California First Helped Bring PACE Home

By Roy L Hales

It has been seven years since Cisco DeVries came up with what Scientific American would later call one of the top 20 “world-changing” ideas of the year. He was the Mayor of Berkeley’s Chief of staff. They were thinking about ways to hasten the adoption of solar technology. DeVries realized the breakthrough they needed was financial rather than technological. The $20,000 or $30,000 people needed to install a solar system was a hefty bill. He was looking for a way the city could help when a northern Berkeley neighbourhood asked to have their utility lines put underground. This improvement was to be financed through their property taxes. DeVries realized this was the vehicle that could finance the adoption of solar and other energy improvements. The Property Assessed Clean Energy (P.A.C.E.) program was born. There are many questions remaining about the events ahead. One of them is how did California First help bring PACE home?

Cisco DeVries, Father of P.A.C.E. and CEO of Renewable Funding (Click on image to expand)

The original PACE program was a special tax assessment created to finance solar, or home improvements.

“It has to be a big permanent improvement, meaning not light bulbs or appliances or anything,” DeVries explained. “You don’t pay the upfront cost, but you do get a new assessment on your property tax.”

The average cost is around $20,000. If the house is sold, the debt is passed on to the new owner.

“These are big cheques for most people, some of the largest purchases they will make” said De Vries.

“I got some Federal and local grants to help pay for the first program and that was the beginning of what became known as PACE,” he explained. “We didn’t call it PACE then, I’ll have to give credit to my friend Jeff Tanenbaum. The concept was born there and I will be forever grateful to those people who decided to do an underground utility district. I got pulled into an issue related to it at the right moment at the right time. It’s like inventing the peanut butter and jam sandwich. I didn’t invent peanut butter or jam, I’m just the guy who put it together and said it was yummy.”

“It is a reminder that you can make big changes quickly, if you align people’s interests and get the pieces correct,‘ DeVries said. “States all over the country passed PACE laws: Texas, Oklahoma, California, Minnesota, purple states, red states, blue states … It was a very bipartisan, community-driven process.”

PACE had spread to around 20 states before Fannie Mae and Freddie Mac intervened in 2010. It was the middle of the housing bust. The US economy was in trouble. Fannie and Freddie were insolvent and being taken over by the government.

“So you have a situation in which there is a lot of fear and a lot of concern and a lot of unknowns. Right in the middle of that, another idea shows up that looks a lot like what cities and counties have done for a hundred years. I think they were concerned that this put in some additional risk to the system at a time when the system was very badly stressed,” said DeVries.

Interview with homeowner at the launch of California First (Click on image to expand) – Image Courtesy Renewable Funding

“Fannie Mae and Freddie Mac’s concern was that there was risk to the mortgage system, he added. “The reality is that there isn’t risk. The risk has been mitigated by the excellent way the programs are run, by the success, and by the fact homeowners are getting real improvements to their property that save them money.”

As DeVries points out, PACE is a property tax assessment and, like tens of thousands of other property assessments throughout the US, takes priority over private debts.

Fannie and Freddie “felt threatened by PACE’s rapid rise“ and issued a statement urging local governments to put their PACE programs on hold.

Though most new residential PACE programs came to an abrupt halt, houses with existing assessments continued to pay them off. Residential PACE programs started up or continued in Sonoma and Riverside counties.

Renewable Funding, which DeVries CO-founded in 2008, continued to offer a commercial PACE program throughout California. (It also offers consumer loans throughout the U.S. and is presently setting up an on-bill financing program in Hawaii.)

“PACE continued to operate and continued to function on a smaller scale. It never lost momentum with key leaders in states and the federal government,” said DeVries. “We believed that when calmer times emerged, PACE would be able to come back. So when the moment arrived, we were ready.”

A number of factors paved the way. California’s housing market recovered. PACE programs proved they could be done responsibly. Lastly Governor Brown set up a $10 million fund to cover potential losses to mortgage holders (like Fannie Mae and Freddie Mac).
Renewable Funding was involved in this process and sponsored bills AB 1883 and AB 2597, which paved the way for PACE’s rebirth in California.

“We have been working with the authors of those bills from the beginning. We came in and explained the need. We helped gather the cities and counties that would benefit from this.”

Interview at the launch of California First (Click on image to expand) – Courtesy Renewable Funding

Last August, Renewable Funding launched a residential PACE program called California First in 17 counties and 142 cities across California.

“We’ve had a bunch join since we launched a couple of months ago,” DeVries said. “We have had hundreds and hundreds of applications that have come in and been approved. Millions of dollars of projects. We are completing the process to allow almost all the rest of the cities and counties to join California First by the end of the year. In some cases cities and counties will set up similar programs that we can help finance. We are in half the state today and by early next year should be in 90% of it.”

There are more than 30 states out there with commercial PACE programs and many are looking at how to do residential.

“The next state to do residential PACE is likely to be Florida, but I think everyone is watching closely to see what happens in California,” said DeVries. “It will take time and I think it natural that states are going to be conservative.”

California is still the only state that has an insurance reserve.

“It has been gratifying to finally operate PACE at the scale for which it was intended,” said DeVries.

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