Program Information for Missouri Collectors
The Missouri Clean Energy District (MCED) was pleased to have the opportunity to discuss Property Assessed Clean Energy (PACE) financing at the Missouri Collectors Association meeting on June 22, 2016.
As a follow up, we have produced a question-and-answer aggregation for it members. This may be seen below. It is our hope that the information presented here helps clarify the PACE financing structure and assures collectors that MCED intends to work collaboratively with our government partners to create a successful PACE program benefiting local communities and all stakeholders. The MCED’s Missouri HERO Program FAQ may be reviewed on our partner website as well.
It is our goal to work with the association and county collectors on an individual basis to facilitate a PACE program as authorized under Sections 67.2800 through 67.2835, Revised Statutes of Missouri, that complements the existing collecting process and provides maximum benefit to the people of Missouri. As you may know, this statute enables property owners to finance qualified energy efficient and renewable energy improvements through a voluntary assessment on their property.
To help ensure a seamless and straightforward process for collecting PACE assessments, MCED will seek to enter into an intergovernmental agreement with each collector representing communities that have passed resolutions to join MCED. As outlined in the statute, the special assessments will be collected in the same manner as the ad valorem tax process. In addition, MCED will work with collectors to comply with the statutory percentage fees and provide the resources necessary to minimize the costs associated with the collection of such special assessments.
About MCED
As a statewide political subdivision, MCED was established to work with communities across the state to help property owners adopt energy efficient and renewable energy measures for their properties, thereby improving the state’s energy footprint. A Board of Directors oversees MCED and its members are elected by an Advisory Council, consisting of MCED member municipalities and counties. Local governments opt into MCED at no membership cost and with no liability. MCED has partnered with Renovate America, the leading provider of PACE financing in the nation, to administer its PACE program called HERO. This public-private partnership enables the program to be funded privately, while also allowing the program to scale, thereby reducing the cost of borrowing for the property owner and allowing for operational efficiency.
PACE Financing
PACE is an effective public-policy tool that provides property owners access to low-cost, long term financing for energy-saving improvements. PACE financing does not require upfront payments, making it a good option when a system fails unexpectedly or when there is an upgrade need for which a homeowner has not saved. If the property is sold, the assessment may be able to stay with the property, passing any remaining balance on to the new homeowner. Property owners qualify based on equity in the property and a proven track record of on-time mortgage and tax payments. Communities with PACE financing programs benefit from local job creation, increased economic activity, reduced carbon emissions, and lower utility bills for property owners. Please read the article published by the Missouri Municipal League.
Unlike other forms of financing, PACE offers unparalleled consumer protections such as adhering to the spirit of fair lending disclosures, including a disclosure modeled after the Consumer Financial Protection Bureau’s “Know Before You Owe” financing summary and confirmation of terms. Contractors must meet various program requirements and are monitored to ensure that they adhere to program guidelines. Contractors also receive payment only after the property owner has agreed that the job was completed to his or her satisfaction.
PACE helps homeowners keep forms of credit, such as home equity lines and credit cards, available for other financial goals or emergencies. In addition, PACE financing can be approved the same-day so that homeowners in need of an emergency repair or the replacement of a broken heating or cooling system, do not have to wait for financing approvals. Interest rates for MCED’s PACE program fall within an attractive range at fixed rates and based on the term of borrowing – up to 20 years.
As more and more property owners across the state seek to access our PACE program, we will be reaching out to each county collector on an individual basis to understand their specific needs and work with them on relevant data points, format, and timing. Should you have any questions, please do not hesitate to call on us. We look forward to working with you to make energy-efficiency financing available to more Missourians.
GENERAL PROGRAM QUESTIONS *
Q. Does PACE allow homeowners to use local contractors?
A. Customers are always able to select any HERO-registered contractor they prefer and the HERO program is working hard to enroll as many Missouri contractors as possible into the program. In fact, the HERO program helps small businesses grow by providing them with another financing option to offer to customers. Since it began in 2011, the HERO program has created over 15,000 jobs in the local communities where in operation.
