Chicago Infrastructure Trust

Context

The Trust has received an unsolicited proposal to establish a commercial Property Assessed Clean Energy (PACE) special assessment program under Chicago municipal home rule in accordance with section 65 ILCS 5/1-1-11 of the Illinois municipal code.

PACE would allow the City to collect incremental assessments on the property tax bills of building owners who choose to opt-into the program.  The City would then remit such payments to third-party financing sources in repayment for their investments in specific government, not-for-profit, and commercial building efficiency and renewable energy upgrades.  See the PACE Diagram for further structural details.

With a PACE program in operation, property owners will be able to increase their property value while lowering operating costs by accessing cheaper, longer-term (~20 year) capital to finance their desired upgrades without using their own balance sheet.  Such PACE financing would have no effect on City, County, or State balance sheets and cost taxpayers nothing, as the City would simply be acting as a collector of third-party capital used for individual projects via its property tax billing and collections system. Additionally, PACE assessments would transfer automatically through the property tax bill in the event of a sale of the relevant property and could be passed through, along with the utility savings, to tenants.  In summary, PACE provides a new and better avenue for free market efficiency and renewable energy transactions to occur in many of Chicago’s energy-inefficient buildings.

There are 35 active commercial PACE programs nationwide.  To date, over $100M in funding across 300 projects have been approved, and there is a project pipeline valued at approximately $400M. Large banks and other financiers see PACE as one of the quickest-growing markets in finance and are raising new funds to support this growth. Eighty-one banks have approved PACE assessments on their properties, and the list continues to grow.  A PACE program in Chicago will also provide a timely solution for building owners affected by the City’s Energy Benchmarking Ordinance (as well as those who are not) to reduce their building’s energy and water usage.

 

Program Impact

User experience

• Elevates comfort and user satisfaction
• Improves occupant health
• Improves worker productivity
• Improves air quality
• Increases safety
• Increases reliability of operations

Environmental

• Achieves Mayor’s 2015 Sustainability Goal #3 – Improve citywide energy efficiency by 5%
• Achieves Mayor’s 2015 Sustainability Goal #4 – Improve overall energy efficiency in municipal buildings by 10%
• Achieves Mayor’s 2015 Sustainability Goal #5 – Create an additional 20 MW of renewable energy, consistent with IL Renewable Portfolio Standard
• Reduces carbon footprint

Economic

• Achieves Mayor’s 2015 Sustainability Goal #2 – Accelerate the economy in Chicago by assisting people and companies in adopting sustainable practices
• Creates jobs
• Reduces operating costs
• Increases property value
• Hedges against rising energy costs

Regulatory

• Maintains building regulatory compliance

Leadership

• City of Chicago leads by example for other cities and counties across the state
• City of Chicago enables commercial and not-for-profit building owners to follow City’s lead in retrofit efforts

 

In addition to these benefits, the Trust would place high value on the following attributes of a successful proposal:

1) Assistance in crafting municipal PACE legislation and implementing optimal transaction processing methodologies to enable capital to flow quickly into the program

2) Dedicated financing for commercial and not-for-profit PACE projects

3) Dedicated financing for government PACE projects

4) Zero use of Chicago taxpayer dollars for program support (i.e., Financial Program Administrators propose being paid via per-transaction fees)

5) Experience providing PACE tax lien administration and servicing systems

6) Assistance marketing to and educating building owners, tenants, and contractors

7) Willingness to sub-contract as needed for additional services such as third-party engineering reviews or project insurance providers

 

Open Bidding Process

As the Trust and the City are eager to improve the lives of our City’s residents by providing additional tools to Chicago property owners and tenants for financing energy efficiency and renewable energy upgrades to their buildings, the Trust is proceeding to an Open Bidding Process on this proposal.  Any party that wishes to offer its proposal for PACE is invited to do so at by June 26, 2014 at 5 PM CDT.

It is recommended, but not necessary, that the proposal include at least one (1) financial partner who is capable of financing PACE transactions.  Interested financial partners may also respond independently to this proposal if they choose, but should list any restrictions they may have on engineering / contracting partners whose projects they are willing to finance.  Interested financial partners should indicate whether they are willing to finance PACE projects through traditional debt and/or more novel methods such as variable-payment ESAs (Energy Savings Agreements), PPAs (Power Purchase Agreements), leases, or performance contracts.  Please refer to this ESA guide for more information on its structure.

If the Trust receives additional proposals from other interested parties as a result of this Open Bidding Process, it will select the best proposal(s) from the pool of interested parties.  All interested parties are encouraged to apply and to clearly state their capabilities and qualifications for participating in such a program.