Let's call this meeting, this work session back to order and we are going to talk about commercial property assessed clean energy loan program update otherwise called CPACE. >> All right, >> Mr. Hzel. >> Good morning, Mr. Chair, commissioners. Brad Hanzel, manager with environmental services. Um I'm here today with Holly Houston from the St. Paul Port Authorities uh Minpace program uh to provide an overview on the commercial property assessed clean energy program also known as CPACE or or the PACE loan program. Um Holly will provide an overview of the program including eligibility requirements uh recent legislative updates to the program uh local project activity and Carver Countyy's role in the program. Uh following her presentation, I'll provide an uh update on the existing joint JPA joint port agreement that we have with the port authority um and discuss proposed revisions to that agreement and outline our next steps here. >> What we look for this time Okay. >> All right. So, with that, I would like to turn it over to Holly. >> Hi, Holly. >> Uh, good morning. Thank you, chair and commissioners for having me here today to provide you an update on the Minpace program. Um, this is very much conversational. Please interrupt me as we go. I'll try to be brief um and spend the time that you need to talk about the the the changes proposed ahead of ahead of you. So with that um just to give you some background um my name's Holly Houston. I live in South Minneapolis. So I wonder where your daughter lives. Um uh and I work in downtown St. Paul. Um so we also know about the auctions of uh large commercial buildings. So, um, I have a history in government, um, with an NOA and Dakota County and financial management and the city of St. Paul. And then I've been here with the St. Paul Port Authority for the last two and a half years. Um, really getting to represent Minpace and grow the program throughout the state. So, And also we can okay one one more. All right. All right. So what is CPACE? So Brad briefly mentioned it. It stands for commercial property assess clean energy and it's a finance financing mechanism that provides real estate owners a lowcost long-term fixed rate financing program for energy efficiency, renewable energy and resiliency projects. Um, I really like to think of this project as the small business owner that has deferred maintenance and needs to upgrade their HVAC system or the church that's boiler broke or wants to add solar. Um, this is a great program for them that might not have the cash up front. Um, and this program allows you to take out a loan and then place it on your property tax assessment voluntarily. And so it's paid with the property tax assessment. Um, it's collected by the county and then as the administrator, um, it's sent to me and I send it to the lender. Um, it's a really great program. Um, it covers up to 100% of the improvements. I'll get into what does that exactly mean. um it's secured and repaid by special assessment. So, it's attached to the property and then it it can be a cash flow positive investment, meaning that once the loan is paid back, the energy you save can go back into your business um instead of the utility bill. And Holly, before you Yeah. go forward, can you talk a little bit more about the lending side of it and >> and the bank partners because and just full disclosure, I come from the banking industry and >> there's only an X amount of banks that do this type of lending. Correct. Um, chair and commissioner, um, this we operate as an open market, so it's competitive and open to any bank or lender that would like to get into the PACE market. Um, sometimes it takes a little bit of time. So, sometimes when I talk to banks, they have to take a look at understanding how would they structure their portfolio to get payments twice a year versus an ongoing monthly payment. Um there's some nuances with property taxes that I like to share that um you're all well aware of, but if a payment is missed, all of a sudden that payment gets pushed way back. So there's going to be a delay when the bank gets that money. So um so it takes a little bit of time to stand up, but happy to have anyone um come into the marketplace. I would say that Pace Loan Group has been I mean Pace Loan Group is a provider. They're the provider that's uh one of the largest ones in Carver County that I'll talk about. Um they're a local capital provider, so they work really on large scale size loans. Um Blaze Credit Union has done over a hundred, so they've really figured out their program and have a they serve small to largesiz businesses. Um Highland Bank and Sunrise Bank have a handful. And then we've worked and we have 25 lenders that have worked here, but those are the major players right now in the state. >> Thank you. >> Yeah. Um, PACE is um adopted state by state. So, it's legislation that is adopted and Minnesota is one of the first adopters in 2010. Um, so