In the summer of 2010, Boulder’s innovative Climate Smart Loan Program screeched to a halt, because the Federal Housing Finance Agency (FHFA) decided that the property assessed clean energy (PACE) financing mechanism amounted to a lien on any property enrolled in the program (read FHFA’s statements, and Boulder County’s response, both as PDFs).  Because of this, they said they were unwilling to purchase and securitize PACE encumbered mortgages.   In case you don’t remember, the FHFA oversees Fannie Mae and Freddie Mac, the government sponsored mortgage consolidation giants, through which nearly all consumer home loans pass at some point in their existence on the secondary market.  And if they won’t buy your mortgage, then you’re not going to get a loan.  This is unfortunate, since PACE financing programs had proven an effective way to get homeowners to make sensible long-term investments in energy efficiency and renewable generation, without having to take on the risk that future buyers would inappropriately undervalue the resulting savings.

However, the FHFA made this rule without engaging in any public process, and they were subsequently sued by the State of California and several cities and counties.  The case has finally made it to the 9th Circuit Court of Appeals, and while they have yet to make a ruling, the Court has directed the FHFA to begin collecting public input on the proposed rules.  The Natural Resources Defense Council (NRDC) has been involved in the suits and has had good ongoing coverage of the case:

• After the Earthquake and Before the Hurricane (8/29/2011)
• Be a part of PACEs revival (1/25/2012)
• PACE Lives! (1/26/2012)

The outcome of this case and the nature of the rules which are eventually adopted may have big effects on Boulder.  Energy efficiency retrofits and local small scale renewable energy installation are high-quality local job producing industries.  They allow our community to develop expertise that we can only hope will be in great demand in the near future.  They’re absolutely vital to meeting our climate action plan goals.  We have the financing mechanism in place to do this work; all we need is the go-ahead from the FHFA to get it underway.  We should comment on these rules loud and clear.

The notice of the proposed rulemaking has been posted in the Federal Register, in all its gory detail.  Details on how to submit comments can be found here.  The easiest way is to e-mail Alfred M. Pollard, General Counsel: RegComments@fhfa.gov.  You must include “RIN 2590-AA53″ in the subject line of the message.  All comments must be received by March 26th, 2012.

Another resource to keep an eye on is PACE Now, a bi-partisan group advocating for PACE programs in congress.  They’re developing talking points, and have been working to get legislation passed which would protect PACE programs introduced in congress (like H.R. 2599, the PACE Assessment Protection Act of 2011… which unfortunately didn’t get very far).

It’s not crazy to think that the FHFA or some other federal agency might have a useful role to play in the regulation of PACE programs.  It’s important that the financing be set up to incentivize the most cost effective improvements first so as not to unduly burden future property owners, and to save as much energy as possible with a finite pool of funding (e.g. attic insulation and air sealing before solar panels…), but the outright ban is clearly far too broad.

Below is what I sent.  Post what you send in the comments if you feel so inclined!

Property Assessed Clean Energy financing programs, as have been initiated by many states and local governments, are a potentially transformative financing mechanism, enabling property owners to make good long term investments in energy efficiency and behind-the-meter renewable energy production.  They address a market failure, in that buyers often do not appropriately integrate a property’s energy costs into their price assessment.  So long as the state and local PACE programs are performance based, and incentivise both efficiency and renewables, preferring those investments which have the greatest (positive) net present value, given the financing rate which is available to the government entity sponsoring the program, they do not pose a significant risk to mortgage holders, and should be allowed in FHFA held mortgages.  Additionally, local energy efficiency and solar power installation provide high quality, skilled jobs which cannot be exported, stimulating the economies of the localities implementing the programs.  These types of energy efficiency and local renewables programs can go a significant way toward reducing the energy intensivity of our existing building stock, and help insulate the US economy from fluctuations in fossil fueled energy prices.

FHFA’s previous ruling has directly affected my community, stalling out energy efficiency programs here in Boulder, CO.  Rather than effectively banning these programs, I encourage the FHFA to work with the building retrofit industry and the state and local governments which have instituted these programs to develop guidelines which ensure the most cost effective use of PACE financing, including the use of before and after energy audits, and other energy efficiency retrofit best practices.

