Substitute SB 185: Updating PACE financing and Special Improvement Districts

On April 12, 2016, the Ohio Senate Energy and Natural Resources Committee held its fourth hearing on Senate Bill 185. At the hearing, Substitute Senate Bill 185 was introduced and accepted.                

At a glance, Substitute SB 185 will change Ohio law in the following ways:

• It authorizes Ohio property owners to cooperate with municipal corporations, townships and port authorities to use PACE financing to pay the costs of energy efficiency upgrades either with or without creating or joining an energy special improvement district.
• It clarifies how condominiums consent to special improvement district petitions.

Former SB 185

As introduced, Senate Bill 185 would have updated Ohio law on property assessed clean energy, or PACE, financing. Most significantly, SB 185 would have segmented Ohio Revised Code Chapter 1710 into three parts: one part governing special improvement districts, a second part governing energy special improvement districts created for the purpose of administering PACE financing and a third part authorizing Ohio property owners to cooperate with municipal corporations or townships to use PACE financing. The goal of these changes was to reduce the administrative and economic costs of using PACE financing. (We analyzed the changes proposed by former SB 185 here.)

PACE and Substitute SB 185

Substitute SB 185 still aims to reduce the costs of PACE financing in Ohio, but it takes a slightly different path to the goal. It retains the current structure of Chapter 1710. Both special improvement districts and energy special improvement districts would continue to be governed by the existing provisions of Chapter 1710, with some provisions applying only to energy special improvement districts. Unlike the propositions of former SB 185, there would not be two separate parts of Chapter 1710 governing special improvement districts and energy special improvement districts. 

But Substitute SB 185, like former SB 185, would add sections authorizing Ohio property owners to cooperate with municipal corporations or townships to use PACE financing to pay the costs of energy efficiency upgrades to their properties without the need to create or join an energy special improvement district. Under the proposed sections, property owners would petition their municipal corporation or township for the implementation of PACE financing. The municipal corporation or township would review the petition and determine whether to approve the petition and levy special assessments. Special assessments levied pursuant to such a petition could be made available to the property owner, who could use the special assessments to pay for energy efficiency upgrades either directly or by pledging the special assessments in repayment of a loan made to pay for the energy efficiency upgrades.

Like former SB 185, Substitute SB 185 clarifies that Ohio port authorities may cooperate with property owners and municipal corporations or townships to use PACE financing without an energy special improvement district. Port authorities often act as conduit financing entities, providing access to capital markets. SB 185 adds language to the statutes governing Ohio port authorities that clarifies that port authorities may provide conduit financing for PACE projects conducted without energy special improvement districts.

Special Improvement Districts

Substitute SB 185 also proposes changes that clarify the manner in which the owners of condominium property consent to special improvement district petitions. Current Chapter 1710 contemplates that owners of properties to be included in a special improvement district or covered by a special improvement district plan must petition a municipal corporation or township for approval of the district or plan. In order for the municipal corporation or township to act on a petition, the petition must be signed by the owners of at least 60 percent of the front footage — the linear feet of property abutting public streets — of properties covered by the petition, or by the owners of at least 75 percent of the area of the properties covered by the petition.  The front footage method is more commonly used.

For condominium properties, the front footage is often owned by the unit owners association as part of the “common elements.” Many individual condominium units do not have any front footage, because the boundaries of the units stop at interior walls or the condominium units are not on street level. However, each condominium unit may be included in the special improvement district, receive services from the special improvement district and be subject to special assessments. 

Under current Chapter 1710, several special improvement districts have concluded that the unit owners association, as the owner of the front footage of the entire condominium property, may sign a special improvement district petition on behalf of the owners of the entire condominium property. SB 185 clarifies that unit owners associations are authorized to sign special improvement district petitions on behalf of all of the unit owners. To sign a special improvement district petition, the unit owners association would conduct a vote of the unit owners in accordance with its declaration and bylaws. If the result of the vote is that the unit owners consent to the special improvement district petition, the unit owners association would sign the petition on behalf of the owners of the entire condominium property.

Conclusion

Substitute SB 185 reduces the administrative and economic costs of using PACE financing in Ohio. It reduces costs by authorizing property owners to cooperate with municipal corporations and townships to use PACE financing on energy efficiency projects without an energy special improvement district. Port authorities are given express authority to provide conduit financing to such energy efficiency projects. Substitute SB 185 also clarifies the manner in which condominium properties consent to special improvement district petitions, giving unit owners associations the express authority to sign on behalf of unit owners after an affirmative vote of the unit owners.