February 16, 2012

Court ruling may bring PACE back from the dead

By: Sarah Mier, Cleantech Law Partners

The PACE program, once a beacon of hope for property owners looking to scale the initial hurdle of upfront costs to install energy efficiency and upgrade retrofit programs, now has a shot of escaping termination. 

This savior comes in the form of a court ruling against the Federal Housing Finance Agency (FHFA). The court alleges FHFA did not provide adequate notice to stakeholders before pulling the plug on the program. 

This is good news for property owners in the midst of initiating programs that counted on PACE funding and for supporters who seek to keep the useful funding afloat.

PACE has generated sizable excitement amongst community planners and commercial developers since its inception. Just a week before the announcement regarding PACE’s termination, San Diego based Figtree Energy Resource Company announced the offering of $725,000 to fund energy efficiency and renewable energy projects in four different California cities. Californians, under Assembly 81, have the right to enter into these types of contractual assessments against their properties to tap into funding for both energy and water retrofits. Not all states have legislation that supports PACE-type loans. In total, 27 states actively utilized PACE programs.

The loans, typically repaid over twenty years, finance solar panels, insulation, HVAC systems and other improvements. The benefits of the PACE program apply to a wide variety of entities. Therefore the program finds supporters across the spectrum, including labor unions, Fortune 500 companies and environmental groups alike.

The recent FHFA decision is not the first time the agency has acted to limit or effectively end the program’s reach. Currently PACE programs almost exclusively apply to commercial buildings, after a ruling in 2010 regarding Fannie Mae and Freddie Mac’s ability to underight mortgages for residential homes with PACE loans. In short, FHFA did not want PACE loans to trump residential mortgages. At the time supporters of the program actively urged FHFA to reconsider, however as lenders of over half of American mortgages, Fannie Mae and Freddie Mac’s position held consideration sway. Following FHFA’s guidance, the pair issued a “lender guidance letter” urging against the combination of mortgages and PACE loans. The result? Only a few cities, including Babylon, New York and Sonoma, California have kept residential programs alive.

Now the public again has a chance to try to put a stop to the next move by FHFA to effectively end the PACE program. The legal decision allows for a 60 day public comment period on the benefits of the program(ends March 26th). In this time, PACE supporters hope that enough feedback will roll in to prove FHFA’s actions against the program should be reversed.

Source: Sarah Mier, Cleantech Law Partners

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