As the Senate considers how to address energy policy this fall, the Property Assessed Clean Energy (PACE) program, which focuses on making clean energy improvements to homes, is at a standstill. What can Congress do to get the program back up and running? During today's OnPoint, Martin Chavez, executive director of ICLEI-Local Governments for Sustainability and the former mayor of Albuquerque, N.M., discusses the hurdles facing the PACE program. He also calls on Congress and the Obama administration to step in and reinstate the funding.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is Martin Chavez, executive director of ICLEI, Local Governments for Sustainability. Marty is also the former mayor of Albuquerque, New Mexico. It's nice to see you.
Martin Chavez: Thank you, it's great to be here.
Monica Trauzzi: Marty, the PACE program focuses on making clean energy improvements to homes. It's faced a series of hurdles over the last couple of months. What was the PACE program originally created to do?
Martin Chavez: Well, PACE is a generic term for Property Assessed Clean Energy Programs. The idea was to provide an affordable way for folks to retrofit their homes, whether it's weatherization or solarization, depending on what's most appropriate to their circumstance and their geography.
Monica Trauzzi: Is this a loan program? I mean talk about where the money comes from.
Martin Chavez: And that's part of the confusion around PACE. It is absolutely not a loan program. It's an assessment program. Just the same way that local governments have property assessments for storm and sewer projects, for school projects, this is an assessment based on the property tax itself, which the individual homeowner can opt into. It's voluntary. They borrow the money from their local jurisdiction, usually from the city, but oftentimes the county. And then they guarantee repayment through their property taxes. And then, if it's working properly, which it usually does, any increase in property tax is offset the decrease in their energy bills.
Monica Trauzzi: So, we're not talking about any kind of credit risk associated with these programs?
Martin Chavez: And that's what we certainly contend, those who support the PACE programs. It's not a lien, it's not a mortgage and shouldn't be understood as such. It's simply an assessment similar to what local governments have been doing for decades and decades.
Monica Trauzzi: So, it sounds like a great plan. What's gone wrong over the last couple of months?
Martin Chavez: Well, and not to, I want to see if I state their position carefully, but FHFA, which oversees Fannie Mae and Freddie Mac, is concerned that it can operate functionally as a prior lien on the property. And so, obviously, as lien holders, as mortgage holders, they're concerned about that. And they have effectively killed PACE for right now. And so the action right now is with the administration and on the Hill to see what can be done to restore these programs.
Monica Trauzzi: So, are they directly tying it to the housing crisis and all that Fannie and Freddie are going through to get out of that?
Martin Chavez: Well, that is their contention and their position. The problem is, is that we're not aware of any PACE type of program that's ever been a failure. Not aware of any home that's ever gone into foreclosure because it had a PACE assessment on it. In fact, it usually makes the house is more valuable, more credit worthy if they're properly retrofitted, weatherized and ready for the next decades energy wise.
Monica Trauzzi: So, Fannie and Freddie have recently called on homeowners who participated in PACE to pay off their energy improvements before they can refinance their mortgages. Was that anywhere in the original plan for the program?
Martin Chavez: That was totally out of the blue and really has PACE supporters deeply concerned because you have thousands of homeowners who have PACE type of programs. They've already retrofitted their homes and now FHFA has come along and said, well, guess what, because earlier they had said this is going to be proactive, not retroactive, we're no longer going to agree to do any refinancing of your home unless you first pay off whatever assessment you had. So, if somebody had a $15,000 assessment to put solar panels on their roof, they're sitting there expecting to pay it off at 20 to 30 years, at very good rates. Now they're required to pay it off entirely. So it's essentially frozen the credit worthiness of these homes.
Monica Trauzzi: So, let's follow the money trail. Where does the money, where does the funding come from for this program?
Martin Chavez: It comes from a variety of sources. In some cities they floated general obligation bonds to create a pool. Others used some of the energy block grant monies to fund them. But essentially the local government puts the money up, the homeowner agrees to an assessment on their property and they pay it off through their property taxes. And so it runs with the property. If they sell the home, well, then that property assessment goes along with it. The beauty of it is it doesn't cost the federal government a penny.
Monica Trauzzi: So, while this program is frozen for the time being, is money just sitting around in local governments or is it being used elsewhere? Is that what you're afraid of? That the money is going to be used on other programs?
Martin Chavez: Monica, certainly, what's happened, at least to those cities that had used the energy block grants and had not yet completely utilized them, they're redirecting that money. But for cities that have general obligation bonds to support, that money is just sitting there and so they have to retool everything. And, of course, everyone's waiting to see if Washington is going to find a fix for the PACE program.
Monica Trauzzi: OK, so let's talk about the outlook over the next couple of months. What exactly are you looking for Congress and the administration to do?
Martin Chavez: Well, there's two lines of thinking. One, this is a local property assessment program. So the federal government really should have hands off. This is uniquely local government. Of course, that's what ICLEI does, we're local governments. Failing that, we'd like the Congress simply to say, one, hands off local property assessments. That's our program. But two, if there is legitimacy of the concern of credit worthiness and prior liens, well, then either guarantee those loans, because there really is no risk, or simply require FHFA to develop underwriting guidelines that will make these programs be whole. Again, you have a program here that gives us local jobs, non-exportable. It gives us energy independence, doesn't cost the federal government a dime and it's one of those things that's, what Mark Twain once said, we could do that, but it would make sense. And so we'd like to see a common-sense solution from Washington.
Monica Trauzzi: Is there a focus in Washington on this program and getting it moving again?
Martin Chavez: Well, I'm a local guy. I'm a former mayor and so sometimes the ways of Washington are beyond my grasp I think. It does seem that there's some legitimate concern about elections coming up, but we're looking to this lame-duck session, or maybe even before that, for something that will get us started. There is legislation pending on the Hill on both sides of the aisle.
Monica Trauzzi: OK, we'll end it there. Thank you for coming on the show.
Martin Chavez: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
[End of Audio]