California Picks Up the PACE

A bit of good news for California households and small businesses: Governor Arnold Schwarzenegger has just signed AB 1873 into law.

This bill, which Environmental Defense Fund co-sponsored and which was authored by Assemblymember Jared Huffman, can provide more funding for Property Assessed Clean Energy (PACE) programs by allowing state agencies such as CalPERS to invest in PACE bonds.

These bonds make investments in energy efficiency more affordable for home and business owners while building California’s clean energy economy.

Through PACE programs, local governments sell bonds and use proceeds to allow home and business owners to make energy efficiency and clean energy improvements. The improvements are assessed as part of property taxes, which are generally paid in full and also have a higher priority than mortgages and other loans in the event of a foreclosure. Overall, they could give state entities that invest in them the opportunity to enjoy stable and predictable returns.

Recent actions by Fannie Mae and Freddie Mac and their conservator, the Federal Housing Finance Agency (FHFA), have put the future of PACE in question. By stating that PACE assessments should not be permitted to be made senior to mortgages without mortgage lenders’ consent, these organizations have left the fate of PACE programs largely in the hands of federal decision makers. This has chilled the climate for PACE and resulted in a significant slowing of activity nationwide.

AB 1873 could give California PACE programs a boost in the wake of Fannie Mae and Freddie Mac’s decisions. Committed jurisdictions that are continuing to offer PACE financing with senior status, combined with state agency investments in PACE bonds, can enable California’s home and business owners to continue enjoying their related benefits: energy efficiency investments that drive demand and help California’s clean energy companies continue building their businesses, knowledge base and market share.

This victory can help move federal decision makers toward a better understanding of the benefits of PACE and pave the way for broader implementation in coming years.

For more details, see this article that highlights the benefits of this bill.

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