18 Jul 2010 11:37 am
BY Jeffrey Tomich jtomich@post-dispatch.com
314-340-8320
Is Missouri's newest and boldest initiative to encourage energy savings doomed before it takes root?
Gov. Jay Nixon signed a bill on Monday enabling Property Assesses Clean Energy (PACE) programs, which allow cities and counties to issue bonds to help home owners finance energy efficiency upgrades or solar panel installation. Money from the bond sales is lent to property owners, who repay it over a period of up to 20 years through special property tax assessments.
PACE laws have been adopted in 22 states as a way to cut energy use and create jobs by making it easier for homeowners to cut energy use and shrink utility bills.
But Fannie Mae and Freddie Mac, which own or guarantee more than half of the mortgages in the U.S., have been directed to steer clear of PACE loans by their regulator, the Federal Housing Finance Agency. The Office of the Comptroller of the Currency, which regulates national banks, and the Mortgage Bankers Association have expressed similar concerns.
The issue: Like property taxes, PACE liens take priority over mortgages. That makes the bonds easier for municipalities to sell. But if a home is foreclosed on, the liens are paid before the mortgage lender can recoup any money.
That fact has spooked mortgage giants and FHFA, which said in a July 6 letter that PACE loans "pose a significant risk to lenders" and "are not essential for successful programs to spur energy conservation."
The position in effect shut down PACE programs across the country.
California, which pioneered PACE financing, is fighting back. The state's attorney general sued Fannie, Freddie and FHFA on Wednesday, claiming their opposition is threatening jobs and access to federal funding.
In Missouri, energy efficiency advocates acknowledge the uncertainty surrounding PACE but are working to roll out programs anyway, hoping the conflict is resolved.
On Friday, energy advocacy group Renew Missouri held a PACE implementation training conference in Columbia for about 100 energy auditors, solar installers and local government officials.
"Our view is that these concerns and problems will be resolved," said Byron DeLear, a founding partner of Energy Equity Funding LLC, a company that hopes to administer PACE programs in the state.
DeLear also heads the Missouri Association of Accredited Energy Professionals, a year-old state association of energy auditors and contractors. MAAEP helped push PACE legislation in Jefferson City and has a lot riding on the success of the programs.
PACE is expected to spur millions of dollars in efficiency and renewable energy upgrades across the state. That could mean hundreds of new jobs for energy auditors, contractors and home remodelers.
DeLear projects that 80 percent of PACE loans in Missouri will be used to finance energy efficiency projects averaging about $5,000. The rest will also incorporate renewable energy systems such as solar panels with those projects averaging about $25,000. Statewide, the average PACE loan would be about $9,000, he estimates.
Tom Ochsner, a St. Peters energy auditor, is among those counting on the programs to provide a boost to his company, Thermal Vision. He currently has just one part-time employee but hopes to be able to add more staff if PACE is successful.
Ochsner said homeowners, too, would benefit, especially those who earn too much to qualify for low-income weatherization programs but don't have enough in the bank to fund energy savings projects out of pocket.
"Not everyone can write a check for $6,000 or $7,000 or $8,000 for a new furnace or air conditioner and maybe some new windows," he said.
Several cities and counties are anxious to participate in PACE programs, too. One is Ferguson, in north St. Louis County.
"We've been watching and nurturing it for long time, and we hope to get to the point where we can use it," said Rosalind Williams, director of planning and development for the city.
Homeowners have other ways, such as home equity loans, to finance efficiency improvements. But some homeowners are hesitant to tie up their home equity, or don't want to be subject to floating interest rates, said Steve Frenkel, Midwest director for Renewable Energy Funding LLC, a company that administers PACE programs. Others may fear that they will lose the investment if they move, he said. By contrast, PACE liens stay with the home if it's sold.
Also, the Department of Energy and White House have issued strict underwriting guidelines to make sure financing is given to only low-risk borrowers, he said.
The Missouri law requires the formation of local clean energy boards to review PACE applications. The boards would also be required to file annual reports with the Department of Natural Resources, cataloguing projects, loan amounts, administrative costs and cumulative energy savings.
In most cases, energy audits would be required for PACE financing. And energy boards would approve loans if energy efficiency improvements are cost-effective.
Missouri bankers supported the PACE legislation.
Still, lenders won't approve any mortgages associated with PACE loans as long as Fannie, Freddie and FHFA object, said Max Cook, CEO of the bankers association. Instead, they're watching to see if the matter gets resolved. "It's an awfully big question mark," Cook said. "You hope that (the program) works as intended."
PACE supporters reject the suggestion by Fannie and Freddie that the liens are too risky for investors. "These are no different than the kind of special assessments that local governments have created for decades for public improvements like building roads and sewer lines," Frenkel said.
Supporters are hopeful Congress will step in and resolve the stalemate, especially since the administration of President Barack Obama has been a proponent of PACE and set aside $150 million of stimulus funds to help implement programs. Legislation was introduced in Washington on Thursday.
"I really see this as a minor hiccup," said Erin Noble, energy policy coordinator for the Missouri Coalition for the Environment. "It's pretty absurd that PACE is under the microscope that it is."
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