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Saturday March 25th 2023

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Help put Boulder’s Climate Smart Loan Program back on track


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:

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 hereThe easiest way is to e-mail Alfred M. Pollard, General Counsel:  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.

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