In a summer of bad news for PACE (Property Assessed Clean Energy) programs, there’s a little ray of sunshine from Palm Desert.

That city had suspended its Energy Independence Program, with assessments for home owners to pay back over the long term with their property tax bills, after the July news that federal mortgage agencies were advising against such PACE funding.

Benjamin Druyon, energy project technician for Palm Desert, said in late August that the city plans to restart, perhaps as early as September, the process of accepting applications. The city will do this, he said, by revising guidelines and using administrative language borrowed from
the federal Department of Energy.

Such a move would need City Council approval, Druyon said.

The DOE Web site states that it has been negotiating revisions in administrative language, and “more stringent underwriting criteria,” with representatives of the Federal Housing Finance Agency. That agency caused an uproar on July 6 by issuing a statement cautioning municipalities about PACE because of unusual risk management challenges posed by energy improvement liens attached to property tax bills.

DOE has been trying to establish a PACE financing program to encourage such lending.
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.

FHFA’s July 6 warning resulted in a rumble of dominoes tumbling. It halted ambitious plans to expand PACE programs in California and other states. It spurred lawsuits chiding the federal housing agencies for blocking the promise of a reduction of greenhouse gases, as well as jobs for workers installing solar panels and other energy retrofits.

The Sonoma County Board of Supervisors on July 13 shrugged off the FHFA caution and voted to continue taking applications for the county’s pioneering Energy Independence Program, the largest PACE program in the nation. In the last couple of years, it has helped more than 1,044 property owners finance energy and water efficiency improvements, the county reports.

Two weeks later, the county went a step further by filing a federal court suit against Fannie Mae and Freddie Mac for “jeopardizing the future” of the Sonoma County program.
The suit charges the federal authorities with violating state and federal law by classifying clean energy assessments as loans instead of local government assessments.

“This federal action is crippling an innovative, secure and effective means for property owners to create energy and water efficiency programs,” commented Rod Dole, auditor-controller for the county. (See here.)

Other lawsuits were filed by California Attorney General Jerry Brown and the Sierra Club, which stated that the federal action was blocking a convenient means of “upfront funding for clean, renewable energy and energy-saving improvements.”

The FHFA warning also derailed plans for an ambitious application called CaliforniaFIRST, with 140 municipalities including 14 counties and an estimated 12 percent of California’s population, planning to set up PACE programs with millions of dollars of seed money from federal stimulus funds. CaliforniaFIRST had hoped to be accepting its first applications by now.

The California Energy Commission announced in late July it was cancelling awards for PACE programs for CaliforniaFIRST and other groups due to receive $30 million. “FHFA has undermined California’s job creation and environmental initiatives by creating significant new regulatory hurdles for PACE programs at the 11th hour,” said Karen Douglas, who chairs the CEC.

The CEC action “further erodes the current format of CaliforniaFIRST,” noted Peter Ucovich, senior planner in the engineering department of Sacramento County.

Clean energy proponents have been gathering support for the PACE Assessment Protection Act forwarded in July by bipartisan groups of lawmakers, led by Rep. Mike Thompson, D-Napa, and Sen. Barbara Boxer, D-California. The bill seeks to ensure that the underwriting standards of Fannie Mae and Freddie Mac “facilitate the use of PACE programs.”

PACE allows owners to finance energy improvements through assessments added to property taxes, typically repaid over 20 years. It is an attempt to give a property owner a reasonable way to finance the upfront cost of improvements such as rooftop solar panels.

FHFA has warned that PACE programs can lead to “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.”

Lance Howland can be reached at