Q. How do the HERO program’s interest rates compare to those of other financing options?
A. A HERO assessment is one of several financing options that customers can use and may not be the right choice for all customers. That said, HERO financing provides competitive rates, as compared to the universe of other available financing options, combined with industry-leading consumer protections that are not provided through traditional financing options. This combination provides an attractive value proposition for many customers.
Q. How is equity in property decided?
A. Homeowner equity is calculated by looking at the market value of the home, using a variety of public sources including Zillow and Trulia, and then deducting any outstanding mortgage related debt that appears on the applicant’s credit report.
Q. Does the homeowner understand the interest and fees they are responsible for, including the potential of delinquent interest and fees if they do not pay when due?
A. The HERO program provides homeowners with clear and straightforward disclosures, modeled on disclosures used in the real estate industry, so that homeowners are aware of the financial obligation they are entering into. Additionally, the HERO program speaks with all prospective customers prior to an assessment being signed to confirm terms and ensure that the homeowner understands the terms and conditions of the transaction.
Q. Will collecting PACE assessments make the collector feel they are a collection agency and not a tax collector?
A. Collectors will not be collecting for a private company but rather for the Missouri Clean Energy District (MCED), a clean energy development board, which is a political sub-division of the State of Missouri.
Q. If the private company partner fails, what does the Collector do with the lien?
A. Assessments are an obligation to the clean energy board, not the company contracting with the board to provide services. The clean energy board is a political subdivision of the state, not a company. ASSESSMENTS & DELINQUENCIES
Q. Is the PACE assessment a first lien?
A. The PACE legislation enacted in Missouri and other states created the senior lien structure to existing mortgage holders. The exposure of the senior lien is only to the extent of any past due or current PACE assessment installments that are due. The remaining PACE assessment does not accelerate at foreclosure or delinquency and therefore has no impact on the priority rights of a first mortgage holder at foreclosure. In addition, the HERO program will allow homeowners to subordinate certain rights associated with the PACE lien to first mortgage holders, at no charge, in the event of a sale or refinancing of their home.
Q. What happens to properties that come three or two years’ delinquent and end up on a delinquent tax thread?
A. Under Chapter 140 of the Missouri Revised Statutes, taxes and special assessments are treated the same for all tax sale purposes. See sections 140.150 and 140.160, RSMo, which specifically refer to delinquent taxes and special assessments. As explained in the meeting, PACE assessments are treated like all other special assessments. Delinquent amounts can be collected through a tax sale.
Q. What is the procedure for protested taxes, and how do they apply to PACE assessments?
A. The procedure for amounts paid under protest is set out in section 139.031. A taxpayer may protest all or any part of any current taxes by making full payment of the taxes and filing a protest affidavit setting out the reasons for the protest. Any amounts received from the taxpayer that are not protested are disbursed by the collector to the appropriate taxing authorities, but the amounts subject to the protest are deposited in a separate fund by the collector and held until the protest action is resolved. Tax protests under this section are tried in the circuit court and can indeed take years to resolve. It is not clear that this section applies to PACE assessments, so a taxpayer’s right to use this procedure to protest a PACE assessment could be challenged by the collector and/or the clean energy development board. But in the event a court agreed that section 139.031 does apply to PACE assessments, then any PACE assessments paid under protest would be treated the same as tax payments paid under protest. FEES, PENALTIES, & INTEREST
Q. What fees, penalties, and interest apply to real property taxes in Missouri and how are they distributed? What are the fees payable to the County/Collector?
A. The provisions relating to fees, penalties, and interest on real property taxes are found in a number of different chapters of the Missouri Revised Statutes. There are three general categories of fees that apply to real property taxes in Missouri:
1) Fees paid for the collection of current and delinquent taxes – These amounts are in effect the collector’s basic “commission” for collecting the taxes. They are not an additional fee imposed on taxpayers, but represent a percentage of the tax collections that are retained for the benefit of the collector and the county as consideration for the collector’s services.
2) Additional fees (of up to 7% of the tax assessed) billed to and paid by taxpayers for collection of delinquent taxes – These fees are added to the face of the tax bill and collected from the party paying the tax in the event the tax is not timely paid.
3) Penalties or interest (at up to 2% per month but no more than 18% per year) charged to taxpayers on delinquent taxes – Note that the terms “penalty” and “interest” are used interchangeably in the statutes with respect to these amounts. See Sections 139.100 and 140.100, RSMo.
