This year, Virginia Community Capital received a grant from the Oak Hill Fund to explore implementation of PACE financing in Virginia. As part of this grant, VCC held an initial stakeholder meeting on July 14, 2015 where attendees heard about the new PACE law that went into effect on July 1, 2015 as well as from guest speakers from other states. On December 8th, Virginia Community Capital (“VCC”) held the final Virginia PACE Financing stakeholder meeting at the Trane facility in Ashland. At this meeting, the Department of Mines, Minerals and Energy (DMME) gave an overview of the new PACE financial underwriting guidelines that went to effect December 1, 2015 and Rich Dooley, of Arlington County gave an update on Arlington’s plans to issue an RFP for a program administrator. Then I joined Neal Barber of Community Futures to present the findings from our grant research. Afterwards, attendees broke out into groups to discuss these recommendations and offer their insights.
As a seasoned executive within state and local governments for 40 years, Neal was selected to interview local elected officials and staff from across Virginia. During the fall, Neal met or spoke with 35 jurisdictions to gauge the level of knowledge and interest in participating in a PACE financing program. For the most part, his research revealed that few jurisdictions were currently aware of PACE with the exception of those with dedicated sustainability officials. Although there was definitely interest in the concept of PACE as an economic development tool, top conclusions from these interviews revealed that there is a:
- Need for significant education to different parts of a locality’s staff to explain how PACE would impact them
- Benefit to engaging a local champion to push PACE as a priority item within a locality
- Interest in a centralized “plug and play” program
- Preference for seeing how PACE is adopted in other jurisdictions before taking the proverbial plunge.
Given my deep knowledge of PACE programs around the country and extensive work in Virginia, I was asked to analyze national best practices and develop an initial set of recommendations for our state. Some highlights include:
- A minimum annual project volume of $10-20 million is needed to sustain a PACE program, assuming upfront ongoing administration fees are the primary source of funding for the administrator.
- Most successful programs have or had internal funding or financing structures such as the Green Bank in Connecticut.
- Successful programs tend to be located in areas with high utility rates, robust incentive structures, and/or higher energy usage such as California and Connecticut.
- The cost to develop (set-up and implementation) a PACE program is estimated to be $500K to $1 million for a full service program administrator.
- Although smaller projects (under $300k) represent a major source of deal flow, the costs to both the program administrator and the building owner are often prohibitively high and must be streamlined to be a viable product line.
- Education is key and must be a major budget item both to convince localities of the program’s value and to train key channel partners.
Although much more research is required to develop a detailed implementation plan, some initial recommendations include:
- Develop a P3 platform through alignment with a new or existing statewide entity with a standardized set of documents and procedures such as: model ordinance, underwriting criteria, and vetted contractors and capital providers. This state-level entity would partner with regional and local institutions to leverage existing relationships and marketing infrastructure.
- Prioritize two or three localities with the maximum potential for the first year.
- Identify creative ways (such as job creation/training grants) to provide the program administrator with funding that generates a healthy pipeline quickly.
Arlington County is forging ahead with developing a PACE program. This past week, Arlington held the first of several planned discussions on the benefits of PACE to local stakeholders – this one geared toward commercial real estate lenders. I, along with Arlington’s Rich Dooley, fielded many thoughtful questions during this lively discussion, demonstrating first hand the absolute importance of education when introducing a new product to the market.
Abby Johnson, Founder Abacus Property Solutions (VAEEC Member – Individual)