A loan program allowing homeowners to upgrade the energy efficiency of their homes with no up-front costs was rejected Tuesday on a split vote by the Santa Barbara County Board of Supervisors, although a majority of public speakers urged its adoption.
But while supervisors refused to authorize the residential Property Assessed Clean Energy financing program on a 3-2 vote, they unanimously agreed to have it brought back in a year with reports on how well state legislation has addressed program risks and how a fire-protection element could be implemented in the county.
The PACE program, as it's called, allows residents and businesses to make energy-efficiency and renewable energy upgrades to their properties with no up-front, out-of-pocket expenses, with the cost of the work covered by third-party lenders.
Third-party lenders are then paid back through an assessment on property tax bills, but the PACE lien on the property takes priority over other existing loans.
The Federal Housing and Finance Agency, which regulates Fannie Mae and Freddie Mac, the two largest purchasers and backers of residential loans, has directed lenders under its oversight, however, to not purchase mortgages secured by properties with R-PACE (residential PACE) liens.
That means homeowners with R-PACE loans either have to pay them off before selling their properties or deal with the difficulty of potential buyers finding a lender willing to finance a home with an R-PACE lien on it.
Participating in the Santa Maria meeting via video from Santa Barbara, both 1st District Supervisor Das Williams and 2nd District Supervisor Gregg Hart voted “no” on 4th District Supervisor Peter Adam’s motion to not move forward with the residential PACE program at this time.
Williams and Hart indicated the county should make the program available to residents of the unincorporated areas of the county, who could then decide if the benefits outweighed the risks or choose another financing method for energy efficiency improvements.
“To me, this is not even, like, in the top five or even top 10 lending products that are ripe for abuse,” Williams said, pointing out the state allows credit cards to charge 30 percent interest and payday loans, which he called “usurious,” are also legal.
Hart pointed out energy-efficiency requirements are in place for constructing new homes, but the challenge is getting existing homes retrofitted, which is what the R-PACE program is trying to address.
“Having financing tools available to people is a good thing,” Hart said. “There’s a risk-reward tolerance level that each person has to make (a decision about).”
But the board majority was concerned about loan payments being collected through property tax bills, indicating R-PACE is either a government program or endorsed by the county.
“If we allow it, people think it’s OK,” Adam said.
That sentiment was echoed by Andy Caldwell, executive director of the Coalition of Labor, Agriculture and Business, one of two public speakers opposed to R-PACE.
“The difference between high credit card rates and advance payday loans is the PACE program must be authorized by the state and local governments,” Caldwell said. “The bottom line here is you’re participating in it, you’re authorizing it, you’re facilitating it.
“I don’t think you collect for payday lenders,” he said. “You don’t collect for credit card lenders. Put this thing out of its misery.”
The five public speakers who favored the program included Dustin Relich, senior director of market development for Renovate America, who said he used an R-PACE loan to upgrade his own home.
“One in six Americans make some upgrades,” he said “Three of those six make energy upgrades but choose something inefficient. PACE was created so they make good decisions.”
Rebecca August, public lands advocate for Los Padres ForestWatch, said the organization supports R-PACE because it provides low-interest loans for structural retrofitting.
“This program is an important first step to retrofit fire-prone homes,” she said.
Williams said he relies on facts and figures rather than rhetoric and hype in making decisions.
“If you’re looking at protecting consumers, you have to look at interest rates and default rates, and PACE does pretty good at that,” Williams said. “If we’re really going to hang our hats on consumer protection, we’d be foolish to deny (residents) access to this.”
But the board majority was still concerned about loan payments being collected through property tax bills, indicating R-PACE is either a government program or endorsed by the county.
They were also concerned about potential predatory lending practices, problems selling homes with R-PACE liens and subsequent property devaluation, leading to a reduction in tax revenues.
“This program has a history of problems and a history of predatory lending,” 3rd District Supervisor Joan Hartmann said, adding the county has a lot of residents that lenders prey upon, including the elderly, Spanish-speakers and those with low incomes.
“We shouldn’t use property taxes for something as dangerous as predatory lending,” she said.
While proponents argued the energy-efficiency upgrades made to homes increase their value, Adam said he thinks the opposite is true because FHFA can tag an entire area for having an R-PACE program, which can make it hard for homeowners to sell their properties and thus lower home values.
He said lower home values mean lower property taxes, which the county relies on for the revenue needed to provide services to residents.
“I think the argument about reduced home value and property taxes is too (compelling) at this time,” said Adam, adding, “Payday lending and credit cards are not endorsed by the government. You have to go do that on your own.”
Lavagnino said he didn’t want to lump R-PACE in with payday loans and credit card companies, but he was swayed by something else.
“The person I look to in the county is the auditor-controller,” Lavagnino said. “When you have three auditor-controllers certainly against it … those who are for it, you’ve got to go convince them before you convince me.”