Creating Jobs and Environmental Progress with PACE Loans

By: Michael Wojcik

Jobs, jobs, jobs… We all want them, but there are limits to what we can do. Just when a great idea hits, something happens to prevent implementation. Such is the case with Property Assessed Clean Energy (PACE) loans. Just as states ramped up for implementation, a couple of federal agencies stepped in to create problems. But for some of us there is hope in community owned banks that do not sell their mortgages to the likes of Fannie Mae or Freddie Mac.

A PACE loan allows a municipality or other jurisdiction to give a homeowner a direct loan for energy improvements to their home. Unlike conventional mortgages, the PACE loan is paid back via a property tax assessment and can actually stay with a property even if ownership changes. This makes sense as energy improvements stay with the home as well.

A PACE loan program in a community has the potential to conserve energy, quickly create “green” jobs and improve aging housing stock. This is especially beneficial for older or lower income jurisdictions. Often, increases in tax assessments are offset by declining energy bills (especially when 10-20 years of energy inflation is considered). PACE loans can be used for green energy projects such as geothermal heating/cooling or solar panel installation. Improving energy efficiency can increase the value of a property. Energy conservation may include reinsulating, improved doors and windows, more efficient appliances, improved HVAC, or better lighting. Many of these projects are labor intensive and some require skills that can be obtained quickly by many citizens. Because the loans are backed by the local taxing authority, they are very low risk and should carry a very low interest rate, perhaps lower than a 30-year mortgage. It is important for communities to set standards and rely on professional estimates to ensure that PACE loans are only offered for projects that will pay back over time.

Typically, PACE loan programs are authorized by the state and implemented by local governments. Implementation has been held up by fear that the federal mortgage agencies will not buy mortgages on properties that have a PACE loan attached. I find this silly, because in almost every situation a property with PACE loan funded improvements will leave its owner more financially solvent than one without.

There is a potential workaround for quicker implementation if you have a community bank(s) with sufficient capital to make PACE loans. Some community banks and credit unions do not sell off their loans and can choose to offer mortgages to homes with PACE loans attached. For community banks, this allows flexibility to compete where other institutions cannot. As an added benefit, community institutions are far more likely to keep local dollars in the economy. The best way to get a project like this rolling would be to convene a working group with local business groups and banks and gauge their interests and concerns.

Michael Wojcik, originally from Grand Rapids, Minnesota, and has served on the Rochester City Council since 2008.