MANHATTAN (CN) – Two federal agencies are trying to sink Property Assessed Clean Energy programs, which finance energy-efficiency changes for homes and businesses, the Natural Resources Defense Council claims in Federal Court. The NRDC says it has spent 2 years supporting development of PACE programs, but the Federal Housing Finance Authority and Office of the Comptroller of the Currency issued misguided directives this summer that could stop the programs in their tracks.
“Defendants’ actions, which have the effect of terminating existing PACE programs and curtailing the development of new PACE initiatives, will significantly set back efforts to address air pollution and global warming pollution from the electric generation sector,” according to the complaint.
Energy efficiency is important to combating global warming, making the electric grid more reliable, and reducing consumers’ energy bills, but Americans need financing so they can afford to pay for better energy or to retrofit their homes and businesses, the NRDC says.
“If PACE programs were to achieve a 3 percent penetration rate nationwide over the next decade, 3.3 million homes would be retrofitted, resulting in approximately 320 million metric tons of avoided carbon dioxide emissions,” according to the complaint. “Assuming an average job cost of $15,000, these retrofits would also result in just under $50 billion of construction activity.”
The NRDC claims that PACE projects such as installing new windows or improving insulation can increase property value in the long term and bring many short-term benefits, such as decreasing a building’s energy bills, increasing a property owner’s cash flow and reducing the risk of default and foreclosure.
In the 23 states and Washington, where PACE programs have been developed, local governments use bonds or grants to help property owners pay for the upfront costs of energy efficiency and on-site renewable energy projects, according to the complaint.
The NRDC says PACE programs received more than $150 million in funding through the American Recovery and Reinvestment Act – $40 million of which went toward PACE programs in New York.
Property owners who use PACE financing agree to pay an incremental charge on their property taxes for as long as 20 years, according to the complaint.
“Like other forms of land-secured tax assessments, PACE assessments attain first lien priority, a feature that is crucial to structuring capital markets financing acceptable to both rating agencies and PACE bond investors,” according to the complaint.
In July, the Federal Housing Finance Authority (FHFA) called for a pause in PACE programs, claiming that the first-lien status of PACE assessments posed “risks,” the NRDC says.
The FHFA claimed, incorrectly, that PACE assessments were “loans” that did not have traditional community benefits associated with taxing initiatives, that they “are not essential for successful programs to spur energy conservation” and that they “present significant risks to lenders,” according to the complaint.
But the NRDC says that even though the FHFA lacked evidence to support its claim, or facts behind its findings, the agency directed Fannie Mae, Freddie Mac and the Federal Home Loan Banks to halt implementation of PACE programs across the nation.
“On August 31, 2010, pursuant to FHFA’s July 6 statement, Fannie Mae and Freddie Mac issued guidance letters confirming that they would no longer purchase mortgages secured by properties with PACE assessments that permit priority over first mortgage liens, and refusing to refinance mortgages secured by properties with existing first lien PACE assessments unless the PACE obligations are paid off in full,” according to the complaint.
“By causing the owners or guarantors of half of the U.S. home loans to deny secondary market benefits to properties that are, or may in the future be, financed by PACE assessments with first lien priority, an essential feature of PACE programs, FHFA’s July 6 statement had the effect of stopping localities and states from moving forward with adopting or implementing PACE programs.”
The Office of the Comptroller of the Currency (OCC) issued a similar directive, telling national banks not to allow homeowners with first-lien priority PACE assessments to obtain mortgages or refinance mortgages, the NRDC says.
The NRDC sued the FHFA, FHFA Acting Director Edward DeMarco, the OCC and Acting Comptroller of the Currency John Walsh.
“Defendants’ actions harm NRDC’s members who live in the many areas that are at special risk from climate change (such as coastal areas subject to diverse impacts from sea level rise) or in proximity to polluting electric generating facilities whose emissions could be reduced or eliminated if energy demand were to be reduced through the implementation of PACE energy efficiency financing programs,” according to the complaint.
The NRDC seeks an injunction and a ruling directing the agencies to set aside their directives because they violated procedural and environmental requirements, by relying upon inaccurate information and not conducting an environmental impact analysis. The NRDC is represented by Katherine Kennedy.