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Santa Barbara County Board of Supervisors will consider implementing a Property Assessed Clean Energy Financing program that would allow homeowners to install clean energy systems like solar panels with no upfront costs and pay for them on their property taxes, although the loans come with some risks.

A program that would help homeowners install energy-efficiency projects with no upfront costs will be considered by the Santa Barbara County Board of Supervisors at Tuesday’s meeting in Santa Maria.

Supervisors are scheduled to meet at 9 a.m. in the Board Hearing Room of the Joseph Centeno Betteravia Government Administration Building at 511 E. Lakeside Parkway.

The board also plans to hear an annual report on the operation of the county’s Psychiatric Health Facility, including a look at the quality of care, a patient satisfaction survey, a new in-patient pharmacy program, the response to the 1/9 Debris Flow and implementation of additional emergency plans.

Commonly referred to as PACE, the state-authorized Property Assessed Clean Energy Financing program allows business and homeowners to install energy- and water-efficiency fixtures and clean-energy systems like solar panels with no upfront out-of-pocket costs.

The projects are financed through loans administered by a third party using funds generated by bonds that are issued by a financing partner, according to a report to the board prepared by Ashley Watkins, co-chief of the Sustainability Division of the Community Services Department.

Homeowners and business owners repay the loans through liens on their properties, with the payments added to their property tax bills, the report said.

Picking up the PACE

In 2010, supervisors directed the staff to implement an internally administered program for both commercial properties, called C-PACE, and residential properties, or R-PACE, through the countywide emPower program.

But in July 2010, the Federal Housing and Finance Agency, which regulates Fannie Mae and Freddie Mac, the two largest purchasers and backers of residential loans, expressed concerns about risks posed by the R-PACE programs.

The main concern was that R-PACE liens are considered “super-priority liens,” meaning they take priority over existing mortgages, so FHFA directed lenders under its oversight to not purchase mortgages secured by properties with R-PACE liens.

As a result, many homeowners with R-PACE liens have been forced to pay them off before they could refinance or sell their properties, Watkins’ report said.

Supervisors subsequently directed the staff to not accept any R-PACE applications until FHFA’s concerns had been resolved.

The cities of Lompoc and Santa Barbara both have PACE programs, and the Carpinteria City Council voted to implement a PACE program there. Lompoc has recorded 17 R-PACE loans, while Santa Barbara has had none.

Statewide, about 145,450 R-PACE liens have been recorded with a total value of $3.46 billion, according to the report.

Supervisors authorized staff to move forward with a commercial PACE program in April 2018, although to date no C-PACE liens have been recorded in the county, and return with a report on R-PACE programs.

C-PACE liens are considered less risky because the original mortgage holder must approve the lien and, in most cases, an energy audit and cost-benefit analysis must be completed first.

FHFA also does not regulate commercial mortgages, Watkins noted in the report.

PACE pros and cons

Proponents of R-PACE programs say they have numerous benefits for homeowners, including providing 100 percent financing with no upfront, out-of-pocket costs, raisin property values, creating jobs and improving the local economy.

They also increase the number of renewable energy, water-efficiency and energy-efficiency projects and reduce greenhouse gas emissions.

Opponents say there are just as many risks in R-PACE programs, including homeowners being unable to refinance or sell their homes using Fannie Mae or Freddie Mac mortgages without paying off the liens first.

Other risks include being subject to predatory lending practices, the ability of PACE providers to foreclose on properties, being misrepresented by contractors as “government-sponsored” programs and using local government resources to perform private services.

Critics also say they fail to screen low-income homeowners for eligibility to receive free and low-cost energy services and that the rates on R-PACE loans is higher than on other traditional loan programs.

To address some of the concerns, the state Legislature approved two bills in 2017 that require income to be factored into underwriting criteria, set minimum training requirements for contractors participating in R-PACE programs and block kickbacks to contractors.

They also require R-PACE administrators to talk with homeowners to be sure they understand the terms before taking out a loan, and they placed the state Department of Business Oversight in charge of enforcing the regulations.

In addition to two more bills to close loopholes, the Legislature in 2018 approved a bill allowing local governments to authorize R-PACE financing for wildfire safety improvements in high-fire-risk areas.

Watkins said the County Auditor-Controller’s Office doesn’t support implementation of an R-PACE program, and a whitepaper outlining the reasons is included with the report to supervisors.

She also noted homeowners have access to many other financing options for energy-efficiency and renewable energy projects, including the state’s Residential Energy Efficiency Loan.

Since the county did not budget for an R-PACE program, it could cost an additional $32,000 for staff time to provide oversight of a third-party administrator.

So far, costs associated with a potential R-PACE program have been charged to funds for implementing the Energy and Climate Action Plan.

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