When it comes to climate change, there are few men more different on paper than Jim Keffer and Cisco Devries: while Keffer is a Republican state lawmaker in Texas who doubts that global warming is a man-made phenomenon, DeVries is a former aide to the mayor of Berkeley, CA who calls climate change the defining issue of our generation. He even has the solar panels on his roof to prove it. However, when it comes to the potential economic benefits of renewable power and energy efficiency, the two have found common ground. For this reason, Keffer and DeVries are currently promoting a new financing mechanism that they hope will unite lawmakers on both sides of the aisle.
Called the Property Assessed Clean Energy, or PACE, this plan lets property owners put the cost of energy upgrades on a property tax bill, allowing them to pay it off over several years at a low interest rate. Because of this, the repayment comes at no cost to other taxpayers and can be passed on if the property is sold. The program has been well-received by environmentalists in a number of states, with the Scientific American calling it an idea that could change the world. However, it has also attracted the favor of people like Keffer, chairman of the Texas House’s Natural Resources Committee. While he might seem like an unlikely fan, Keffer believes that PACE is a unique opportunity to promote economic development and jobs, a belief that partners with more environmentally minded fans like DeVries.
It doesn’t hurt that PACE seems designed to appeal to American sensibilities, regardless of political leanings. After all, municipal tax assessments have included sewers and buried power lines for decades; the plan extends this coverage to solar panels, energy efficient water heaters and other technology without creating controversial government mandates or subsidies. Meanwhile, it creates jobs for contractors and construction companies, an appealing prospect for Republicans and Democrats alike.
However, an obstacle to the program remains in the form of federal regulators, who almost stopped the ideas in its tracks in 2010 when they ruled that Fannie Mae and Freddie Mac couldn’t provide mortgages to homes with PACE assessments. Fortunately, the program seems to have re-emerged in recent months, with PACE expanding throughout California, Texas, Ohio, Arkansas, Michigan and Florida as a method of funding large commercial projects.
In the latest version, an owner or a contractor applies to the government office that runs the program to finance their program. The office then borrows the money or issues debt for the projects, which allows the property owner to access lower rates and longer terms backed by the government. By using energy-efficient technology, the property owner is also able to use their savings to help pay off the cost. Some bigger projects can have as much as a 20-year payback, but unlike other repayment forms, the amount isn’t wiped out by a foreclosure and can be transferred to a new owner. This makes it an equally good prospect for homeowners fixing roof damage with energy efficient technology as it is for commercial projects. And with a new roof yielding a return on investment (ROI) of up to 75%, many homeowners in participating states could start voicing an interest in solar panels and other projects.
Since the program’s re-emergence, it has received a somewhat warmer welcome from the federal government, with the White House including $150 in its 2009 economic stimulus to help set up local PACE districts. However, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, is still an obstacle for many: in 2010, the organization has stated that PACE assessments preempt mortgages, creating significant risks for lenders and the mortgage giants alike. In December 2014, the agency reiterated this position, announcing that PACE loans move mortgages to a second lien position, increasing the risk of loss. After this statement, PACE programs for homeowners slowed drastically across the country.
The decision was a controversial one: in California, Governor Jerry Brown even sued to reverse the decision and lost. However, in the past two years, residential financing has increased significantly, even in states like Ohio and Kentucky, where other renewable energy programs have failed. In Texas, the program has even expanded to finance solar rooftops, efficiency upgrades and water conservation methods for commercial buildings. It hasn’t changed the world yet, but as the program continues to expand in red states, anything is possible.