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Mitigating the energy efficiency gap through Property Assessed Clean Energy (PACE): an assessment of the HERO Program in Riverside County, CA
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Mitigating the energy efficiency gap through Property Assessed Clean Energy (PACE): an assessment of the HERO Program in Riverside County, CA
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Content
UNIVERSITY OF SOUTHERN CALIFORNIA
Los Angeles, California
MITIGATING THE ENERGY EFFICIENCY GAP
THROUGH PROPERTY ASSESSED CLEAN ENERGY (PACE):
AN ASSESSMENT OF THE HERO PROGRAM IN RIVERSIDE COUNTY, CA
Dissertation Submitted in Fulfillment of the
Requirements for the Degree
Doctor of Policy, Planning and Development
Grace I. Williams
Sol Price School of Public Policy
August 2016
ii
EXECUTIVE SUMMARY
The adoption of the 1974 Energy Law by the State of California was a milestone action
that set it apart as a global leader on public policies pertaining to energy and the environment.
Its 2006 Global Warming Act (Act) resulted in the State’s groundbreaking green building code,
and stringent energy efficient appliance standards. The Act created a two edged sword for the
State that not only raised efficiencies within new homes, but also resulted in the highest energy
costs in the nation. Moreover, the groundbreaking rulemaking by the State in the field of energy
efficiency, while progressive, created a type of socio-economic deprivation among homeowners
that resided in buildings constructed prior to the mid-2000s because in the midst of rising energy
prices, the prohibitive costs of energy efficient equipment forced them into a phenomenon
known as the energy efficiency gap. The energy efficiency gap is an impediment where the
affordability of green technologies is reduced, while the gap in potential energy savings by
homeowners is increased. When not addressed effectively, the energy efficiency gap
phenomenon can stifle policymakers’ ability to promote economic and energy sustainability
within their communities.
How do we effectively mitigate the aforementioned gap? Over the past four decades,
State and local governments traditionally relied on building codes and equipment regulations to
promote energy efficiency, while implementing financial incentives for low to moderate income
households through government and public-utility sponsored programs. Since 2006,
municipalities turned to the use of Property Assessed Clean Energy (PACE) programs to benefit
the general household population. The programs were largely successful until the Federal
Housing Finance Agency (FHFA) put a stop to them in 2010 with a federally issued directive
against them due to their first-lien nature. Residential PACE programs were traditionally funded
iii
“by public offerings of both taxable and tax exempt bonds”
1
; as such, when FHFA directed the
two largest mortgage financing entities in the nation (Fannie Mae and Freddie Mac) to avoid
refinancing PACE encumbered homes during a housing market downturn, the directive
paralyzed all public funding mechanisms that supported the prior success of PACE programs.
However, in 2011 the Western Riverside Council of Governments (WRCOG) released the first
privately funded PACE program in the nation through a partnership with Renovate America Inc.
that grew to be the most successful PACE instrument to date. Since its inception, WRCOG’s
Home Energy Retrofit Opportunity (HERO) program expanded to include more than three
hundred communities throughout California. Because of its unique success to date, this doctoral
dissertation explores HERO’s ability to mitigate the energy efficiency gap using a comparative
property values analysis, and an economic impact assessment involving approximately two
thousand HERO encumbered properties within Riverside County. The following questions
guided this study:
Question 1: What makes the HERO program unique as compared to other PACE programs?
Question 2: As PACE loans are repaid through an owner’s property tax assessments, what
impact, if any, does HERO have on property value?
Question 3: As HERO expanded during an economically challenging time for municipalities
outside of WRCOG’s jurisdiction, what economic impact, if any, does HERO
have on participating municipalities?
The first research question is explored in Chapter III using a review of prior empirical
studies and literature on PACE. Chapter IV explores the second research question through a
comparable property value analysis using the following predictive modeling programs -
1
National Renewable Energy Laboratory. (2011, July). Economic impacts from the Boulder County,
Colorado, ClimateSmart Loan Program: Using PACE Financing. (Technical ReportNREL/TP-7A20-
52231). Retrieved from http://www.nrel.gov/docs/fy11osti/52231.pdf.
iv
Collateral DNA and Multiple Listing Service (MLS). Chapter V answers the third question
through a quantitative assessment of certain economic factors (locally and regionally) utilizing
the Southern California Planning Model (SCPM) and IMPLAN input-output model. The sample
population used in this study consisted of approximately one hundred HERO encumbered homes
for the predictive modeling exercise, and approximately two thousand HERO encumbered homes
in the economic impact assessment. This report focuses primarily on data derived from the
western Riverside County region from December of 2011 through March of 2014.
Study results indicate that during the study period, HERO successfully mitigated the
energy efficiency gap within participating communities. Moreover, results suggest that HERO
performed better than PACE programs formed prior to 2010. The comparable property value
analysis found that program participants generally increased their property taxes by 62 percent
while improving property values by 63 percent. Furthermore, the economic impact assessment
concluded that within the first 14 months of the program spending within western Riverside
County created a total of 259 jobs and approximately $53 million in earnings throughout the
Southern California Association of Governments (SCAG) region covering five counties. Within
Riverside County alone, HERO spending supported 60 jobs and $12 million in earnings while
more than $20 million in regional (SCAG) leakages occurred during the study period.
As of 2012, new residential PACE programs have appeared on the market with similar
partnership models to that of HERO. While outcomes of this dissertation illustrated that PACE
encumbered homes experienced increases in property values, and PACE resulted in positive
economic impacts for participating communities, there are still many unknowns on the
downsides of such programs. For example, there are a few communities today that offer more
than one residential PACE program within their jurisdiction, and information on potential
v
challenges with multiple PACE program offerings are not yet available. The benefits of PACE
are well documented; however, municipalities and homeowners considering PACE must also be
diligent in educating themselves on any potential risks, or any unknown costs, associated with
participating with any given PACE program as many of these programs are still within their
infancy stages.
In 2013, California Governor Jerry Brown established the PACE Loss Reserve Program
under the California Alternative Energy and Advanced Transportation Financing Authority
(CAEATFA) to address the FHFA’s concern regarding the first-lien nature of PACE. The
CAEATFA is a public entity under the State Treasurer’s office that is responsible for developing
and administering a PACE risk mitigation program for lenders. The reserve fund set aside $50
million to support up to 10% of a PACE loan. It is unknown at this time if California’s
mitigation plan for PACE would be accepted by the FHFA; however, a very recent Federal
Housing Administration (FHA) initiative provided support for the subordination of PACE loans.
The FHA expressed support for PACE programs throughout the United States by issuing
guidance to PACE lending institutions that support the subordination of PACE loans to primary
mortgage loans. Although the FHFA has not yet provided similar guidance for lenders, the
private partner within the HERO program (Renovate America) released statements identifying its
support of the FHA’s PACE guidance. Renovate America is working with State and local
policymakers to develop policies that would modify the first-lien standing of HERO loans, and
gain support from the FHFA.
Future research should consider policymaking that helps foster and improve upon
regional collaborative efforts for the benefit of policy implementation in energy efficiency.
Regarding the movement toward sustainability, it is recommended that future research look at
vi
the costs and benefits of a transformational public private partnership inspired policy on
communities outside of Riverside County as it relates to the HERO program. Such efforts can be
between cities, counties and regional agencies such as councils of governments or associations of
governments. Moreover, as PACE is a fairly young program, and policies do not yet prohibit the
existence of multiple PACE programs within community limits, future studies should consider
the potential challenges that may occur for homeowners that consider participating in two
separate PACE programs on a single property.
vii
TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY .......................................................................................ii
LIST OF FIGURES ...................................................................................................x
LIST OF TABLES .....................................................................................................xi
ACKNOWLEDGEMENTS .......................................................................................xii
DEDICATION ...........................................................................................................xiii
Chapter
I. INTRODUCTION
Introduction ....................................................................................................1
PACE: What is It? .........................................................................................3
PACE Programs Before HERO .....................................................................6
Home Energy Retrofit Opportunity (HERO) .................................................10
Research Questions ........................................................................................11
The Importance of this Study .........................................................................12
Delimitations ..................................................................................................13
Summary ........................................................................................................13
II. POLICY FRAMEWORK
Introduction ....................................................................................................15
Federal Energy Star Program .............................................................16
California Energy Act ........................................................................18
Assembly Bill 32: Global Warming Act ............................................22
California Green Building Code ........................................................24
Energy Efficiency Gap ...................................................................................26
viii
Mitigating the Energy Gap through Government Sponsored Programs ........30
Federal Weatherization Assistance Program .....................................31
California State Energy Savings Assistance Programs ......................33
The Need for PACE ...........................................................................34
Assembly Bill 811: Contractual Assessments for Energy Efficiency ...........35
Senate Bill 555: Mello-Roos Act for Renewable Energy
and Water Efficiency .....................................................................................37
Summary ........................................................................................................39
III. HERO COMPARED TO OTHER PACE PROGRAMS
Introduction ....................................................................................................41
Program Summary .........................................................................................42
FHFA Moratorium ........................................................................................44
PACE Financing Options Prior to FHFA Moratorium ..................................45
PACE Programs after the FHFA Moratorium ...............................................48
Sonoma County Energy Independence Program (SCEIP) .................49
CaliforniaFIRST ................................................................................50
HERO Partnership .........................................................................................52
WRCOG .............................................................................................53
Renovate America, Inc.......................................................................56
HERO Approval Process ...............................................................................57
PACE Programs Comparison ........................................................................60
Summary ........................................................................................................63
IV. HERO IMPACT ON PROPERTY VALUES
Introduction ....................................................................................................65
Population and Sampling Procedures ............................................................66
Methodology ..................................................................................................66
Data Analysis .................................................................................................68
ix
Summary ........................................................................................................68
V. HERO ECONOMIC IMPACT ASSESSMENT
Introduction ....................................................................................................70
Population and Sampling Procedures ............................................................71
Methodology ..................................................................................................72
Data Analysis .................................................................................................73
Summary ........................................................................................................77
VI. PACE PROGRAM CHALLENGES
Introduction ....................................................................................................79
FHFA Ruling on PACE Programs within the United States .........................79
Potential Challenges in PACE Implementation .............................................82
Development and Administrative Costs ............................................83
Program Information Full Disclosures ...............................................83
Multiple PACE Programs ..................................................................84
PACE and Property Liens ..............................................................................85
PACE Loss Reserve Programs.......................................................................86
Summary ........................................................................................................87
VII. SUMMARY
Introduction ....................................................................................................89
RESOURCES ............................................................................................................93
APPENDICES
APPENDIX A. ...........California HERO Program Resolution ......................102
APPENDIX B. ...........Economic Impact Analysis for the
....................................Home Energy Retrofit Opportunity Program
....................................of Renovate America, Inc. ........................................109
x
LIST OF FIGURES
Figures ............................................................................................. Page
1. Contiguous U.S. Temperatures, January - December ............................................. 2
2. AB 811 Contents ..................................................................................................... 4
3. 1970s Energy Crisis ................................................................................................ 16
4. Energy Consumption and Life Expectancy of Home Components ........................ 17
5. Sacramento Bee Article on Energy Conservation .................................................. 19
6. California per Capita Electricity Consumption vs. Rest of the Nation ................... 22
7. Total U.S. Greenhouse Gas Emissions by Economic Sector .................................. 23
8. Housing Age Distribution for Riverside-San Bernardino-Ontario ......................... 27
9. Mello-Roos Model .................................................................................................. 38
10. Mello-Roos CFD Pursuant to SB 555 ..................................................................... 39
11. Properties and contractors in the HERO Program .................................................. 72
12. SCPM Data Flows and Calculations ....................................................................... 73
13. Dollar Value of Total Impact by TAZ .................................................................... 77
xi
LIST OF TABLES
Tables .............................................................................................. Page
1. Comparison of Four PACE Programs in Effect in 2010.......................................... 7
2. Strengths and Challenges to Legislating and Regulating
Energy Efficiency at Each Jurisdictional Level ................................................ 30
3. Federal Programs that Help Mitigate Energy Gap s ................................................. 32
4. State Programs that Help Mitigate Energy Gaps ..................................................... 34
5. HERO (WRCOG/California) Program Components and Limitations..................... 42
6. Comparison of Four PACE Programs in Effect in 2010.......................................... 47
7. HERO and Other PACE Programs Comparison ...................................................... 61
8. Summary of the Labor Costs and Material Costs for Product Installation ............... 74
9. Economic Impact of H.E.R.O Program in the Five County SCAG Region ............. 76
xii
ACKNOWLEDGMENTS
Thanks to my family and friends that prayed for and with me through this incredible
journey, and took the time and energy to support me and my kids through my studies. To my
mentor and friend, Leonard Mitchell, thank you for being a true inspiration and for being such an
integral part of my personal growth. To the amazing Dr. Danielle Wheeler, I am incredibly
blessed to have you as my Boss and guide in my professional growth. And to the incredible
March JPA Staff, there are no words to describe the amount of joy that I feel knowing and
working with all of you. Thank you all for your continued support! Last but certainly not least,
to Dean Jack Knott, Dr. Deborah Natoli, and the faculty and staff of USC’s Sol Price School of
Public Policy, thank you for your progressive vision in the field and practice of public policy and
planning. Thank you also for all the opportunities that you provide working professionals, like
me, through the DPPD Program. God bless you all with continued success.
Semper superne nitens.
xiii
DEDICATION
To the joys of my life, Donny and Gabbie Williams.
I hope that I have been a good role model for you both.
Strive for excellence in everything that you do my little angels! Alofa tele atu mo oulua.
1
CHAPTER I
INTRODUCTION
Introduction
Within the past decade, local officials have expressed concerns regarding the direct
impact of population growth on energy demand and the environment. Although California
offered the most efficient energy programs in the nation, its electric rates are higher than the
national average.
2
Riverside County leaders were increasingly interested in ways to mitigate
rising energy demand and costs within a region where residents experience 6
o
F to 20
o
F warmer
summer temperatures (on average) compared to neighboring Los Angeles, Orange, and San
Diego County areas.
3
Extreme weather changes and increasing energy prices influenced by
emerging energy policies are significant challenges facing residents in the region. However,
these universal challenges are faced by all communities throughout the United States where
temperatures rose an average of 0.4
o
F in the past decade according to the National Climatic Data
Center (see Figure 1). As a result of severe weather changes, heating and cooling equipment in
homes accounted for 65% of the average resident’s energy bill (excluding transportation) in
2013.
4
According to the Energy Information Administration (EIA), US residents experienced a
2
NRDC. (2010, March 9). Energy efficient leadership: Smart policies provide enormous economic and
environmental benefits. (White Paper) Retrieved from
http://docs.nrdc.org/energy/files/ene_10030901a.pdf on January 15, 2014.
3
National Climactic Data Center. (2014). Climate data online. Retrieved from
http://www.ncdc.noaa.gov/cdo-web/ on January 15, 2014.
4
Energy Information Administration (2014). Residential energy consumption survey. Retrieved from
http://www.eia.gov/consumption/residential/reports/2009/state_briefs/ on January 21, 2014.
2
35% increase in their electricity costs within the past decade and are slated to see increases by an
annual average of 2.1% in future years.
5
Figure 1. Contiguous U.S. Temperature, January - December
Note: Average temperature for contiguous 48 U.S. States from 1895 through 2013. The
red-line is the 12-month average for each year. The green line is a calculation of the
trend during each decade. The blue line shows the trend over the last century of records.
