Last month, the United States Department of Agriculture (USDA), as part of the USDA’s Rural Development mission area, announced its intention to approve a Property Assessed Clean Energy loan (“PACE” loan) to provide energy efficiency improvements to a small apartment building in Greenville, Michigan. The $117,580 PACE loan will be funded by Petros PACE Finance through the Lean and Green Michigan program, approved and implemented by Montcalm County, Michigan to provide PACE loans within the county. As part of the Lean and Green Michigan program, any entity holding a mortgage lien on a property must first approve any subsequent PACE loan. In this instance, the USDA has not only approved the funding but has also provided a $7,880 Rural Energy for America Program grant to add solar power to the business facilities on the project. The project is expected to achieve a 40% reduction in electricity and a 29% reduction in water use, and any savings will benefit both the apartment owner and tenants.

This is the first time that the USDA has provided approval or partnership on a PACE loan anywhere in the United States. The USDA funds a number of projects designed to improve the economic stability of businesses, residents, farmers, and ranchers throughout rural America through its Rural Development mission area. Based on statements made by the USDA Rural Development State Director for Michigan James J. Turner, the USDA sees PACE loans as one way to achieve this mission. President Obama appointed Turner in 2009. In a statement put out by the USDA, Turner said, “Energy efficiency improvements carry high up-front costs but back their gains over many years, which discourages businesses from adopting them. By using PACE, the costs are spread out to match the gains from energy savings, making it more feasible.”

While this is the first time the USDA has approved a PACE loan on a property that holds a USDA mortgage, it is possible that this is the beginning of a new trend, and the USDA and other agencies may begin partnering or encouraging future PACE initiatives. Last August, when the Federal Housing Administration (FHA) announced anticipated guidelines that would encourage more residential PACE financing on loans held or insured by FHA, President Obama announced a number of additional executive actions and private sector commitments to address renewable energy and energy efficiency initiatives. Among the initiatives and goals highlighted by President Obama was a commitment to use existing federal programs that provide funding, including energy efficiency funding to low- and moderate-income communities, and to expand clean energy and energy efficiency initiatives through such programs. Additionally, President Obama highlighted the need to identify private sector partners and foundation support at the local municipality and county level to achieve these goals. Accordingly, the Administration may be using programs similar to the USDA Rural Development to assist, approve, and even partner with additional PACE loan initiatives and private funding such as Petros PACE Financing in the future.