Category 1 – Fees paid for the collection of current and delinquent taxes The amount of category 1 fees collected by each county varies based on a number of factors, including the classification of the county, the total dollar amount of taxes levied per year, whether the county has a charter form of government, and whether the county operates under a township system. See Sections 52.250, 52.260, 54.280 and 54.325. In addition, the City of St. Louis is distinct, in that it is the only city in Missouri that is not within any county, which makes it the only jurisdiction in the state that is authorized to collect its real estate taxes under the provisions of “The Municipal Land Reutilization Law” of sections 92.700 to 92.920, RSMo. The collector’s salary is paid out of county general revenue and the fees included in category 1 are deducted from the taxes collected and paid into the county general fund and the “tax maintenance fund.” The tax maintenance fund is used to pay the expenses of the county collector’s office. See Sections 52.250, 52.260, 54.280 and 54.325, RSMo.
Category 2 – Additional fees (of up to 7% of the tax assessed) billed to and paid by taxpayers for collection of delinquent taxes In most counties, the fees in category 2 are imposed at the rate of 7% of the delinquent tax, with 2% distributed to the county’s general fund, 2% to the tax maintenance fund, and 3% to the county employees’ retirement fund (created by sections 50.100 to 50.1200). See Section 52.290.1, RSMo. However, in St. Charles County, St. Louis County and the City of St. Louis, the fee imposed on taxpayers for delinquencies is 2%, and in Jackson County the fee is 3%. Section 52.290.2, RSMo. In these four jurisdictions, 100% of these fees are distributed to the general fund, unless the county also has a tax maintenance fund, in which case one-third of the fees are paid into that fund. See Section 52.290.2, RSMo.
Category 3 – Penalties or interest (at up to 2% per month but no more than 18% per year) charged to taxpayers on delinquent taxes The fees in category 3 are described in section 139.100, RSMo., as “an additional tax, as penalty” which is to be collected and accounted for “as other taxes.” This indicates that these fees are collected on behalf of the governmental entity that levies and imposes the underlying tax and are distributed along with those taxes. See Sections 139.100, 140.100, 141.010, and 92.715, RSMo. Section 140.100 imposes this fee at a rate of “eighteen percent of each year’s delinquency except that the penalty on lands redeemed prior to sale shall not exceed two percent per month.” According to the Clay County collector’s website, this fee is assessed in Clay County at 1.5% per month (i.e. 18% per year).
Q. Do all of these amounts also apply to PACE assessments?
A. Section 67.2815, RSMo., provides that PACE assessments are “special assessments” which “shall be collected by the county collector in the same manner and with the same priority as ad valorem real property taxes.” Since PACE assessments are collected by the county collectors, and are collected in the “same manner” as real property taxes, all of these provisions relating to fees applicable to real property taxes would also apply to PACE assessments, including the provisions concerning the distribution of these fees.
Q. In the case of PACE assessments, who should receive the distributions of these amounts?
A. Based on the conclusion that these fees apply to PACE assessments, and that they are to be distributed in the same manner as fees applicable to real property taxes, the fees described above in categories 1 and 2 would be distributed to the county general fund, the tax maintenance fund and the county employee retirement fund as provided by the statutes cited above. The fees in category 3 would be payable to the clean energy development board that is entitled to receive the special assessments.
Q. Can a collector charge a penalty on a collection already bearing interest?
Q. Has there been misinformation spread about PACE loans?
A. The mortgage origination community says yes. The mortgage originators resource says PACE loans are nothing to fear.
* Source: MCCA Follow-up Missouri Clean Energy District
Leveraging private finance to advance a public purpose:
This video addresses the details of financing of PACE projects.
PACE is funded with private capital in the same manner as public schools or county and city financing needs. It is a common practice for political subdivisions to access the municipal bond market to fund important public improvements in the public interest. In the same vein PACE has been deemed at the federal and state levels to be a public benefit and therefore funding of energy projects are a public purpose.
“FHA’s PACE Guidance Explained,” discusses HUD/FHA’s recent residential PACE guidance and the White House’s new initiative to broaden the scope of residential PACE.