National Campaign to Save PACE Solar Financing Is Energized
GRAPHIC CREDIT: SOLAR HOME & BUSINESS JOURNAL
By Michael Balchunas (Sunpluggers.com)
Published July 29, 2010
A nationwide campaign to muster political support for stalled financing programs that help homeowners and businesses save money with solar electric systems is gaining traction, proponents say.
“We’re not there yet, but we’ve made a good bit of progress,” said Jeffrey Tannenbaum, founder of an advocacy group called PACENow.org, in a conference call Thursday to supporters around the country.
Local officials from cities, counties and states, as well as ordinary voters, have flooded their U.S. senators and representatives with letters and emails proclaiming support for a financing method commonly called Property Assessed Clean Energy, or PACE.
These programs allow property owners to install solar photovoltaic systems or other energy improvements – such as insulation, new windows or new air conditioners – with little or no up-front cost. The owners pay an increased tax bill, but the higher tax is expected to be offset by savings on energy costs. The special tax payment can last as long as 20 years. If a home or business is sold, the solar system or other improvement stays with the property, and the new owner takes over the payments.
After expressing concerns about these programs for months, the government-sponsored mortgage enterprises known as Fannie Mae and Freddie Mac issued warning letters to lending authorities last spring that effectively put a halt to most PACE programs.
A common aspect of tax-assessed energy programs is that the debt becomes senior to other liens on a property in the event of a payment default by the owner.
The Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., the formal names for Fannie Mae and Freddie Mac, said in letters to lenders in May that these energy liens could not be made superior to mortgage debt for mortgages that they would accept. Between them, the two government-supervised agencies recently owned 56 percent of U.S. mortgages.
The Federal Housing Finance Agency, which oversees the mortgage entities, and the Office of the Comptroller of the Currency, which regulates banks, have put PACE programs in limbo with guidance letters to banks and other lenders that caution them about tax-assessed energy financing.
Although this funding approach for energy projects so far has been a minuscule part of home-related lending in the United States, the agencies have concluded that it is risky and unsound.
“Homeowners should not be placed at risk by programs that alter lien priorities and fail to operate with sound underwriting guidelines and consumer protections,” said Edward J. DeMarco, acting director of the Federal Housing Finance Agency, in a recent statement defending the agency against an onslaught of criticism.
PACE proponents are fighting to restore the programs by stirring up public opinion, filing lawsuits and seeking legislative remedies.
“The outreach by the PACE network has been extraordinary,” Mr. Tannenbaum told supporters by telephone and the Internet. “Thousands of letters went out to House members and senators,” after activists began raising a hue and cry about the federal regulators’ actions.
“The White House is very engaged in this,” said Mr. Tannenbaum, but so far, President Obama has not commented or publicly acted on the stalemate. Mr. DeMarco, acting head of the Federal Housing Finance Agency, was appointed by Mr. Obama; John C. Dugan, comptroller of the currency, who is due to step down Aug. 14, was appointed by President George W. Bush.
Mr. Tannenbaum said the impending congressional recess will likely delay any action on the PACE issue until September or later. Although “Progress has been very strong,” he said, “It will take more time to build the bipartisan movement” in support of restoring tax-assessed energy financing.
The PACE debate, like the rapid development of the solar electricity industry, is causing political representatives to keep a close watch on attitudes and actions within their constituencies. More than 40 solar-related companies in the past year have announced plans to build new factories or expand existing ones in a variety of states; electric vehicle and battery manufacturers are ramping up; and many related industries are expected to be hiring in the coming years if these manufacturing enterprises continue to grow.
Support in Congress for restoring PACE programs has so far come mostly from Democratic lawmakers, 44 of whom signed a recent letter to the president asking him to intervene.
“Many Americans, states, and municipalities are counting on this program to be restored,” the letter said.
However, PACE supporters have been seeking to enlist Republican backing as well. In California, many political observers are just learning that solar electric systems are proving popular among conservative constituencies in places such as the San Diego area, where military families are aware that all branches of the U.S. military have strongly embraced solar for both financial and national security reasons, and in the sunny Central Valley.
The rapidly evolving political landscape has required some nimble footwork from representatives.
In San Diego, GOP Mayor Jerry Sanders has strongly endorsed a lawsuit filed by California Attorney General Edmund G. Brown Jr., a Democrat, to attempt to break the PACE gridlock.
