The foreunners are in california...
The story begins 4 years ago in Berkeley, California. Cisco DeVries and other members of the city administration wondered how to foster energy savings and green energy production in their community. The main barriers for households were the upfront cost and the fear that project costs wouldn’t be recovered prior to a future sale of their property, Cisco De Vries has been developing the idea of adapting a financing scheme that is broadly used for street works and public infrastructure to this new area. Lawyers confirmed that a county or city could establish a tax district in order to finance energy improvement of private properties. Within the tax district, homeowners and businesses may voluntarily apply to an energy improvement program; the city raises bonds or other type of finance in order to pay for the works performed by local contractors, then the debt held by the district is repaid over the long term through an assessment on the property taxes of households who have opted for the program. PACE financing spreads the cost of energy improvements such as weather sealing, insulation, energy efficient boilers and cooling systems, new windows, and solar installations over the expected life of the measures and allows for the repayment obligation to automatically transfer to the next property owner if the property is sold.
The concept was first tested in Berkeley. The city launched a 40-house pilot: applications were all filled within 9 minutes after the official opening!
Over 2 years, 25 states adopted new legislation in order to enable this scheme, which became the PACE (Property Assessed Clean Energy) program, supported by the Congress and the Federal Administration, namely the Department of Energy.
This initiative has been seen indeed as a means to address a number of issues such as helping people to green their property, contribute to air quality and energy savings, and creating local jobs. And it presents the advantage of empowering local communities to sponsor the program locally with a very moderate need of public financial support and subsidies, all energy improvements being financed by private capital.
Cisco DeVries has developed Renewable Funding to provide assistance to local governments or to cover the full scope of services in this respect. The local programs design is 3-fold:
- Organizing the local market : training programs for local contractors, to quality standards, proposals for thermal audits, website to help property owners design the best project for their home
- Organizing the workflow for individual applications, payments for the works, filling the lien and
- Organizing the whole financing of the program via private capital and funding
Contest from the FSFA
However, PACE program is presently at a standstill in the US, because of the opposition of Fannie Mae and Freddie Mac, - the government-sponsored entities that guarantee more than half of the residential mortgages in the United States - and their regulator, the Federal Housing Finance Agency (FHFA).
In a situation where a large number of properties are “under water” (with a market value lower than the mortgage loan amount), FHFA opposes the fact that PACE assessments have a senior lien to mortgage payments in the event of a default.
Although Pace Program developed guidelines to ensure that it would be beneficial to building owners, municipalities, and mortgage lenders, on July 6, 2010, the FHFA issued a statement that directed Fannie Mae and Freddie Mac not to underwrite mortgages for properties with a PACE assessment and it further directed mortgage lenders to redline communities with PACE programs by tightening lending standards.
As this position challenges not only PACE program but also the way municipalities are broadly using property taxes and assessments to finance public purpose projects, members of Congress, state legislators, organizations like the US Conference of Mayors, etc, are advocating the Pace program restoration, with both legal and legislative efforts underway.
In the meantime, cities like San Francisco, and the State of California are still developing or managing programs addressing the issue of greening private properties. These programs focus on business, as FHFA competence is limited to housing financings, or try to turn around the financing issue. They are seeking for instance financial institution partners to make individual loans, backed by a county capitalized Loss Reserve Fund.
More info about Renewfund : https://www.renewfund.com/about-us/company
More info about Sans Francisco’s Greenfinance initiative : https://greenfinancesf.org/city/san_francisco/overview
More info about California program : https://energyupgradeca.org/overview