The gray line is flat because it is a simple average for the entire period.
6
5
Energy Information Administration. (2014). Average price of electricity to ultimate customers.
Retrieved from http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=empt_5_3 on January
21, 2014.
6
NOAA’s National Climactic Data Center. (2013). How much has the global temperature risen since
1880. Retrieved from https://www2.ucar.edu/climate/faq/how-much-has-global-temperature-risen-last-
100-years on March 1, 2014.
3
With emerging policies setting more definitive and stringent energy performance goals in
technologies, there is an existing and much larger need that has not been thoroughly addressed
through federal and state incentive programs: the need for an aging housing stock to perform as
efficiently, if not close to, newer and more energy-efficient homes. Over the years the State of
California has used its Energy Codes, Building Codes and Climate Change policies to address
traditional information barriers by standardizing efficient home appliances sold in stores.
However, recent studies by the American Council for an Energy-Efficient Economy (ACEEE),
and federal agencies such as the Environmental Protection Agency (EPA), identified a lack of
funding as a key barrier for homeowners wishing to implement costly technologies that could
significantly improve the comfort of their homes. Because of the restrictive costs associated
with energy retrofits, public agencies, and utility companies have engaged in various programs to
help offset initial improvement costs for interested homeowners. One such program that helped
mitigate concerns for municipalities and property owners is known as the Property Assessed
Clean Energy (PACE) program; one PACE program that has overcome implementation barriers
and is the subject of this doctoral dissertation is the Home Energy Retrofit Opportunity (HERO)
program of western Riverside County.
PACE: What is It?
Since 2006, government entities have explored the PACE contractual assessment
program as a method of helping homeowners reduce their overall energy costs by incorporating
technologies within their homes that reduce their reliance on the energy grid. PACE was
originally allowed in California by way of State Assembly Bill 811 (AB 811), adopted in 2008
for municipalities that wished to offer property owners within their jurisdictions a voluntary
4
method of financing energy upgrades on their real properties, without the undue burden of up-
front project costs. PACE was generally a municipality-sponsored and managed program. A
municipality that wanted to offer PACE within their community adopted a resolution pursuant to
provisions outlined within AB 811, along with a list of approved energy equipment and
authorized contractors for installation work. With the adoption of a PACE resolution, a city or
county could then make financing available to property owners for energy-efficient equipment
that included, but was not limited to, photovoltaic systems (e.g., solar panels) for rooftops,
energy-efficient windows, thermostats, or efficient heating and cooling (HVAC) systems. The
following model (Figure 2) captures the key contents of AB 811.
Figure 2. AB 811 Contents
5
PACE financing is made possible through government-issued bonds to private investors
seeking to make energy upgrades to real properties. Investors are attracted to PACE bonds due
to the security behind the contractual assessments between property owners and their
municipalities. Section 6 of AB 811 stated that levied assessments tied to a PACE program must
be collected and payable, with any penalties, remedies, and lien priorities, to sponsor cities or
counties “in the same manner and at the same time as the general taxes of the city (or county) on
real property.”
7
As such, a PACE loan was paid back in the form of a property tax assessment,
and therefore assumed the position of first lien on a property—a policy component that later
proved to be a significant point of contention for the Federal Housing Finance Agency (FHFA),
as will be discussed later in this paper.
In 2011, Senate Bill 555 (an amendment to the Mello-Roos Community Facilities Act)
was introduced as an alternative method of developing and implementing PACE programs within
communities. The Mello-Roos Community Facilities Act of 1982 allowed a municipality or
special district to finance certain public improvements or services through the development of a
special district tax to property owners, as long as the tax was approved by two-thirds of
registered voters within an assigned district. Although community facilities’ districts historically
funded public services associated with improvements such as parks, streets, and flood control
facilities, Senate Bill 555 expanded provisions of the Mello-Roos Act to include energy-efficient
equipment affixed to properties.
8
As with AB 811, property owners within a district formed
under SB 555 applied for PACE loans through their municipality for energy improvements on
their real properties, and selected a contractor from the city’s list of approved contractors. In
7
State of California. (2008). Assembly Bill No. 811: Chapter 159. Amendment to Section 5898.30 of the
Streets and Highways Codes.
8
State of California. (2011). Senate Bill 555. Mello-Roos act for renewable energy and water efficiency.
Retrieved from ftp://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0551-
0600/sb_555_cfa_20110428_151356_sen_comm.html
6
many cases, approved PACE contractors advertised and solicited businesses from property
owners on their own. The property owner that qualified for a PACE loan would enter into two
agreements: one with the contractor for approved improvements, and a separate contractual
agreement with their municipality for their loan repayment plan. Because PACE loans required
no money down and were paid back through property taxes over a period of time, usually over
the life of the improvements, they were considered an affordable and attractive means of
financing expensive energy upgrades for property owners.
PACE Programs Before HERO
By 2010, PACE was a nationally recognized program. More than twenty states, including
the District of Columbia, had legislation in place to support the development of PACE programs
within their communities while more than ten programs (commercial and residential) were in
effect throughout the United States.
9
The following themes were true of PACE financing
programs in 2010: (a) programs were financed through public bond offerings (taxing
mechanisms combined with private investment) and were typically financed by municipalities
strictly for property owners within the limits of their jurisdictional boundaries; and (b) products
offered for financing were limited.
10
Table 1 highlights four of the largest residential PACE
programs in effect in 2010 before the HERO program was formed. All of the programs in Table
1 were established and supported through the use of public funds. For example, the Berkeley
First program was initially funded through micro-bonds involving third-party private investors,
9
National Renewable Energy Laboratory. (2011, July). Economic impacts from the Boulder County,
Colorado, ClimateSmart Loan Program: Using PACE Financing. (Technical ReportNREL/TP-7A20-
52231). Retrieved from http://www.nrel.gov/docs/fy11osti/52231.pdf.
10
National Renewable Energy Laboratory. (2009, December). Energy efficiency policy in the united
states: overview of trends at different levels of government. (Technical Report NREL/TP-6A2-46532).
Retrieved from http://www.nrel.gov/docs/fy10osti/46532.pdf.
7
while Boulder Colorado’s ClimateSmart Loan program was supported by public bond offerings.
Babylon’s Long Island Green Homes program was funded through the municipality’s waste
revolving fund, while Sonoma County’s Energy Independence Program was supported through
its Treasury and Water Authority’s reserve funds with the potential of selling future bonds to
private investors.
Table 1. Comparison of Four PACE Programs in Effect in 2010
Berkeley, CA
BerkeleyFirst
(2008)
ci.berkeley.ca.us/
contentdis
play.aspx?id=265
80
Boulder County, CO
ClimateSmart Loan
(2009)
climatesmartloanpro
gram.com
Babylon, NY
Long Island Green
Homes
ligreenhomes.com
Sonoma County, CA
Energy Independence
sonomacountyenergy.org
Funding
Mechanism
Micro-bonds
involving 3rd-party
investor.
Public tax and tax-
exempt bond offerings.
Bonding capacity
dedicated by the cities of
Boulder and Longmont,
plus Boulder County;
relatively low interest
rates depend on bond
market.
Initially Municipal
Waste Revolving Fund
for reducing CO2 ($2
million); private funding
thereafter;
Very low (3%) interest
rates initially.
County unallocated reserve
funds from Treasury and Water
Authority maximizes flexibility;
future bonds may be sold to
institutional investors
7% interest rate reported.
Unique
Attributes
Basic efficiency
measures
prerequisite.
Bonds secured by lien
plus a moral obligation
from local government.
Does not affect local
government balance
sheet. Special rates to
low-income applicants.
Had to relate energy
waste to solid waste
guidelines.
Aiming for 10% energy savings
per home
In litigation with FHMA to
support PACE; Funding has
little outside risk.
Source: 2011, NREL
In addition to their reliance on public funding, the aforementioned PACE programs triggered a
tremendous amount of attention from the public after studies illustrated the programs’ beneficial
impacts on energy savings.
8
In 2012, Aubrey Kirkpatrick of Duke University conducted the first empirical analysis in
California on the use of PACE to close what is known as an “energy efficiency gap” within
select communities. The energy efficiency gap, which is a key component of this paper and later
described in Chapter II, is a phenomenon that occurred when emerging energy policies resulted
in high performing technologies that were not utilized in aging homes due to:
a) an information gap that resulted from homeowners’ lack of knowledge on available
green technologies; and/or
b) substantial technology costs that were beyond consumers’ means.
Kirkpatrick explored the effectiveness of PACE in closing the energy efficiency gap, by
utilizing a difference-in-differences and synthetic counterfactual models to examine the rate of
installation on residential photovoltaic systems (RPV) within PACE-sponsored communities, as
compared to non-PACE-sponsored communities. Kirkpatrick considered three of California’s
longest-standing residential PACE programs before 2010 (Sonoma County’s Energy
Independence Program, Yucaipa’s Energy Improvement Program, and Palm Desert’s Energy
Improvement Program) and found that they addressed “three elements of the energy efficiency
gap: high up-front costs...lack of transferability due to illiquidity of investment, and high
information transaction costs.”
11
Kirkpatrick further confirmed that all three residential PACE
programs in his study contributed to a substantial increase in the number of energy efficient
retrofits in sponsored communities, as compared to non-PACE-sponsored communities.
Kirkpatrick’s study illustrated the effective role that PACE played in minimizing the gap
between emerging energy policies and an aging housing stock.
11
Kirkpatrick, A. (2012, April 26). Closing the “Energy Efficiency Gap”: an empirical analysis of
property assessed clean energy. (Masters Thesis). Duke University. Durham, NC. Retrieved from
http://hdl.handle.net/10161/5272.
9
In 2010, the U.S. Department of Energy (DOE) released $452 million of grant funding
through a competitive process to support the implementation of PACE within twenty-five
states.
12
The DOE’s funding was made possible through the American Recovery and
Reinvestment Act, which awarded the Agency $16.8 billion for programs and initiatives to
support the research and development of energy-efficient technologies, grants, credits, and
rebates. The State of California was a recipient of $33 million of DOE funding for the
implementation of PACE throughout the State. However, with as much attention and support as
the program gained in 2010, the momentum was significantly impacted when the Federal
National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac), government-sponsored enterprises (GSEs) in the housing finance market, both
issued a letter to the home mortgage industry against the first lien nature of PACE programs.
The action was soon thereafter followed by the FHFA’s issuance of a “Statement of Certain
Energy Retrofit Loan Programs,” which prohibited the GSEs from refinancing properties
encumbered with PACE assessments.
The FHFA’s action was so impactful to the PACE movement that, by the end of 2010,
the DOE suspended its PACE efforts, thereby affecting subsequent efforts by benefitting
communities. Although Kirkpatrick’s study did not address how the programs that he studied
fared against the FHFA directive in 2010, municipal websites showed that only one of the
studied programs remained in effect after the 2010 FHFA directive—namely, Sonoma County’s
Energy Independence Program. However, Sonoma County’s Program was severely minimized
12
US Dept of Energy. (2010, April 28). DOE awards $452 million in recovery act funds for building
retrofits. [News Release]. EERE Network News. Retrieved from
http://apps1.eere.energy.gov/news/archive.cfm/pubDate=%7Bd%20'2010-04-28'%7D?printfull on
February 12, 2014.
10
since 2010 and as of 2015, the County is seeking alternative opportunities to diversify its funding
to support their PACE program.
Home Energy Retrofit Opportunity (HERO)
The story of HERO began in 2010 in Riverside County, with a collaboration between a
quasi-public entity called the Western Riverside County Council of Governments (WRCOG) and
a private entity called Renovate America, Inc. Riverside County encompasses more than 7,200
square miles of land area and includes twenty-eight cities and more than sixty special districts
according to the Local Agency Formation Commission. The Department of Finance identified
Riverside County as the fourth largest California county in 2010 after Los Angeles, San Diego,
and Orange counties. However, by 2060, Riverside County’s share of the State’s overall
population is expected to increase significantly and, according to the California Department of
Finance, the county would experience the highest population growth rate of any county in
Southern California.
13
In contrast to the growing population within the region, the Riverside
County General Plan revealed that “about 43 percent of all units” within unincorporated areas
were built after 1980.
14
As such, about 10% of the housing stock in the region “is in need of
rehabilitation or replacement” (p. H-92). This estimate covered 94,410 units in the county that
have a median age of 35 years, according to a 2003 Housing Report by the U.S. Census.
15
Because of the facts associated with an aging housing stock in the region, compounded by
the needs of a growing population, Western Riverside County public officials worked
13
California Department of Finance. (2013). Report P-1 (County): State and County Total Population
Projectsions, 2010-2060 (5-year increments). Retrieved from
http://www.dof.ca.gov/research/demographic/reports/projections/P-1/ on July 1, 2014.
14
County of Riverside. (2003). General Plan–Final. General Plan Amendment No. 960. Chapter 8
Housing Element. p. H-92.
15
U.S. Census. (2003, July). American Housing Survey for the Riverside–San Bernardino–Ontario
Metropolitan Area: 2002. Retrieved from https://www.census.gov/prod/2003pubs/h170-02-37.pdf.
11
collaboratively under the umbrella of the WRCOG to formulate progressive policies that
produced solutions for their communities on a regional scale. When government agencies in
other parts of the country relied on their general funds or public bonding instruments to
formulate the economic basis of their PACE programs, WRCOG partnered with Renovate
America to explore an alternative approach for financing that would not involve public funds. In
2011, in the midst of a public funding crisis for government-sponsored PACE programs,
WRCOG and Renovate America released the HERO program within eighteen Riverside County
communities. Since then, the program has grown to include more than three hundred
communities throughout Riverside County, with additional regions throughout the State adopting
HERO resolutions by the end of 2015.
Research Questions
This dissertation was to explore specific PACE program effects on mitigating the energy
efficiency information and financing gap. As there was a time limitation factor associated with
this project, the research questions focused primarily on the fastest growing PACE program, to
date, in the United States - the HERO program. Part of the study was to disclose potential
energy savings as a result of the program; however, during the data collection process the
researcher was informed that energy data for HERO participating homes would not be available
for this project. HERO partners were not comfortable with the researcher engaging property
owners on their personal energy use. Moreover, due to privacy noticing requirements within the
public utilities’ policies (Southern California Edison and So Cal Gas Company) the researcher
was unable to pull specific consumer information through the utility companies. Based on the
aforementioned barriers, the following questions were developed to utilize other methods of
12
research that could help explore HERO Program’s ability to mitigate the two biggest challenges
in the energy efficiency gap: a) information on emerging green technologies; and b) financing.
Question 1: What makes the HERO program unique as compared to other PACE programs?
Question 2: As PACE loans are repaid through an owner’s property tax assessments, what
impact, if any, does HERO have on property value?
Question 3: As HERO expanded during an economically challenging time for municipalities
outside of WRCOG’s jurisdiction, what economic impact, if any, did HERO have
on participating municipalities?
