Jeff Hughes is Director of the School of Government’s Environmental Finance Center and a School of Government Faculty Member
It’s not often that a local governmental finance tool gets in the middle of a heated national environmental policy debate, but that’s exactly what has happened in recent months as questions and differences of opinion have arisen over the appropriateness of some applications of local government assessment authority to fund energy efficiency and renewable energy. Within a two day period in early May, the US Department of Energy (DOE) issued a guidance document describing procedures for using local government property assessments for clean energy applications (PACE) and Freddie Mac and Fannie Mae, publically owned mortgage purchasers, issued cryptic warning letters to all their lenders stating that participation in some types of PACE programs described by the DOE are prohibited.
To read the letter from Fannie Mae go here https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/ll1006.pdf
These letters led to a period of intense discussion between energy finance advocates, the DOE, and the Federal Housing Finance Authority(FHFA), the body that oversees Fannie and Freddie. On July 6th, the FHFA issued another statement that clarified their position and stated quite clearly that they believe PACE programs with a priority lien (the hallmark feature of PACE) “raise safety and soundness concern.” Almost immediately after this statement, local governments across the country with existing PACE programs or with PACE programs about to be rolled out began suspending or discontinuing their residential PACE programs (the statement only dealt with residential programs), however several local and state governments have decided to continue with their programs and have filed law suits in protest. As a result of this controversy, national legislation entitled “The Assessment Protection Act of 2010” has recently been introduced in the US House of representatives.
Where does this debate leave NC communities interested in innovative methods of promoting energy efficiency? As earlier blog postings have described, NC is one of a growing number of states to provide their local government with state authority to use assessments to fund energy work. Until there are further developments in the PACE saga, many local governments are focusing on other types of programs such as revolving loan programs also authorized by NC law. Several of these programs will likely be rolled out this fall. Watch this space for future developments.