Financing home or business energy improvements has always been a challenge, in part because available loans are relatively short-term and there is often uncertainty about whether the property will be sold. In a few places—and soon to be many more—it’s now possible to secure energy-improvement loans and pay them back through property taxes.

This type of loan is most often called Property Assessed Clean Energy (PACE) financing. It is available in Berkeley, Palm Desert, and San Francisco, California, as well as Babylon, New York, and Boulder, Colorado.

The PACE model allows a municipality to raise money through a bonding process (or potentially through grants or other mechanisms). Residents can borrow from this pool of money at relatively low interest rates, for terms up to 20 years, to pay for approved energy improvements. The loans are repaid through an additional line item on the borrower’s real estate tax bills. This last provision allows the loan to stay with the property if the property is sold.

With PACE financing, property owners can carry out a wide range of energy improvements, such as weatherization, insulation retrofits, window upgrades, and installation of solar energy equipment, without an up-front cash outlay. The loan rates and terms are very attractive because the loans are being made not by a profit-based bank but by a municipality. In most cases the dollar savings from the energy retrofits will exceed the loan payment—so the improvements are cash-positive from day one.

Currently, at least 16 states have passed enabling legislation that allows municipalities to set up such programs. Implementing a PACE financing program is a challenge, especially for smaller towns, although private companies are emerging to manage such programs for municipalities.

A few questions remain with PACE financing, such as what happens when a homeowner defaults on a mortgage and the bank forecloses—is the PACE lien senior or subordinate to other liens, such as the bank’s mortgage and the town’s unpaid property taxes? How might outstanding PACE liens affect a municipality’s bond rating? And how will lenders react when a house they are financing is encumbered with a PACE loan?

Different municipalities will set up PACE programs differently, and enabling legislation varies somewhat from state to state, especially regarding lien seniority. But wherever these programs are implemented, and assuming the wrinkles are sorted out, it should become more feasible for homeowners and business owners to implement energy-saving measures.