The Importance of this Study
The story of HERO is an important one to explore because of its measured success during
a global economic crisis. Despite significant opposition by the most influential federal agency in
the housing industry the program, under the leadership of WRCOG, inspired the return of PACE
into the housing market. The assessments provided herein are to contribute to empirical data on
the effectiveness of PACE, as a tool that could mitigate the information and financing challenges
described within energy efficiency gap literature. Chapter I provides an overview of this study
and a general introduction to PACE programs, as well as the three questions guiding the
discussions throughout this paper. Chapter II provides the policy framework behind PACE, and
reviews the federal and State regulations that contributed to the energy gap phenomenon in
California. Chapter III explores the first research question for this paper by providing a
comparison between HERO and PACE programs that were in place prior to a 2010 FHFA
directive, as well as those that were developed after the directive.
Chapters IV and V explore the impact of HERO on the energy efficiency gap, by
evaluating the effectiveness of the program in disseminating information to homeowners on
available green technologies in the market, as well as financing opportunities through the
13
funding of such technologies within homes through PACE. Chapter IV answers the second
research question by evaluating the impact of the HERO program on property values, using
information from one-hundred HERO encumbered properties within 15 communities in western
Riverside County. Chapter V answers the third research question by evaluating the economic
impact of HERO, through an assessment of approximately two thousand HERO encumbered
homes within western Riverside County. Chapter VI provides a snapshot of PACE program
challenges, while Chapter VII provides a summary of research findings.
Delimitations
This study included only those properties within Western Riverside County that
participated within the first fourteen months of the HERO Program, December 2011 through
March 2013, providing the basis for the program’s popularity throughout Southern California.
Data collected for this study involved approximately two thousand single family detached homes
within eighteen communities in Riverside County. While energy data was not made available
for this project, the researcher instead utilized secondary data provided by Renovate America to
assess the program’s influence on two popular factors in the energy efficiency gap phenomenon -
information and funding. Although the program also included provisions for commercial
properties, this study did not explore impacts to the industrial or commercial industries.
Summary
Whereas residential PACE programs, traditionally funded “by public offerings of both
taxable and tax-exempt bonds,”
16
were either stalled or suspended through 2013 due to FHFA
16
National Renewable Energy Laboratory. (2011, July). Economic impacts from the Boulder County,
Colorado, ClimateSmart Loan Program: Using PACE Financing. (Technical ReportNREL/TP-7A20-
52231). Retrieved from http://www.nrel.gov/docs/fy11osti/52231.pdf.
14
efforts, HERO advanced with strong support from Riverside County policymakers. As
previously mentioned, since 2006, municipalities have utilized PACE as a tool to address
funding barriers for homeowners wishing to implement efficient technologies within their
homes, so they can effectively address rising energy costs resulting from emerging energy
policies. However, a 2010 FHFA directive against PACE programs disrupted federal and State
funding efforts to expand PACE within local communities. Since the FHFA’s directive,
policymakers and leaders within western Riverside County established the HERO program
through a public–private partnership between WRCOG and Renovate America, Inc. Since its
inception, HERO has expanded from eighteen communities within Riverside County in 2011, to
include more than three hundred twenty communities throughout California in 2015. Evolving
energy policies have significant implications for growing regions. As HERO was born out of a
public–private collaboration and partnership between WRCOG of Riverside County and
Renovate America, the questions guiding this study were answered using data and themes based
in Riverside County.
15
CHAPTER II
POLICY FRAMEWORK
Introduction
The story of HERO begins with an understanding of the history behind emerging energy
policies at the federal and state levels that contributed to the need for PACE programs like
HERO. The core of the following discussions focuses on the essential fact that emerging energy
policies were developed and implemented to address the nation’s fundamental need to reduce its
reliance on foreign non-renewable resources. Emerging energy policies improved consumers’
reliance on domestic and renewable energy resources. The development of energy efficiency
policies began in the 1970s, when the United States’ involvement in international conflicts in the
Middle East resulted in an embargo and a limitation of oil supplies into the United States by oil-
producing nations.
In response to a national energy crisis, the federal government adopted the Energy
Administration Act (1974) and later the Energy Policy and Conservation Act (1975). The laws
developed energy efficiency standards for vehicles as well as commercial and residential
appliances. In terms of building energy performance, these Acts established federal standards
that focused on the energy performance of building equipment and appliances. Federal energy
regulations ensured a standardized rating system that was applicable on a national scale in order
to meet federal obligations for energy use.
17
The standards were expanded in 1982 under the
Energy Emergency Preparedness Act and again in 1992 under the Energy Policy Act, which
17
United States Code. (2012, January 3). Supplement 5, Title 42 - The public health and welfare. Chapter
77 § 6201.
16
improved efficiency standards for equipment and expanded the government’s role in regulating
the energy sector.
18
Figure 3. 1970s Energy Crisis
Federal Energy Star Program
By 1992, the federal government established provisions within its energy policies and
developed the Energy Star Program. The Energy Star federal certification program established
the standards for emerging energy-efficient equipment and provided incentives for equipment
manufacturers as well as consumers that utilized such equipment in their businesses and homes.
Policy actions by the federal government were limited to the energy performance of commercial
18
The National Regulatory Institute. (1993, July). A synopsis of the energy policy act of 1992; new tasks
for state public utility commissions. (Report No. NRRI 93-7) The Ohio State University. Columbus, OH
Retrieved from http://www.ipu.msu.edu/library/pdfs/nrri/Costello-Energy-Policy-Act-93-7-June-93.pdf.
By the early 1970s, American oil
consumption–in the form of gasoline
and other products–was rising even as
domestic oil production was declining,
leading to an increasing dependence on
oil imported from abroad. Despite this,
Americans worried little about a
dwindling supply or a spike in prices,
and were encouraged in this attitude by
policymakers in Washington, who
believed that Arab oil exporters couldn’t
afford to lose the revenue from the U.S.
market. These assumptions were
demolished in 1973, when an oil
embargo imposed by members of the
Organization of Arab Petroleum
Exporting Countries (OAPEC) led to
fuel shortages and sky-high prices
throughout much of the decade. Source:
http://www.history.com/topics/energy-
crisis
17
equipment and appliances. Recent studies by the U.S. Department of Energy (DOE) identified
that consumer products and commercial and industrial equipment accounted for “90 percent of
home energy use, 60 percent of commercial building energy use, and 29 percent of industrial
energy use”; as a result of federal statutory mandates and regulations, consumers saved more
than $55 billion on utility bills in 2013.
19
The higher efficiency standards in commercial and
residential appliances under the Energy Star Program improved energy performance in buildings
and, as illustrated on Figure 4, newer standards contributed to extended usefulness in the
Figure 4. Energy Consumption and Life Expectancy of Home Components
19
US Department of Energy. (2015). About the appliance and equipment standards program. Retrieved
from http://energy.gov/eere/buildings/about-appliance-and-equipment-standards-program on September
1, 2015.
18
efficiencies of new technologies. The Energy Star program helped implement federal energy
policies, by making available to the American public more efficient technologies that would
reduce a reliance on energy generated through non-renewable resources. The State of California
expanded upon the federal government’s efforts by not only adding its own performance
standards on building equipment, but also by regulating the overall performance of buildings as
outlined in the following discussions.
California Energy Act
California responded to the energy crisis by developing its own 1974 Energy Act
(Warren-Alquist State Energy Resources Conservation and Development Act), subsequent to the
federal government’s 1974 Energy Administration Act. The State’s Energy Act laid the
foundation for the most aggressive building code and equipment energy performance standards
in the nation. The following Sacramento Bee article reflected a very strong political leaning in
the 1970s by State policymakers seeking to set energy standards that not only exceeded federal
actions on energy, but also established the State as a leader in energy rulemaking in new building
developments. California’s 1974 Energy Act implemented the foundation for the California
Energy Commission, the California Public Utilities Commission, and the California Building
Standards Commission. These Commissions became the vehicles by which the State
accomplished its energy goals. Moreover, the agencies worked in concert for the purpose of
establishing and implementing some of the nation’s most groundbreaking energy rules and
practices for new building developments.
19
Figure 5. Sacramento Bee Article on Energy Conservation
20
The following important milestones marked the State’s leadership role in progressive energy
policies.
20
Highlighted within the summary are very specific policy actions that helped set up the
foundation for the need of PACE.
1905 to 1969: A nationally recognized building code was established as the
Recommended National Building Code in 1905 by the federal government. A few years
later California enacted the State Tenement Housing Act, its first public building law.
Between 1933 and 1957, the State building law evolved to include a number of
regulations that addressed earthquakes, handicaps, hospitals, fire, and State agencies’
roles that administer and maintain certain building standards and regulations. The
California Building Commission (“Commission”) was created in 1953; however, it was
not solely responsible for the administration of all standards related to buildings as that
power was shared with other pre-existing State agencies.
1970 to 1979: In 1975, an energy crisis resulted in the passing of a law (Warren-
Alquist State Energy Resources Conservation and Development Act) that accelerated
research and development of alternative energy solutions for the State. The law
resulted in more than twenty State agencies adopting energy standards, for their
individual agencies, in separate titles under California’s Code of Regulations. The most
significant set of energy regulations adopted in the 1970s were appliance efficiency
standards, which originally required manufacturers to certify the performance of their
appliances and prove that they are meeting the most current requirements by the State. In
1978, the Commission was given the power (under SB 331) to have full oversight of all
building-related standards before they were adopted. Title 24 was created to establish a
single code that housed all building-related standards that had been previously
scattered under various state titles. More importantly, Title 24 established the
California Energy Code (Part 6) that guided the construction of new homes so that
homes perform at a certain efficiency level. The standards are updated every two to
three years by the California Energy Commission.
1980 to 1989: The Commission’s role was further refined in the 1980s as laws were
passed to require that any new regulation considered by a State agency or local
municipality, for the implementation of building standards, must first be approved by the
Commission.
1990 to 1994: The 1990s was a period of refinement for Title 24. Roles and
responsibilities in code enforcement related to public safety were refined for agencies
such as the State Fire Marshall. The Uniform Building Code was expanded to include
mitigations for hazardous materials in buildings, and regulatory timelines and standards
were cleaned up.
20
California Building Commission. (2014). About us - History. Retrieved from
http://www.bsc.ca.gov/abt_bsc/history.aspx on February 1, 2014.
21
1995 to 2004: Within this time period, guidelines were added and refined to require
certification and training of building officials, construction inspectors, and building plan
examiners. Military base closures under the Clinton Administration in the mid-1990s led
the State to require that any federal building removed from its federal designation comply
with State building standards.
2006: Significant changes within the State energy code can be attributed to the 2006
Assembly Bill 32 (AB32), the State’s Global Warming Solutions Act, which required
the reduction of greenhouse gas (GHG) emissions from energy use (electricity and
natural gas) to “80 percent below 1990 levels.”
21
Although many cities, states, and
even countries around the world have committed to addressing greenhouse gas
emissions within their building standards, none have been as aggressive or as
comprehensive in their approach as the State of California. Nonetheless, for more
than four decades, California’s progressive energy goals have allowed the State to
maintain a lower per capita energy consumption rate as compared to the rest of the
United States.
22
Figure 6 illustrates the per capita electricity consumption for California
as compared to the rest of the United States from 1960 to 2010.
21
State of California Governor’s Office. (2014, May). First update to the climate change scoping plan.
Appendix C. Retrieved from http://www.arb.ca.gov/cc/scopingplan/2013_update/energy.pdf on
September 1, 2015.
22
Natural Resources Defense Council. (2015, August 20). California’s energy efficiency success story:
$90 billion in utility savings, hundreds of thousands of jobs, and 40+ polluting power plans avoided.
[Press Release] Retrieved from http://www.nrdc.org/media/2015/150820.asp.
22
Figure 6. California per Capita Electricity Consumption vs. Rest of the Nation
Source: Energy Information Administration
23
Assembly Bill 32: Global Warming Act
Highlighted within the aforementioned 2006 milestone is the State’s Global Warming
Act. This Act was significant within the PACE framework because it enhanced the State’s
regulatory commitment to energy efficiency and the environment, by integrating energy
efficiency standards to the State’s air quality standards. Through the adoption of Assembly Bill
32 (AB32), the government put a statewide cap on greenhouse gas emissions, with a goal of
reducing carbon emissions to 1990 levels by the year 2020.
24
According to the Natural
Resources Defense Council (NRDC), as buildings and commercial equipment within buildings
23
U.S. Energy Information Administration. (2012, June). State energy Data System, All Consumption
Estimates, in Physical Units. eSTCP and TPOPP, 1990–2010. Retrieved from www.eia.gov/state/seds/
seds-data-complete.cfm#Consumption.
24
Legislative Council’s Digest. (2006). Assembly Bill 32. Chapter 488. Retrieved from
http://www.leginfo.ca.gov/pub/05-06/bill/asm/ab_0001-0050/a_b32_bill_20060927_chaptered.pdf on
July 23, 2014.
23
represent the highest consumption rate of electricity within the United States (see Figure 7), it is
through the improvement of building performances and commercial equipment that government
entities can effectively meet their energy goals. Gillingham, Newell and Palmer (2009) wrote
that “energy markets and market prices influence consumer decisions regarding how much
energy to consume and whether to invest in more energy-efficient products and equipment”.
25
The following Figure 7 illustrates total greenhouse gas emissions by economic sector in 2012.
Figure 7. Total U.S. Greenhouse Gas Emissions by Economic Sector
Total Emissions in 2012 = 6,526 Million Metric Tons of CO2 equivalent * Land Use, Land-Use
Change, and Forestry in the United States is a net sink and offsets approximately 15% of these
greenhouse gas emissions. All emission estimates from the Inventory of U.S. Greenhouse Gas
Emissions and Sinks: 1990-2012. Source: Environmental Protection Agency.
www.epa.gov/climatechange/ghgemissions/sources.html
25
Gillingham, K. & Newell, N. & Palmer K. (2009, June). Energy efficiency economics and policy.
[Working Paper No. 15031]. Cambridge, MA. Retrieved from http://www.nber.org/papers/w15031.pdf on
September 1, 2014.
24
As it relates to energy performance within buildings in California, protocols under AB32
included: (a) a requirement that local governments account for, and mitigate, greenhouse gas
emissions in development projects that they approved and built; and (b) a requirement that the
California Public Utilities Commission modify its renewable energy portfolio so that by the year
2030, 33% of power delivered in California would be from renewable resources.
26
Moreover,
studies found that buildings represented more than 70% of U.S. energy consumption and about
38% of all carbon emissions in 2008.
27
As such, the California building code is updated
regularly to improve water and energy efficiencies within buildings. For example, according to
the Energy Commission, the 2013 Building Energy updates within Title 24 resulted in 25 percent
less energy consumption within homes as compared to 2008 standards.
28
AB32 allowed for the
development of some of the nation’s most groundbreaking energy rulemaking, such as the
California Green Building Code (CalGreen). The Bill also required the State Air Resources
Board (ARB) to establish greenhouse gas emission limits that help “improve and modernize
California’s energy infrastructure and maintain electric system reliability, maximizes economic
co-benefits...and complements the State’s efforts to improve air quality”.
29
California Green Building Code
Highlighted within the aforementioned 1970 to 1979 milestone was CCR Title 24 Part 6
(1978 California Energy Code), California’s first law that established energy efficiency mandates
26
California Office of the Governor of California. (2008). Executive Order S-14-08. Retrieved from
http://www.dmg.gov/documents EO_S_14_08_Renewable_Energy_CA_ 111708.pdf on September 1,
2015.
