Lack of cash is one of the big barriers for a homeowner who wants to upgrade his or her property to become more energy or water efficient or install solar panels. These improvements pay for themselves over time but cost bundles up front, and most people either don’t have the money or don’t want to spend it for such a long payback period.
So it was a good day back in 2008 when the City of Berkeley pioneered what is now a national program to allow people to borrow money through their local government and then pay it back on their property tax bills. As a local assessment, Property Assessed Clean Energy (PACE) liens have priority over mortgages and other debt, reducing the cost of borrowing by being first in line for repayment in the event of a default.
Back in the dark days of the Great Recession, banks objected to the program because it jeopardized repayment on their mortgages, and they convinced federal regulators to undermine the program. PACE is now finally back and thriving, thanks to some policy changes and a state loan loss reserve fund.
But the program may be causing some heartburn for homeowners who want to sell their properties:
Rich Simonin, owner of Westcoe Realtors, a Riverside County real estate company that sells about 700 homes a year, said PACE assessments pose challenges in about 5 to 10 percent of his deals.
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In the meantime, people continue to be caught in the middle.
Steve Lista used Riverside County’s PACE program to pay for a nearly $27,000 prepaid lease of solar panels for his Eastvale home. The account manager for an automobile auction company put his 5-bedroom house on the market in June, but despite receiving at least six offers couldn’t find a buyer willing to take on the $3,000-a-year assessment.
“No one was comfortable taking over the terms,” he said.
Lista, who had hoped to sell his home to pay off some debt, took his house off the market last week.
The idea behind PACE is that the assessments should be less than the value of the improvement. In the example above, that means that a new homebuyer should expect to save at least $3,000 a year in electricity bills to offset the cost of the solar panels. That equals about $250 a month for electricity, which seems high to me but maybe not for a big house in the hot inland part of the state.
So my question is: are the realtors and homebuyers communicating that information to the potential seller? And perhaps more importantly: is that information accurate? If not, then it may be that these PACE assessments and projects are not being done in a responsible way. The savings should be obvious and immediate.
Otherwise, PACE is a critical financing program and has already helped over 50,000 California homeowners upgrade their properties to save energy and associated emissions. Hopefully these are minor glitches that can be overcome with education and communication tools. But if the deals aren’t penciling out as advertised, than PACE backers need to know that and fix their guidelines. The integrity of the program could be at stake.
On the heels of my blog post last week about the growth in local PACE financing programs for clean energy, California is unveiling a massive 17-county PACE program today. As I discussed in the original blog post, PACE programs give building owners access to capital for clean energy improvements, such as rooftop solar and energy efficiency upgrades and appliances. The owners pay the money back as an assessment on their property tax bill.
In 2010, the federal government essentially quashed residential PACE with an unfortunate regulatory ruling calling into questions mortgages with PACE liens. However, today’s announcement represents a significant bounce-back for PACE. As the San Francisco Chronicle reports:
17 California counties will announce the launch of the nation’s largest PACE program yet, CaliforniaFirst. Backed by a new insurance fund created by the state, they are confident they can put the federal government’s concerns to rest. And cut energy use in the process.
“We always knew that this could be a very powerful tool to help people save energy and save money,” said Cisco DeVries, CEO of Renewable Funding, an Oakland company that will run CaliforniaFirst. “It’s exciting and it’s gratifying to see this come back around.”
The 17 participating counties represent 14 million residents, more than a third of California’s population. Bay Area counties taking part include Alameda, Marin, Napa, Santa Clara, San Mateo and Solano. San Francisco and Sonoma counties already have their own PACE programs.
The implications could be huge. Not only does it mean a lot more local energy efficiency improvements and economic savings, it means more local jobs, contributing to a growth industry of labor and business leaders that is becoming more politically powerful. It could also disrupt industries like solar leasing. After all, if you can buy your own solar array with semi-annual payments spread out over years that are less than your savings, why lease and not get the full value of the system?
Let’s hope this announcement will also encourage the feds to change their misguided policy, once they see their fears of mortgage losses will not materialize. Overall, it’s a good sign for California and the country.
