Are Texas PACE clean-energy assessments treated like property taxes?

Plain-English summary

The Property Assessed Clean Energy Act, chapter 399 of the Local Government Code, lets Texas cities and counties set up programs that finance permanent water and energy improvements (things like efficient boilers, insulation, new windows, and solar) on privately owned commercial, industrial, or larger multifamily property. The owner repays the financing through an assessment the local government imposes by written contract. The Williamson County Attorney asked the AG to determine whether those PACE assessments are "special assessments by the local government and treated in a similar manner as the real estate taxes on the property."

The question had a practical driver. The U.S. Department of Housing and Urban Development, which backs many multifamily mortgages, will consent to PACE financing on properties it assists only if the state attorney general first determines that the assessment is a special assessment treated like real estate taxes. Williamson County had built a program based on a model toolkit, and the county attorney sought that determination.

The AG addressed the two parts of the question. First, is it a special assessment? Drawing on the Texas Supreme Court's 1930 City of Wichita Falls decision, the AG explained that a special assessment, unlike a general tax imposed on all taxable property for general support, is a charge based on the benefit a particular improvement gives a specific property. A PACE assessment fits: the local government imposes it on one property by contract, not on all property in the region as general revenue; it is set to cover the improvement's cost and tied to the improvement's useful life; and the benefit runs only to the assessed property. So the AG concluded it falls squarely within the definition of a special assessment.

Second, is it treated like real property taxes? The AG pointed to section 399.014, which says a chapter 399 assessment lien has the same priority as a lien for any other ad valorem tax, may be enforced in the same manner as a property tax lien (consistent with the homestead protections of article XVI, section 50 of the Texas Constitution), carries the same interest and penalties on delinquent installments as delinquent property taxes, and lets the local government recover collection costs as in a property tax suit. From that plain language, the AG concluded a court would likely find a chapter 399 contractual assessment is a special assessment treated like real property taxes with respect to lien priority, enforcement, and delinquencies, including cost recovery. The AG noted it was answering only that specific question and not opining on whether the county program or the Act satisfied all of the federal agency's requirements.

Currency note

This opinion was issued in 2018. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The county attorney who requested the opinion: The AG provided the determination sought: a chapter 399 PACE assessment is a special assessment and, for lien priority, enforcement, and delinquencies including cost recovery, is treated like real property taxes, while expressly declining to opine on whether the county program or the Act met all federal requirements.

Local governments running PACE programs (as the opinion described them): The opinion characterized the assessment as imposed on a single property by contract, tied to the improvement's cost and life, with a lien holding the same priority and enforcement path as an ad valorem tax lien under section 399.014.

Property owners and lenders (as described in the opinion): The opinion explained that the assessment is not itself an ad valorem tax, so it is not excepted from homestead protection as a tax would be, while delinquent installments still carry tax-like interest, penalties, and collection remedies.

Common questions

Is a PACE assessment the same thing as a property tax?
Not exactly, the AG explained. It is a special assessment, not an ad valorem tax, but section 399.014 makes it behave like a property tax for lien priority, enforcement, and delinquency interest, penalties, and cost recovery.

Why does it matter whether it is a special assessment?
Because the federal housing agency would consent to PACE financing on properties it backs only after the state attorney general determined the assessment is a special assessment treated like real estate taxes, the AG noted.

What makes the PACE charge a special assessment rather than a tax? The AG explained it is imposed on one property by contract, set to cover the improvement's cost and tied to its useful life, and benefits only that property, rather than being levied on all property for general support.

Does the assessment get the same lien priority as taxes? Yes. The AG pointed to section 399.014(a), which gives the assessment lien the same priority as a lien for any other ad valorem tax.

Background and statutory framework

Chapter 399 authorizes cities and counties to create programs financing permanent water and energy improvements on qualifying private property, repaid through a contractual assessment (Tex. Loc. Gov't Code §§ 399.001-.019, 399.002(3), 399.002(5), 399.004(a), 399.005, 399.006(b), 399.009(a)(8), 399.010(2)). A special assessment, as distinguished from a general tax, is a charge based on the benefit an improvement confers on specific property (City of Wichita Falls v. Williams, 26 S.W.2d 910, 912 (Tex. 1930); Tex. Att'y Gen. Op. No. DM-374 (1996)). Section 399.014 gives the assessment lien the same priority as any other ad valorem tax lien, allows enforcement like a property tax lien consistent with the homestead protections of the constitution, and applies tax-like interest, penalties, and cost recovery to delinquencies (Tex. Loc. Gov't Code § 399.014(a), (c), (d), (e); Tex. Const. art. XVI, § 50, 50(a)(2); Tex. Tax Code §§ 32.01(a), 32.05, 33.01-.11, 33.41-.58; State v. Wynne, 133 S.W.2d 951, 957 (Tex. 1939)). The statute's text is the best indication of legislative intent (Combs v. Roark Amusement & Vending, L.P., 422 S.W.3d 632, 635 (Tex. 2013)).