27
2011. Federal Department of Energy. Retrieved from
http://buildingsdatabook.eren.doe.gov/docs%5CDataBooks%5C2010_BEDB.pdf on July 3, 2015.
28
California Energy Commission. (2014, July 1). New title 24 standards will cut residential energy use by
25 percent, save water and reduce greenhouse gas emissions. [News Release]. Retrieved from
http://www.energy.ca.gov/releases/2014_releases/2014-07-01_new_title24_standards_nr.html.
29
Chapter 2. P. 89, Section 1. Division 25.5 California Global Warming Solutions Act of 2006
25
for residential and non-residential buildings. The standards are updated periodically to allow for
the incorporation of emerging energy efficient technologies, and equipment, within new
residential construction. In practice this meant that a home constructed in 2006 was 15% more
energy efficient than comparable homes constructed within the prior decade.
30
In contrast, a
home constructed in 2014 that complied with the more stringent 2013 building code (also known
as CalGreen), was made 25% more efficient than a home constructed in 2006 according to the
California Building Commission.
CalGreen was adopted as the nation’s first “green” building code (California Green
Building Standards Code: Part 11, Title 24) and is modeled after the internationally recognized
Leadership in Energy and Environmental Design (LEED) green building certification program.
As a way of introducing CalGreen standards into the building industry, the Commission initially
established them as voluntary standards; they were later mandated in 2010. CalGreen
established standards on building planning and design for sustainable site development, energy
efficiency (in excess of the California Energy Code requirements), water conservation, material
conservation, and internal air contaminants. These new standards resulted in homes with
advanced levels of comfort in energy performance compared to older homes. According to the
California Energy Commission, “energy efficient houses are well insulated, [are] less drafty, and
use high performance windows and/or shading to reduce solar gains and heat loss. Poorly
designed building envelopes result in houses that are less comfortable. Even with oversized
heating and cooling systems, comfort cannot be achieved in older, poorly insulated and leaky
30
State and Local Government Green Building Ordinances in California. Retrieved from
http://ag.ca.gov/globalwarming/pdf/green_building.pdf on July1, 2015.
26
homes.”
31
Through the establishment and evolution of California’s building and energy codes
over the past three decades, the State not only set itself apart in the field of building and energy
regulations, but also created an incredible hurdle for pre-existing homes to be compliant with
emerging goals and policies. This non-compliance of pre-existing homes with emerging policies
leads us into a discussion of the energy efficiency gap, which is effectively the basis for PACE.
Energy Efficiency Gap
Of the energy-related standards adopted by the State since the early 1900s, stringent
appliance efficiency standards played a significant role in managing energy use for industrial
uses and, later, residential uses. However, the benefits of utilizing the State’s building and
energy codes to improve energy performance in homes, were not realized until the mid-2000s.
As such, within the Inland Empire Region, more than 75% of homes that were built prior to 2004
did not include efficiencies that were implemented under subsequent building and energy codes
(see Figure 8). Moreover, since significant changes were made to Title 24 and the energy code
after 2004, none of the homes within Figure 8 included insulation, water, and energy-efficient
equipment that helped newer homes mitigate rising energy and water costs.
31
2008. California Energy Commission. Retrieved from
http://www.energy.ca.gov/2008publications/CEC-400-2008-
016/rev1_chapters/RCM_Chapter_1_Intro.pdf on October 1, 2013.
27
Figure 8. Housing Age Distribution for Riverside - San Bernardino - Ontario
Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development
American Housing Survey (July 2003)
As discussed later in this paper, government sponsored programs were initiated to help
property owners manage rising energy costs. Some programs were developed as a method of
subsidizing the costs of upgrading technologies within older homes, others were offered as
financial assistance programs to low-income households that could not otherwise afford their
rising energy bills. However, if homeowners did not qualify for credits or financial assistance
through government sponsored programs, then energy upgrades were completed upon the
owners’ ability to fund improvements on their own. This was especially impractical in areas
such as the Inland Empire, where approximately 89% of the housing stock was at least 10 years
or older by 2004 and, as mentioned in Chapter I, where summer temperatures were 6
o
F to 20
o
F
warmer (on average) compared to neighboring Los Angeles, Orange, and San Diego County
areas.
Between 1970 and 1994, progressive energy policies helped mitigate economic and
political concerns associated with consumers’ reliance on foreign oil; however, on the downside,
31%
23%
26%
9%
11%
1969 or ealier (31%)
1970 to 1979 (23%)
1980 to 1989 (26%)
1990 to 1994 (9%)
1995 to 2004 (11%)
28
the policies contributed to an energy efficiency gap in the housing market. The energy efficiency
gap was initially described by Hirst and Brown in 1990, as the “gap” between savings that can be
achieved by property owners from emerging energy efficient technologies and what was actually
occurring in practice.
32
In 1994, Jaffe and Stavins postulated that the emergence of the energy
efficiency gap could be attributed to the lack of access to information for consumers. More
specifically, the slow diffusion of energy efficient technologies in the housing market was due to
the following factors: (a) a lack of homeowner knowledge on the availability of efficient
technologies; (b) a lack of firsthand information on technology effectiveness; and (c) a lack of
knowledge on the rate of return on technology investments.
33
Jaffe and Stavin’s theories on the
causality of the energy efficiency gap were supported by the writings of Huntington (1994),
Howarth and Sanstad (1995), Huntington (1994), and Koopmans and Velde (1999), who
provided varying thoughts on potential solutions to the energy gap and agreed that the causality
can be attributed to the lack of consumers’ information regarding new and emerging
technologies.
34
Since Jaffe and Stavins’s writings, however, advancements in commercial equipment
policies such as the Federal Energy Star Program, as well energy efficient building codes such as
California’s Green Building Code, have improved consumers’ access to information regarding
energy-efficient equipment. In fact, a 2009 report by the National Renewable Energy Laboratory
(NREL)—a leading research entity on energy efficient technologies for the U.S. Department of
Energy—identified that building code regulations, building code enforcement, appliance
32
Hirst, E. & Brown, M. 1990. Closing the efficiency gap: barriers to the efficient use of energy.
Resources, Conservation and Recycling, 3 (4), pp. 267-281.
33
Jaffe, A. & Stavins, R. 1994. The energy-efficiency gap: What does it mean? Energy Sources, 22, pp.
804-809.
34
Koopmans, C. & Willem te Velde, D. 2001. Bridging the energy-efficiency gap: using bottom-up
information in a top-down energy demand model. Energy Economics, 23, pp. 57-75.
29
standards, efficiency labeling (Energy Star, etc.), utility incentives, as well as research and
development were effective mitigation measures utilized by municipalities to reduce barriers in
energy efficiency gaps.
35
However, while information technologies and advanced energy
policies and regulations helped improve consumers’ access to information regarding new energy
efficient technologies, more prominent barriers to the energy gap emerged during a national
economic crisis in the mid- to late-2000s. A 2009 study by the White House Middle Class Task
Force Council on Environmental Quality (CEQ) showed that, although the information gap on
energy efficient equipment had improved since 1994, the following barriers posed greater
challenges in the housing industry due to the housing crisis: (a) access to financing that helped
homeowners offset expensive costs of energy improvements; and (b) access to skilled workers in
retrofitted programs.
36
Table 2 summarizes findings by an NREL study that illustrated the limitations in using
public policies and regulations to address the energy efficiency gap phenomenon. Pursuant to
the NREL study, policymakers at the federal, state, and local levels agreed upon the following
factors as key contributors to developing progressive energy policies: (a) public leadership; (b)
incentives; and (c) attention to community needs. The study also identified the following
challenges to energy policies and regulations: (a) limited funding; and (b) limited geographic
influence. With funding limitations at the forefront of challenges in implementing energy
policies, the following subsection discusses government efforts to minimize policy impacts on
low to moderate income earners.
35
NREL. (2009). Technical Report NREL/TP-6A2-46532. Retrieved from
http://www.nrel.gov/docs/fy10osti/46532.pdf.
36
Council on Environmental Quality. (2009). Recovery through retrofit: saving homeowners money and
creating jobs. Retrieved from www.whitehouse.gov/administration/eop/ceq/initiatives/retrofit
30
Table 2. Strengths and Challenges to Legislating and
Regulating Energy Efficiency at Each Jurisdictional Level
Jurisdiction Level Strengths Challenges
Federal - Broad, large-scale incentives
- Uniform standards
- Specialized technical assistance
- Cross-state utility regulation
- Public leadership
- Potential for over regulation
constricting the market
- Limited ability to tailor policies
State - Tailored to State need
- Primary in-State utility regulation
- Public leadership
- Funding limited
- Limited geographic influence
Local - Tailored to local community need
- Public leadership
- Funding limited
- Limited geographic influence
Source: NREL. (2009)Technical Report NREL/TP-6A2-46532
(http://www.nrel.gov/docs/fy10osti/46532.pdf)
Mitigating the Energy Gap through Government-Sponsored Programs
The previous section looked at the causality behind the energy gap phenomenon having
evolved from an informational based causality to that of financing or funding availability.
Policymakers implemented policies and regulations to mitigate the energy efficiency gap;
however, the benefit of said policies and regulations are experienced by those individuals that
purchased properties constructed after 2004, when buildings were constructed to meet stringent
energy codes. Unfortunately, this meant that policies and regulations fell short of addressing the
needs of a homeowner population residing in older and less-efficient homes. For low to
moderate income property owners who could not afford to minimize the impacts of rising energy
costs, the government promoted several government-sponsored programs, which are discussed
here.
31
Federal Weatherization Assistance Program
In 1976, a few years after the federal government’s adoption of the Energy Policy
Conservation Act, the U.S. Department of Energy (DOE) established the Federal Weatherization
Assistance Program. The program improved energy efficiencies within an existing housing
stock throughout the nation—and at the federal government’s cost—for low to moderate income
earners.
37
The program was expanded in scope and funding under the 2007 Energy
Independence and Security Act, but continued to limit its participants to consumers within low
and moderate income brackets. The DOE’s Weatherization Program was successful in meeting
energy goals at the federal level. Unfortunately, programs such as the DOE’s program provided
limited funding to homeowners and, as such, government-funded programs supported very
limited infrastructure for energy policy success. The following table (Table 3) summarizes
federal policies and incentives established over time to mitigate the energy efficiency gap for
homeowners, but only benefited a very small percentage of those homeowners in the low to
moderate income bracket.
37
U.S. Congress (2007). Energy Independence and Security Act. Subtitle A. P. 109. Retrieved from
https://www.gpo.gov/fdsys/pkg/PLAW-110publ140/pdf/PLAW-110publ140.pdf.
32
Table 3. Federal Programs that Help Mitigate Energy Gaps
Year Entity Policy
1977 U.S. Department of Energy Weatherization Assistance Program:
provides grants to states, territories and
certain Indian tribes to support energy
efficient measures for low-income families
within existing homes.
1992 U.S. Environmental Protection Agency ENERGY STAR program: a voluntary
program that certifies the efficiency of new
equipment for homes and businesses. The
program also provides guidance for
certifying homes that are 30% more
efficient than their new standard
counterparts.
2005 U.S. Congress The Energy Policy Act provided federal
tax credits for homeowners installing solar
powered technologies in their homes. The
program was later expanded in subsequent
years to incentivize the installation of
additional energy efficient technologies by
homeowners on their real properties.
(source:
http://energy.gov/savings/residential-
renewable-energy-tax-credit)
2009 U.S. Department of Energy The American Recovery and Reinvestment
Act: awarded $16.8 billion to the DOE for
programs and initiatives to support the
research and development of energy
efficient technologies, grants, credits and
rebates, including the development of
Property Assessed Clean Energy programs
nationwide.
Source: 2014. United States Environmental Protection Agency. www.epa.gov
33
California State Energy Savings Assistance Programs
Apart from the federally sponsored programs available to low and moderate income
families, the State offered a comparable energy program called the State Energy Savings
Assistance Program (SESAP). Similar in scope to the federal weatherization program, SESAP
provided no-cost weatherization services for low income families. The California Alternate
Rates for Energy (CARE) program provided a 30% to 35% discount on energy costs for low
income families. The State also offered its Family Electric Rate Assistance Program (FERA),
which allowed qualified homeowners to be billed at a lower electricity rate. For owners that
could afford to incorporate distributed energy technologies on their properties, such as wind
turbines and fuel cells, the California Public Utilities Commission sponsored the Self-Generation
Incentive Program, which provided incentives to those homeowners. However, the Self-
Generation Incentive Program required very specific qualifying factors that limited the number
of participants to the program. Table 4 summarized programs that were made available under
policies by the California Public Utilities Commission, California Energy Commission, and
California Building Standards Commission. Table 4 further provides a snapshot of incumbent
regulations ensuring that new homes are compliant with emerging energy policies.
34
Table 4. State Programs that Help Mitigate Energy Gaps
Year Entity Program
2005 California Public Utilities
Commission
California Solar Initiative: provides incentives for
homeowners that install solar electric or solar thermal systems
in their homes.
Self-Generation Incentive Program: provides incentives to
homeowners that install distributed energy technologies on
their properties (e.g. Energy storage devices, wind turbines,
fuel cells, etc.)
California Alternate Rates for Energy (CARE): 30%-35%
discount assistance for low-income families
The Family Electric Rate Assistance Program (FERA):
electricity billed at lower rate for qualified households
Energy Savings Assistance Program: Provides no-cost
weatherization services for low-income families.
Discounts/Payment Plans, and Assistance Paying Bills:
Service offered by some utilities for low-income customers.
Medical Baseline: allowances on energy bill for customers
who rely on “medical related equipment”.
2013 California Energy
Commission
Title 24, Building Energy Efficiency Standards: designed
to require that new homes are 25 percent more energy
efficient than homes constructed under the prior code.
2014 California Energy
Commission
Title 20, Appliance Efficiency Regulations
2014 California Building
Standards Commission
2013 CALGreen (green building code): designed to
require that new homes are 25 percent more water
efficient than homes constructed under the prior code.
Source: 2014. United States Environmental Protection Agency. www.epa.gov
The Need for PACE
Again, while the aforementioned programs and regulations helped the State meet certain
energy goals, they did not benefit the majority of homeowners that were encumbered by an
energy efficiency gap made possible through emerging energy policies. Programs that were
implemented by policymakers and utility companies since the 1970s to alleviate increasing
35
energy costs resulting from emerging policies benefited a small portion of the general
homeowner population. Moreover, in a 2015 change to utility rate structures by the California
Public Utilities Commission, consumers not only experienced a spike in their utility bills, but it
is anticipated that incentive programs will be minimized within the next few years.
38
The
combination of rising energy costs, limited government subsidies for energy efficient home
improvements, and increasing price limitations for installing efficient equipment in older homes
all supported the framework and need for the PACE program. Driven by the need to address an
energy efficiency gap within an aging housing stock, policymakers passed PACE financing into
law in 2008 through the Contractual Assessments Energy Efficiency Bill (AB811). In 2011
additional legislation, Senate Bill 555 (SB555), was introduced as an alternative method of
supporting energy efficiency-based contractual assessments, but under the Mello-Roos Act. The
following discussions expand upon these legislations, as well as the various PACE programs
offered pursuant to these laws.