U.S. Rep. Duncan Hunter, a conservative Republican and U.S. Marine Corps veteran of the wars in Iraq and Afghanistan, who represents a San Diego-area district, also is a PACE supporter.
In a recent letter to Mr. DeMarco, the appointee of Mr. Obama who has criticized PACE financing, Mr. Hunter said, “many within the San Diego community have invested a significant amount of time and financial resources in the municipal solar financing programs involved with PACE.”
“These efforts have helped strengthen the local economy by creating and sustaining jobs and saving taxpayer dollars.”
U.S. Rep. Duncan Hunter
San Diego Republican
“These efforts have helped strengthen the local economy by creating and sustaining jobs and saving taxpayer dollars, both critical efforts as our region struggles along with the rest of the nation to meet the challenges of the current economic environment. San Diego uses the PACE initiative as a means of utilizing one of our most reliable natural resources, solar energy, while at the same time helping achieve many stated national goals pertaining to unemployment, environmental conservation and reducing America’s dependence on foreign oil. This decision by the FHFA adversely affects all the progress that has been made in these areas and has the potential to thwart future property and renewable energy investment, not only in San Diego but throughout California.”
Less than a month earlier, Mr. Hunter had written a lengthy letter of opposition to a controversial plan by San Diego Gas and Electric Co. to build a new high-voltage transmission line called the Sunrise Powerlink, which the company says is needed to carry solar electricity from planned outlying solar power plants into the San Diego metropolitan area. Mr. Hunter’s letter said studies show San Diego could support 5,000 megawatts of solar electricity generation from rooftops and parking lots, without the need for the new power line.
The congressman’s letter on the PACE issue said, “Director DeMarco, I hope you would agree that public policy decisions should reinforce national goals rather than create obstacles that prevent them from reaching their potential … I respectfully request that you take the appropriate action to rescind this decision and allow the San Diego region to continue to demonstrate to the nation how a community responds to adversity.”
In Thursday’s conference call and webinar, PACE supporters said that Mr. DeMarco and other federal financial regulators have overstated the risk of tax-assessed financing for energy projects.
“The senior lien risk is small,” Mr. Tannenbaum said, because if the owner of a $15,000 PACE-financed project were to default and enter foreclosure, only the delinquent tax amount would be subject to priority collection, not the entire $15,000, for which payments would be spread over many years and would transfer to a new property owner. Solar electric systems are typically warranted for 20 to 30 years of power production, and may last even longer, retaining calculable value far into the future.
The money for PACE projects comes from bonds issued by public or private entities. In a typical bonding portfolio of PACE loans, spread over many participants, the default risk per household amounts to perhaps $75, Mr. Tannenbaum said.
“We have had huge community support and huge business support. ”
Rod Dole
Sonoma County
(Calif.) Official
Rod Dole, auditor, controller, treasurer and tax collector for Sonoma County, Calif., whose Energy Independence Program has been the most successful in the country so far, said during the webinar that “we have had huge community support and huge business support.” Sonoma County’s Board of Supervisors voted recently to continue its tax-assessed energy program in spite of the regulators’ warnings. Applicants are informed of the potential for mortgage issues to arise.
With more than 1,000 energy projects financed, the county has had “no defaults or foreclosures among SCEIP participants,” Mr. Dole said. He said 3 percent of county taxpayers are behind in their payments, but only 1.2 percent of participants in the energy program have overdue accounts. Many of those are likely people who forgot to make payments before going on vacation, he said.
Dorian Dale, energy director for the town of Babylon, N.Y., on Long Island, mentioned during the electronic conference that his town is preparing a lawsuit over the issue of tax-assessed energy financing, which will focus on the 10th Amendment rights allotted to states.
“We’re dealing with an intransigent opposition here,” he said of the federal regulators, and states’ rights supporters represent “a constituency that should be concerned about this edict from FHFA.” He told the audience that the opposition to PACE arises “from the folks who brought us the trillion-dollar subprime tsunami.”
Cisco DeVries, president of the company Renewable Funding, which has been involved in establishing more than 200 PACE programs, said, “The support has been remarkable” for restoring the financing method, and “has been understood loud and clear” by political representatives as diverse as Mr. Hunter and Democratic Speaker of the House Nancy Pelosi.
“We need to make this a shining example of bipartisanship” in Congress, he told supporters, adding, “This has not gone unnoticed by the most powerful people in the U.S. government.”
