A White House-backed program that allows property owners to pay for energy improvements like solar panels or efficient furnaces through an additional assessment to their property taxes may soon be shut down.
The federal agency that oversees mortgage giants Fannie Mae and Freddie Mac has slammed the door on the program -- known as PACE, or Property Assessed Clean Energy -- saying it poses a risk to mortgage lenders. That has frustrated PACE supporters, who say the program has helped cut down their energy bills and increased the value of their property.
Making It Easier To Go Solar
On a broad rooftop in Santa Rosa, Calif., workers are installing a large array of solar panels -- more than 200 of them. The $300,000 project was financed by Sonoma County, under a PACE program called Sonoma County Energy Independence.
"We will hopefully make enough energy to take care of all of our needs," says Arnie Carston, the owner of ProSource Flooring, where the panels were being installed.
Carston is a proud Republican -- and a strong supporter of the county program.
"The main reason I wanted to do this," Carston says, "is so that somebody doesn't have to pump a couple thousand gallons of oil out of the ground to make electricity to run my building."
But the ruling by the Federal Housing Finance Agency -- the regulator that oversees Fannie Mae and Freddie Mac -- has cast doubt on Sonoma County's 18-month-old program. Similar PACE programs in 22 other states are also at risk.
Carston says he just can't understand why the agency has pulled the rug from under the program.
"It's not doing anything except making America stronger, if we all did this," Carston says. "You know, for the government to come in now and say that you can't do this ... it's a surprise to me that someone hasn't thought this out."
Scrutiny For A Growing Program
Sonoma County has loaned out $30 million for energy improvements to more than 1,000 homes and businesses since the program began a year and a half ago.
Now that Fannie Mae and Freddie Mac have been told by their regulator to steer clear of the program, some contractors, like John Sutter, are being forced to cut back.
"I'd have to lay off about half my workforce of 15 employees right at this time," Sutter says. "Just at the point we're actually gearing up to increase our workforce, I'm laying off."
So what is it about these programs that the FHFA doesn't like? The primary objection is that in the event of a default, the new tax obligation takes priority over the original mortgage.
Program supporters pooh-pooh that objection, saying that the lender would only have to pay off any back property taxes -- a small fraction of the total amount.
But that's not true, says acting FHFA Director Edward DeMarco.
"It is not just what is the unpaid accrued amount on the PACE assessment," he says. "It goes to what can be realized as the value from this property in a foreclosure sale."
In other words, what if prospective buyers don't like that additional property tax and demand a lower price? The mortgage lender eats the loss.
That won't happen, PACE supporters argue, because the house will have increased in value.
Debating Value Of Energy Improvements
Terry Kelley sealed and insulated his house in Sebastopol, Calif., using $20,000 of county money.
"We've found that it has made a huge difference in our winter utility bills," he says. "Our gas usage dropped by half."
And that, Kelley says, makes his house more valuable.
PACE supporters argue that these programs work just like other tax assessments, such as the ones for sidewalks, sewers and streets: They serve a community good by using sustainable energy and reducing greenhouse gases.
But that's comparing apples and oranges, says the FHFA's DeMarco.
"Well, I can leave it to your listeners to decide whether an individual homeowner making a decision on their own to do some sort of energy retrofit just to their property is akin to improving the sewers network in an entire neighborhood or community or not," DeMarco says.
DeMarco says his agency is talking with members of Congress who have introduced legislation to save the program. Meanwhile, California Attorney General Jerry Brown has sued FHFA over the issue, and Sonoma County has elected to continue its program, using other lenders. [Copyright 2010 National Public Radio]