Working For Jobs

by Jonathan Hiskes.

The Federal Housing
Finance Agency solidified its opposition to the home-greening program Property
Assessed Clean Energy (PACE) in a letter to members of Congress Thursday,
telling them it doesn’t see a way to let the program move forward.

FHFA Acting Director
Edward DeMarco rejected the possibility of a PACE pilot
program, seen as the last best hope for bringing the suspended finance tool
back to life in the near term.

“Discussions have
failed to produce concepts that would mitigate the threat to FHFA-regulated
institutions or to broader financial markets,” DeMarco wrote to PACE-supporting Reps. Ed Perlmutter (D-Colo.), Steve Israel (D-N.Y.), John Sarbanes
(D-Md.), and Mike Thompson (D-Calif.). “FHFA, therefore, has determined that
its guidance to its regulated entities must remain in place.”

The remaining options
for saving the popular PACE program are a court battle, legislation, or
possibly intervention from the Obama administration. That last option seems
remote since the administration has so far refused
to put its top people on the case.

Here’s the background
(borrowed from Grist’s previous
coverage): PACE works by letting homeowners pay for rooftop solar arrays
and energy-saving retrofits through a surcharge on their property tax bills.
The cost is paid back over 10 to 20 years. In this way PACE removes high
upfront costs and ensures that property owners don’t lose out if it they sell—the new buyer inherits both the home improvements and the tax assessment.
The Berkeley-born
model creates work for building contractors, cuts carbon pollution, and
essentially runs on private capital, since cities and towns that offer PACE
fund it through municipal bonds.

Until late spring, PACE
was spreading at a steady clip: Twenty-two states had endorsed the model and
encouraged municipalities to set up programs. San Francisco had just launched a
program and Los Angeles was preparing for one later in the year. The Obama
administration backed the model with $150 million in stimulus it funding and an endorsement from the vice
president’s Middle Class Task Force.

But in May FHFA threw
the nation’s first programs into confusion by warning
lenders to stay away from properties with PACE assessments. The agency
objects to the liens that PACE puts on properties, which get paid off ahead of
mortgages if a borrower defaults. That adds a theoretical risk into an already
jittery credit market.

It’s an unfounded fear,
since well-designed energy retrofits add to a homeowner’s financial security,
cutting their utility bills and making them a safer bet for lenders. A report
commissioned by a major financial institution last year found that energy-efficient homes had default and delinquency rates 11 percent lower
than typical homes. PACE advocates have worked to integrate standards to ensure
the quality of retrofits, but that work can’t continue with programs stalled
out.

DeMarco raised the
question of quality standards in his letter this week:

No satisfactory conclusion has been reached to address
problems associated with liens created after a mortgage is in place, thereby
transferring credit risk to banks, secondary market parties and investors in
mortgage-backed securities. Further, consumer protections and appropriate
underwriting standards need to be uniform and mandatory to protect homeowners.

… I
believe that FHFA has done its utmost to seek constructive alternatives.

PACE advocates in the
building trades, local governments, and Congress disagree with his “utmost”
assertion.

“Every single
issue raised by FHFA was raised previously and resolved, from almost
everybody’s perspective, with excellent answers,” PACE creator Cisco
DeVries told Grist last month. “It’s clear they didn’t want to take ‘yes’ for an
answer.”

The chances of a
legislative fix this year are slim, given the level of dysfunction in the
Senate. Majority Leader Harry Reid said he’d consider pushing a PACE bill if it
got a Republican cosponsor, but that hasn’t happened yet. In the House, Bob
Inglis (R-S.C.) signed on as the first Republican cosponsor of a PACE bill
earlier this month.

That raises the
question of where the other Republican supporters are, according to Cliff
Staton, vice president of marketing at DeVries’s company Renewable Funding, which helps towns and
counties set up PACE programs.

“PACE has not been a
partisan issue at the state and local level,” Staton wrote in an email. “… But
in DC, everything seems to be partisan.

“Now that one
Republican has crossed the line, though, the question for other Republicans
becomes: ‘Why not co-sponsor?’”

PACE isn’t the only
innovative financing tool for making green improvement affordable for
homeowners. But it has been one of the most effective ones during its
three-year life. Now supporters know a little more about their options for
saving it.

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