PACE Financing Takes a Step Forward in Court

Date: 1 Sep 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

With a ruling that the Federal Housing Finance Agency (FHFA) must do a formal rulemaking on its 2010 decision to torpedo the innovative local finance tool for energy efficiency and clean energy retrofits, a federal judge gave Property Assessed Clean Energy (PACE) financing new life.

Earlier this year, it looked as if prospects were bleak for PACE in 2011, with some progress on Commercial PACE and a new director at advocacy organization PACENOW, but agonizingly slow steps on federal legislation and litigation. 

Today’s ruling means FHFA has to start over, but it does not overturn the agency’s 2010 advisory against PACE, leaving the program in limbo until the formal rulemaking is complete.  Here’s hoping PACE finally wins through, a great tool for saving energy and creating jobs at the local level.

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National Association of Counties and League of Cities Ask Congress to Support PACE

Date: 15 Feb 2011 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

February 9, 2011

Dear Members of Congress:

On behalf of the nation’s counties, cities and towns, we urge Congress to support legislation that clearly affirms the right of state and local governments to exercise liens or assess special taxes or other property obligations to protect and improve housing stock for the public good, including the installation of renewable energy and energy efficiency improvements, by directing federal regulators to enforce underwriting standards that are consistent with guidelines issued by the U.S. Department of Energy for Property Assessed Clean Energy (PACE).

As you know, the health and vitality of local economies are essential for reversing the national economic downturn. Despite sizable budget shortfalls, state and local governments, in partnership with the federal government, are working to maintain and improve efficiencies in federal programs that support the services that citizens expect governments to deliver. A further challenge, however, is that traditional mechanisms for local finance and revenue, such as sales and property taxes and bond financing, remain difficult to access. As a result, local governments are developing innovative financing programs, such as PACE, that will help neighborhoods realize community and economic development goals even in challenging fiscal periods.

PACE financing programs help property owners finance renewable energy and energy efficiency improvements – such as energy efficient boilers, upgraded insulation, new windows, and solar installations – to their homes and businesses. The PACE program removes many of the barriers of renewable energy and energy efficiency retrofits that otherwise exist for residential homeowners and businesses, particularly the high upfront cost of making such an investment and the long-term ability to reap the benefits of cost savings. Twenty four states plus the District of Columbia have already passed legislation enabling cities and counties to pursue PACE programs.

PACE is not a loan, but instead is built on traditional tax assessments, which local governments have managed for over 100 years. PACE was not designed to increase the risk of homeowners, business owners, lenders, or the financial system, and operates under stringent rules to ensure a net positive benefit to all parties. When fully implemented, PACE programs can achieve significant energy savings and provide positive benefits to the environment.

Unfortunately, rather than incent original solutions such as PACE, the Federal Housing Finance Agency’s (FHFA) determination that PACE energy retrofit lending programs present “significant safety and soundness concerns” effectively shuts the door on an important avenue for financing improvements that would deliver financial and environmental benefits long into the future. This determination is out of step with our nation’s economic recovery agenda and disregards the traditional authority of local governments to utilize the tax code in the best interest of its citizens.

In response to FHFA’s specific concern about the hypothetical risk to the secondary mortgage market involved with PACE homes, as local leaders responsible for investing hundreds of billions in public funds annually, we know well that risk is an inherent part of any investment. However, local governments constantly seek to minimize that risk; in our case, to the taxpayer. We believe that the standards and best practices called for in the Administration’s “Recovery Through Retrofit” report are sufficient to minimize any potential risk posed by the PACE program to both the public and private investments in a PACE home.

The PACE program is an achievement of the intergovernmental partnership to realize national policy goals, namely, reducing energy consumption, that will positively impact the fiscal conditions of every level of government. For these reasons, we encourage you to support legislation that will allow existing PACE programs to continue and encourage additional programs throughout the country. We look forward to working with you to ensure that local governments maintain the traditional authority to utilize the tax code for public benefit.

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FHA PowerSaver Loans – a PACE Replacement?

Date: 26 Jan 2011 | posted in: Energy, Energy Self Reliant States | 1 Facebooktwitterredditmail

Late last year, the Federal Housing Administration announced a new PowerSaver loan program to provide financing for home energy efficiency improvements.  The program comes on the heels of the downfall of residential Property Assessed Clean Energy (PACE) financing, which allowed homeowners to pay back energy efficiency improvements via long-term property tax payments, as well as to pass the payments on to the next homeowner.  Can PowerSaver adequately replace PACE?

