Green energy financing faces federal roadblock
on July 23, 2010
An innovative financing scheme designed to help homeowners afford to make their homes greener and more energy efficient could be in trouble. The Federal Housing Finance Agency recently announced that it would not support Property Assessed Clean Energy (PACE) finance programs, like one set to launch for Oakland residents later this year.
Under the PACE scheme, local governments provide financing to property owners for green energy work—such as installing solar panels and energy-efficient windows. The owner pays the money back as a line item on his or her property tax bill. Alameda County was set to offer PACE financing in the coming months as part of a statewide initiative called CaliforniaFIRST. But the red light from federal home loan authorities has put the program on hold, jeopardizing the local green economy, some say.
“Having PACE taken off the table sets us really far back,” said Matt Golden, founder and president of Recurve, a San Francisco-based green energy retrofit company that works throughout the Bay Area. San Francisco launched its own PACE program, called GreenFinanceSF, last April, but it was recently suspended because of the conflict with federal authorities.
During the short time the program was open, Golden said his company sold more than a dozen green energy retrofit projects to customers planning to use the financing scheme to fund the work. “We had a huge spike [in business] when people were interested in the PACE program,” Golden said, “and that’s definitely fallen off.”
Fewer customers mean fewer jobs for the Bay Area’s limping construction sector, and an uncertain future for the area’s budding green workforce, he said. “We’re training people to do the work, we need to be able to put people to work.”
PACE financing, which was first piloted by the city of Berkeley in 2008, has taken off around the country as a way to help property owners spread out the cost of paying for expensive energy-saving measures. A total of 22 states and the District of Columbia have passed laws allowing PACE financing. With CaliforniaFIRST, under which Oakland residents would apply, participants would have up to 20 years to pay back the financing. If the owner sold his or her home, the new owner would be responsible for continuing repayments.
Federal home loan authorities seem most concerned about what would happen if a homeowner with PACE financing defaulted on his or her mortgage. In that case, the PACE assessment would be paid off first—along with all property taxes—before the mortgage. In a statement made on July 6, the Federal Housing Finance Agency also raised concerns about “the absence of robust underwriting standards” and the lack of standards for determining the value added to a home by energy retrofit work. The agency said PACE loans “pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors.”
Supporters of the program disagree, saying similar property tax assessments have been used for over 100 years to fund everything from new sidewalks to schools and hospitals.
“This is a local government issue, and local governments ought to be the ones able to assess their own citizens and residents,” said Cliff Staton, vice president of marketing for Renewable Funding, the financial partner for CaliforniaFIRST and Green Finance SF.
Staton was in Washington this week lobbying congress members to pass a bill overruling the housing agency’s decision. A number of California authorities, including Governor Arnold Schwarzenegger and congressional representatives, have already spoken out in support of PACE financing.
“I am deeply disappointed that the Federal Housing Finance Agency has chosen not to support a federal stimulus program that would make it cheaper for Californians to invest in energy efficiency,” Schwarzenegger stated in a July 6 press release. “The FHFA’s bureaucratic breakdown threatens one of California’s most promising new engines of job creation in this struggling economy.”
According to the governor, the federal government’s rejection of the program puts in jeopardy some $50 million in federal recovery dollars marked for PACE programs in California, with the potential to leverage more than $400 million in local private funds.
On July 14, California Attorney General—and former Oakland mayor—Jerry Brown filed a lawsuit against Fannie Mae and Freddie Mac for blocking California’s PACE programs. These government-sponsored enterprises guarantee the majority of residential mortgages, and which are overseen by the Federal Housing Finance Agency.
“This program called PACE…will create jobs, foster energy independence, lower utility bills, and fix the environment,” Brown said at a recent press conference. “Unfortunately, right in the midst of this recession, this program is being strangled by these big behemoths, Fannie Mae and Freddie Mac, who now are running so scared they don’t recognize a great deal when they see it.”
Earlier this week, 60 members of Congress, 29 of them from California, signed a letter to President Barack Obama urging him to resolve the uncertainties facing the program. “At a time when the nation’s unemployment rate is over 9 percent, and the construction industry’s unemployment rate is over 20 percent, the recent statement from the Federal Housing Finance Agency will have a severe impact on our economy, our local communities, and our goal to move to a clean energy economy and establish energy independence,” read the letter. It also noted that the White House and the Department of Energy have been strong supporters of the program, in stark contrast to the position taken by federal home loan authorities.
Staton from Renewable Funding said he hoped Congress would provide a solution. “We’re hoping that we can make our case in Congress and get a resolution to this very soon,” said Staton.
Last week, Congressman Mike Thompson (D-California) introduced legislation that would order mortgage lenders to adopt standards that support PACE financing. Thompson represents six coastal counties in Northern California, including Sonoma, whose PACE program has been running for more than a year.
In Oakland, green energy authorities were optimistic that a solution would be found to the impasse. “I’m confident that eventually we will sort something out,” said Karen Kho, Green Building Program Manager for Alameda County StopWaste.org, a joint agency composed of the county’s waste management, and source reduction and recycling authorities.
Stop Waste Now is coordinating the Alameda County Energy Efficiency and Green Retrofit Program, which will offer utility rebates to homeowners who improve their energy efficiency, as well as PACE financing, if the latter survives the current battle.
Kho said market research has shown that most homeowners are interested in implementing small-scale, energy-saving home improvements, which, if valued under $5,000, wouldn’t be eligible for PACE financing anyway. Still, she said PACE is attractive to customers looking to install “big ticket items like solar and windows.”
Kho said her agency hoped to reintroduce the PACE financing option to the retrofit program in the future. “I don’t think it’s going away,” she said. “A lot of people are willing to fight to get it resolved.”
Lead image: Rooftop solar panels. Photo from Wikimedia Commons.
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