Federal delay holds up local finance program

County PACE program taking shape in the meantime

The county’s plan to put financing into the hands of people interested in making efficiency improvements to their homes is moving forward, with the focus shifting away from the big picture and narrowing in on the details.

Local supporters of the program have seen a lot of things go their way this year, with voter approval last November to pursue some form of a Property Assessed Clean Energy (PACE) bond program, the passage of Senate Bill 100 that allows the county to partner with similar programs around the state, and a boost in the number of PACE programs around the country.
The Office for Resource Efficiency, which is working with members of the county staff to get a program in place, has also secured grant money from the Governor’s Energy Office (GEO) and the Department of Energy to help move things along.
Then a letter came from Fannie Mae that stopped all forward progress, not just in Gunnison County but also across the country.
“Fannie Mae issued what they call a lender letter about six weeks ago that went out to all of the banks it underwrites loans for, saying that anybody who incurs a first priority lien will be in default of their mortgage,” ORE executive director Andris Zobs says.
Since the PACE program is built around a plan to lend money to homeowners who will repay the debt through their property taxes, anyone who participates in the program would incur a first priority lien by Fannie Mae’s estimation. Payment of property taxes would have first priority on a lien, over a mortgage, if a property went into default.
But Zobs sees what he considers to be strong legal opinions coming out in the wake of the Fannie Mae letter that suggest a PACE loan is no different from any other special assessment on a property and those opinions have the lending giant reconsidering its position. But time, and lawyers, will decide how that affects PACE programs.
Shortly after the letter was issued, officials in states around the country where PACE programs have been implemented, like California, raised concerns about what Fannie Mae was saying to banks.
“Everybody is pretty confident that there will be some resolution at the federal level. They don’t want to kill these programs,” Zobs says. “They’re just trying to work out the details at the federal level.”
On the local level, there are also a lot of details that need to be worked out. At a work session Tuesday, June 22, Zobs and members of the county staff who have been working on the plan came together to give the county commissioners an update.
One issue wrestled with was the eligibility criteria that applicants would have to meet before being allowed to apply for a loan through the program.
“It’s not just a matter of following these steps and you get money,” county manager Matthew Birnie said, explaining that the county would rely largely on the lenders to use their expertise to identify reliable borrowers.
But getting the bank to do that work takes money and it won’t be coming from the county’s pocket. So the discussion turned to how and when to charge an application fee. Birnie suggested that the application fee would probably be adjusted to match the cost of getting the application through the bank review and back to the county.
That was a concern for commissioner Hap Channell, who sees the program providing the biggest benefit to people who can least afford it. Attaching too high a fee to the application might keep those people away from the program, he reasoned.
“If you don’t have any liquidity you probably shouldn’t be taking the extra loan,” Birnie pointed out. “That’s why it is important for us to look at the viability of these loans, because people could find themselves in real trouble.”
While Channell struggled with how to reconcile the costs of the program with the financial means of the people who might see the most benefit from it, he agreed that the county should avoid putting people in financial trouble.
The county is hoping that just financing the application process will keep “egregious outliers” out of the process. Other than an application fee, an energy audit of the home will be required as well as the cost of any permits necessary to make the upgrades. Zobs did note that ORE would be able to offer the energy audit at a very low cost because of a grant from the GEO.
And the discussion about the application fee was as much about keeping the county’s costs down as it was about keeping people who aren’t serious about making the energy efficiency improvements out of the process. Many of the other Colorado counties that are operating similar programs are subsidizing them heavily, Birnie said.
The commissioners hoped that they could avoid some of the administrative costs of the program by rolling the occasional bond sale, which would be required to raise money for the program, into a sale that Boulder County takes to market. They also plan to charge a little more up front in the process than the other participating counties.
Even before someone in the county can apply to the program they will need to have an energy audit done on their home, then decide what they’re going to do and get bids from contractors. “So they are going into the application process with eyes wide open, even though they don’t have any guarantees of getting approved for financing,” Channell said.
As things get worked out on the federal level, the county will continue working out through the details of their own program.
“Not at the point of finalizing the program yet, but it’s pretty close,” Birnie said.