Assembly Bill 811: Contractual Assessments for Energy Efficiency
On July 21, 2008, then-Governor Schwarzenegger passed Assembly Bill 811 into law,
amending Sections 5898.12, 5898.20, 5898.22 and 5898.30 of, and to add Sections 5898.14 and
5898.21 to, the State’s Streets and Highways Code, relating to contractual assessments and
requiring that the amendments go into effect immediately.
39
The Bill’s emergency provision
authorized policymakers within various municipalities to adopt a localized PACE program as a
method of meeting an immediate public need, as it relates to mitigating rising energy costs and
38
Southern California Edison. (2011, October 7) Phase 2 of 2012 General Rate Case Policy before the
Public Utilities Commission of the State of California.
39
State of California. (2008). Assembly Bill No. 811: Chapter 159. Amendment to Section 5898.30 of the
Streets and Highways Codes.
36
combating climate change. The bill further required municipalities to adopt a resolution of intent
to include statements of financing and energy efficiency measures permanently affixed to real
property. More specifically, resolutions included the following underlined provisions:
…among other things, the types of distributed generation renewable energy sources or
energy efficiency improvements that may be financed through the use of contractual
assessments. The bill would authorize a property owner, upon written consent of an
authorized city official, to purchase directly the related equipment and materials for the
installation of distributed generation renewable energy sources or energy efficiency
improvements and to contract directly for the installation of those sources or
improvements. The bill would make findings and a declaration in this regard. (AB811)
More specifically, Section 5898.20 of AB811 stated that the legislative body of any
municipality may designate its jurisdiction, in whole or in part, as a district “within which
authorized city officials and property owners may enter into contractual assessments for public
improvements and to make financing arrangements” pursuant to measures within the bill.
40
Contractual assessments between property owners and their municipalities define the equipment
approved under the applicable PACE program terms, per the municipality’s allowing property
owners to pay for improvements, for a specific period of time via their property taxes.
Therefore, while AB811 allowed for the implementation of PACE financing programs
throughout the State, the program was only valid within municipalities that developed a valid
PACE program, and then adopted the appropriate resolution to allow property owners to opt into
an assessment against their real property. AB811, as with the California Building Code, is a
component of the State’s efforts to “address the issue of global climate change” as originally
established under the Global Warming Act, Assembly Bill 32. AB811 supported AB32 by
making energy efficient improvements affordable for property owners and improved
40
State of California. (2008). Assembly Bill No. 811: Chapter 159. Amendment to Section 5898.30 of the
Streets and Highways Codes. P. 92.
37
inefficiencies within buildings that resulted in uneconomical energy spending.
41
Moreover,
AB811 allowed municipalities to establish the infrastructure and tools needed to inform
constituents of energy efficient products and opportunities in the marketplace; provided access to
financing opportunities; and expanded upon the skills of contractors by creating a need for
energy efficient improvements in the housing market. The repayment of said improvements was
accomplished through an assessment levied against the property, with the cost of improvements
made whole through the payment of a property tax.
Senate Bill 555: Mello-Roos Act for Renewable Energy and Water Efficiency
Senate Bill 555, an amendment to the Mello-Roos Community Facilities Act, introduced
an alternative method of developing and implementing a PACE program within communities.
The Mello-Roos Community Facilities Act of 1982 allowed a municipality or special district to
finance certain public improvements or services through the development of a special district tax
for property owners as long as the tax was approved by two-thirds of registered voters within an
assigned district. Although community facilities districts (CFD) historically funded the services
associated with public improvements such as parks, streets, and flood control facilities, Senate
Bill 555 expanded provisions of the Mello-Roos Act to include energy efficient equipment
affixed to properties.
42
As per the Mello-Roos Act, to initiate the formation of a CFD, a
municipality must adopt a resolution that outlined: (a) a description of the district’s boundaries;
(b) a description of facilities and services proposed to be financed; (c) the special tax, secured by
41
State of California. (2008). Assembly Bill No. 811: Chapter 159. Amendment to Section 5898.30 of the
Streets and Highways Codes. P. 2.
42
State of California. (2011). Senate Bill 555. Mello-Roos act for renewable energy and water
efficiency. Retrieved from ftp://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0551-
0600/sb_555_cfa_20110428_151356_sen_comm.html
38
a lien against real property that would be annually levied; and (d) a detailed description of the
rate, method of apportionment, and manner of collecting the assessment.
43
Figure 9. Mello-Roos Model
SB555 authorized an alternative method of forming a CFD wherein a resolution would
outline: (a) a description of the district’s boundaries; (b) a description of facilities and services
proposed to be financed; and (c) a method in which an individual property owner can elect to be
included within the CFD boundaries. Figure 9 illustrates the Mello-Roos CFD model as a
district wherein a tax assessment is applied to all properties through a two-thirds vote of
registered voters within a district boundary. Property owners within a CFD assessment area pay
43
State of California. (2011). Senate Bill 555. Mello-Roos act for renewable energy and water
efficiency. Retrieved from ftp://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0551-
0600/sb_555_cfa_20110428_151356_sen_comm.html.
To form a CFD, the Mello-Roos Act requires a 2/3 vote of
property owners within the proposed District Boundary.
The approval of a CFD by property owners authorize a
municipality to collect assessments against levied
properties for specified public services. The services,
rates, method of apportionment, and manner of collection
of the special tax are established at the time of Resolution
adoption.
39
a pro-rated tax for an approved public benefit. In contrast, Figure 10 illustrates a revised Mello-
Roos District assessment model under SB555, where a district for energy efficiency
improvements is established and individual property owners within the district boundaries opt
Figure 10. Mello-Roos CFD Pursuant to SB 555
into a benefit on an individual basis by entering into an assessment agreement with their
municipality for their specific property. SB555, while based on a policy model more than thirty
years old, was newer legislation that had not yet been widely used by municipalities. As such,
Chapter III focused on PACE programs developed under the more widely used AB811
legislation.
Summary
Since the energy crisis of the 1970s, the federal government adopted energy policies that
promoted national independence from foreign oil. The State of California established its own set
40
of energy regulations that exceeded federal standards, setting the State apart as a national leader
in sustainable energy policies. The State’s Assembly Bill 32 outlined greenhouse gas goals that
resulted in high efficiency energy standards in its Building Code, and improved regulations for
the use of non-renewable resources within the State.
Notwithstanding the benefits of emerging energy policies, empirical studies supported the
need to address energy gaps that existed in an aging housing market as technologies became
more efficient but less accessible to homeowners. PACE programs were used as tools that would
improve homeowners’ access to information and financing of sustainable and emerging
technologies. The following chapter will review the HERO Program, as compared to other
PACE programs, and explore those components of the Program that sets it apart from others.
41
CHAPTER III
HERO COMPARED TO OTHER PACE PROGRAMS
Introduction
This chapter will address the following research question: What makes the HERO
program unique as compared to other PACE programs? This question must be answered by
exploring information on HERO’s public-private partnership (PPP) model, which is the most
important component of the program, and comparing the program’s components with those
PACE instruments that were in place before and after the FHFA’s moratorium. PPPs are based
upon the practice of collaboration. Barbara Gray (1989) defined collaboration as a phenomenon
that has proven possibilities for organizations looking to develop and implement meaningful
change.
Under turbulent conditions organizations become highly interdependent with others in
indirect but consequential ways...Collaboration is a process through which parties who
see different aspects of a problem can constructively explore their differences and search
for solutions that go beyond their own limited vision of what is possible. (p. 5)
Organizations seeking to make meaningful change in the twenty-first century are those
that not only understand their fundamental need for collaborative efforts, but also use PPPs to
help fuel their communities’ evolution toward a sustainable future. The HERO Program was
formed in 2010 through a partnership between the Western Riverside Council of Governments
(WRCOG) and Renovate America, Inc. HERO’s partnership model was established through
funding by a private entity (Renovate America) and program administration through a
multijurisdictional agency, a joint powers authority (WRCOG). HERO was initially launched
within the western Riverside County region, and quickly branched into other communities within
42
the Inland Empire by 2011. Within three years, the program expanded to become the California
HERO Program and is offered in more than 356 communities throughout California. The
success of the program can be attributed to the unique public-private partnership between
WRCOG and Renovate America Inc. A closer review of both entities is provided in this chapter.
As the 2010 FHFA directive against PACE occurred when HERO’s Partnership was launched in
Riverside County, this chapter will also provide a comparison between HERO and PACE
programs that were in place before, and after, the FHFA directive. The comparison will provide
a snapshot of how components of PACE programs can vary.
Program Summary
To date, HERO is the fastest growing PACE program in the nation. Energy projects that
are funded through the program cannot exceed ten percent (10%) of the property’s market value
at the time of assessment. Projects are funded at a minimum amount of $5,000, and up to 10% of
the property’s market value. The following are components and limitations of the program:
Table 5. HERO (WRCOG/California) Program Components and Limitations
WRCOG HERO Program California HERO Program
Public Entity
Western Riverside Council of
Governments (WRCOG)
Western Riverside Council of
Governments (WRCOG)
Program
Administrator
WRCOG Executive Director or
Designee Program Administrator
Renovate America, Inc.
David Taussig & Associates –
Assessment engineer and special tax
consultant
Best, Best & Krieger – Legal/bond
counsel
Westhoff, Cone & Holmstedt –
Placement agent
Public Finance Management – Financial
advisor and program manager
43
WRCOG HERO Program California HERO Program
Funding
Source
Renovate America, Inc. Renovate America, Inc
Program
Funding
Limit
Aggregated programs will not
exceed $900 million under current
resolution
$2 billion in bonds to eligible
improvements
Finance
Amount*
Minimum: $5,000
Maximum: This amount is
determined by the underwriting
criteria of each individual program.
This amount must be less than
10% of the market value of the
property.
Minimum: $5,000
Maximum: Determined by the
underwriting criteria of each individual
program. For residential properties, this
amount must be less than 10% of the
value of the property and a combined
mortgage and assessment contract
amount of 100% of the value of the
property.
* A reserve fund was added to the program in January 2013. The reserve fund is 0.15% of the
face value of the bond.
Financing
Term
Not to exceed useful life of the
improvement, up to 20 years.
Residential: Assessment contracts
are subject to 5-, 10-, 15- or 20-
year repayment periods.
Duration is not to exceed useful life of
the improvement, up to 20 years. •
Residential: Assessment contracts are
subject to 5-, 10-, 15- or 20-year
repayment periods.
* There is a reserve fund of 0.15% of the
total assessment agreed to by the
property owner.
Interest
Rate(s)
5-years: 5.95%
10-years: 7.95%
15-years: 8.75%
20-years: 8.95%
5-years: 5.95%
10-years: 7.95%
15-years: 8.75%
20-years: 8.95%
44
WRCOG HERO Program California HERO Program
Fees To
Owner
Program cost: Expense component
added to amount of financing
requested, not to exceed 7%.
Currently set as a one-time
administration fee of 6.95% of the
principal amount of the
assessment.
Application fee: None
Title and recording costs: $95.00
Permit costs: This amount may be
included with the financing
request.
Annual administration and
collection costs: Added to annual
assessment adjusted for increase in
living costs in subsequent years.
On-site validation fees: Validation
to confirm installation. Not to
exceed actual costs.
Program cost: Determined by city,
county or district where property is
located.
Application fee: None
Annual administration and collection
costs: Determined by city, county or
district where property is located.
FHFA Moratorium
The subject of PACE cannot be explored without discussing the important role of the
FHFA in the success (or lack thereof) of programs within the United States. The FHFA was
created in 2008 under the Housing and Economic Recovery Act to oversee the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie
Mac), herein collectively called the “Enterprises”. The FHFA holds statutory powers as
regulator and conservator of the Enterprises. Pursuant to federal regulation 12 U.S.C. #
45
4513(a)(1)(B), the FHFA “must ensure that the Enterprises operate ‘in a safe and sound manner’,
‘foster liquid, efficient, competitive and resilient national housing finance markets’ and operate
‘consistent with the public interest’ and comply with all applicable laws.”
44
Under federal law, and based on the mortgage holdings of the Enterprises, the FHFA is
the most influential federal entity in the housing industry. As previously discussed in Chapter II,
California’s AB811 legislation that created PACE financing within the State allowed
homeowners to pay for real property energy improvements through a tax assessment agreement
with their municipality. As such, and as with any local property tax, PACE assessments have a
superior lien on the property. It is this superior lien nature of PACE programs that triggered
significant concerns for the FHFA that included the following issues: (a) first liens through
PACE did not appear to be consistent with routine tax assessments as “the size and duration of
PACE loans exceeded typical local tax programs and did not have the traditional community
benefits associated with taxing initiatives”; (b) the senior lien nature of PACE financing “altered
valuations for mortgage-backed securities and were not essential for successful programs to spur
energy conservation” and therefore pose potential risk to lenders and other entities in the
secondary market; and (c) FHFA interpreted PACE program underwriting to be “collateral-based
lending” and not “lending based upon ability-to-pay,” with uncertainties as to whether “the home
improvements actually produced meaningful reductions in energy consumption.”
45
PACE Financing Options Prior to FHFA Moratorium
Table 6 highlights four of the largest residential PACE programs that were in effect in
2010 during the formation of the HERO program. The four listed programs were established and
44
2013. Federal Case No. 12-16986. County of Sonoma; People of CA, ex rel V. FHFA.
45
July 6, 2010. FHFA Statement on Certain Energy Retrofit Loan Programs.
46
supported through some form of public funding. For example, the Berkeley First program was
initially funded through micro-bonds involving third-party private investors while Boulder
Colorado’s ClimateSmart Loan program was supported by public bond offerings. Babylon’s
Long Island Green Homes program was funded through the municipality’s waste revolving fund,
while Sonoma County’s Energy Independence Program was supported through its Treasury and
Water Authority’s reserve funds with the potential of selling future bonds to private investors.
Prior to 2010, the aforementioned programs offered funding opportunities for both commercial
and residential properties. The Berkeley First Program was supported through $1.5 million of
public monies and funded a total of 38 projects. Boulder County dedicated $13 million of
public funds to their residential PACE program, which resulted in energy improvements to more
than 600 homes. Babylon’s PACE program authorized $3.19 million, which contributed to the
improvement of more than 360 homes. Sonoma County’s approximately $33 million funded
more than 1,000 energy improvement projects that included both commercial and residential
projects. Since the 2010 FHFA moratorium, three of the aforementioned municipalities
suspended their residential PACE programs and minimized their commercial PACE programs,
while Sonoma County’s PACE programs for both the commercial and residential industries were
severely minimized.
47
Table 6. Comparison of Four PACE Programs in Effect in 2010
Berkeley, CA
BerkeleyFirst
(2008)
ci.berkeley.ca.us/
contentdis
play.aspx?id=265
80
Boulder County, CO
ClimateSmart Loan
(2009)
climatesmartloanpro
gram.com
Babylon, NY
Long Island Green
Homes
ligreenhomes.com
Sonoma County, CA
Energy Independence
sonomacountyenergy.or
g
Funding
Mechanism
Micro-bonds
involving 3rd-party
investor.
Public tax and tax-
exempt bond offerings.
Bonding capacity
dedicated by the cities
of Boulder and
Longmont, plus
Boulder County;
relatively low interest
rates depend on bond
market.
Initially Municipal
Waste Revolving
Fund for reducing
CO2 ($2 million);
private funding
thereafter;
Very low (3%) interest
rates initially.