Citations

Statutory and constitutional provisions:

• Tex. Const. art. XVI, § 50, 50(a)(2)
• Tex. Loc. Gov't Code §§ 399.001-.019, 399.002(3), 399.002(5), 399.004(a), 399.005, 399.006(b), 399.009(a)(8), 399.010(2), 399.014(a), (c), (d), (e)
• Tex. Tax Code §§ 32.01(a), 32.05, 33.01-.11, 33.41-.58

Cases and Attorney General opinions:

• City of Wichita Falls v. Williams, 26 S.W.2d 910, 912 (Tex. 1930)
• State v. Wynne, 133 S.W.2d 951, 957 (Tex. 1939)
• Combs v. Roark Amusement & Vending, L.P., 422 S.W.3d 632, 635 (Tex. 2013)
• Tex. Att'y Gen. Op. No. DM-374 (1996)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0210
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2018/kp0210.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

August 13, 2018

The Honorable Doyle "Dee" Hobbs
Opinion No. KP-0210
Williamson County Attorney
405 M.L.K. Street #7
Re: Whether the contractual assessments
Georgetown, Texas 78626
imposed by local governments under the
Property Assessed Clean Energy Act in chapter 399 of the Local Government Code are "special assessments by the local government and treated in a similar manner as the real estate taxes on the property" (RQ-0211-KP)

Dear Mr. Hobbs:

You ask whether the contractual assessments imposed by local governments under the Property Assessed Clean Energy Act ("Act") in chapter 399 of the Local Government Code are "special assessments by the local government and treated in a similar manner as the real estate taxes on the property." [1]

The Act governs the creation of local water and energy improvement programs in designated regions. See generally TEX. LOC. GOV'T CODE §§ 399.001-.019. It authorizes cities and counties to establish a program to finance permanent improvements on privately owned commercial or industrial real property with five or more dwelling units to decrease water or energy consumption or demand. [2] See id. §§ 399.002(3) (defining "qualified improvement"), 399.002(5) (defining "real property"), 399.006 (providing for the establishment of a program). Financing for a qualified project can be provided by a third party or the local government and is repaid through an assessment the local government imposes through a written contract with the owner of the property. See id. §§ 399.004(a), .005, .006(b); see also id. § 399.010(2) (requiring the written consent of the mortgage lien holder). You tell us that a Texas nonprofit organization, Keeping PACE in Texas, provides "a model toolkit ... to facilitate an orderly, consistent, state-wide approach" to a program's design and implementation. See Request Letter at 2. You also tell us Williamson County has established a program based on this model. See id. at 3.

You include with your letter a 2017 Notice issued by the United States Department of Housing and Urban Development ("Department"). See id. at 1; see also Exhibit A. You tell us the Department consents to the participation in a project by the multifamily residential properties it assists and "on which it holds or guaranteed the mortgage." See Request Letter at 1. You explain that one of the requirements for the Department's consent, as set out in the Notice, is an opinion of the State's attorney general determining that the assessment is a special assessment and is treated in a similar manner as real estate taxes. See id. at 3; see also Exhibit A at 3. In connection with Williamson County's program, you seek that opinion. [3]

We first consider whether the assessment imposed by the local government is a special assessment. The Texas Supreme Court tells us what constitutes a special assessment in Texas. See City of Wichita Falls v. Williams, 26 S.W.2d 910, 912 (Tex. 1930). In distinguishing a special assessment from general taxes, which are imposed on all taxable property of a taxing unit for the general support of the taxing unit, the court said special assessments
are charges imposed for purposes which do not necessarily require that they be imposed annually, or with reference to the time; nor are they usually based upon a percentage of the value of the taxable property of a [taxing unit], but upon the real or supposed benefit resulting from the improvement of the property on which the specific charge is laid.

