NY Times
September 20, 2011
Tax Plan to Turn Old Buildings ‘Green’ Finds Favor
Justin Gillis
Property Assessed Clean Energy (PACE) is an innovative means of financing the upfront capital costs of investments in energy efficiency. This author published an article on the issue, “Legal Issues in Financing Energy Efficiency: Creative Solutions for Funding the Initial Capital Costs of Investments in Energy Efficiency Measures” in The George Washington Journal of Energy & Environmental Law. Under the PACE mechanism, property owners can upgrade their buildings without bearing the upfront costs, which are repaid through surcharges on property tax bills over five to twenty years. The investments in energy efficiency measures typically reduce energy use and utility bills by up to a third, which provides the revenue stream to pay the property tax surcharge and still come out way ahead. PACE is an elegant solution that has been authorized by about half of the states, which passed enabling legislation permitting energy retrofits financed by property tax surcharges. In the case of residential properties, however, the bureaucrats at Fannie Mae and Freddie Mac blocked the use of PACE financing, refusing to allow homeowners to exercise a mechanism that potentially put the new debt in a superior position to the existing mortgage debt. Luckily, the Federal Housing Finance Agency can’t block the use of PACE financing for commercial properties, and that market is moving full steam ahead, led by none other than Richard Branson, the British entrepreneur and billionaire. The PACE approach is expected to attract substantial private capital into the market for energy upgrades, which have historically been very difficult for commercial businesses to finance. This availability of private capital means that no money from Washington is necessary. Moreover, the retrofit projects could potentially create thousands of new construction jobs. It’s time for the bureaucrats at FHFA to get out of the way and allow the PACE financing mechanism to be turned loose on the residential market. Doing so would allow millions of homes to be retrofit, without costing