Problems with PACE Financing

Background:

PACE (Property Assessed Clean Energy) was a copycat bill from a Berkley, California program that’s intention was to open up additional financing options for solar power systems in Louisiana. In 2009, our legislature agreed to allow individual cities/parishes to form financing districts to permit PACE programs.

PACE ran into an immediate roadblock when FHFA, Fannie Mae, and Freddie Mac advised against buying mortgage loans with PACE because PACE loans become property tax assessments and would be paid off before mortgage loans. Despite the earlier roadblocks, a new effort is underway to initiate this program in Louisiana.

Problems:

*The average $25,000 solar power system installed in ideal situations (south facing, 30 degree tilt, and no shade) generates about $80/month in savings, yet with PACE, property taxes increase about $230/month for 20 years because PACE payments become property taxes.

*The PACE loan provides 100% financing for 20 years on a solar panel system that could possibly be removed from a property making it a potentially unsecured loan.

*A PACE financed solar power system price is typically padded with fees (Program Administration fee, Bond Commission fee, etc.) upwards to 9% APR.

*There is an inherent problem with municipal management of a loan program that is better suited to be handled by banks and lending institutions.

Solution:

PACE loans could be better utilized if limited to energy efficiency improvements (i.e. windows, insulation, HVAC) versus solar power systems which could be removed from a property and have longer payback time. This will protect consumers from potentially being sold a product that they are unable to afford and could strap them into an “upside down” loan for decades.