Local Option – Renewable Energy Financing District/Solar Energy Improvement Special Assessments

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. In 2009 New Mexico enacted two separate bills authorizing local governments to offer these types of programs using different mechanisms. (Not all local governments in New Mexico offer PACE financing; contact your local government to find out if it has established a PACE financing program.)

Renewable Energy Financing District Act

New Mexico enacted S.B. 647 in 2009, which authorizes municipalities and counties to create renewable energy financing districts (REFD) for the purpose of providing financing for consenting property owners within the district to install renewable energy technologies. Eligible technologies include photovoltaics, solar thermal, geothermal, and wind.

A county is authorized to create a REFD in both its unincorporated and incorporated areas (provided that the county receives the consent of the impacted municipalities in an incorporated area). A municipality may create a REFD within its borders.

Municipalities and counties must follow the same process for establishing a REFD. First, it must draft and adopt a resolution that includes specific details of the district, such as the types of renewable energy technologies to be included. After passing the resolution, the county or municipality must hold a public hearing and solicit feedback from stakeholders. Finally, after considering the opinions and comments, it is required to establish the REFD by way of ordinance. Once the district is formed, individual property owners may opt in to participate per the terms of the program. Any financing a property owner receives is repaid as an assessment on their property tax and will be a senior lien on the property until fully repaid. The district may issue bonds to fund financing programs and the standards for the district board’s roles and powers.

Each district will be governed by a district board of five members. These members may be from the local government or individuals appointed by the local government (either way, the makeup of the board must be specified in the resolution and subsequent ordinance).

Solar Energy Improvement Special Assessment Act

New Mexico also enacted H.B. 572 in 2009, which authorizes a county to pass an ordinance that creates a “solar energy improvement special assessment” provision. The county itself is not authorized to provide funding directly to property owners; rather, it creates rules for certifying certain private banks and financing institutions as “solar energy improvement financing institutions.”

Solar energy improvement financing institutions are authorized to loan property owners up to 40% of the assessed value of the property for purposes of solar energy (photovoltaic or solar thermal) improvements. The property owner will enter into a direct agreement with a certified financial institution for the funding and they will be required to apply to the county as well, since the loan through the private institution will be paid via an assessment on their property tax and will constitute a lien on the property. The county devises the process for transferring funds collected via the special assessment to the participating financial institution. No county my pass an ordinance that contains additional provisions to those outlined in the law (e.g., an ordinance may not require property owners to receive an energy audit as a condition of participation).