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Setting the PACE

By Cisco DeVries (MPP '00)

Start by asking yourself a question: would you have a cell phone if you had to buy 20 years’ worth of minutes up front? The answer for most people is no. Similarly, we should not be surprised that it has been difficult to convince homeowners to make extensive energy efficiency home improvements.The energy and financial savings may be real, but such improvements require a lot of money up front — and it often takes a long time for the savings to make up for the cost. 

Six years ago, I set out to try and solve this problem. 

The idea that became PACE — Property Assessed Clean Energy — started with a big hole in the ground. A group of homeowners in Berkeley, California had petitioned the city to have all their utility lines placed underground. As part of an “underground utility district,” the city pays the up-front cost, usually from a bond, and the benefited homeowners repay the cost via a line item on their property tax bill over a number of years. As chief of staff to the mayor of Berkeley, I was called in when a last-minute political issue arose regarding this new district. 

While trying to solve this problem, I was struck that the same law could potentially be used to cover the up-front cost of solar and energy efficiency. If we use this tool to pay for putting poles and wires underground, I thought, why not pay for putting them on the roof? The concept was simple — allow property owners the chance to repay the cost of solar or energy efficiency as an assessment on their property tax. I got to work understanding the law, talking to legal and financial experts, and developing a plan. 

Six months later, the San Francisco Chronicle’s banner headline read “Berkeley’s Radical Solar Plan.” With that, the concept of PACE went public — and my phone hasn’t stopped ringing since. 

As Berkeley’s program got under way — selling out the available spaces in its pilot program in just nine minutes — State and local governments around the country responded by passing legislation and building programs. Local and state governments — supported by the private sector — were leading a revolution in the way we pay for, use, and think about energy. 

In October 2009, I joined Vice President Joseph Biden for a White House announcement of new rules for PACE as well as the approval of more than $100 million in grants to speed its deployment. This accelerated the already remarkable efforts to expand PACE. Today, 30 states have PACE-enabling laws, and millions of dollars in PACE financing has been transacted. 

But PACE is also a story of great frustration — of federal agencies working at cross-purposes, of regulatory intransigence, of an industry not quite ready for prime time, and of state policies that sometimes lacked context or flexibility. 

In the summer of 2010, Fannie Mae and Freddie Mac, the government-sponsored enterprises that dominate the home mortgage market, directly challenged the position taken by the White House. They issued new lender guidance that deemed PACE a violation of a property owner’s mortgage contract — and therefore a possible default on their mortgage.Faced with the potential risk to homeowners (and voters), almost all local and state governments responded by putting residential PACE programs on hold.

The reaction to this was massive. A politically diverse coalition of local and state governments, federal agencies, private companies, and nonprofit organizations came together to demand that this position be changed and PACE allowed to continue. More than 40,000 organizations and individuals submitted comments to federal regulators in support of PACE. For many working to save PACE, this is about protecting an important clean energy initiative. But for many local and state governments, this is also about protecting their rights. 

For the first time in history, Fannie Mae and Freddie Mac determined that they have the power to tell state governments what’s an allowable tax and what isn’t. This is part of the reason why the State of California, as well as a number of local governments, sued to block the regulatory actions. 

Today, residential PACE remains in legal and regulatory limbo. PACE financing for commercial properties has emerged as one of the hottest trends in energy efficiency finance, but we have not given up the fight for residential PACE. A few local communities have charged ahead with residential PACE in direct defiance of the directives from Fannie and Freddie. And the State of California, led by Governor Brown’s efforts, has created a new insurance reserve program to solve the risk to Fannie Mae and Freddie Mac. It looks increasingly like residential PACE will reemerge next year across the country. 

It has been more than six years since I first wrote a memo proposing the PACE concept in Berkeley. Today, as the CEO of a company dedicated to helping our nation finance a clean energy transformation, I have a better sense of what works and what doesn’t. There have been successes and setbacks. Regardless of the outcome of the regulatory debates in Washington, we’ve proven that financing works, that we can make great change quickly, and that local and state governments can lead. Now it is up to us to make good on that promise. 

Francisco DeVries is CEO of Renewable funding. You can reach him at cisco@renewfund.com