The Constitutionality of Property Assessed Clean Energy (PACE) Programs Under Federal and California Law A White Paper
By Sanjay Ranchod, Jill E.C. Yung & Gordon E. Hart
Property Assessed Clean Energy (PACE) programs enable local governments to finance renewable energy and energy efficiency projects on private property by utilizing the widely adopted mechanism of land-secured financing. Under these increasingly popular programs, local governments finance clean energy improvements and levy special assessments against the property benefitted by the improvements.
Twenty-two states have enacted legislation authorizing local PACE programs, and PACE programs are being developed in hundreds of locations around the country. Participation in a PACE program is purely voluntary. PACE assessments are collected as part of the property owners regular property tax bill and are secured by a lien on the property. In California, such a lien has the same senior status as other local government tax or assessment liens.
Some opponents of PACE programs have questioned the constitutionality of PACE programs. Specifically, the superiority over private liens that is provided to PACE liens has raised concerns that such liens could impair mortgage lenders contractual rights to repayment in violation of the Contracts Clause of the U.S. Constitution. Others have expressed concern that PACE assessments in California could violate Article XIII D of the California Constitution. This white paper evaluates these concerns about the constitutionality of PACE programs, and concludes they are unfounded.