Davis Enterprise - Thompson urges fix for stalled energy-efficiency effort

Rep. Mike Thompson and a pair of Republicans are trying revive a way for property owners to pay for projects like installing solar panels and energy-saving windows as a surcharge on their property tax.

Such property-assessed clean energy, or PACE, programs looked to be moving forward in Davis and across the country. Fannie Mae and Freddie Mac derailed them last year by saying they would not accept loans that included PACE liens.

Reps. Thompson, D-St. Helena; Dan Lungren, R-Gold River; and Nan Hayworth, R-N.Y.; introduced a bill Wednesday that they say will fix the problem by providing better safeguards for lenders and new standards for such programs.

The House bill includes requirements that, to participate, property owners must: be current on property taxes for three years, have no involuntary liens on the property of more than $1,000, be current on mortgage payments and have not filed for bankruptcy in the past seven years.

The bill also requires that the long-run energy savings exceed the cost of improvements and that the total value assessments not exceed 10 percent of the property's value.

By allowing property owners to clear the hurdle of up-front costs, PACE programs are an effective way for property owners to save energy and reduce greenhouse gas emissions while creating jobs â€" all without additional taxes, the representatives argue.

"I think it's incredibly important to our nation's energy security, to the rate-payers who buy energy and to the creation of jobs," Thompson said in a conference call with reporters.

He cited the early success of Sonoma County, home to one of the first and largest PACE projects in the country.

"Not only did the program allow (property) owners to add energy-efficient additions to their homes and their businesses, but it also created a lot of jobs," he said.

"When the economy was in such bad shape and everyone around Sonoma was losing construction jobs, Sonoma was actually adding construction jobs â€" and it wasn't because they were building new homes, it's because of the PACE program."

Some lenders in Sonoma reportedly began declining to issue new loans for homes unless PACE liens were paid off, however.

Then, in May 2010, government-subsidized mortgage-finance corporations Fannie Mae and Freddie Mac rejected PACE liens because they have senior lien status. That means improvements made under such programs would be paid back before the mortgage if the property owner defaulted on a loan.

Supporters of PACE programs dismissed Fannie and Freddie's concerns by emphasizing that the value of such projects remains with the property, even if the owner defaults.

Two months later, however, regulators at the Federal Housing Finance Agency agreed with Freddie and Fannie, saying PACE liens violated their mortgage contracts. California promptly sued.

In the meantime, because Freddie, Fannie and other federal programs control about 90 percent of new mortgage loans, their decisions effectively shot down PACE programs as they were taking off.

First launched in Berkeley in 2008, PACE programs were swiftly launched elsewhere in California and in 26 other states and the District of Columbia. The Obama administration had doled out $150 million in economic stimulus money for such programs.

When the state authorized Sonoma's program in March 2009, the county invested $100 million.

The county has since approved about 1,500 applications worth $41 million for residential projects (about $28,000 per project) and $7 million for commercial properties ($178,000 per project), according to Supervisor Valerie Brown.

"We have increased jobs for people who put in windows, for plumbers, for people who want to (install) solar energy," she said.

An informal survey in Sonoma found construction jobs had increased 7 percent, while two neighboring counties had seen such jobs fall by "2 or 3 percent," Brown said.

The organization PACE Now estimated that for every $4 million invested in such projects in its four study cities, it would create $10 million in economic activity and $1 million in tax revenue.

Davis, which had been mulling a PACE program of its own, opted instead to join Yolo County, Woodland, Winters, West Sacramento and other communities as part of a pilot program for what was minted as CaliforniaFIRST. The California Energy Commission provided $16.5 million to get it started.

Davis' sustainability program director, Mitch Sears, applauded the House bill.

"We're very pleased to see (Representative) Thompson, Lungren and Haworth are pursuing a legislative fix," he said.

The city of Davis had set aside $120,000 in stimulus block grant money to launch PACE, holding out until spring in hopes that Freddie and Fannie would change course. Faced with a deadline to use the money, the city is instead spending it primarily on energy-efficiency upgrades on city property.

Davis interest in PACE seemed to be "very high," Sears said, with one community forum on the subject filling the Community Chambers at City Hall.

In 2004, a city task force on energy issues recommended finding alternative financing for energy-efficiency upgrades for affordable housing projects.

"There's been a good deal of discussion, not as much about PACE, because that's relatively new, but around these issues about how do we provide tools for business and residents to make the energy-efficiency upgrades that we all know would positively benefit owners and renters and help the climate," Sears said.

Eight other Republicans and five other Democrats have signed on as co-sponsors of the House bill. A Senate sponsor has not been selected, but a spokesperson for Thompson said several have expressed interest.

The Obama administration has not yet weighed in on the bill. It has received the backing of the National Association of Counties and National League of Cities.

Said Lungren, "This isn't Republican, this isn't Democrat, this isn't conservative or liberal, this is just good, common sense."