Can a Virginia county let a private bank, instead of the county itself, run the billing and lien enforcement for a PACE clean-energy loan?

Plain-English summary

Loudoun County Attorney Leo Rogers asked AG Mark Herring two questions about a proposed county Property Assessed Clean Energy (PACE) program. PACE programs let property owners finance solar panels, efficiency retrofits, and similar clean-energy improvements through loans that are secured by a special assessment on the property tax bill rather than by a traditional mortgage. The big practical question was: who actually does the work of collecting payments and enforcing the lien, the county or the private lender?

The opinion went both ways in favor of letting Loudoun delegate:

1. Billing and collection. Section 15.2-958.3(C) requires localities adopting a PACE ordinance to "offer private lending institutions the opportunity to participate." Subsection (A)(5) lets the locality contract with a third-party administrator. The AG read those provisions together to mean the county does not have to do billing and collection itself; the local ordinance can put that work on the private capital provider or the third-party administrator.

2. Lien enforcement. Section 15.2-958.3(E)(3) gives the locality power to enforce the voluntary special assessment lien "in the same manner that a property tax lien against real property may be enforced." Loudoun asked whether the lender could enforce on its own. The AG concluded that the statute does not prohibit the locality from assigning, by ordinance, its right to record and enforce the lien to the private capital provider, subject to whatever conditions and restrictions the local governing body adopts.

The opinion let Loudoun structure its PACE program as a private-capital, county-administered-by-ordinance arrangement, with no county funds at risk and administrative costs passed through to borrowers.

Currency note

This opinion was issued in 2019. 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.

Background and statutory framework

PACE financing originated in California in 2008 as a way to let property owners spread the cost of clean-energy upgrades over 10 to 30 years, with the loan attached to the property rather than the borrower. The loan is repaid through a special assessment that has lien priority similar to property taxes, which gives lenders comfort and lets borrowers access lower rates.

Virginia authorized commercial PACE in § 15.2-958.3, titled "Authority to enact local loan programs to finance the initial acquisition and installation of clean energy improvements." The statute:

• Allows localities to approve, by ordinance, contracts for PACE loans for "the initial acquisition and installation of clean energy improvements" on existing and new properties (subsection A).
• Requires the local ordinance to include certain provisions but otherwise gives broad discretion (subsection A).
• Lets the locality contract with a third party for professional services to administer the program (subsection A(5)).
• Requires localities to offer participation to private lending institutions (subsection C).
• Permits use of voluntary special assessment liens to secure PACE loans (subsection D).
• States that the lien "[m]ay be enforceable by the local government in the same manner that a property tax lien against real property may be enforced" (subsection E(3)), excluding residential dwellings with fewer than five units and condominium projects as defined in § 55-79.2.

Virginia's interpretive rule, repeated in Davenport v. Little-Bowser (2005) and Appalachian Power v. State Corp. Comm'n (2012), is that statutory language gets its plain meaning, and rules of statutory construction "prohibit adding language to or deleting language from a statute."

Common questions

Q: What property owners can use PACE in Virginia?
A: Section 15.2-958.3 covers PACE for the initial acquisition and installation of clean-energy improvements. The statute (and this opinion) focus on commercial PACE; subsection E(3) carves out residential dwellings with fewer than five units and condominium projects from local-government lien enforcement.

Q: How does a PACE assessment compare to a regular property tax lien?
A: Section 15.2-958.3(E)(3) says the locality may enforce the voluntary special assessment lien "in the same manner that a property tax lien against real property may be enforced." That gives the assessment lien-priority status similar to property taxes, which is the core feature that makes PACE financing attractive to lenders.

Q: Why would a locality want to enact a PACE ordinance at all?
A: To unlock private financing for clean-energy improvements at no cost to the locality. Under the Loudoun structure, no county money was at risk; administrative costs were passed to borrowers. The locality got policy benefit (cleaner energy, longer-lived buildings) without spending public funds.

Q: Can the local ordinance restrict what the private capital provider can do?
A: Yes. The AG explicitly said the assignment of lien enforcement was "subject to such terms, conditions and restrictions the local governing body deems appropriate." The county controls the design through the ordinance.

Q: What happens to a PACE assessment if the property is sold?
A: Because it's attached to the property and recorded as a lien, the assessment generally runs with the land. That's the structural point of PACE.

Q: What about residential single-family PACE?
A: Section 15.2-958.3(E)(3) excludes residential dwellings with fewer than five units and condominium projects from local-government enforcement. The opinion did not analyze residential PACE separately; the broader question of whether Virginia even authorized residential PACE was outside the scope of the request.

Q: Did the opinion say a county must let private capital providers participate?
A: Yes. Subsection 15.2-958.3(C) requires localities that adopt PACE ordinances to "offer private lending institutions the opportunity to participate." A locally-funded-only PACE program would not satisfy the statute.

Citations

The opinion rests on § 15.2-958.3 (subsections A, A(5), C, D, E(3)) and on Virginia's plain-meaning canon as expressed in Davenport v. Little-Bowser and Appalachian Power v. State Corp. Comm'n.

