la-fi-pace
A Los Angeles home is outfitted with solar panels last year in a project not financed with PACE funds. (Allen J. Schaben, Los Angeles Times / October 18, 2009)

By Tiffany Hsu, Los Angeles Times
August 19, 2010



A popular program that allows homeowners to tap low-interest government financing to install energy-efficient solar panels, windows and insulation has stalled, leaving tens of thousands of green improvement projects across the country in limbo.
Most local and state governments stopped providing the funds after federal regulators warned that the so-called Property Assessed Clean Energy program, or PACE, posed "unusual and difficult" financial risk and that homeowners who participate in the program may by violating their mortgage terms and face foreclosure.
The quagmire has left many green improvement companies in a lurch, causing them to scrap projects that they say could have created thousands of jobs and helped draw investors. Some have simply given up on the program altogether.
"The way it shut down was really painful for us, because we lost a lot of business we had been counting on," said Matt Golden, president of Recurve Inc. of San Francisco. "We don't have the jobs to put these people to work, and that's a calamity in the long run."
More than a dozen Recurve home projects worth more than a quarter of a million dollars are at risk, now that the city of San Francisco's program is on hold. Golden had to give up plans to hire up to four people a month.
"It resulted in one of the worst months we have ever had," he said.
Homeowners Evelyne Michaut, 36, and Leel Peesapati, 39, had finalized preparations to retrofit their 1950s San Francisco home when PACE — and their $50,000 funding package — came to a standstill. They had to scale back plans for a floor heating system, garage-to-attic insulation and top-notch energy-efficient windows.
Michaut and Peesapati reluctantly settled on the only other financing option they could find: a second mortgage.
"We were counting on the money, but had the rug pulled out from under us," said Peesapati. "Had we known that this would have fallen through, we would have gone down a completely different path."
When it was launched, the program was hailed as an innovative way to create jobs and bolster environmentally friendly home improvements. The California Energy Commission funneled $110 million in federal stimulus funds into PACE and similar programs. Vice President Joe Biden heralded the program in April and announced that the federal government would pump $452 million in stimulus funds — including $30 million for Los Angeles County — for eco-friendly building upgrades.
PACE, according to supporters, could create thousands of jobs while saving homeowners thousands of dollars in energy savings. Thousands of properties have used tens of millions of dollars for improvements since Cisco DeVries, then an assistant to Berkeley's mayor, conceived the program there in 2006.
Most of the energy efficiency upgrades are financed using bonds issued by local governments and are paid back through tax assessments on the property, sometimes over two decades. The liens are attached to the house, not the borrower.
But critics said PACE's financing mechanism is better suited for building sewage networks, underground power lines and other public infrastructure projects that benefit entire communities. The program also raised red flags for the Federal Housing Finance Agency, which said in July that PACE was too risky, especially in a shaky housing market. Lenders were alarmed by a provision that required PACE funds to be paid back before a mortgage in a foreclosure.
The agency told lenders that they could tighten lending standards for entire communities that continued to sign up for PACE, which could require borrowers to make higher down payments and make it more difficult to get a mortgage. The agency regulates mortgage finance giants Fannie Mae andFreddie Mac, which were seized by the federal government after the economic meltdown in 2008.
Now, PACE advocates are scrambling to keep the momentum going for eco-friendly upgrades but are torn about whether to do it by reviving PACE or moving on to other funding alternatives.
"Virtually all the [PACE] programs around the country have ground to a complete stop," said DeVries, now president of Renewable Funding of Oakland, which helps set up energy efficiency programs. "There are other financing solutions, but PACE was uniquely powerful in getting people over the mental hurdle and into the door."
Several lawsuits have been filed against the federal housing agency, and Congress is considering legislation that would force the agency to support the program. Some governments, such as Sonoma County, are pressing ahead with the PACE program despite the potential backlash from lenders.
This month the California Energy Commission began considering new ways to fund home energy improvements after it canceled plans to pump an additional $30 million into PACE statewide. Several cities and counties around California had programs in progress, and at least another dozen — including Los Angeles and San Diego counties — were poised to launch projects that are now on hold.
"The FHFA statement was a mistake, and the timing was damaging," said Karen Douglas, chairwoman of the state's energy commission. "But if we didn't move forward then financing would continue to be a barrier to energy upgrades for Californians."
One option could be following the lead of Portland, Ore., which recently launched a 500-home pilot program that allows homeowners to pay off green home improvements in installments through their utility bills.
"PACE had administrative challenges and was really kind of cumbersome," said Aaron Berg, chief financial officer of Clean Energy Works Oregon Inc., which is administering the city's energy-efficiency projects. "We need to continue to innovate here."
http://www.latimes.com/business/la-fi-pace-20100819,0,7260415.story