County unallocated
reserve funds from
Treasury and Water
Authority maximizes
flexibility; future bonds
may be sold to institutional
investors
7% interest rate reported.
Eligible
Measures
Solar Photo Voltaic
(PV)
Energy efficiency and
renewables, including
solar PV, water
heating, small wind,
efficient woodstove
Energy efficiency
(PV if home meets
Energy Star for new
homes standard)
Energy efficiency,
renewables, water
conservation
Eligible
Properties
for
Implemente
d Round(s)
Commercial
Note: Residential
Program
suspended after
2010 due to FHFA
moratorium
Commercial
Note: Residential
Program suspended in
2010 due to FHFA
moratorium
Residential
Note: Residential
Program suspended
in 2010 due to FHFA
moratorium; but slated
for a reinstatement in
2013.
Residential, commercial,
industrial
Note: Residential still in
existence but slowed down
due to FHFA moratorium.
Spending
and
Participant
s to Date
$1.5 million
allocated but not
entirely spent
13 installations in
pilot; total 38
projects through
Fall 2009
$40 million authorized
for residential and
commercial About $13
million dedicated to
Phase 1 Residential
(600+ homes)
$3.19 million
authorized through
mid-2010; $2 million
from Solid Waste
Fund (366 homes)
Provided $32.8 million
funding through mid-2010
for about 1,050 projects;
Commercial program
currently active
48
Collection
Mechanism
Property tax bill,
senior lien
Property tax bill, senior
lien
Separate monthly
assessment, transfer
to property tax bill if
late
Property tax bill, senior
lien
General
Process
Application,
construction,
payment
Workshop, quotes,
application, bond sale,
construction, payment
Application, audit,
construction, payment
Application, audit,
construction, payment
Unique
Attributes
Basic efficiency
measures
prerequisite.
Bonds secured by lien
plus a moral obligation
from local government.
Does not affect local
government balance
sheet. Special rates to
low-income applicants.
Had to relate energy
waste to solid waste
guidelines.
Aiming for 10% energy
savings per home
Joined in litigation against
FHFA to support PACE;
Funding has little outside
risk.
Source: 2011, NREL
PACE Programs after the FHFA Moratorium
Following HERO’s success in 2010 through 2012, a number of communities began to
pursue PACE programs through regional entities, such as joint powers’ authorities. As discussed
in more detail in Chapter III, HERO was formed through a PPP between a joint powers’
authority entity (i.e., WRCOG) and private entity Renovate America in 2010. Newer programs
relied less, if at all, on public funding and more on private funding established through the PPP
approach as modeled under HERO. A 2014 study titled “Residential and Commercial PACE
Financing in California Rooftop Solar Challenge Areas” was published by the Energy Policy
Initiatives Center (EPIC) at the University Of San Diego School Of Law. Although the focus of
the EPIC study was primarily on the financing of Solar Rooftop Photovoltaic systems through
various PACE programs, the report highlighted varying components of PACE programs that
49
existed after the FHFA moratorium and following HERO’s success in the housing industry.
These programs are summarized below and on the following pages.
Sonoma County Energy Independence Program (SCEIP)
Formed in 2008, the Sonoma County Energy Independence Program is the only surviving
PACE program since the 2010 FHFA directive. It is sponsored and administered by the County
of Sonoma. In addition to being an older program, SCEIP is also the only active PACE program
in California that is publicly funded. SCEIP is only provided within the limits of Sonoma
County with a program limit amount of $60 million, with 75% of the program funded through
the County Treasury and the remaining portion funded by the Sonoma Water Agency Reserve
Fund. Energy projects funded through the program cannot exceed 10% of the property’s market
value at the time of assessment. Moreover, the annual total property tax assessment for a
program participant cannot exceed 5% of the property’s market value. Market value is
determined by “the Automated Valuation Model for residential properties up to $1.5 million, or
an appraisal by a California certified real estate appraiser.”
46
Projects are funded at a minimum
amount of $2,500. Any projects that cost between $60,000 and $500,000 require prior approval
by the program administrator, while projects costing more than $500,000 require prior approval
by the County Board of Supervisors. Of the PACE programs established prior to the 2010 FHFA
Directive on PACE, the Sonoma County Energy Independence Program was the most successful.
The following are the components and limitations of the SCEIP program:
46
Sonoma County. (Nd). Sonoma county energy independence program property assessed clean energy
financing eligibility requirements. Retrieved from
http://sonomacountyenergy.org/uploads/sonomacountyenergy.org/Policy%20Documents/SCEIP_Financi
ng_Eligibility_Requirements.pdf on October 15, 2015.
50
Public Entity County of Sonoma
Program Administrator Auditor-Controller Treasurer-Tax Collector
Funding Source Municipal Bonds: County Treasury Pooled Investment Fund,
Sonoma County Water Agency or third-party investments in
SCEIP municipal bonds under special circumstances using an
open-market approach.
Program Funding Limit $60 Million ($45 Million from Sonoma Treasury and $15 Million
from Sonoma Water Agency reserve fund)
Finance Amounts Minimum: $2,500
Maximum: Between $60,000 and $500,000 to be approved by
program administrator. If over $500,000, to be approved by the
board of supervisors.
Financing Term Up to 20 years
Interest Rate Set at 7%: 3% for bond repayment and 4% for administrative costs
Fees to Owner Title cost: $50 for projects under $5,000; $125 for $5,000–
500,000. Title insurance is required if over $500,000.
Recording fee: $66
County tax collector fee: Maximum annual administrative fee of
$40 per year with annual adjustments based on the Consumer Price
Index for cost-of-living increases.
Desktop appraisals (residential only): $12.
Escrow: Generally if over $500,000, actual cost.
Site inspection cost: $150 (If project is $40,000 or greater and
property owner requests an interim disbursement prior to
completion of improvement).
CaliforniaFIRST
Formed in 2012 by the California State Association of Counties (CSAC),
CaliforniaFIRST was originally launched in 14 counties and 126 cities, with PACE financing
focusing exclusively on non-residential buildings.
47
As of the writing of this study,
CaliforniaFIRST offered PACE funding for commercial and residential buildings in 30 counties
47
Retrieved from http://www.counties.org/node/4297 on October 15, 2015.
51
and approximately 275 cities throughout California. The program has an overall funding limit of
$17 billion, making it the largest funded PACE program in the nation. Energy projects funded
through the program cannot exceed 15% of the property’s market value at the time of
assessment. Projects are funded at a minimum amount of $50,000 and up to 20% of the
property’s market value subject to further review by the program administrator for renewable
funding. The following are the components and limitations of the program:
Public Entity California Statewide Communities Development Authority
(CSCDA)
Program Administrator Renewable Funding
Funding Source Residential: Program arranged capital
Commercial: Individual financing arranged between a capital
provider and a property owner. CSCDA issues revenue bond,
which is then sold to lender.
Program Funding Limit Up to $17 billion
Finance Amount Minimum: $50,000
Maximum: The maximum financing amount is dependent on the
property value. There is a 20% LTV cap. In addition, current
outstanding debt plus CaliforniaFIRST financing amount plus
other special assessment liens and special tax debt must be less
than the property value plus the value of the financed projects.
Finance Term Not to exceed useful life of improvement(s), up to 20 years in 5-,
10-, 15-, and 20-year increments
Interest Rate(s) 5-years: 6.75%
10-years: 7.9%
15-years: 8.5%
20-years: 8.75%
Fees to Owner One-time fees
1. Program-related fees: One-time fees added to the assessment at
the time of funding. The fees include costs of program
administration and origination, bond counsel, program sponsor fee
(CSCDA), and tax administration.
52
2. Lien recording fee: The fees a county charges to record the
assessment lien documents on the property.
3. Reserve fees: One-time fees or deposits incurred at funding to
pay for reserves that support bondholders’ and mortgage holders’
interests. These include the following: (a) reserve fund: a deposit
to pay debt service on the bonds in the event of delinquencies in
payments of assessments; (b) CAEATFA PACE Loss Reserve
Program fee: a deposit from each assessment made to the loss
reserve to support the administration of the reserve; and (c)
foreclosure expense reserve account: a deposit to cover CSCDA’s
costs to initiate judicial foreclosure for properties of property
owners that are delinquent on payment of their annual assessment
obligations.
Annual fees
1. County tax collector fee: Fee ranges from $0.10 a parcel to 2%
per payment, depending on the county.
2. Tax administrator fee for managing the annual assessment.
HERO Partnership
The HERO Partnership, formed between WRCOG and Renovate America Inc. in 2010 by
Resolution pursuant to AB 811, is based upon a commitment by policymakers to the
“development of renewable energy sources and energy efficiency improvements, reduction of
greenhouse gases, protection of our environment, and reversal of climate change”.
48
WRCOG
consists of twenty three municipalities, special districts and other entities within Western
Riverside County, while Renovate America Inc is a private clean energy financing entity based
out of San Diego, California. Prior to its partnership with Renovate America Inc in 2010,
WRCOG policymakers voted to establish a mega-regional effort to formulate a PACE program
under WRCOG that would benefit all communities within the western Riverside County region.
While the agency initially pursued public funding to support their vision for PACE, it was a legal
challenge with the California Energy Commission, a State grant funding entity for energy
48
HERO Resolution Retrieved from http://wrcog.cog.ca.us/uploads/media_items/hero-county-
resolution.original.pdf, on October 21, 2015.
53
efficiency, that lead WRCOG into a partnership with Renovate America, Inc. The following
sections further outline WRCOG’s HERO story.
WRCOG
WRCOG is a joint powers authority as established under Chapter 5 of Division 7, Title 1
of the Government Code of the State of California (Section 6500). Initially formed as a policy
and planning advisory agency that helped coordinate land use policies on a regional scale, the
agency has grown to be an active contributor to regional transportation and land use efforts. For
example, to help address transportation issues that cross jurisdictional boundaries, the agency
guided the development, administration and management of the Transportation Uniform
Mitigation Fee (TUMF) program for its member agencies. The TUMF Program funds the
improvement of major arterials throughout the region, via assessed development fees paid for by
private developers. TUMF is an example of a successful mitigation tool that is applied through a
megaregional collaborative model under WRCOG which, according to urban and regional
planning expert Judith Innes (1996), is a model that represents those communities that are
interlinked on a larger (regional) scale by a common interest that is either economic, social,
political or demographic in nature. Innes highlighted metropolitan Councils of Governments,
like WRCOG, as vehicles of successful coordination and implementation of regional planning
efforts. COGs are defined as larger bodies of cities and communities working together in a well-
coordinated manner, to develop and implement policy and planning strategies that benefit
member agencies without prejudice.
49
49
Innes, J.; Booher, D.E.; Vittorio, S. D. (2010). Strategies for megaregion governance (Working Paper
No. 2010-03). Retrieved from University of California Berkley Institute of Urban and Regional
Development at http://iurd.berkeley.edu/wp/2010-03.pdf.
54
Between 2009 and 2010, WRCOG policymakers supported the development of
sustainable policies within their communities. A 2010 study of policymakers within Riverside
County revealed that the majority of leaders in the area viewed policies on energy and water
efficiency as necessary for the long-term viability of their communities.
50
One leader was
quoted in the study stating that:
Leaders in California, and those throughout Riverside County, recognize that we cannot
continue to grow in the future the same way that we've grown in the past. Water is an issue.
Energy is an issue. Landfill capacity is an issue. Our infrastructure is deteriorating. The
whole way of doing business and accommodating growth has got to change and
sustainability is a compatible piece of the equation. We are in a completely different
situation now with our growth than when we've ever been. (p. 43)
Despite strong local support of energy efficient policies, the study found that
policymakers viewed the lack of funding and incentives as significant challenges to policy
implementation. As a result of funding challenges faced by municipalities during the economic
downturn in 2009, the study identified that policymakers commonly identified collaboration as a
means of offsetting local costs to defining and implementing energy efficient measures:
The economic weather appears to have inspired a need within local officials to
collaborate and join forces with their neighbors. Incidentally, these are the types of
efforts that are needed to meet sustainable policy goals on the local level. Additionally,
administrators identified that Councils of Governments (COGs) will play an increasingly
important role of disseminating and interpreting information to local leaders. Therefore,
relying on regional organizations such as COGs for direction and guidance for policy
implementation to meet sustainable goals will be one of the most effective ways that
administrators can meet their goals in the 21
st
century. (p. 63)
In early 2010, the California Energy Commission (CEC) announced the receipt of
approximately $314 million in American Recovery and Reinvestment Act (ARRA) funds from
the Federal Department of Energy for the design and implementation of energy efficiency
50
Williams, G. (2010). The Leadership styles of administrators fostering sustainable communities in the
21st Century. (Unpublished Thesis). University of La Verne. La Verne, CA.
55
programs throughout the State. A portion of ARRA funds was made available to public agencies
for the development and implementation of local PACE programs. WRCOG competed against
other municipalities for ARRA funds that would support the development and implementation of
a multi-jurisdictional PACE program within western Riverside County. In February of 2010,
WRCOG received a zero score from the CEC for their application and when the CEC failed to
provide support for their action, WRCOG sued the Commission for the following issues:
• Contrary to CEC assertions, Federal ARRA funds are not lost to California if
unallocated by October 21: Contrary to CEC assertions, the United States Department
of Energy (DOE) has informed CEC Chairman Karen Douglas that ARRA funds would
not be deobligated by October 21. The CEC then legally failed to forward this
information to the court of appeals which had lifted WRCOG's legal hold on the funds
allocation due to a federal deadline that the CEC now admits does not exist.
• Incomplete and/or inaccurate information provided to the Court of Appeals: CEC
Chief Legal Counsel Michael J. Levy submitted information to the Court of Appeals
indicating WRCOG's Property Assessed Clean Energy (PACE) Program had been
suspended. WRCOG's Executive Committee has never taken an action to suspend its
Program.
• Bagley-Keene Open Meeting Act violations: WRCOG via legal counsel Best, Best &
Krieger submitted a letter dated October 26 to the CEC informing them that a hastily-
scheduled meeting in which contracts were awarded was not properly agendized and
conducted. The CEC responded, claiming that it had not violated noticing requirements,
but that it would reagendize the contracts for another meeting for purposes of
"ratification."
• Settlement discussions with no action: WRCOG Executive Director Rick Bishop and
Chairwoman Kelly Bennett requested a face to face meeting with the CEC. WRCOG then
was granted a conference call with the Governor's Office and the CEC staff on October
18 and was informed that the CEC would consider an offer proposed by WRCOG and
provide a response by the end of that day. The CEC has never provided a response to
WRCOG.
51
51
Western Riverside Council of Governments. (2010, October 29) WRCOG requests attorney general
investigation into California energy commission violations, etc. WRCOG PR Newswire. Retrieved from
http://www.prnewswire.com/news-releases/wrcog-requests-attorney-general-investigation-into-california-
energy-commission-violations-requests-immediate-freeze-on-allocation-of-state-energy-program-funds-
106348538.html, on November 1, 2015.
56
In October of 2010, WRCOG triggered an Attorney General Investigation into CEC
practices as it related the Commission’s application process for ARRA funds, which resulted in a
moratorium on the distribution of funds. WRCOG’s actions not only jeopardized the distribution
of ARRA funds for other purposes throughout the State, they drew negative attention from other
municipalities. WRCOG’s actions against the State spoke volumes to their leadership and
determination to bring their collective communities’ needs to the State’s attention. The
Agency’s tenacity and leadership not only drew media attention, it drew the interest of investors
that formed the WRCOG and Renovate America, Inc partnership.
