When a new 50-unit apartment complex opens on Aldersgate Road in Little Rock in a year or so, it will essentially be its own self-contained improvement district.
And as the first major Arkansas project taking advantage of Property Assessed Clean Energy financing, it will culminate several years of work by Pulaski County in developing a clean energy finance organization. It will also allow a 20-year payoff for $650,000 worth of energy-saving upgrades in the apartment complex.
The county contracted with the PACE financier, conveyed the money to the developers to pay for efficiencies like water-saving plumbing and eco-friendly heating and air, and will reap payments through an assessment added on property tax bills. As a tax assessment rather than a loan, the financing obligation is attached to the property rather than to the owner’s balance sheet. When the property is sold, the obligation is sold with it.
“It’s not really complicated,” Pulaski County Judge Barry Hyde said.
But the mechanics do call for explanation.
For well over a century, voluntary tax assessments for repaying municipal bonds have been attached to property taxes for public works like sidewalks and streetlights. PACE stretches the model to individual properties, although it favors private finance sources over issuing bonds.
“PACE takes the improvement district model but applies it to projects of energy conservation, water conservation and clean energy generation,” said Will Gruber, a staff attorney for Pulaski County.
“Pulaski County established a PACE board, and the board helps facilitate the transaction,” he added.
Made up of representatives chosen by the county and by the mayors of each of the county’s major cities, the board enters into contracts with all the parties, receives the funds from the lender and pays for the improvements. “After the improvements are installed, the money is repaid with assessments on property tax bills, and that’s typically the way of ensuring payment,” Gruber said.
When the county collects the assessments, it remits the money to the lender. “The amount remitted is the amount required to cover the principal and the interest,” Pulaski County Attorney Adam Fogleman said. The total tax assessment on the Aldersgate project, including principal, interest and fees, will be $61,747 a year.
The PACE board has legal power to issue bonds to finance energy projects, Fogleman said, but Arkansas’ 2013 PACE law discourages that course. “That’s one provision of the law that we picked up on, that there should be an invitation to private finance,” he said. “The approach is to create a market, and a market is best served when there is competition among private lenders.”
Gruber is careful to call the money involved in PACE arrangements an “assessment” rather than a loan. “The jargon is important because under Arkansas law, local governments can’t lend their credit to private entities. That’s why improvement districts have been around for like 100 years. People in finance, real estate and law understand the realm of improvement districts.”
Key players in creating the market — the “quarterbacks” — are third-party administrators who coordinate the three-sided process. Contracted by the PACE board, they find projects, locate financing sources and put all the parties together.
Jordan Haas quarterbacked the Aldersgate project, known as The Preserve at Aldersgate. Developers are considering a different name, perhaps Ascent, according to A.J. Gilbert, general partner in New Cap Investment Partners LLC.
“Jordan reached out to us and presented the PACE program,” Gilbert said. “We were intrigued, and one of the things we discussed was the 20-year financing term, which was attractive.”
Haas, who works for PACE Arkansas, described his role as an intermediary. “We market for the Pulaski County PACE program and help find funding. I package the loans and they are presented to the PACE board for approval. I work with PACE Equity out of Milwaukee, probably the biggest and most experienced institution in the country for financing PACE projects.” PACE Equity is the finance source for the Aldersgate complex.
Businesses interested in exploring PACE financing possibilities can find information at the Pulaski County website or by calling the Pulaski County Civil Attorney’s Office at (501) 340-8285.