Id.; see also Tex. Att'y Gen. Op. No. DM-374 (1996) at 4 (recognizing that "[a] special assessment
. . . is imposed [on] property that will benefit from a proposed improvement, levied [on] an individual property owner in proportion to the benefit . . . expected to derive from the improvement, and designed to cover the costs of the improvement"). Under the Act, the city or county imposes the assessment on a particular property through a contract with the property owner. See TEX. LOC. GOV'T CODE § 399.005. It does not impose the assessment on all property within the designated region as a general revenue source. See generally id. § 399.006(b) (authorizing assessment contract with owner of real property). Rather, the assessment is intended to cover the cost of the improvement and is tied to the useful life of the improvement. See generally id.
§§ 399.004(a), .009(a)(8). Moreover, the benefit accrues to only the property subject to the assessment and not to the general public of the municipality or county offering the funding mechanism under the Act. With these characteristics, the assessment imposed by a local government as authorized by the Act falls squarely within the description of a special assessment.

Though a special assessment is not an ad valorem tax, we next consider whether the assessment is nonetheless treated in a similar manner as the real property taxes. See Request Letter at 1. The Department's Notice states that "[b]ecause the payment is tied to the property tax bill, a secure payment stream, [program] financing is seen as less risky ... than typical loans for energy efficient upgrades." Exhibit A at 2. This concern is addressed in Local Government Code section 399.014. See TEX. LOC. GOV'T CODE § 399.014. Subsection 399.014(a) states that an assessment imposed under the authority of chapter 399 "has the same priority status as a lien for any other ad valorem tax." Id. § 399.014(a); see State v. Wynne, 133 S.W.2d 951, 957 (Tex. 1939) ("An ad valorem tax is levied against property on its value."); see generally TEX. TAX CODE §§ 32.01(a) (providing for attachment of tax lien to property), 32.05 (providing for priority of tax liens). Similarly, subsection 399.014(c) expressly provides that "[t]he assessment lien . . . may be enforced ... in the same manner that a property tax lien ... may be enforced ... to the extent the enforcement is consistent with Section 50, Article XVI, Texas Constitution." [4] TEX. LOC. GOV'T CODE § 399.014(c). Subsection 399.014(d) states that "[d]elinquent installments of the assessments incur interest and penalties in the same manner as delinquent property taxes." Id.
§ 399.014(d); see generally TEX. TAX CODE §§ 33.01-.11 (governing delinquent taxes). Lastly, subsection 399.014(e) provides that "[a] local government may recover costs and expenses ... in a suit to collect a delinquent installment of an assessment in the same manner as in a suit to collect a delinquent property tax." TEX. LOC. GOV'T CODE § 399.014(e); see generally TEX. TAX CODE
§§ 33.41-.58 (governing a taxing unit's suit for recovery of delinquent taxes, including costs and expenses). The plain language of these provisions shows the Legislature intended to treat the assessment, at least with respect to lien priority status, enforcement, and delinquencies including the recovery of costs and expenses, in a manner similar to real property taxes. See Combs v. Roark Amusement & Vending, L.P., 422 S.W.3d 632, 635 (Tex. 2013) (recognizing that the text is the best indication of the Legislature's intent).

Accordingly, a court would likely find that a contractual assessment imposed under a program authorized by chapter 399 of the Local Government Code is a special assessment by the local government and, with respect to lien priority status, enforcement, and delinquencies including the recovery of costs and expenses, is treated in a manner similar to real property taxes on the property.

SUMMARY

A court would likely find that a contractual assessment imposed under a program authorized by chapter 399 of the Local Government Code is a special assessment by the local government and, with respect to lien priority status, enforcement, and delinquencies including the recovery of costs and expenses, is treated in a manner similar to the real property taxes on the property.

Very truly yours,

KEN PAXTON
Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

BRANTLEY STARR
Deputy First Assistant Attorney General

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee

[1] Letter from Honorable Doyle "Dee" Hobbs, Williamson Cty. Att'y, to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (Feb. 12, 2018), https://texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter"); see also U.S. Dep't of Hous. & Urban Dev. Notice H 2017-01 (Jan. 11, 2017) (attached to request letter and on file with the Op. Comm.) ("Exhibit A").

[2] Examples of clean energy improvements are energy efficient boilers, upgraded insulation, new windows, and solar installations. Exhibit A at 2.

[3] We address your specific question and do not opine on whether the Williamson County program, the model toolkit, or the Act satisfies all of the Department's requirements.

[4] Section 50, article XVI, of the Texas Constitution protects a homestead from forced sale for purposes of paying debts or judgments, except for certain enumerated debts. See TEX. CONST. art. XVI, § 50. As a special assessment is not a tax, it would not be excepted from homestead protection as an ad valorem tax under article XVI, subsection 50(a)(2). See City of Wichita Falls, 26 S.W.2d at 915.