Solar contractors may see a surge of business if PACE programs return
Hope glimmers that the wildly popular PACE solar financing programs may once again become available around the country.
Known as PACE, for Property Assessed Clean Energy, the programs made purchasing solar panels easier for homeowners with mortgages through the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
A U.S. District Court Judge in California has ruled that the Federal Housing Finance Authority (FHFA) must allow public input on its decision to shut down PACE programs.
The Epic PACE Back-Story
In November 2007, Mayor Tom Bates of Berkeley, California, made Berkeley the first city in the nation to allow homeowners to pay for solar system installations through voluntary, long-term assessments on their individual property tax bills. Berkeley fast became known as the country’s solar city.
Municipal loans have long been used by state and local governments to raise funds for projects that serve the public interest. Local municipalities typically back their obligation to repay the bonds with property taxes, as this is often the only method of taxation available to many cities.
PACE launched in 2008, and was so successful that many municipalities around the nation followed suit. Twenty-two states, as well as the District of Columbia, authorized local governments to start their own PACE programs. Hundreds of cities and counties participated.
In 2009, the federal government announced support for PACE programs, with legislation ensuring that federal tax law not stand in the way of PACE implementation. Both the Administration and the Department of Energy developed guidelines to mitigate risk for the program, and over $100 million of Recovery Act funds were allocated for PACE programs.
The Devastating Funding Pull
In a surprising move, in July of 2010, FHFA issued rules that homeowners with Freddie Mac and Fannie Mae mortgages – about half of the mortgages in the United States – were not allowed to participate, effectively shutting the PACE programs down. FHFA maintains that PACE would add risk to the mortgages. PACE supporters maintain that program was specifically designed not to incur homeowner risk.
The federal guidelines stipulate that the savings from the solar systems must be more than the increase of the property tax. In other words, if a homeowner saves $1,000 a year on electricity costs through a solar panel system, the raise in property tax for that year must be less than $1,000.
Additionally, should the homeowner not pay the increased property tax – which is the established method of paying back the loan – only the delinquent amount of tax would be in default. The loan itself is attached to the property. The amount of money at risk would seem to be too small for the FHFA to take the extreme action of shutting the entire program down.
The California lawsuit, brought on by Jerry Brown, the state, two California counties, and other entities, alleges that FHFA violated federal regulations. Two similar lawsuits filed in the state of New York were dismissed. The National Resources Defense Council (NRDC) plans to appeal those rulings. Thirty members of the House of Representatives even came out in support of PACE financing.
District Court Judge Claudia Wilken refused FHFA’s request to dismiss the California lawsuit. Instead, she ruled that the majority of the lawsuit may go forward, and required that the FHFA open a public notice and comment process. Resolution is still some time away, but does offer some hope for those with Freddie Mac and Fannie Mae mortgages.
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