A bipartisan bill to help both our economy and environment is emerging in Congress — in these days of hyper-gridlock, the effort deserves our full support. The bill restores a popular financing program, Property Assessed Clean Energy (PACE), to improve energy efficiency in homes and businesses across the country.
Residential and commercial buildings use nearly 40 percent of all energy consumed in the United States. Reducing that energy use is the easiest and most cost-effective way to save money, create jobs, reduce pollution and improve our energy security.
Typically, the estimated energy savings from these larger projects will pay back the upfront cost in three to seven years at current utility rates. After the payback period, the savings are pure profit to the owner.
At the Empire State Building, for example, Jones Lang LaSalle managed a $20 million energy retrofit that employed more than 250 skilled workers and created $4.4 million in annual energy costs savings, which is ultimately passed through to tenants. The reduced energy use also means the building’s carbon footprint will shrink by 105,000 metric tons over 15 years, equivalent to the emissions of 20,000 cars.
Owner, tenants and community — everyone’s a winner.
But, truth be told, the Empire State Building is an anomaly, and that is where the PACE bill comes in. Many commercial and residential building owners face a big obstacle: lack of financing, particularly in a market where a property’s value may be less than the mortgage.
To overcome that barrier, cities and states several years ago began adopting PACE, which funds energy improvements with government bonds that are repaid via special tax assessments on the properties where improvements are made.
The PACE structure allows the high initial cost to be spread out to match the energy payback period, so the annual energy-cost savings exceed the tax assessments.
To date, 27 U.S. states have passed PACE-enabling legislation, encouraging municipalities to amend local laws to incorporate programs. Eight of the states had Republican-majority legislatures when they passed PACE legislation, showing the program’s strong bipartisan support.
Progress hit a snag when the Federal Housing Finance Agency (FHFA) warned Fannie Mae and Freddie Mac against making loans on homes in the PACE program. FHFA’s main concern was that a tax lien would have to be paid off by the lender in the case of foreclosure — never mind that the mortgage default rate of homes in PACE programs is one-thirtieth that of other homes, and that PACE helps drive economic growth in communities by reducing homeowner costs, enhancing local property values and creating jobs.
The state of California and several communities filed suit against FHFA. Now Reps. Nan Hayworth (R-N.Y.), Mike Thompson (D-Calif.) and Dan Lungren (R-Calif.) have co-sponsored legislation to force FHFA to rescind its guidance to Fannie and Freddie, and prohibit discrimination against PACE homeowners and communities.
The PACE Assessment Protection Act of 2011 also establishes national PACE underwriting and consumer-protection standards. Homeowners must have at least 15 percent equity and a solid tax payment history, projects are capped at 10 percent of home value, improvements and contractors must be qualified and PACE liens do not accelerate in the event of a default.
Analysis of PACE programs to date shows that for every $10 million of PACE funds extended, 150 jobs are created and $25 million is generated in economic output. And $2.5 million is generated in federal, state and municipal tax. What’s more, the bonds are sold on private capital markets, at zero cost to the federal budget.
Job creation, economic growth and energy security in a program that’s good for owners, tenants and communities. What’s not to like?
Lubber is president of Ceres, a leading coalition of investors and public-interest organizations working with companies to address sustainability challenges. Probst is chairman of energy and sustainability services at Jones Lang LaSalle, a global commercial real estate services firm.