SOLANA BEACH — Property and business owners will soon be able to more easily finance energy-efficient improvements following an Oct. 23 City Council decision to participate in the California Home Energy Retrofit Opportunity, or HERO, program.
State laws passed a few years ago authorize a legislative body to designate an area in which public officials and property owners can enter into voluntary agreements to finance the installation of permanent renewable energy, energy- and water-efficient upgrades and electric vehicle charging infrastructure.
Financing for these improvements is known as PACE, or Property Assessed Clean Energy. In 2010, Solana Beach was one of the first jurisdictions to join the statewide PACE program, California FIRST, which provides financing for commercial, industrial and multifamily projects.
“Unfortunately, the California FIRST program has been very slow to develop and implement,” Danny King, the city’s environmental programs manager, said. “A lot of this has been affected by (Federal Housing Finance Agency) rulings regarding Freddie Mae and Fannie Mac.”
But PACE has remained a priority in every City Council work plan since 2010, King said.
The HERO program for PACE financing was launched in 2011 in Riverside County by the Western Riverside Council of Governments.
Since then more than $350 million in applications have been approved, with more than $96 million in projects funded.
“Because of the success it’s now being offered to other jurisdictions and provides a turn-key program that saves time, money and local resources by eliminating the need to develop new local programs,” King said.
Improvements are financed with bonds issued through a Joint Powers Authority, in this case WRCOG. The program is available for residential and commercial properties.
Improvements include heating and air conditioning, cool roofs, tankless water heaters, outside irrigation, insulation, window filming, solar thermal systems for hot water or pool heating, low-flush toilets and photovoltaic systems.
The program benefits property owners and the city.
For property owners, it provides an additional source of financing.
“It may not be the best in every circumstance, however, it’s just like another tool in the toolbox for property owners to really asses on their own whether it’s the right one for their particular project,” King said.
It also provides cost savings. “As we all know, energy prices continue to rise, so doing these energy-efficient or conservation projects would help with reducing monthly costs,” he said.
For the city, benefits include increased property values, sales and property tax revenue and jobs.
“This is a really important aspect of the marketing strategy for HERO in that they do go after local contractors because … they are kind of the eyes and ears,” King said. “They’re on the front line when they go out to prospective properties to do upgrades.
“If the contractors know about this program it may be what it takes for the project to actually happen,” he added.
The program is completely voluntary on the part of the property owners. The city is not obligated to repay the bonds or pay any delinquent assessments levied on the participating properties.
King said there would be minimal city staff time needed and there are no startup or development costs.
PACE was slow to start because in 2010 the FHFA directed government-sponsored entities such as Freddie Mac and Fannie Mae to not purchase mortgages with PACE liens because the debt would have first priority.
In response, California and a few smaller entities filed a lawsuit.
As a result, property owners must sign documentation stating they know that if their property is sold or refinanced the PACE assessment may have to be paid off, a decision that is up to the lender.
King noted that of the more than 5,000 completed PACE projects, only 65 owners have sold or refinanced. Of those, only four were required to be paid off by the lender.
To address FHFA concerns, Gov. Jerry Brown sent the agency a letter in September proposing a statewide program that would create a reserve fund for PACE programs in the event of a foreclosure.
That would allow Fannie and Freddie to recover from the fund any amount paid to keep the PACE assessment current until the property is sold.
HERO staff has indicated support of the program, King said.
Oceanside, San Marcos and Vista are also seeking to become associate members of the Riverside HERO program. Once that validation process is completed, the program should be available to Solana Beach property owners by February.
The proposed HERO program is not exclusive, so other PACE programs could operate in the city.
Roger Boyd, the only resident to address council on the item, supports participation in the program.
“What this will do is give many people in Solana Beach a chance to participate because PACE will help them deal with the economics of installing not just solar but other components of energy efficiency — new windows, irrigation systems and so forth,” he said, adding that it is “a viable option” for those living on fixed incomes.
“PACE makes so much sense for so many reasons, and it’s great to finally have a mechanism to bring it to our city and our residents,” Councilman Peter Zahn said.
“It’s too bad we have the Freddie and Fannie situation, but this at least is something of a Band-Aid that can allow us to go forward,” he added. “It makes sense economically. It’s in line with our environmental sustainability strategic objective.”
“It’s very rare that it looks like you find something that’s virtually no downside and, as far as I can tell, almost all upside,” Councilman Dave Zito said. “There is very little that could go wrong here.
“One issue that could be troublesome is refinance,” he added. “It would be unfortunate if somebody got stuck in a situation where they did this and then they went to refinance and realized that they’re going to have to pay off this big loan as well.
“Although at the end of the day it probably wouldn’t be any more monthly out of pocket so I don’t think the risk is that big,” Zito said. “Hopefully as the program gets advertised that particular hiccup will be clearly spelled out.”
With that, council voted 4-0, with Tom Campbell absent, to adopt a resolution to become an associate member of the WRCOG Joint Powers Agreement.