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Long Island Town Fights To Keep Energy Efficiency Program

Don't Redline My Green Job
"Don't Redline My Green Job" reads one of the signs displayed on the steps of Babylon's town hall this week as officials and workers decried interference in the town's energy efficiency program.
A green job-creating project profiled in OnEarth’s spring issue is threatened by the nation’s largest home mortgage agency.

Officials in a New York town say they're prepared to sue the Federal Housing Finance Agency (FHFA) in order to keep a program going that helps residents make their homes more energy efficient -- an effort that's been backed by the Obama administration as a way to cut energy use, reduce global warming pollution, and create green jobs.

The local project is part of a $150 million federal stimulus initiative thrown into limbo by the agency that guarantees most of the nation's home mortgages. In early July, FHFA told mortgage lenders that it might no longer guarantee loans for homes in municipalities that take advantage of the special financing for energy efficiency.

Places including Boulder, Colorado, and Berkeley, California, have already created those programs, and Los Angeles, Milwaukee, New Orleans, New York City, and San Francisco have been planning similar projects (see the Spring 2010 OnEarth story, "Home Energy Makeover"). They have all put their programs on hold because of FHFA's actions. 

But Babylon, New York, with a population of about 200,000, is the first municipality that's fighting back. "We will not shut down the Long Island Green Homes program, and we will challenge this unwarranted and, in our view, unconstitutional intrusion," Babylon Town Supervisor Steve Bellone said yesterday on the steps of Babylon's town hall.

Long Island Green Homes offers energy audits and low-interest financing to residents for home energy retrofits. Babylon covers the cost of the work, such as improving insulation, upgrading boilers, and adding solar panels. The homeowner simply agrees to pay the cost back over time in monthly installments. 

The Babylon program and similar projects around the country are known by the acronym PACE, which stands for Property Assessed Clean Energy. (It's also been called "cash for caulkers.") The PACE model topples the traditional barriers that make homeowners reluctant to undertake improvements -- namely, the high up-front costs -- and offers an enticing new way to curb greenhouse gas pollution.

By 2020, implementing such retrofits nationwide could cut greenhouse emissions by up to 160 million tons annually -- the equivalent of taking 30 million cars off the road -- while saving homeowners $21 billion in utility bills each year.

The efficiency improvement loan under PACE is tied to the property, not the person. So if the home is sold, the new owner takes over the payments while also benefiting from lower energy bills. If the home were to go into foreclosure, however, the energy-related loan would need to be paid off before any money could be put toward the mortgage.

Babylon began issuing PACE loans in 2008. Many towns and cities fund the loans through bonds and recoup them through property tax bills, but Babylon linked them to the town's reserve fund for solid waste improvement projects -- appropriate for a project designed to reduce energy waste, according to Sammy Chu, the program director. Borrowers pay off the loan in the form of a solid-waste assessment on their homes.

Homeowner Ria Muriello pays about $75 a month on her PACE loan but says her energy costs have dropped about $85 to $90 a month since the improvements. "My bills went down immediately," she says. "My house is more comfortable. The program works."

About 500 homes in Babylon have received PACE loans, Chu says. None have defaulted on a mortgage in the two years of the program, but about 1,200 tons of carbon dioxide -- the leading cause of global warming -- have been kept out of the atmosphere. In the absence of a federal policy for cutting carbon, Chu says, PACE has allowed towns and cities to take action on climate change themselves. 

In Babylon, the program has also led to the creation of dozens of local jobs. 

One local contractor says that about 90 percent of his business involves energy audits and improvements financed by Long Island Green Homes, with each of his employees making $20 to $35 an hour. "If they had to shut it down, I would literally be out of business," says Rich Manning. "I'd be laying off everyone who works for me and looking for other work."

There is evidence that homeowners who take advantage of energy efficiency improvements also have a lower risk of foreclosure. A 2009 analysis for a major financial institution (private but reported this week by Grist) found that homes built to federal Energy Star standards for energy efficiency had default and delinquency rates that were 11 percent lower than other homes. 

FHFA isn't so happy with the program, though. The agency oversees Fannie Mae and Freddie Mac, the two government-chartered agencies that buy and resell more than 50 percent of the country's home mortgages. According to the agency, it considers the PACE loans unacceptably risky because, by being attached to the property, they are effectively liens that must be paid off first -- before the mortgage -- if a home goes into foreclosure.

Chu says that Babylon has been trying to work something out with FHFA for a year, but the agency has not responded to its calls, letters, or e-mails. FHFA won't comment on Babylon's concerns, according to agency spokeswoman Corrine Russell.

Before Babylon's PACE program started in 2008, Manning, the building contractor, says he was doing about 20 energy efficiency projects a year. In the two years since, that number has grown to about 125. But he has put plans to expand from one to two crews on hold until the FHFA controversy is resolved.

"These are skilled workers, they have a future in this business -- they would have a future in this business," he says. "Now they're a little scared, rightfully so."

UPDATE: California's attorney general has filed a lawsuit to keep PACE. Follow the story here.

image of ejgertz

If local lenders hold on to their mortgages, wouldn't it be possible to just cut the the federal government out of the equation? Responsible jurisdictions could form their own coop banks or unions to hold these mortgages close to the collateral. Then if someone gets in trouble, the entity might have wanna-be homeowners in line to get good property.

Yes- We support you in fighting everyone you need to in order to keep PACE on the ground. We need economic insentives of this size to propel solar and other renewable energies to the scale they are needed at. Keep up the good work!
-California Solar Engineering