Uncertain future for once-lauded PACE programs

The sun is no longer shining on PACE programs, with dozens of communities now reconsidering initiatives

Once seen as a wonder solution to financing home energy improvements including solar panels, PACE programs across the country are now facing a bleak future.

Having received support from the White House and legal adoption in 24 states, the whole system was blown out of the water by the Federal Housing Finance Agency’s view that they “present significant safety and soundness concerns” for lenders.

The Agency – which has considerable clout as controller of the mighty Fanny Mae and Freddy Mac – is now being sued by various parties hoping to salvage the opportunities presented by PACE programs.

Many programs are now being shelved, including a $30 million municipal program in California and a $150 million program in San Francisco.

A useful update on the situation has been produced by the Lawrence Berkeley National Laboratory, which lays out the background and possible outcomes.

PACE

PACE – property assessed clean energy – programs involve the financing of energy improvement projects through the property tax system.

This usually involves an upfront sum presented to homeowners, who then pay it off over a long-term period (perhaps 15 years) through extra payments on top of their property taxes.

If the homeowner moves house, the new owner will continue to pay the increased property tax until the equipment costs are paid off.

The problem with the entire approach to clean energy upgrades is that the Federal Housing Finance Agency has recommended that municipal authorities do not pursue such initiatives, and that mortgage providers increase their mortgage requirements in areas where initiatives are in operation.

PACE for the near term is likely to continue in only a few jurisdictions” - Lawrence Berkeley National Laboratory report

Reconsidering

The Lawrence Berkeley National Laboratory notes that the US Department of Energy is still supporting the use of Recovery Act funding to run PACE programs, but that many states are now reconsidering their programs.

It suggests that commercially-operated PACE programs may provide an alternative, although it says these also face a “number of challenges”.

In the long run, the report states that PACE programs could be saved through new legislation in Congress, or the ruling of a judge in one of the lawsuits filed against the FHFA.

Another option could be for the Obama Administration to engineer an interagency agreement on PACE that could offer sufficient assurances to mortgage lenders and financial regulators.

In the mean time, the report says: “PACE for the near term is likely to continue in only a few jurisdictions, with some communities resorting to commercial-only programs or subordinate-lien financings.”