Sadly, no.

First, a bit of background on PowerSaver.  The loan program is part of FHA’s Title I Property Improvement Program and the basic principle is that the FHA provides loan insurance for participating private lenders who loan to eligible homeowners.  Federal insurance provides 90% coverage for the loan, with the lender only accountable for the remaining 10%, with limits on the portion of a lender’s portfolio in the Title I program.  Participating homeowners pay a premium equal to 1% of the loan amount multiplied by the loan term.  For example, a $10,000 loan financed over 15 years would have an annual premium of $1,500.  

Loans are capped at $25,000 with 15 year terms for energy efficiency and 20 year terms for renewable energy investments.  A list of eligible improvements can be found here. Borrower’s can only be owners of single-family, detached homes with a 660 credit score and a maximum 45% debt-to-income ratio.  Loans under $7,500 can be unsecured, but larger loan amounts must be secured by the first mortgage.  

The following table illustrates the major differences between PACE and PowerSaver:

  PowerSaver PACE
Lien type Secondary Primary
Backstop Federal insurance Local government
Credit score > 660 n/a
Transferable No Yes

In most cases, the differences make the PowerSaver loan significantly less attractive than PACE financing.  A PACE lien came before the mortgage, potentially allowing PACE programs to sell their obligations on the market and allowing local governments to obtain low interest rates.  PACE liens did not require credit scores, allowing many Americans with damaged credit (but good property tax payment history) to make their home more energy efficiency and cost effective.  Finally, the lien could be transferred between property owners, removing the discontinuity between the lifespan of effective energy efficiency improvements (15 years) and the average stay in one home (5 years).  

Perhaps most powerfully, PACE allowed cities and counties to become a hub of energy planning for their communities, whereas PowerSaver simply backstops the private lending market.

FHA should be applauded for expanding the financing options available to homeowners for energy efficiency and renewable energy improvements, but their offering will not provide the same power as PACE. 

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Michigan the 24th State with a PACE Law, Will It Matter?

Date: 15 Dec 2010 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

Yesterday Michigan governor Jennifer Granholm signed the state’s Property Assessed Clean Energy (PACE) law, making Michigan the 24th state to enable cities and counties to provide financing for on-site renewable energy and energy efficiency improvements via the property tax system. But it’s unclear how many municipalities will move ahead given the roadblocks facing residential PACE programs … Read More

PACE Lawsuits Up for Decision on December 2nd

Date: 23 Nov 2010 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

In mid-October, yet another municipality joined the growing list of lawsuits against the Federal Housing Finance Agency, Fannie Mae, and Freddie Mac over the popular Property Assessed Clean Energy (PACE) program.  Arguments in the court case will be heard next week.

A federal judge will consider next week whether to dismiss lawsuits questioning the Federal Housing Finance Agency’s decision to effectively shut down a White House-supported home energy efficiency program.

In a closely watched case, U.S. District Judge Claudia Wilken of the Northern District of California will hear arguments Dec. 2 over whether to dismiss several lawsuits against the agency, including one filed by the state of California.

I’m hopeful that the plaintiffs can win – PACE could really open the door to major improvements in home energy efficiency and expansion of distributed renewable energy.

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While Many Wait for Stimulus, One City Borrows to Save Money

Date: 29 Oct 2010 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

Unlike many cities, Portland, Maine, has forged ahead with a significant energy efficiency plan without federal stimulus dollars.  Simply borrowing money through bonding to investing in energy saving improvements, the city will – over 20 years – reduce operating costs by $700,000 per year and shrink its carbon footprint by 30 percent.

PORTLAND — The City Council agreed Monday night to borrow as much as $11 million for energy improvement projects in 30 municipal and 15 school buildings throughout Portland…Councilor David Marshall said the energy conservation measures will enable the city to reduce its carbon footprint by more than 30 percent.

…Ameresco [a Massachusetts-based consulting firm] has said that the projects will save about $700,000 a year in utility costs, and by the end of the 20-year bond period will pay back the cost of the work and interest on the bond.

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Property Assessed Clean Energy (PACE): on life support

Date: 13 Oct 2010 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

In mid October, Leon County, FL, joined Babylon, NY, Palm Desert, CA, and Sonoma County, CA, as well as the California Attorney General, Sierra Club, and Natural Resources Defense Council in suing the Federal Housing Finance Agency over their opposition to the Property Assessed Clean Energy (PACE) municipal energy financing program.  These lawsuits were complemented by … Read More

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