Read the entire article at SustainableCityNetwork.com: Program Energy Retrofit Program Goes Statewide

Landlords clashed over the likely effects of the City of Boulder’s proposed SmartRegs (which will be debated by the City Council at a second reading on July 6)  at a PLAN-Boulder County forum on the subject on June 21. Francoise Poinsatte, a forum panelist, rental property owner and former member of the Boulder City Council, claimed that compliance with the proposed regulations would be relatively easy and inexpensive for landlords and enhance their property values. In contrast, Sheila Horton, an audience member who is the executive director of the Boulder Area Rental Housing Association, argued that the regulations would create major financial burdens and no benefits for landlords.

Francoise declared that she has always taken pride in the physical condition of her rental properties. She said that she has already made significant improvements to them, including energy efficiency improvements, and welcomes the prospect of improving them still more. She noted that the proposed regulations emphasized relatively inexpensive measures–such as insulating walls, attics and under-floor crawlspaces, and stopping air leakage. She recounted that she had enlisted her 19-year old son to install insulation in some of her rental homes and that the insulation material itself had been fairly cheap to buy. She also observed that a high proportion of Boulder’s rental housing stock is constructed in the same way and that consequently energy improvements could become relatively standardized, thereby perhaps reducing costs. Francoise asserted that the re-sale value of her properties will rise as they use less energy.

Sheila, however, implied that the re-sale prices of rental properties are determined only by the gross amount of rents they can command in the market and contended that rents have been under severe pressure in the City of Boulder recently. She said that 2,500 units of rental housing had been built in the City during the past two years. That increase in supply has depressed rental rates. She claimed that landlords could not pass on the costs of compliance with SmartRegs to their tenants, even when the tenants’ utility bills fall, because market competition with their peers would not allow them to do so. Sheila also asserted that landlords around the nation are reeling from the expense of complying with new regulations on lead-based paint, which the Environmental Protection Agency put into effect in April, 2010, and apply to buildings constructed before 1979.

Another panelist at the forum, Yael Gichon, who is a member of the City of Boulder’s Environmental Affairs Office, said that the proposed SmartRegs have been designed to promote the energy efficiency measures that produce the most benefit for the least cost. She said that they had been devised after a City consultant had conducted case studies of seven different types of rental housing. The proposed regulations would require each rental unit to obtain a “score” of 100 over two rental licensing cycles and at least 50 during each cycle. Each rental licensing cycle last four years. Yael asserted that every rental unit in the case studies already qualified for a “score” of at least 50. She also stated that the regulations may provide for a yearly spending limit on energy improvements by landlords and that they will allow exemptions for two types of “hardship”: financial and technical.

A third panelist, Tim Hillman, a tenant, claimed that a “market failure” has occurred in rental housing, because the tenants typically pay the utility bills, while only the landlords have the legal authority and the incentive to spend money on the housing to improve its energy efficiency. Consequently, regulation is needed to correct the market failure. He also observed that over 50 percent of the City’s dwelling units are rental, which percentage makes the energy impact of the market failure significant. He predicted that the proposed SmartRegs, if they are passed, will stimulate the local economy.

Tim cautioned that the behavior of tenants, as well as landlords, needs to change to reduce the waste of energy. He said that tenant education would be helpful, and he commended the University of Colorado for energy educational programs it has conducted for students. However, he recognized that education alone requires time to change behavior. He enthusiastically endorsed close cooperation between landlords and tenants to conserve energy.

The fourth panelist, Ann Livingston, who is Boulder County’s Sustainability Coordinator, said that rental properties in the City of Boulder qualify for Boulder County’s Climate Smart loan program, as well as for Xcel’s energy rebates.  Neither credit scores nor loan-to-value ratios are considered by the County in issuing a Climate Smart loan. The minimum size of a Climate Smart loan is $3,000 and the maximum is $50,000 or 20 percent of the assessed value of the property, whichever is lower. The loans may only be used to pay for fixtures, not appliances. They bear the same interest as the bonds which Boulder County sold to finance them, plus a small administrative fee; and they are secured by a lien on the improved property, which becomes due at the time of sale.

