Environmentalists are always coming up with creative ways to sell their radical and costly agenda.
Ranging from renewable portfolio standards to direct subsidies of solar installations and even state-level cap-and-trade programs, the laundry list of "solutions" to our "global climate crisis" always seems to rely on the heavy hand of government, whether it's through higher taxes, central planning, or regulations that raise costs on consumers who can least afford it. Recently, though, environmentalist rent-seekers got a little more creative through the creation of a program called Property-Assessed Clean Energy (PACE).
PACE is a government-backed and -managed loan program used by private property owners to finance energy efficiency or renewable energy upgrades. Through residential PACE, a homeowner can get solar panels, a new roof, new heating systems, and even new windows without the need for capital or credit. Instead, a local government issues a bond to a loan provider to cover the costs and then collects payments for the loan over a 5, 10, or even 20-year period of time through a higher property tax assessment and tax lien on a homeowner's property. PACE lending contrasts with the traditional relationship between a borrower and lender by making the government a middleman who is backing, managing, and subsidizing the whole exchange.
The first PACE program was implemented in Berkeley, Calif., in an effort to address climate change without requiring direct taxpayer subsidies for solar panels. It's a creative approach. Unfortunately, there are significant concerns with PACE, which distorts the tax code, speeds up alternative energy mandates, and may put local governments in the position of having to foreclose upon homes across the country.
In California, which has among the most robust residential PACE programs in the country, defaults on PACE loans are up 78 percent in the last year, according to a recent analysis conducted by the Wall Street Journal. PACE tax liens are now attached to more than 140,000 homes, presenting a potentially-huge problem for mortgage providers, realtors, and taxpayers nationally should the economy take any sort of turn for the worst.
Senator Tom Cotton, R-Ark., has called PACE "a scam" and has even authored federal legislation aimed at reining in the program, where loans aren't currently subjected to the same Truth In Lending Act requirements that traditional loans are. He noted, "Predatory green-energy lenders are changing state and local laws to trick seniors into taking out high-interest rate loans for 20 years, along with liens on their homes, for technology that could be obsolete in a few years."
Two counties in California (Kern and Bakersfield) recently ended their local PACE programs because of growing concerns about consumer protections, refinancing difficulty, and the hurdle PACE loans place on the sale of a property. When California towns are ending a government program because it's gone too far, you know something is very wrong. Rep. Brad Sherman, D-Calif., has authored the same legislation in the House.
Proponents of PACE, such as Renovate America, Renew Financial, and Ygrene Energy (Ygrene is energy spelled backwards), argue that PACE simply provides homeowners with an additional lending option and doesn't actually include direct subsidies for alternative energy sources. They're knowingly misleading in their defense of the program.
The installation of solar panels on a home initiates a complex series of government benefits that come at great costs to taxpayers. At $231 per megawatt hour, solar is the most heavily-subsidized energy source in the United States (compared to $0.57 per megawatt hour for coal) according to the Institute for Energy Research. Fast-tracking solar installation by removing the need for credit or for homeowners to pay any of the costs up front because the investment is covered by a local government bond exacerbates this unreliable and expensive energy source that eventually gets passed onto other consumers through cost-shifting throughout the energy grid.
Because PACE loans exist as property tax liens, they get what is known as "super priority" over a mortgage. In the case of a home foreclosure, the PACE provider would get paid back before the mortgage provider because they're treated as if they are the government that is owed a tax debt. This priority status is why Fannie Mae and Freddie Mac oppose backing PACE properties for new home mortgages.
Language offered by Rep. Diaz-Balart, R-Fla., has been included in the FY18 Transportation and Housing and Urban Development appropriation package that would prohibit all federally-backed mortgages from being tied to properties with PACE tax liens. This sensible legislation would protect taxpayers and the mortgage market from disruptive local government involvement in private property decisions and should be adopted in the upcoming omnibus budget.
The government should not be involved in every aspect of property ownership. Years ago, we collectively made a decision that home-ownership was a national priority and so buyers are given assistance with loans in the form of federally-backed mortgages. Residential PACE, however, goes much further, because it puts local, state, and if PACE companies got their way, federal, taxpayers potentially on the hook for a homeowner's new windows.
Seriously? We've got to draw the line somewhere. State governments and Congress should rein in this government program to protect taxpayers from energy efficiency goals run amuck.
Paul Blair (@gopaulblair) is a contributor to the Washington Examiner's Beltway Confidential blog. He is the strategic initiatives director at Americans for Tax Reform.
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