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2019/18-056-Rogers-issued.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Mark R. Herring
Attorney General

February 1, 2019

202 North Ninth Street
Richmond, Virginia 23219
804-786-2071
Fax 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

Leo P. Rogers, Esquire
Loudoun County Attorney
1 Harrison Street, S.E.
Post Office Box 7000
Leesburg, Virginia 20177-7000

Dear Mr. Rogers:
I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issues Presented
You ask two questions relating to Property Assessed Clean Energy (PACE) loans. You first ask whether § 15.2-958.3(B) of the Code requires a locality to assume responsibility for billing and collecting PACE loan payments on behalf of a private capital provider making the loan, or whether the local PACE ordinance may authorize these functions to be handled by the private capital provider or a third party administrator. You further ask whether, in the event of default, the private capital provider may enforce a voluntary special assessment lien on its own behalf, or whether § 15.2-958.3(E)(3) requires that such enforcement be taken only by the locality.

Background
You state that Loudoun County is considering the adoption of an ordinance to create a PACE loan program under the authority given in § 15.2-958.3. The proposed ordinance would i) allow private lending institutions ("private capital providers") to participate in the program by making loans directly to eligible property owners; ii) authorize the County to place a voluntary special assessment lien to secure each PACE loan; and iii) authorize the County to contract with third parties for professional services to administer the loan program and collect loan payments. No County funds would be used for the program, and all administrative costs would be passed to the borrowers.

Applicable Law and Discussion
Section 15.2-958.3 authorizes localities, by ordinance, to approve contracts providing PACE loans for "the initial acquisition and installation of clean energy improvements with free and willing property owners of both existing properties and new construction."[1] The statute requires that certain provisions be included in the ordinance but otherwise gives localities broad discretion in drafting such an ordinance.[2]

In construing Virginia law, "[a] principal rule of statutory interpretation is that courts will give statutory language its plain meaning."[3] Additionally, "[r]ules of statutory construction prohibit adding language to or deleting language from a statute."[4]

1. Whether § 15.2-958.3(B) of the Code requires a locality to assume responsibility for billing and collecting PACE loan payments on behalf of a private capital provider making the loan, or whether the local PACE ordinance may authorize these functions to be handled by the private capital provider or a third party administrator.

Section 15.2-958.3(C) requires those localities that adopt PACE ordinances to "offer private lending institutions the opportunity to participate in local loan programs established pursuant to this section."[5] Under this unrestricted statutory direction, a local ordinance may authorize private capital providers to make PACE loans directly to qualifying property owners, secured by a financing agreement, and to service and enforce such loans through billing and collection activities. In addition, § 15.2-958.3(A)(5) expressly provides that a "locality may contract with a third party for professional services to administer [the] loan program."[6] Administration of the loan program by a third party administrator may include a myriad of services, as dictated by the local ordinance or agreed upon by the local governing body and the third party, such as determining whether an applicant qualifies for a PACE loan, working with such applicants to secure the loan from the private capital provider, keeping records on behalf of the local government, and if so assigned, billing and collection of the loan payments. Thus, I am of the opinion that either the private capital provider or the "third party" referenced in § 15.2-958.3(A)(5) may be directed by the local ordinance to collect a PACE loan.

2. Whether, in the event of default, the private capital provider may enforce a voluntary special assessment lien on its own behalf, or whether § 15.2-958.3(E)(3) requires that enforcement be taken only by the locality?

Section 15.2-958.3(D) allows the use of voluntary special assessment liens to secure PACE loans.[7] The statute further provides that a voluntary special assessment lien "[m]ay be enforceable by the local government in the same manner that a property tax lien against real property may be enforced by the local government."[8] While the authority to record and enforce a special lien is granted to the local government, § 15.2-958.3 does not prohibit a locality from adopting an ordinance to allow the assignment of the special assessment lien to the private capital provider. Thus, I am of the opinion that a reasonable interpretation of the statute would allow the local governing body to assign to the private capital provider its right to record and enforce the voluntary special assessment lien, subject to such terms, conditions and restrictions the local governing body deems appropriate.

Conclusion
Accordingly, it is my opinion that localities are not required to assume responsibility for billing and collecting PACE loan payments and may contract with third party administrators or private capital providers to service PACE loans. It is my further opinion that localities may, by ordinance, assign to private capital providers the right to record and enforce the voluntary special assessment liens securing such PACE loans in the event of default.

With kindest regards, I am,

Very truly yours,

Mark R. Herring
Attorney General

1. VA. CODE ANN. § 15.2-958.3(A) (2018). Notably, § 15.2-958.3 does not refer to clean energy improvement loans as PACE loans; however, the Virginia Department of Mines, Minerals and Energy frequently uses the term "PACE loans" in its publication entitled Final uniform statewide financial underwriting guidelines for clean energy loans made by localities under §15.2-958.3 of the Code of Virginia.

2. Section 15.2-958.3 ("Such an ordinance shall include but not be limited to the following ....") (emphasis added).

3. Davenport v. Little-Bowser, 269 Va. 546, 555, 611 S.E.2d 366, 371 (2005) (citing Jackson v. Fidelity & Deposit Co., 269 Va. 303, 313, 608 S.E.2d 901, 904 (2005)).

4. Appalachian Power Co. v. State Corp. Comm'n, 284 Va. 695, 706, 733 S.E.2d 250, 256 (2012) (citing BBF, Inc. v. Alstom Power, Inc., 274 Va. 326, 331, 645 S.E.2d 467, 469 (2007)).

5. Section 15.2-958.3(C).

6. Section 15.2-958.3(A)(5).

7. Section 15.2-958.3(D).

8. Section 15.2-958.3(E)(3) (but excluding from the scope of the subsection any voluntary special assessment lien on "a residential dwelling with fewer than five dwelling units or a condominium project as defined in § 55-79.2").