Ann reported that Boulder County has issued $10 million in Climate Smart loans during the past 12 months. The average cost of energy improvements per dwelling unit has been $4-5,000.She cautioned that both Fannie Mae and Freddie Mac, the gigantic, Federally sponsored mortgage insurers, have recently raised objections to the way that Climate Smart loans are secured.

She also noted that the County’s PACE energy program provides “micro-loans” from $500 to $3,000 for terms of up to three years at low or no interest. Ann disclosed that Boulder County is currently considering applying for a $20 million block grant, $8 million of which would be reserved as a pool to help finance residential energy improvements. According to Ann, the County is planning to participate with the City in the much-anticipated “Two Techs and a Truck” program. That program is expected to be inaugurated in the next few months and will be available for rental, as well as owner-occupied, properties.

What do you think?  Should landlords be required to make energy efficiency upgrades to their properties? Vote in the Blue Line Poll today!

If you’re a supporter of the county’s open space or ClimateSmart Loan programs and you didn’t vote, pat yourself on the back for enabling the failure of County Ballot Issues 1A and 1B. Both measures failed by small margins, largely due to a high conservative voter turnout in the city of Longmont.  Read more in the Boulder Weekly.

The city council, representing the citizens of Boulder, passed the Climate Action Plan.  SmartRegs is their first measurable step in a series of actions steps aimed at attaining the plan’s goals.  Read about it in New Era News.

Here’s how.  Boulder County is about to issue a new round of ClimateSmart Loans, which are available county-wide in unincorporated areas AND in our municipalities.  This time, for the first time, these innovative loan opportunities will be focused on commercial properties, apartment buildings, low income housing, and small manufacturing facilities.

Why is this important?  57% of Boulder’s GHG emissions come form commercial/industrial buildings and another 17% comes from residential buildings, half of which are rentals.  The biggest GHG reductions can come from this sector, but we need strong community engagement to propel these.

So you say, “I don’t own a business or an apartment building, what can I do?”  Talk to your landlord, talk to the owner of your apartment building, talk to your boss, talk to owners and managers of stores you visit, talk with owners of office buildings where you work, talk to industrial service owners you do business with.  Talk to everyone.  Ask them if they are part of the solution.

Why are ClimateSmart loans a great deal?

1. It’s easy to qualify and there are minimal loan initiation fees
2. They can be used for a broad range of efficiency improvements (high-efficency furnaces, insulation, weatherization, windows, etc.), renewables (solar thermal and photovoltaics, wind, geothermal, etc.), and much more (http://www.bouldercounty.org/bocc/cslp/comeml.pdf).
3. ClimateSmart loans are attached to property taxes, paid on a 15 year term to keep payments low, and they stay with the property if you sell it.

What about the split incentive?  This means that the renter or leasee pays the utilities and the owners therefore think they would not benefit from energy savings.  Here’s how to deal with that- Tell your owner/landlord you will increase your rent by the average amount of your monthly/annual utility charges.  Then the owner/landlord will begin paying the utilities and will reap the benefits of reduced costs due to efficiencies and renewables funded by the ClimateSmart Loan Program.  You will benefit too, because your utility costs will not increase over time due to inevitable rate increases.  Win-win-win.  The third and biggest winner is our planet.  Or, there are local companies that will gladly do performance contracting and pay themselves with the energy saving.

To get engaged, attend one of the Commercial ClimateSmart seminars on Wednesday, March 3 or 10, from 6:00-7:00pm at 3550 Frontier Ave, Unit C-2 in Boulder.  Applications are due by March 29.  Can’t make the seminars? Get informed on the ClimateSmart website (www.beclimatesmart.org ).

In his recent State of the Union address, President Obama said, “I know that there are those who disagree with the overwhelming scientific evidence on climate change.  But here’s the thing. Even if you doubt the evidence, providing incentives for energy efficiency and clean energy are the right thing to do for our future, because the nation that leads the clean-energy economy will be the nation that leads the global economy, and America must be that nation.” Remember the bumper stickers, THINK GLOBALLY, ACT LOCALLY?  DO IT.  START A BUZZ.