Local Option - Energy-Efficiency Improvement Loans

Summary

Note:  In 2010, the Federal Housing Finance Agency (FHFA), which has authority over mortgage underwriters Fannie Mae and Freddie Mac, directed these enterprises against purchasing mortgages of homes with a PACE lien due to its senior status above a mortgage. Most residential PACE activity subsided following this directive; however, some residential PACE programs are now operating with loan loss reserve funds, appropriate disclosures, or other protections meant to address FHFA's concerns. Commercial PACE programs were not directly affected by FHFA’s actions, as Fannie Mae and Freddie Mac do not underwrite commercial mortgages. Visit PACENation for more information about PACE financing and a comprehensive list of all PACE programs across the country.

Property-Assessed Clean Energy (PACE) financing effectively allows property owners to borrow money to pay for energy improvements. The amount borrowed is typically repaid via a special assessment on the property over a period of years. Wisconsin has authorized certain local governments to establish such programs, as described below. (Not all local governments in Wisconsin offer PACE financing; contact your local government to find out if it has established a PACE financing program.)

Wisconsin enacted legislation (A.B. 255) in May 2009 that amended local governments' existing authority to impose "special charges" for certain services. Originally, local governments were authorized to create programs that charge its citizens for "services," such as snow/ice removal, garbage collection, recycling, weed control, among others. A.B. 255 added energy efficiency improvements -- including renewable energy devices -- to the list. Furthermore, the legislation authorizes local governments to make a loan to property owners for energy efficiency and/or renewable energy improvements. In May 2010 S.B. 624 added water efficiency measures to the list of eligible improvements.

The original legislation limited such loans to residential premises, but the law was expanded by S.B. 624 to include commercial and industrial properties. The repayments are considered a "special charge" and may be collected in installments. Responsibility for the charge may be passed on to the next owner of the property if it is not completely repaid by the time of sale. Municipalities may enter into an agreements with the owner or lessee regarding loan payments to a third party for owner-arranged or lessee-arranged financing.  Additionally, such a third party may collect the special charges allowed under the law.

Each local government that chooses to offer a PACE financing program must determine the eligible energy efficiency or renewable energy technologies, identify a funding source, develop the terms of the loan, and program specifics. For projects of $250,000 or more, all municipalities must require that contractors or projects engineers guarantee that the improvements will result in a savings-to-investment ratio of greater than 1.0. If the project fails to meet that standard, the contractor or engineer must pay the owner any shortfall in savings below that level. For projects less than $250,000, municipalities may require a third-party review of the projected savings before approving the project.

As of February 2020, one local PACE program is active in Wisconsin: Milwaukee PACE, available for commercial PACE projects within the city of Milwaukee. A statewide commercial PACE program, PACE Wisconsin, also exists.