Property Assessed Clean Energy (PACE) financing is one of the fastest growing types of financing in California – and for good reason. Since 2007, PACE has helped more than 150,000 California homeowners make much-needed improvements to their homes that conserve energy and water, increase property values and lead to overall happier homeowners. Homeowners don’t pay anything upfront. Rather, PACE program administrators use private capital to cover 100 percent of the costs for projects like efficient air conditioning, solar panels, new roofs or other property upgrades. Homeowners repay the cost of the improvements on their property tax bill with fixed interest rates that can be paid over an extended period of up to 30 years.
As the President of the Los Angeles Business Council (LABC) representing over 450 businesses focused on energy, economic development, housing and transportation, I’ve seen firsthand how PACE financing is powering our local and state economies while improving the lives of California homeowners.
PACE financing has been an overwhelming success for Californians, which is why I’d like to clear up some misconceptions in The Signal column, “Real Estate Talk: FHA bars solar PACE loans,” published on Jan. 3. The column was written as a response to a recent Federal Housing Administration (FHA) decision to decline to insure future mortgages on homes with PACE assessments. It is worth noting that this decision will affect only a very small fraction of the PACE market.
The first misconception I’d like to address relates to mortgage lenders. Despite claims made by the FHA and others, PACE financing does not put mortgage lenders or government-backed mortgage insurers at risk. In fact, California (by far the largest PACE market) established a $10 million loss-reserve fund to protect mortgage lenders (such as FHA) from losses related to home mortgage defaults on properties with PACE liens. No claims have ever been filed against the reserve. PACE’s success in California should lay to rest the concerns of mortgage originators and insurers.
Second, consumer protection. The good (and under-reported) news is that PACE contains newly enhanced consumer protection measures that make it better than ever. Signed into law by Governor Brown last October, these include ability-to-pay standards, income verification, 3-day right to cancel, clear consumer disclosures, state licensing and regulatory oversight and contractor marketing standards. Plus, PACE has unique protections that no other financing product offers, like the fact that home improvement professionals are not paid until the homeowner signs off on the job.
Here’s the real, positive story of PACE.
Real estate professionals should embrace PACE, which has been instrumental in refreshing our aging housing stock. Nearly 40 percent of all owner-occupied homes in the country were built in 1969 or prior. PACE is bringing these aging homes up to current efficiency standards, raising property values and improving local real estate markets. According to a study by the Journal of Structured Finance, PACE improvements “increase home value by at least as much as their costs.” Larger property values mean larger commissions for real estate professionals and larger resale values for homeowners during transactions.
Homeowners with PACE financing also benefit from energy and water savings that generate significant cost-savings over time. The water and greenhouse gas emission savings from PACE financing in Los Angeles have been a huge benefit to our region: PACE has decreased water consumption in LA County by more than 13 million gallons annually. Fossil fuel usage has been cut by more than 105 million kilowatt-hours annually, the equivalent of taking more than 10,000 cars off our roads.
Finally, PACE creates jobs. To date, PACE financing has created 4,800 jobs in Los Angeles County and generated nearly $500 million in economic activity. Throughout California, more than 30,000 jobs have been created because of PACE and more than $4 billion in economic investment has been injected into the state economy. These are steady jobs that cannot be outsourced overseas, since they involve working on local homes.
PACE’s many benefits have earned rare bipartisan support in Congress and continued endorsement from local elected officials and businesses across the country. PACE is one of the most innovative financing tools of the last decade that benefits homeowners, businesses, our economy and the environment. PACE truly works for the people of California.
Mary Leslie is president of the Los Angeles Business Council, dedicated to uniting the power of business with the power of government for education and advocacy to promote environmental and economic sustainability.