Renovate America, Inc.
Renovate America, Inc is a private financing entity that was originally formed in 2008 as
PowerHouse Service, Inc by John Paul McNeill, Nicholas Fergis and Dean Hollander in San
Diego. The mission of PowerHouse Service, Inc., which later carried into Renovate America,
Inc, was to “enable people of all income levels to make property investments in renewable
energy systems, energy efficiency improvements, and water conservation measures”.
52
All of
the program funding provided through Renovate America, Inc., is made possible through private
capital investments. Prior to 2015, the company raised approximately $85 million in venture
capital to support the HERO Program, and by October of 2015 it had raised an additional $90
million in new venture capital funding. Investors to the Program include RockPort Capital
Partners, Valor Equity Partners, DB Masdar and 400 Capital Management.
53
52
Renovate America. (2015) About Us. Retrieved from http://powerhouseservice.com/about/company on
November 1, 2015.
53
Freeman, M. (2015, October 5). Renovate America nets $90 million for green financing. San Diego
Tribune. Retrieved from http://www.sandiegouniontribune.com/news/2015/oct/05/renovate-america-dfj-
growth-pace-program-green/ on November 1, 2015
57
Under the HERO Program, participating municipalities sell bonds to fund PACE
improvements. Renovate America then purchases the bonds and securitizes them as part of
funding PACE loans through an assessment contract between the homeowner and their
municipality. Since the Program inception, Renovate America Inc has securitized over $600
million in PACE bonds throughout California. Because the payment of PACE loans are secured
through a tax assessment against the real property over a period of up to 20 years, with a defined
rate of return in investment, the funding of PACE loans is a secured investment for financing
companies. Due to the high administrative and legal costs associated with forming PACE
programs within municipalities, Counties and cities outside of western Riverside County opted
into the WRCOG’s HERO program through the adoption of a HERO Resolution (Exhibit A) and
becoming an Associate Member of WRCOG in order to benefit from the Agency’s PACE
program. The act of adopting a HERO Resolution and partnering with Renovate America Inc
through WRCOG’s program, is free to participating entities and allows homeowners within those
communities to access the energy savings benefits offered through a PACE program.
HERO Approval Process
Prior to HERO, Sonoma County’s Energy Independence Program (SCEIP) was the largest
funded program at $55 million.
54
HERO boasted an initial budget of over $30 million in 2010.
However, as stated in Chapter III, the SCEIP was largely funded through County monies. The
following chapter provided an economic assessment of the HERO program. More specifically,
the methodological approach to assessing HERO looked at job creation and economic impact to
local and regional markets using data derived from the program. The following steps outline the
54
Sonoma County. (2012) Property Assessed Clean Energy (PACE) Replication Guidance Package for
Local Governments. Retrived from http://www.mpowerplacer.org/wp-content/uploads/2012/04/PACE-
Manual.pdf on September 1, 2015.
58
HERO approval and implementation process. This information was obtained through an
interview of Renovate America, Inc. staff member Drew Henley, as well as the HERO website
(https://www.heroprogram.com/faq#general/how-does-hero-financing-work):
1. Eligibility. Interested homeowners must establish eligibility based on the following
criteria: a) mortgage related debt not exceeding 90 percent of the property value; b) current
on mortgage and property tax payments with good payments over a 12-month period; c) no
outstanding property liens; and d) no bankruptcy in prior two years.
2. Application. Once eligibility is established the interested party completes the application
process (either online or over the phone), select a contractor, sign documents and complete
product installation. There is no fee, no credit check or employment verification associated
with the HERO application process.
3. Loan amounts and terms (5 to 20 years) vary depending on the types of products used in a
project, and loan amount approved per property. Lender consent is not required but a
courtesy notice to lenders is strongly encouraged.
4. Installation. Once the homeowner completes and signs approved application, they can
proceed with improvements by hiring a HERO approved and registered contractor or install
improvements themselves after signing a self-installation agreement under the Program.
The owner can only select from more than 150,000 approved products for installation.
5. Invoices are submitted through the Program for payment. Improvements are tax deductible
and qualify for energy rebates in some cases through local utilities.
6. Payments. Amounts due for HERO improvements show up on customers’ property tax
bills. When a homeowner sells a home with a HERO loan attached to the property the loan
59
is paid off at the point of sale. Remaining loan amounts are carried on to the new
homeowner’s tax bill until the balance is paid off.
On September 26, 2015, HERO customers James and Sonia Huff shared the following
testimony as it related to their family’s experience with the HERO Program.
When we were looking at installing Solar
Panels for our home, many of the contractors
told us about the HERO program. We looked
into the program and discovered all the
different energy efficient projects that we
could do to our home that are covered under
HERO. We liked the fact that it was put on
the property tax so therefore on the “home”.
If/when we sold home, the new owner would
take on those costs as they were directly
related to upgrades for the home versus doing
a second mortgage or something.
We initially looked into using HERO for Solar
panels, however when we compared the
interest rates of HERO versus the solar
company that we selected (SolarMax), we
opted to use the SolarMax financing due to the
interest rates. However, as this program was
available, we opted to do other projects that
we had been wanting to do. We replaced all of our turf in our backyard with artificial turf
and also replaced our pool pumps (12 year old pumps) with new energy efficient ones.
As stated above, we used other financing for solar panels due to the interest rates. It was a
nice option to use HERO for the other projects that we would otherwise have put off until
we had the cash to fund the projects and they were also low on priority as opposed to other
home projects. It was great to be able to do it now as we have not only added value to our
property but also have realized savings in water and energy costs. The application process
was SUPER easy!! It was done online and we didn’t have to give all our information
(paystubs, taxes etc.) that we would have if we did other financing means such as a second
mortgage.
We used two different HERO contractors (one for turf and other for pool pumps) and both
were very professional and super easy to work with. They got the projects done in a timely
manner and did good work. The County of Riverside had a list of “pre-approved”
60
contractors for HERO and I’m not sure of the process they go thru to get on that list
however both contractors were great.
We have definitely seen a savings in both our water and electrical bills. For water, we
saved about 20% on water use. Shortly after installing pool pumps we installed our solar
panels (didn’t use HERO for that) so we no longer have an electric bill. (Huff Family,
2015)
PACE Programs Comparison
The following Table (Table 7) provides a summary comparison of previously discussed
PACE programs. Of the four listed programs, only one (BerkeleyFirst) eliminated its Residential
PACE program due to previously mentioned FHFA actions. Two of the listed programs were
100% financed through public funds, including the BerkeleyFirst Program. Of the listed
programs, two of the programs (HERO and CaliforniaFirst) are financed through private capital
and are based on public-private partnerships. However, notable differences between the two
privately funded programs are as follow:
A) HERO is administered by a public entity, while CaliforniaFirst is administered by
the financing entity;
B) The residential component of the CaliforniaFirst Program was delayed due to the
2010 FHFA directives, while HERO was launched in 2010;
C) The minimum project cost under HERO is $5,000 while the minimum project cost
under CaliforniaFirst is $50,000;
D) The interest rate for a 5-year term loan under HERO is 0.8 percent less than a 5-year
loan with CaliforniaFirst, while interest rates for 10-year, 15-year and 20-year loans
under HERO are about 0.5 to .2 percent higher than California First;
61
E) Loans with HERO cannot exceed 10 percent of the property’s market value at the
time of assessment, while loans with CaliforniaFirst cannot exceed 15 percent of the
property’s market value at the time of assessment.
Table 7. HERO and Other PACE Programs Comparison
Sonoma County
Energy
Independence
(Active since
2008)
CaliforniaFirst
(Active since 2012)
BerkeleyFirst
(Inactive
Residential)
WRCOG HERO
(Active since 2010)
Public
Private
Partnership
None Program Administrator:
Renewable Funding
Funding Source:
Program Arranged
Capital via CSCDA (a
public advisory entity)
issued bonds.
None Program Administrator:
WRCOG
Funding Source:
Renovate America, Inc.
Funding
Mechanism
County
unallocated reserve
funds from
Treasury and
Water Authority.
7% interest rate
(fixed)
Residential: Program
arranged capital.
Commercial: Financing
arranged between capital
provider and property
owner.
Micro-bonds
involving 3rd-party
investor.
Aggregated bond
programs
100% financed via
private capital
Funding
Limit
$60 million (100%
public funding)
Up to $17 billion Not Available Up to $900 million
Eligible
Properties for
Implemented
Round(s)
Residential,
commercial,
industrial
Note: Residential
still in existence
but slowed down
due to FHFA
moratorium.
Residential, commercial,
industrial
Commercial
Note: Residential
Program suspended
after 2010 due to
FHFA moratorium
Residential,
Commercial and
Industrial
62
Spending and
Participants
Provided $32.8
million funding
through mid-2010
for about 1,050
projects;
Commercial
program currently
active
Not available
$1.5 million
allocated but not
entirely spent
13 installations in
pilot; total 38
projects through Fall
2009
Within Study Period:
Provided $30 million
Funded 3,091 projects
in 1,936 homes
Collection
Mechanism
Property tax bill,
senior lien
Property tax bill, senior
lien
Property tax bill,
senior lien
Property tax bill, senior
lien
General
Process
Application, audit,
construction,
payment
Application,
construction, payment
Application,
construction,
payment
Application,
construction, payment
Minimum
Project Cost
Minimum project
cost: $2,500
Maximum not
available for
Residential PACE.
Determined by
Program
Administrator
Minimum project cost:
$50,000.
Projects cannot exceed
15% of property’s
market value.
Minimum project
cost: Not available
Minimum project cost:
$5,000.
Projects cannot exceed
10% of property’s
market value.
Interest Rates
Set at 7% 5-years: 6.75%
10-years: 7.9%
15-years: 8.5%
20-years: 8.75%
Not Available 5-years: 5.95%
10-years: 7.95%
15-years: 8.75%
20-years: 8.95%
63
Summary
This chapter addressed the following research question: What makes the HERO program
unique as compared to other PACE programs? The PACE financing program in California was
established under the State’s AB811 and SB555 legislative acts. Residential PACE funding is
limited to the financing of materials and installation costs associated with energy efficiency
retrofits within homes. Financing does not include maintenance costs of materials for individual
projects. As such, PACE assessments provided sunset periods of 5, 10, 15 or 20 years on
assessments, and as agreed upon by the homeowner and the funding entity. The PACE program
grew in popularity from 2008 to 2010, when municipalities acknowledged it as a tool that could
help address emerging energy policies within the State, to include energy regulations under
AB32. However, a 2010 moratorium by the FHFA quickly minimized—and, in some cases,
eliminated—PACE efforts throughout the United States.
Compared to programs that were in place prior to the FHFA’s 2010 directive against
PACE, HERO was completely funded through private capital and required no public funding
support. Since 2010, HERO’s partnership model has been used in emerging PACE programs
throughout the State. For example, the 2012 CaliforniaFIRST program was formed under a
partnership between the California Statewide Communities Development Authority (a joint
powers authority) and Renewable Funding (a private clean energy financing company).
However, as the FHFA’s directive against PACE remains active today, newer programs such as
CaliforniaFIRST are primarily focused upon commercial PACE financing at this time.
WRCOG’s HERO program has been successful in the housing industry and has shown no signs
of slowing down. Evidence suggests that the success of the program can be attributed to the
partnership and leadership behind HERO, from both the public and private side. Where
64
municipalities avoided the risks associated with financing residential PACE programs, the
HERO program thrived upon financing residential energy improvements. As such, this chapter
focused on the various components of HERO that include: a) the public-private partnership; and
b) program approval process. The benefit of installing improvements at no up-front costs to
property owners makes the PACE program very attractive to homeowners and policymakers,
while the benefit of loan payments through secured assessments against real property is an
attractant to private investors. Within California, PACE programs have not only helped
implement State goals under Assembly Bill 32, but also allowed government officials to
diversify their approach to mitigating the growing energy gap within their communities.
65
CHAPTER IV
HERO IMPACT ON PROPERTY VALUES
Introduction
This chapter will address the following question: As PACE loans are repaid through an
owner’s property tax assessments, what impact, if any, does HERO have on property value?
Within the field of real estate, property values are determined through a number of different
factors that include, but are not limited to: property location, building square footage, numbers of
rooms and bathrooms, building age, and style, etc. Popular home search engines such as Zillow
and Trulia, developed algorithms to estimate potential property values based on factors as those
listed above, and others that may include historic property transactions and tax assessments.
Multiple factors can influence the estimation of a property’s value, with the most popular factor
being the location of the property. Home sale prices within a given location, are rated the
highest and most significant factors in comparing property values, according to JD Esajian, a
FortuneBuilders Inc speaker and CT Homes project manager.
55
For the purpose of this paper, the researcher relied on the following factors to explore the
value of HERO encumbered homes: a) location; b) year built: b) square footage; c) number of
bedrooms and bathrooms; and d) sale transaction history. As HERO improvements are paid
through tax assessments, and assessments can influence the value of homes, this chapter also
provides a snapshot of how the program influenced participating homes’ property taxes.
55
Retrived from at http://www.fortunebuilders.com/what-are-the-biggest-factors-in-determining-property-
value/ on February 23, 2016.
66
Population and Sampling Procedures
For the purpose of this study, the sample population was limited to HERO encumbered
homes within the county of Riverside that participated in the program within the first 14 months
of the program (December 2011 through March 2013). Because Riverside communities exist
within primarily rural or suburban settings, the researcher qualified one-hundred HERO
encumbered homes that provided a data set of no more than 5 comparable properties sold within
a 5-mile radius of the participating property during the study period. Using the variables of year
built, square footage, and number of bedrooms and bathrooms, the researcher reviewed
properties from the following communities within Riverside County: Banning; Canyon Lake;
Corona; Hemet; Lake Elsinore; Menifee, Moreno Valley; Perris; Riverside; Romoland; San
Jacinto; Sun City; Temecula; Wildomar; and Winchester. The median age of participating
homes in this study was 25 years with the oldest participating home built in 1945 and the newest
in 2009. The average size of participating homes was 1,915 square feet, with 3.8 bedrooms and
3 bathrooms. Historic sale information made available through County Assessor’s office showed
that more than half of the homes in this assessment were last sold between 2006 and 2014.
Methodology
The analysis for this study was conducted within the months of January through April of
2014, through the development of comps using an Excel based comparative analysis procedure
typically conducted by real estate agents when preparing comps for their clients. Property listing
databases such as Zillow and Trulia provide estimated property value information using their
individual predictive modeling analysis that rely on sale prices of homes, and property tax
information as made available through county assessor office websites. While listing sites such
as Zillow and Trulia are popular search engines among average consumers, real estate
67
professionals rely on the Multiple Listing Service (MLS) program because the property sale
listings are updated regularly and because the databases are owned, maintained and monitored by
real estate officers and agents. MLS is the most used listing database by real estate agents.
Collateral DNA is a comprehensive property database system owned by FNC, that provides
detailed information on properties to include sales histories, tax information, land use,
foreclosure activities, and more importantly aggregated appraisal and public record details for
properties throughout the United States. Collateral DNA is used to assess a property’s risk level
for lending purposes. For this comparative analysis the researcher relied on secondary, and very
limited property information, provided through Collateral DNA and the MLS using variables
discussed in this chapter.
