foreclosures, require unpaid assessment amounts to be paid before title transfer. The bill also requires written mortgage-holder consent statements before an owner may enter an assessment agreement and limits combined assessment plus outstanding mortgage exposure to 90% of assessed property value. Committee members asked staff to double-check whether the language as written could allow later loans to take priority over CPACE assessments and to confirm the mortgage-consent mechanics.

Program administration and consumer protections: committee members preserved an engineering/technical-analysis requirement after witnesses warned that strong underwriting and technical review reduce fraud risks (members cited problems in other states). The draft permits a municipality to contract with or be the program administrator but includes a discussion about whether lenders should be barred from serving in both roles; committee members agreed to add language preventing a lender from acting as program administrator.

Model documents and educational materials: the draft originally called for model CPACE ordinances, agreements and educational materials to be developed; committee members debated whether DFR or program administrators should prepare those materials. DFR recommended a consultative approach and pointed to examples in other states (green banks, efficiency entities) that could serve as models.

What’s next: the committee directed staff to tidy ordinance language, add a bar on lenders serving as program administrators, and follow up with DFR and mortgage-industry stakeholders to clarify consent and lien priority language before the bill moves to the Finance committee. No formal vote was recorded in the hearing.

Quotes

"This draft is based on the conversation that we had in this room," a committee counsel said when introducing the bill. "Credit really goes to Alan," counsel added, noting staff edits.

"We certainly want to help and consult in whatever ways we we certainly can," said Aaron Bar, deputy commissioner for banks at the Department of Financial Regulation.

"We don't think many municipalities will use this, but if there's one and it supports a valuable business, then that's worth having," said Josh Hamburg, director of intergovernmental relations at the League of Cities and Towns, describing municipal interest.

Ending

Committee members agreed to return the cleaned draft—with clarified mortgage-holder consent language, an explicit bar on lenders serving as program administrators, and a decision on which agency or entity should produce model forms—to the Finance committee for further work and possible amendments.