California seeks to lift federal block on energy-saver program


California is suing the federal government to stop it from derailing a program that allows homeowners to finance solar panels and other energy-saving improvements through their property tax bills.

Atty. Gen. Jerry Brown on Wednesday filed suit in federal court in Oakland against Fannie Mae, Freddie Mac and their regulatory agency, the Federal Housing Finance Agency, which have effectively shut down the financing vehicle in California.

The Property Assessed Clean Energy program, known as PACE, was pioneered in Berkeley. The program makes it affordable for homeowners to invest in energy efficiency by allowing them to pay in installments over a decade or more. Local governments raise money through bonds, then lend it to homeowners who use it to purchase equipment such as solar panels, which can cost tens of thousands of dollars. The homeowners then repay the funds through special assessments added to their property bills. The assessment are senior liens, which take precedence over an existing mortgage in the case of a foreclosure.


PACE has been hailed by clean-energy advocates and community leaders as a way to speed the adoption of solar and other technologies to help fight global warming. Homeowners have lauded it for making solar energy systems affordable and helping them slash their energy bills. The Obama administration has devoted more than $150 million in stimulus money to the effort nationwide.

But on July 6, the Federal Housing Finance Agency said that PACE loans presented “unusual and difficult risk management challenges” for lenders, servicers and mortgage securities investors in a “fragile housing finance market.”

The decision effectively suspended many PACE efforts across the country. That’s because Fannie Mae and Freddie Mac either own or guarantee about half of all U.S. mortgages.

Calling the move a “regulatory strangulation of the state’s grass-roots program,” Brown alleged in the suit that the federal government had mischaracterized PACE funds as “loans” instead of “assessments” and improperly portrayed the program as violating Fannie Mae and Freddie Mac’s standard lending procedures.

The stakes are high, said Brown, who is the Democratic gubernatorial nominee for the fall election.

California could stand to lose more than $100 million in federal stimulus money, he said. He said San Diego’s idle PACE program, for example, has left more than 100 newly trained workers without jobs while clean-energy companies around the state are facing layoffs.


Michael R. Peevy, president of the California Public Utilities Commission, and Commissioner Dian M. Grueneich sent letters to top Obama administration officials, including Treasury Secretary Timothy F. Geithner, lamenting that more than $450 million in retrofit projects were in limbo in more than 200 communities across the state.

Thousands of local construction jobs and other positions are now at risk, as are other state energy efficiency and low-income programs that had been molded to work with PACE, the officials said.