Since 2008 when the Property Assessed Clean Energy (PACE) program began, there have been problems.
PACE programs are managed by local governments across California, so how PACE works is slightly different depending on where in the state the homeowner is located. But generally speaking, PACE helps homeowners and commercial property owners make energy-efficient improvements by arranging financing.
The local government bundles the PACE loan repayment with the property’s annual tax bill. The loan is structured as a lien on the property, just like property assessments or bonds are often attached to a property to pay for public-use improvements like sidewalks or roads. The local government distributes funds to the private contractors who provide the improvements.
At first glance, the PACE program seems like a win all around. Property owners can reduce their monthly utility bills, the savings often paying for themselves. Cities enjoy the benefits of lower greenhouse gas emissions, including higher air quality. More jobs are supported as these energy- efficient improvements require workers and financing produces fees for lenders. And if the homeowner stops making payments, the lender isn’t on the hook as the government steps in to cover payments via the state’s loss reserve program.
But when evaluating eligibility for the PACE program, only the property itself is taken into consideration. This is because the lien is, after all, attached to the property and not to the homeowner. But the homeowner’s ability to pay back the PACE loan is determined on their income, not the home’s value. When they fail to pay back the loan, they are liable to lose their home to foreclosure (though this rarely occurs).
This puts a ton of unnecessary risk on the shoulders of the state and local governments. For this reason, some local governments (e.g., Bakersfield) have decided to forego the PACE program altogether.
Assembly Bill (AB) 1284 changes this. At the time of this writing, AB 1284 has passed and is heading to Governor Brown’s desk for his signature.
Beginning April 1, 2018, PACE funding will only be approved when the local PACE administrator considers the homeowner’s or property owner’s income. The administrator will need to determine whether the owner has a reasonable ability to pay.
Beginning January 1, 2019, program administrators will need to be licensed and overseen by the Commissioner of Business Oversight.
Proponents of the law include major lenders, according to the Los Angeles Times. Considering income in the measurement of qualifications makes basic sense and protects local governments. But critics cite some major loopholes that still allow consumers to go unprotected.
For instance, under the pending law, there may be a difference between the amount for which the homeowner is approved and what is actually borrowed to cover the approved improvements. In this case, the difference is covered by the local PACE administrator, unless the owner intentionally misrepresented their income and ability to pay. [Calif. Financial Code §22688(g)]
Critics also say the ability to pay analysis isn’t spelled out in enough detail, leaving homeowners open to taking on more improvements than they can repay.
While some work remains to be done, the new laws make PACE a more viable program for local governments and homeowners alike.