In hundreds of counties and cities across America, local officials are embracing Property Assessed Clean Energy (PACE). PACE effectively expands access to credit to help property owners improve or repair their properties with efficient products, while creating and sustaining local jobs at no cost to public budgets. Solution-oriented mayors like us appreciate the innovation and value of PACE – which is why it’s bewildering to see lawmakers in Congress trying to kill it off.
PACE has bipartisan appeal – and is also supported by groups as varied as the National Association of Manufacturers and the Natural Resources Defense Council – because it offers a free-market approach to advancing public-policy objectives. PACE gives property owners access to private capital to make energy, efficiency and resiliency improvements to their properties; the financing is then repaid at a fixed rate through an additional line item on the owner’s property taxes.
{mosads}Since the first PACE legislation was approved by a Republican governor nearly a decade ago, roughly 1,000 commercial building owners and 150,000 homeowners have used it to finance improvements like energy-efficient air-conditioning units and rooftop solar panels. In Florida, in addition to financing energy and efficiency improvements, PACE has enabled thousands of homeowners to make their homes more resistant to hurricanes.
PACE is on track to help save homeowners billions of dollars on their utility bills and insurance premiums – while funding projects that may make their homes more comfortable and valuable. And by spurring demand for local contracting services, PACE has created thousands of jobs that can’t be offshored or automated. These jobs represent one of the most realistic paths back to work for the laid-off blue collar workers at the center of the national economic conversation.
Unfortunately, and largely due to its success, deep-pocketed interests in Washington and on Wall Street have set their sights on PACE. Senators Tom Cotton (R-Ark.), John Boozman (R-Ark.) and Marco Rubio (R-Fla.), joined by Reps. Brad Sherman (D-Calif.) and Ed Royce (R-Calif.), have introduced legislation that would derail this successful state and local innovation just as it is catching on. Their proposal, supported by the big banks, would treat PACE as a mortgage, even though it functions like a special tax district and averages less than $25,000. This new classification would make PACE unworkable for local governments like ours. We are not mortgage lenders and should not be subject to requirements that are intended for the banking industry.
Their proposal would also create burdensome restrictions on how local governments use property tax assessments and municipal bonds for PACE programs. The combined effects of this federal overreach would lead local governments to exit PACE programs, eliminating their ability to leverage critical private capital to strengthen their communities. And that’s likely the ultimate goal of the legislation: to kill PACE.
Just as troubling as the details of the legislation itself are the falsehoods being spread about PACE. PACE is setting new standards for consumer protections in home improvement financing. Unlike home equity lines of credit (HELOC) and credit-cards, PACE providers check licensure status on contractors, and only pay them once the work is completed to the satisfaction of the homeowner. Interest rates and terms for PACE financing can be competitive with some HELOCs and easily beat credit cards. In California, which has done more PACE financing than anywhere else, PACE providers clearly spell out terms and conditions – offering mortgage-level disclosures.
Wall Street and the mortgage bankers perceive PACE as a threat because of PACE’s first-lien position (as a local property tax line item) in the event of a default. But these concerns are overblown. PACE financing runs with the property, not the owner, and so if a PACE property enters foreclosure, the only exposure to mortgages is the tax payment currently in arrears: the total outstanding PACE assessment is not due in full. Moreover, PACE can be a good investment: a study published in the Journal of Structured Finance showed that owners who opt for PACE enhancements recover – at a minimum – the cost of the improvements when their home sells.
Market data underscore the limited risk. In California, the rate of initial property tax delinquencies for homeowners with PACE assessments is half the state average. A state reserve set up in the event of PACE foreclosures has never been tapped. It’s no surprise the venerable investment research firm Morningstar concluded this year that a PACE assessment “does not materially increase the risk to the underlying mortgage.”
Republicans and Democrats in Washington may not agree on much. But beyond the Beltway, Americans of all stripes see the value PACE represents. Congress should support local government efforts to create jobs, save energy and boost consumer choice without spending a dime from public coffers. Instead of reducing competition under the guise of protecting consumers, Congress should strengthen consumer protections while supporting the innovative model at the heart of PACE.
Jeri Muoio Ph.D. (D) is Mayor of West Palm Beach, Fla. Rex Parris (R) is Mayor of Lancaster, Calif.
The views expressed by this author are their own and are not the views of The Hill.