Revisiting C-PACER Two Years Later (Part 2)

In November 2020, I wrote New Economic Development Tool Promotes Clean Energy, Resilience Improvements (Part 1) about Engrossed Second Substitute House Bill 2405, which created the Commercial Property Assessed Clean Energy and Resilience (C-PACER) program in Washington State to encourage capital improvements to commercial properties in order to increase water and energy efficiency. This blog will check back in on the C-PACER program and follow up on some questions that I raised in Part 1 of this series.

C-PACER Adoption

Now that we’ve given counties and the private sector some time to work on implementing the statute, let’s check in to see how they are doing. I checked in with all 39 county treasurers, and as of the date of this blog, six counties have adopted ordinances: Clark, King, Pierce, Snohomish, Thurston, and Whatcom. Of the counties that responded, one said that it had not yet considered adoption, and one had considered but did not adopt it because of concerns about county staff’s responsibility to manage and maintain these loans, the collateral, and their repayment. (The survey was completed before the most recent legislation, which is discussed below, but we’ve not heard whether that county is reconsidering their decision). Kitsap County is still considering adoption.

What Is the C-PACER Program’s Impact on County Government?

In Part 1, I listed nine items in the model documents that raised questions in my mind about the possible impact of the C-PACER program on county governments. I encourage you to review that blog before reading further. Based on my follow-up with the counties and other program participants, here’s where we seem to be on those questions.

Item One: In Part 1, I raised the question of whether the county’s administrative role violates the prohibition in Article 8, Sec. 7 of the Washington State Constitution against gifts of public funds. Attorneys from Cairncross & Hempelmann (on behalf of Shift Zero) have concluded that it does not. To date, we are unaware of any legal challenge to a Washington county’s C-PACER ordinance on this basis, and there do not appear to be any recorded appellate cases showing challenges to similar programs in other states.

Item Two: Section 7 of RCW 36.165.060 gives the C-PACER lien priority equal to state, local, and junior district real property taxes. I wondered whether this priority lien would mean that other liens, and mortgages in particular, might not be paid if a C-PACER borrower defaulted. In 2022, the Washington State Legislature adopted SB 5862, clarifying the order in which liens will be paid off. SB 5862 also requires that if a capital provider forecloses to enforce a lien it must list:

…outstanding liens for taxes imposed by the state, a local government, or a junior taxing district against the real property having priority over the C-PACER lien as provided in subsection (1)(a) of this section, and the proceeds of any foreclosure sale of the property shall be applied first to the payment of such outstanding taxes to the extent necessary to satisfy such lien, and then to the delinquent assessments, interest, and penalties secured by the C-PACER lien.

Item Three: The statute allows for up to a three-party agreement that would additionally include the lender of C-PACER funds, the business, and the county. Of the six counties that have adopted a program, Clark, Snohomish, Thurston, and Whatcom use a two-party agreement between the county and the borrower, and King and Whatcom use a three-party agreement. Pierce County’s ordinance is the newest and we’ve not seen their final program documents yet.

Item Four: The model assessment agreement — which was drafted by Shift Zero, a nonprofit alliance funded in part by the NW Energy Coalition (NWEC), whose membership is composed of for-profit organizations, nonprofit organizations, Indian tribal organizations, and local governments — reflects the statute’s requirement that the county allocate the assessment to each new parcel if a parcel is subdivided. All six counties that have adopted the program include the allocation requirement in their agreement and base the allocation on some form of relative valuation of the new parcels.

Item Five: Many counties have policies that require programs to be reviewed under an “equity lens.” How can counties amend the model ordinance to incorporate equity considerations? Of the five counties that have adopted a program, I found no specific language in their C-PACER ordinances that directly discuss equity. But I also found no language that exempts the program from those counties’ existing equity requirements. I can only assume that counties took equity concerns into consideration while they were deciding whether to adopt the program and will do so in the future when they evaluate the success of the program.

Item Six: Because a county is acting in its official capacity, it may be liable under claims for due process or other improper governmental action for how it administers the program. How will counties minimize this kind of potential liability? The statute provides specific language disclaiming any legal liability for its administration of the program but does not specifically require the borrower or lender to defend or indemnify the county if it is sued for the manner in which it administers the program. King County is the only program to include the county in the assessment agreement, and Section 9 of that agreement contains additional specific disclaimers.

Item Seven: The model assessment agreement requires the property owner to indemnify the county. If the county used a three-party agreement, does it require both the property owner and the lender to indemnify the county? Section 10 of King County’s agreement requires both the property owner and the lender to indemnify the county for:

…claims, including but not limited to reasonable attorney fees, demands, losses and liabilities to or by third parties arising from, resulting from or connected with this Agreement, the Approved Project, the Assessment, the Financing Agreement and the C-PACER Lien.

Claims resulting from the county’s negligence or willful misconduct are not covered.

Item Eight: In my initial reading I noticed that one of the model documents to be used when properties are subdivided, titled “Assignment of notice of assessment interest and lien and assignment of assessment agreement,” did not seem to have any legal effect. In Part 1, I suggested counties consider whether these should be two separate documents: an assignment document that transfers the assessment agreement and the lien, and then a notice of assignment to be recorded. In reviewing the document, I see that I had originally read it incorrectly. It does effectively assign the lien rights from the county to the capital provider and the providers successive owners, and each of the six counties that have adopted the C-PACER program are using this language.

Item Nine: RCW 36.165.060(6) talks about enforcement of the C-PACER lien by the capital provider. Initially, I was concerned about how the capital provider would comply with the foreclosure requirements in RCW 86.64 since that statute requires the county to take specific actions. It appears that SB 5862, adopted just this year, resolves these issues by clarifying that the lien “may be foreclosed in the same manner as a mortgage lien under chapter 61.12 RCW,” instead of tying it to the process in RCW 86.64. This clarification means that the county has no responsibility for managing the foreclosure process — the capital provider does all the work.

Conclusion and Resources

One reader of Part 1 in this series commented that the C-PACER program seemed to be a hybrid between private financing and government-secured loans, and they were unsure of the benefit to county government. Another reader thought it would be a great tool for development. Between the first adopting counties and the updates to the legislation, it appears that the C-PACER program is shaping up to be an option that may provide long-term benefits to Washington communities.

Below are sample documents and webpages related to existing C-PACER programs in the state:

• Clark County C-PACER Program
• King County C-PACER Program
• Pierce County Ordinance 2022-12s
• Snohomish County Municipal Code Ch. 2.900
• Thurston County Resolution 16063
• Whatcom County C-PACER Program

When the C-PACER legislation first passed in 2020, Shift Zero created a folder of model documents to aid counties in developing their programs.