we have been around since then. Uh, it's right now in 40 states and, uh, for Minnesota, we lead by the number of projects. So, we've closed the most deals across the country in Minnesota. Um, but the dollar amount is not quite. We're number seven dollar amount. So, that what that means is we're closing smaller deals. Um, over 83% of our portfolios in under a million dollars and everybody wants to figure this out and be be us. So, this is great. It's always fun to go to the national conferences. Um, so what are the requirements in Minnesota? So, the term can be up to 30 years. It's the useful life of the improvement up to 30 years. The loan amount can be up to 30% of the property's value. And then an energy study is required. So the improvements that you're making must be tied to an energy study showing that this is reducing your energy consumption or reducing greenhouse gas emissions. Um this was recently changed and really the driver behind that is it allows for electrification um which would reduce carbon but it would never pencil out. Previously it had to be the savings uh the energy savings would pay back the loan over the useful life. It had to be a one forone savings and now that has become more flexible. So as long as you're saving energy it is a paceel eligible expense. And then since it's on the property tax bill, um we do require mortgage holder sign up. So that is a form we get from the mortgage holder that's notorized and that they're consenting to the to the loan. Um I I won't run through all these. This talks about eligibility. So what pro property types, what improvements, and what project types. When it comes to property types, it really works for any property except residential and condos. um everybody else is fair game and we uh I have a slide on what the legislature recently um improved but we'll get into it a little bit here and I'll >> So government buildings >> not government oh >> oh man >> um yes unfortunately >> all good >> yeah unfortunately got my hopes up >> not government buildings um just because >> no I understand >> yeah the security you for on your your own government. >> Um and but we've recently added water conservation, water quality as well as resiliency. So think of like uh flood mitigation or fire um suppression or um so those types of things even resiliency counts as air quality. So uh there's some flexibility there. We haven't done a resiliency project that that was added in 2024. Um, and then we're seeing, as I mentioned, we've done a lot of um, retrofits, so smaller deferred maintenance. We've also done major gut rehabs. The building I'm in, um, the Treasure Island building, the old Macy's building in downtown St. Paul where the Wild are, and the Frost, um, that was a major gut rehab that we layered on TIFF, PACE, and a mortgage. Um, as I mentioned, there is an energy audit requirement. It must be completed by an en a certified energy auditor. Um it's based on the 2020 Minnesota commercial code that's used for building standards and um there's multiple uh energy providers in the state and sometimes like with a solar improvement they can do the calculations and the assessment right there for the property owners. Nonprofits do qualify. So um even though they don't pay property taxes, this is a copy of Henipin. You can see at the bottom on the right hand corner that's the the assessment for the PACE loan. Um so it just comes across like any other special assessment if you had a Miller overlay or special lighting district or something like that. So um the only thing is if there's not a mark a property value. So if you go back to that the loan can be up to 30% of the property value. There's not a market value on that property. they could contact the county and ask or they could get an appraisal. And then soft costs are allowed to be part of the the loan. So, uh there's been many legislative updates. Uh we used to do 20% of property's value up to a 20-year term and that's expanded. New construction was added. Um we require project verification on every PACE loan. Um, as I mentioned, water conservation and water quality is eligible and resiliency. Um, so as each state of those 40 states, as as each state adopts a new legislation, it keeps getting more flexible and broader. Um, and so the we've gone back to the legislature quite a few times to just keep our program up to date and competitive. So what why would a property owner want to do this? Um, so there's a delay in payments. So, you can get the lending, the funding, and then you since the county only processes assessments one time a year, um if you were to take out a loan now, you wouldn't pay it back till May of 2026. So, you can complete the project, start to realize the energy savings, accumulate those funds to to pay back the loan. It can be up to 100% financing. Um it can be cash flow positive. Uh you can layer this on with energy rebates from the utility company. um the energy that