A bill was introduced in Congress in mid-July to keep the lights on for innovative energy financing championed by a coalition of dozens of California cities and counties.

Twenty-nine members of Congress – including three Californians – introduced the PACE (Property Assessed Clean Energy) Assessment Protection Act of 2010.

The PACE bill seeks a compromise in fast-moving developments at the intersection of the energy sustainability and mortgage foreclosure issues.

The bill’s stated goal is to “ensure that the underwriting standards of (mortgage leaders) Fannie Mae and Freddie Mac facilitate the use of Property Assessed Clean Energy programs to finance the installation of renewable energy and energy efficiency improvements.”

Also on July 15, Sonoma County Supervisor Valerie Brown discussed the issue with Vice President Joe Biden. She received assurances that “the White House is committed to working with Congress to resolve this and is supportive of PACE programs,” said Jim Leddy, community and governmental affairs manager for Sonoma County.

On July 6, the Federal Housing Finance Agency issued a statement cautioning cities and counties that allow property owners to finance energy improvements, including the installation of solar panels, through a loan added to their property taxes, typically repaid over 20 years.

FHFA, which oversees the largest mortgage buyers nicknamed Fannie Mae and Freddie Mac, was concerned about borrowing attached to property tax bills in the event of default.

Liens established by PACE loans pose unusual risk management challenges for lenders and mortgage securities investors, FHFA warned. “Underwriting for PACE programs results in collateral-based lending rather than lending based upon ability-to-pay, the absence of Truth-in-Lending Act and other consumer protections, and uncertainty as to whether the home improvements actually produce meaningful reductions in energy consumption,” the FHFA reported in a statement on its Web site.

The bill to bolster PACE programs against the FHFA threat includes California co-sponsors Doris Matsui, D-Sacramento; Mike Thompson, D-Napa; and Lynn Woolsey, D-Petaluma.

PACE programs, said Thompson, “are an exciting way for homeowners to reduce their energy bills while also reducing greenhouse gas emissions.”

The FHFA announcement put an effective hold on CaliforniaFIRST, an ambitious PACE program announced earlier this year, fueled by federal stimulus funds and building on more localized efforts started in the last couple of years by Sonoma County and the city of Berkeley.

CaliforniaFIRST, with 140 municipalities including 14 counties and an estimated 12 percent of California’s population, received a $16.5 million federal grant in February. The coalition, administered by a nonprofit group called Renewable Funding in Oakland, announced July 15 that the PACE financing component of California is on hold because of the FHFA development.

The CaliforniaFIRST administrators announced that property owner and contractor support and education components of the program could continue to move forward.

“The Fannie and Freddie letters have definitely put the CaliforniaFIRST piece of the program on hold,” said Peter Ucovich, senior planner in the engineering department of Sacramento County. “On the other hand, we are excited that the actions represented by federal legislation and legally through the attorney general will eventually succeed.”

Sacramento County was hoping to be one of the first CaliforniaFIRST municipalities out of the blocks this summer.

On July 14, California Attorney General Jerry Brown filed suit against Fannie Mae and Freddie Mac.

“As the nation struggles through the worst recession in modern times, California is taking action in federal court to stop the regulatory strangulation of the state’s grass-roots program that is spreading across the country,” said Brown, who has championed environmental causes in his campaign for governor.

Sonoma County has been a PACE leader, and continues that role. On July 13, the Board of Supervisors reaffirmed its commitment, keeping the Sonoma County Energy Independence Program open for business, despite the federal housing agency cautions.

“Our program reflects investment in clean energy, local job creation and fiscal prudence,” said board Chairwoman Valerie Brown. “We know hampering consumers’ use of these voluntary assessments is a bad call. Our board’s action will ensure people are fully informed of the options, risks and opportunities that exist when they work with SCEIP.”

The board directed staff to work with banks and credit unions to develop options that would allow participants to be independent of Fannie Mae or Freddie Mac concerns.

SCEIP has financed more than $34.5 million in approved contracts representing 1,046 projects. The result has been hundreds of construction jobs and a reduction in greenhouse gas emissions by 1,900 tons a year, according to the Sonoma County Web site.

The Sonoma County board’s action defying FHFA’s advice “took some guts,” said Nils Moe, assistant to Berkeley Mayor Tom Bates on environmental issues.

Berkeley started its BerkeleyFIRST program in 2008, resulting in 38 loans (13 of those financed by the city and the rest through local residents finding other financial institutions to make the loans, Moe said). Most of those loans were for solar installations. Those residents are “grandfathered in,” and not affected by the federal housing advisory, Moe said.

Berkeley had been looking to extend its program through participation in CaliforniaFIRST, now on hold, Moe said. He expected work to continue on setting up a Web portal later this year for CaliforniaFIRST applicants.

Also on hold with the FHFA’s warning is a fledgling program called GreenFinanceSF, announced by San Francisco in April with $150 million in financing.

The congressional bill introduced July 15 seeks to protect PACE financing. It states, “The underwriting standards shall provide that, in the event that a tax or assessment under a PACE program is delinquent, only the unpaid delinquent amount (along with applicable penalties, interest and costs) will be subject to foreclosure and not the entire amount.”

The PACE bill emerges in a Washington environment of energy policy compromise.

Congressional Democrats decided in July to pursue a scaled-back energy bill after months of gridlock, according to the New York Times.

Lance Howland can be reached at lancehowland@aol.com