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Finally, Some Bi-Partisanship on Clean Energy in Congress: PACE Financing Returns

By Climate Guest Contributor on July 29, 2011 at 11:32 am

"Finally, Some Bi-Partisanship on Clean Energy in Congress: PACE Financing Returns"

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by Raj Salhotra

With partisanship at an all-time high in Washington, Congress can’t even agree on an emergency plan to raise the debt ceiling that would avoid a potentially-catastrophic financial crisis.

But that doesn’t mean political leaders can’t do something across party lines – even if that something is a bit smaller in scope.

Of course, the smallest actions often have an enormous impact. And a bill introduced this week that puts Property Assessed Clean Energy (PACE) back in the spotlight would do just that.

“It’s not just a win-win situation, but win-win-win: homeowners get the benefit of lower utility bills; workers in the stagnating construction industry get jobs; and the nation gets the benefit of increased energy efficiency and reduced energy costs.”

That was the co-sponsors’ message upon introducing the PACE Assessment Protection Act of 2011, which will prohibit “Fannie Mae, Freddie Mac, and other Federal residential and commercial mortgage lending regulators from adopting policies that contravene established State and local property assessed clean energy laws.” The bill is sponsored by two Republicans and a Democrat.

Sounds arcane, right? Well, the implications are huge for the energy efficiency and renewable energy sectors.

PACE programs allow American homeowners and building owners to finance energy efficiency and renewable energy projects through their property taxes.  The municipal government, via bond sales, raises money to pay for the retrofits; the property owner then repays the loan through increased property taxes.  Once the loan is repaid, property owners enjoy the full savings of reduced utility bills.

PACE programs began in the residential sector (30 states enacted programs) and quickly grew to include commercial properties. However, in July 2010, PACE residential programs were stalled when Fannie Mae, Freddie Mac and the Federal Housing Finance Authority (FHFA) decided to stop lending to PACE participants. Under the program rules, if a homeowner defaulted, the PACE loan would get paid back before the mortgage. That riled lending agencies, which argued that they should get paid back first. Because federal agencies currently support 90% of all residential mortgages, the FHFA’s decision decimated the program.

But this latest bill in the House could revive PACE by preventing the agencies from blocking it. If passed, it would revive a program that is incredibly important for local economic development – with no impact on taxpayers.

As of the co-sponsors, Representative Hayworth (R-NY) noted, “create jobs and help Americans to conserve energy, saving on those costs and protecting our environment.”

According to recent analysis, retrofitting 40% of the building stock can create 625,000 full-time jobs over the next decade, spark $500 billion in investments, and curb GHG emissions by 17 million tons by 2020.

While residential PACE programs stalled after last year’s tussle with Fannie and Freddie, commercial programs pushed ahead. Sonoma County’s PACE program has funded 39 commercial retrofits, Boulder County 29, Palm Desert 3, and Placer County 2. These retrofits created jobs, reduced energy costs, and, more importantly, have an extremely low default rate of .1%.

Multiple other cities (Ann Arbor, San Francisco, Los Angels, Cleveland, and Santa Fe) are currently finalizing their own commercial PACE programs.

While commercial PACE programs have been successful, residential PACE programs have stalled because of unfounded concerns about defaults. In fact, before the FHFA moratorium, only 2 homes out of the 2,565 that received PACE financing defaulted. (Average default rates would estimate that 82 homes out of 2,565 would have defaulted).

By hindering residential PACE programs, the FHFA is preventing American homeowners from affordably accessing energy efficiency and renewable energy, and stalling the creation of hundreds of thousands of jobs by 2025.

Both Republicans and Democrats can see that.

— Raj Salhotra, with Stephen Lacey

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