you're saving will pay back the loan. Um and you can use other things like uh unfortunately with the federal shutdown, I just talked to a customer that is waiting on a reap grant, a rural I'm going to get the wrong acronym, but rural energy program of America, something like that. Um uh they got a grant for solar and they're waiting for funds to be distributed, but with the shutdown there's a delay in that. um it reduces carbon footprint and then it comes across on the property tax bill. So, it's an annual operating cost, not a long-term debt. It could be passed on to potential tenants in a building um as a shared cost that's benefiting them as well. And then it can lay be layered on with other financing tools. So, by the numbers here, this is these are numbers from last through 2024. I haven't updated it for 2025. Um, we're in 80% of the of the state. So, we have joint powers agreements with the county. So, as the program administrator, I'll get into some of my duties and what the benefit is to the county. Um, but I'm managing the calls, the intake, the education. I'm making sure that the PACE loans are meeting the state statute. I'm collecting the funds and u making sure they get reimbursed. Um, and so I'm I'm that one central person that any county can call, any customer can call, any bank can call and provide the them reliable information. There's 25 lenders working in Minnesota. We've have 451 loans. Um, there is the majority of them of them are in the metro area. You can see the concentration of the red dots. And then annual energy savings has is 84 million. And so here's Carver County. So um Carver County and the St. Paul Port Authority signed a joint powers agreement in 2015. Um my predecessor was Pete Klene. Uh if any of you know him. Um the county is currently collecting and forwarding the payments to Ninpace for nine projects. Um, and I got to meet and work with your wonderful staff here earlier this year because the largest PACE project has come to Carver County. So, a $3.5 million new construction for senior living um in Chesca. And so, the tax assessment will begin in 2027. Um, and so the new construction projects are really driving up the value of potential PACE PACE loans. >> Am I reading that correct? that if you get annual savings of 200k and your investment is 4.7 is a 23 or 24 year payback. >> Correct. I Yes, that's a it would you would >> Sorry, I'm finance. I'm really detailed. Um I'm a nerd, but like project by project you'd have to look at the payback, but in general, yes, that is a good way to look at it. >> Um and then so this is the Carver County spotlight. So, this is senior living, new construction. They're estimating annual savings of 96,000. The eligible energy improvements include the building envelope, windows, the HVAC system, the water systems, and the controls. Um, I did look up some other uh projects in Carver County and just to give you some examples. Oh, did I write it? Yeah. Um, so a couple years ago, Aspire Bakery, so they did lighting within the facility there. Um, Carver County Commercial did a roof and a solar. Um, and then, uh, Wayne Painting, I'm agricultural property, did solar on their property as well. And I could provide more details, but those are just the three that I I uh, looked up today. So, to go back to that structure, so established by legislation in 2010, we utilize m uh, Minnesota statute 216 C.436. 436 and then within that statute it points to the special assessment law 429.101. Um and then MINPACE is the program administrator. So we're connecting with property owners, lenders, contractors, the people completing the energy studies and then we have joint powers agreements and the county is the one that's placing the assessment and sending the the repayment to us. Um, so why would what's the benefit to the county? The local benefit without count without county costs. So you don't need your own staff to run this program. You are collecting the assessment for us, but I'm managing the calls and the projects and making sure that they um conform to state law. I'm also uh advocating, legislating for them as need changes need to be made. Uh there's no need to build that internal expertise. There's no county risk. So, these loans aren't um loans are limited obligation. It's no county debt. Uh you're not responsible for paying it back. You're not responsible for collecting it outside of property tax taxes, anything like that. Um the administrative burden is on minace. So as I mentioned we are we manage the program implementation the eligibility the financing arrangements the servicing and the compliance and then scalability. So counties can make PACE financing available to property owners of all size regard regardless of your own resources. So this is really for your constituents. It's it's a benefit to them. Um and then just how does the workflow work with uh minace and the county? So the lender sends the borrower the funds. The borrower pays the contractor. The county t the county tax bill is sent to the property owner. The property owner pays the taxes and special assessment. The county sends the payment to minace and I pay the lender. Oh there any questions just on the program or your projects here or I think most of us aren't that aware that this is going on, >> right? >> This is a good education. >> Yeah. >> Thank you for having me. Um, it's really a good way to a lot of people think about it, especially new construction, is it it helps the capital stack. So, instead of finding equity investment partners that are going to own a portion of your property, you can take out this additional loan and fill that gap. It also is competitive with a mortgage rate versus high mezzine debt. So, it's a lower rate option with you. There's no, you know, penalties for early payoff that that Minpace or the state has. Um, and so it's a great a great tool. >> Is the biggest value that your organization brings is the connection to having it appear on a bill because like Commissioner Fehee said in his banking years, you could get a bank loan and justify a payback. I don't know if a 24-year payback will get it done, but you can get it through traditional banking is the biggest value for the user um to have it on your tax bill. >> Uh commissioner, yes, I believe it's it's the having it on the tax bill, having a delay in the payment. Um and then the real thing for the small businesses out there is that they might not have money to put down, but they need to fix that, >> you know, HVAC unit. And so this is an opportunity to fund the project 100% where a bank loan might want some other security or collateral down. And this is on the property. So it also can it travels with the property. So if there was a sale, we see a lot of sales that it's paid off, but it can we've also seen sales where the PACE loan is transferred to the new owners. >> Where do you live in South Minneapolis? >> Um >> not the exact address. Uh I'm by uh Kenny neighborhood or in the Kenny neighborhood by Lake Harriet. >> Okay. They're at around 46 in Lindell which isn't too far away from there. Maybe the other side. >> I'm like 58th in Irving. So >> Okay. >> Buy an office tower. >> All right. Thanks. Hers. >> Uh so yeah, I'm just going to touch on the joint powers agreement a little bit. Um staff are looking to update this document. Just want to give you a little background. So, as Holly mentioned, uh, PACE came to Minnesota in 2010. Uh, in 2015, two local Carver County businesses approached the county, uh, wanting to bring the PACE program to Carver County. Uh, and so environmental services at that time, um, brought it to the county board and ultimately we signed a JPA with Port Authority on September 15th of 2015, so roughly 10 years ago. Um, since then, a lot has changed. Um, as Holly mentioned, there's been legis legislative changes uh affecting the eligible project projects such as, you know, new allowing new construction, water conservation, different types of projects. There's also changes to the loan loan terms and loan amounts. Uh, so we want to get this uh document updated with some of that information. Also, the county workflow is changing a bit. So, as I mentioned, environmental services took on this program. Um we would conduct the initial review of the project uh obtain county board resolution and approval and then work with property tax to get that assessment on the property taxes collect the payments and then environmental services were forwarding those payments to mpace. So, how we're looking at changing that, uh, environmental services would still be the initial point of contact for MINPACE, um, and then work with the county board on a resolution and approval and then really pass that off to to property tax um, and have them work directly with min. So, kind of change that workflow a little bit. Um, and then also just refine and stand standardize some terminology in the JPA. So, uh, next steps, what we're looking at doing is, uh, potentially bringing that, uh, JPA back to the county board for a consent item, uh, on the November 4th, uh, county board date. Um, and then I guess at this point, if you have any questions for me or staff, happy to answer. >> Mr. Underman, >> he was staring at me. I >> um, sure. Uh, I grew up in Iowa. I'm an Iowa kid, so I think about subsidy and ethanol and they never go away. So, it is a form of attacks. It seems like it's very minimal and the benefit seems to be great. Um, when it comes to I'd rather government the heck out of some of this stuff, but I think you articulated it's already happening. We're not going to stand in the way of it. Um, and I think it has useful benefit for >> Well said. Seeing no other discussion, thank you very much, Holly. We'll maybe see you in November or or not. But >> uh we'll see you on Lake Harriet. All right. Thank you everybody. I think we are >> ajourned. I'll do that.