While property location, square footage, number of bedrooms and bathrooms for sold
homes were easily filtered through Collateral DNA and MLS for participating community, the
‘year built’ variable was more challenging to match within the study area. As such, the
researcher relied on the following policy factors to define the ‘year built’ dataset for this
assessment: a) the creation of Building Title 24 in late 1970; b) the establishment of more
formal building standards in the 1980s; c) formalizing building code enforcement and the
establishment of a State Fire Marshall between 1990 to 1994; and d) the refinement of Title 24
standards as well as expansion of building code enforcement on the local level between 1995 to
2004. The aforementioned policy milestones were major influencers within the construction of
homes throughout the State, including the County of Riverside, and as outlined within Chapter
II. As such, the following year built categories, based upon the aforementioned building code
milestones, contributed to the development of comps for this study: a) 1979 and earlier; b) 1980
to 1990; c) 1990 to 1994; d) 1995 to 2004; and e) 2005 and later.
68
Data Analysis
Based on the comps developed for this analysis, HERO encumbered homes experienced
an average increase of 63 percent in property value compared to non-participating homes that
were sold within a 5 mile radius. Moreover, HERO participating homes experienced a 62
percent increase in property taxes on average, or approximately $200 a month. Homeowners that
installed solar photo voltaic systems experienced an average of 38 percent increase in their
property value. Homeowners that installed solar photo voltaic systems also experienced an
average 62 percent increase in their property taxes, or an approximate $250 per month. The
average size of homes that installed solar photo voltaic systems is 2,957 SF. Homeowners that
installed heating and cooling improvements experienced an average 75.6 percent increase in
property value. Property owners that installed heating and cooling improvements also
experienced an average 64 percent increase in their property taxes, or an approximate $115 per
month. In March of 2014, the average value of selected HERO homes was $375,850 while the
median value was $335,170. Within the same period, the average sale price of homes within a 5-
mile radius of participating HERO homes was $316,273, while the median was $302,214.
Summary
This chapter addressed the following question: As PACE loans are repaid through an
owner’s property tax assessments, what impact, if any, does HERO have on property value? A
property data comparative analysis conducted for one hundred HERO encumbered homes within
the first quarter of 2014 found that HERO had a positive impact on property values, while also
increasing property taxes by more than 60 percent, or about $200 a month. Comps prepared
69
within 15 communities of western Riverside County revealed that HERO encumbered homes
experienced an average of 62 percent increase in property value as compared to comparable
homes that sold during the study period. Heating and cooling improvements within HERO
homes had a more positive effect on overall project cost, and home valuation, as compared to
photo-voltaic improvements. On average, HERO encumbered homes were valued $60,000
higher than comparable non-HERO homes that were sold within a 5 mile radius of participating
homes.
70
CHAPTER V
HERO ECONOMIC IMPACT ASSESSMENT
Introduction
This chapter will address the following research question: As HERO expanded during an
economically challenging time for municipalities outside of WRCOG’s jurisdiction, what
economic impact, if any, does HERO have on participating municipalities? Within the PACE
framework, opportunities for collaboration exist for the following stakeholders: policymakers,
private investors, energy equipment manufacturers, and construction contractors. The economic
opportunities for public-private partnerships within manufacturing, green construction and
building sectors were illustrated in a US Green Building Council (USGBC) study by Booz Allen
Hamilton. Within the USGBC study, the Council reported that from 2000 through 2008, the
green construction market that accounted for energy upgrades in buildings and homes, generated
more than $100 billion in gross domestic product and wages, whereas from 2009 through 2013
the economic impact within the same market doubled.
56
A review of eight separate case studies
conducted by PACENow, the largest clearinghouse center for information on PACE, identified
that the top attractants to energy improvements for home and business owners included: (a) the
improvement of overall building performance and comfort; (b) energy reduction; and (c) cash
savings.
57
56
USGBC. (2013). US Green Building Council Green Jobs Study. Retrieved from USGBC website:
http://www.usgbc.org/Docs/Archive/General/Docs6435.pdf on August 15, 2013.
57
2013, PACE Case Studies. Retrieved from www.pacenow.org on October 15, 2014.
71
Since its inception the HERO program has expanded to include more than ninety
communities throughout Southern California; however, this report focused primarily on data
derived from the Western Riverside County region from December of 2011 through March of
2013. To answer the final research question for this dissertation, a regional economic impact
assessment (EIA) was completed utilizing the well-known Southern California Planning Model
(SCPM) and Impact Analysis for Planning (IMPLAN) input-output analysis.
Population and Sampling Procedures
The secondary data for this portion of the study was obtained from Renovate America
Inc., and represented the residents and contractors that participated within the first fourteen
months of the program (December 2011 through March 2013). Data sets that were utilized
included property addresses, locations of contractors companies, energy efficient products
installed, and dollar values for approved projects and actual installs. Data sets for the HERO
study were compiled referencing 1,936 properties. As contracts for projects were obtained
primarily through contractors’ word of mouth (i.e. door to door sales), data sets included project
information and associated contractor information that completed the HERO projects.
As previously mentioned, program beneficiaries were all located within the western
Riverside County area while contractors stemmed from other counties within the SCAG region
(Ventura, San Bernardino, Orange and Los Angeles counties), creating leakages that were
assessed as part of the EIA. The following figure (Figure 11) illustrates the location of
participating properties, and those contractors that completed approved projects.
72
Figure 11. Properties and contractors in the HERO Program
Methodology
The Southern California Planning Model (SCPM), an IMPLAN input-output model was
primarily used for this portion of the study because it is a network-economic-spatial model that
was specifically designed upon codes specific to the SCAG region. The model was originally
developed and used to assess “the spatial and sectoral economic consequences of terrorist threat
scenarios affecting Southern California”
58
. However, because the study involves a region that is
within the limits of SCAG, with economic sectors within the region already integrated into the
model, the SCPM made it possible to trace the regional economic impacts for HERO at a high
58
Pan, Q., H.W. Richardson, P.Gordon and J. Moore. (2009). The Economic Impacts of a Terrorist
Attack on the Downtown Los Angeles Financial District. Spatial Economic Analysis, Vol.4, No. 2,
213-239.
73
level of sectoral disaggregation.
59
Figure 12 illustrates the flow of information and allocations
within the model, as it pertains to the SCAG region.
Figure 12. SCPM Data Flows and Calculations
Data Analysis
According to EIA, loans issued under the HERO program from December 2011 through
March 2013 totaled $30,501,750.99. The EIA cited a study completed by GreenHomes America
that reported that an average home retrofit project cost homeowners approximately $10,000.
60
59
Pan, Q. (2013). Economic Impact Analysis for the Home Energy Retrofit Opportunity Program of
Renovate America, Inc.
60
Pozdena R. and Josephson A. (2011). Economic Impact Analysis of Property Assessed Clean Energy
Programs (PACE), Research performed by ECONorthwest for PACENow.
74
The HERO program identified that homeowners within the program, on average, spent $9,867.92
on energy improvement with windows and doors (1,235). Windows and doors accounted for the
highest number of equipment installed within homes during the study period. See Table 8 for a
breakdown of material and labor costs associated with the 1,936 properties studied. Labor costs
were calculated at approximately $15,933,000, while material costs came out to about
$14,570,000.
Table 8. Summary of the Labor Costs and Material Costs for Product Installation
IMPLAN
Designation
NAISC
For
Manufacturer
Co
unt
Initial
Request
Approved
Amount
Material
Ratio
Material
Costs Labor Costs
Wood windows
and doors and
millwork
manufacturing 321911
12
35 $7,471,939 $7,459,159 45% $3,356,622 $4,102,538
Asphalt shingle
and coating
materials
manufacturing 324122
11
1 $1,526,179 $1,520,293 45% $684,132 $836,161
Synthetic rubber
manufacturing 325220 89 $372,198 $371,599 45% $167,219 $204,379
Adhesive
manufacturing 325520 16 $18,422 $18,422 45% $8,290 $10,132
Urethane and
other foam
product (except
polystyrene)
manufacturing 326150 4 $10,340 $10,340 45% $4,653 $5,687
Other plastics
product
manufacturing 326191 4 $4,053 $4,054 45% $1,824 $2,230
Mineral wool
manufacturing 327993 34 $79,717 $79,964 45% $35,983 $43,979
Valve and fittings
other than
plumbing
manufacturing 332919 3 $12,655 $12,655 45% $5,695 $6,960
Other
fabricated metal
manufacturing 332999 34 $94,332 $94,332 45% $42,449 $51,882.60
75
Air
purification and
ventilation
equipment
manufacturing 333413 92 $565,414 $565,415 45% $254,437 $310,978
Heating
equipment
(except warm air
furnaces)
manufacturing 333414 63 $214,268 $214,267 45% $96,420 $117,847
Air
conditioning,
refrigeration, and
warm air heating
equipment
manufacturing 333415
73
8 $7,884,600 $7,867,754 45% $3,540,489 $4,327,265
Semicon
ductor and
related device
manufacturing 334413
55
8 $12,249,923 $12,045,274 52% $6,263,542 $5,781,731
Lighting
fixture
manufacturing 335121 7 $8,259 $8,259 45% $3,717 $4,542
Small
electrical
appliance
manufacturing 335210
10
3 $230,926 $229,966 45% $103,485 $126,481
SUM 3091 $30,743,229 $30,501,751
$14,568,957 $15,932,794
As far as macroeconomic impacts go, HERO spending within Western Riverside County
created a total of 259 jobs and approximately $53 million in earnings (regionally) within the first
fourteen months of the program. Regional leakages occurred throughout the SCAG region and
within the five counties of San Bernardino, Los Angeles, Orange, Ventura, and Riverside. HERO
spending supported 60 jobs and $12 million in Riverside County, with over $20 million in
regional leakages. The following Table 9 and Figure 13 represent the regional output as
summarized above.
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Table 9. Economic Impact of H.E.R.O Program in the Five County SCAG Region
Output ($1,000s) Jobs
Direct Indirect Induced Total* Direct Indirect Induced Total*
City of
Riverside 4,362 102 155 4,618 22 1 1 24
County of
Los
Angeles 1,673 3,388 4,399 9,460 7 19 30 55
County of
Orange 5,288 1,201 1,589 8,079 24 7 11 41
County of
Ventura 0 242 357 599 0 1 2 4
County of
Riverside 11,007 434 626 12,067 52 3 4 59
County of
San
Bernardino 1,383 508 648 2,539 6 3 5 14
Sum of
Five
Counties 19,351 5,774 7,619 32,744 89 33 52 174
Regional
Leakages 11,151 5,196 3,736 20,082 34 27 25 86
Total 30,502 10,970 11,354 52,826 123 60 77 259
77
Figure 13. Dollar Value of Total Impact by TAZ
Summary
This chapter addressed the following research question: As HERO expanded during an
economically challenging time for municipalities outside of WRCOG’s jurisdiction, what
economic impact, if any, does HERO have on participating municipalities? The EIA completed
for this study focused primarily on data derived from the Western Riverside County region from
December of 2011 through March of 2013. A program overview was provided along with a
regional economic impact assessment utilizing the well-known Southern California Planning
Model (SCPM) and IMPLAN input-output analysis.
78
Results of this research indicated that:
• HERO spending within Western Riverside County created a total of 259 jobs and
approximately $53 million in earnings within the first fourteen months for the Southern
California Association of Governments (SCAG) region covering five counties.
• HERO spending supported 60 jobs and $12 million in Riverside County, with over $20
million in regional (SCAG) leakages within the first 14 months.
• Programs like HERO support trends that show lower default rates among home loans tied
to energy efficient homes.
The Methodology and Findings section also illustrated economic leakages occurred within other
counties within the Southern California Association of Governments (SCAG) region that
included the counties of Los Angeles, Orange, Ventura, and San Bernardino.
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CHAPTER VI
PACE PROGRAM CHALLENGES
Introduction
The use of PACE to mitigate information, and financing challenges, related to the energy
efficiency gap phenomenon, can be effective to an extent. This dissertation illustrated that
PACE is effective as long as the leadership and economic environment within a municipality
supports the program’s success. However, as HERO has only been in operation less than five
years, as of the date of this paper, and newly formed PACE programs such as FigTree and
CaliforniaFirst are in their infancy stages, many of PACE’s imperfections are not yet fully
known. This chapter, is to discuss challenges that are known today, as well as potential
challenges, associated with the PACE program. While this portion of the paper was not within
the original scope of the dissertation, the brief discussions are added to provide a balanced
perspective of the PACE program.
FHFA Ruling on PACE Programs within United States
The biggest challenge with PACE that has been discussed throughout this paper, is the
FHFA directive against such programs. The development of PACE as a property tax initially
meant that homeowners could sell their homes and not be liable for the loan, as the tax is tied to
real property. However, because of the FHFA’s public stance against the first lien nature of
PACE programs, homeowners now face the challenge of either paying off the loan prior to any
refinance or home sale, or negotiating certain payment terms with a potential buyer. The
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following overview summarizes the events related to the FHFA’s stance against PACE and how
it impacted the performance of PACE programs within California (and in large part the whole of
the United States). Please note that these points were extracted from a March 19, 2013 Ninth
Circuit Court of Appeals Opinion by Judge Murguia:
61
July 2008: California adopted State legislation (Assembly Bill 811) to support PACE
programs statewide.
June 2009: FHFA director issued a letter of concern regarding PACE programs.
May 2010: Fannie Mae and Freddie Mac issued a letter to the home mortgage industry
against the first lien nature of PACE programs.
July 2010: FHFA issued a “Statement on Certain Energy Retrofit Loan Programs” that
questioned the benefits and implications of PACE financing programs. FHFA further
issued a directive to Enterprises and banks over which it exercised its regulatory
authority, thereby tightening requirements against properties within PACE sponsored
jurisdictions. The State of California, certain counties and municipalities, as well as
the Sierra Club responded to the FHFA’s action by filing a lawsuit against the
agency, claiming that the agency acted outside of its jurisdiction when it issued a
directive that suspended local PACE programs and did not follow the proper noticing
procedures as outlined within the Administrative Procedure Act.
August 2010: Enterprises issued letters to mortgage lenders that informed them that
Enterprises would not purchase mortgage loans tied to PACE programs because of
potential risks that such programs posed for homeowners. The Enterprises would
avoid financing PACE-encumbered homes or homeowners would be required to pay
61
March 19, 2013. County of Sonoma; People of the State of California; Sierra Club; City of Palm Desert,
County of Placer versus Federal Housing Finance Agency. Case No. 12-16986. Opinion by Judge
Murguia
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off the PACE loan prior to any mortgage refinance consideration by Fannie Mae or
Freddie Mac. By the end of 2010, the FHFA’s actions either suspended or eliminated
residential PACE programs throughout the United States. Of the four programs
outlined in Table 1 of this dissertation, only one program survived the federal
directives, but it experienced a significant decline in funding and public interest.
February 2011: FHFA issued a letter to Enterprises further supporting actions to refrain
from purchasing loans “secured by properties with outstanding first lien PACE
obligations.”
62
March 2013: The Ninth Circuit Court of Appeals dismissed the lawsuit against the
FHFA’s directive, identifying that the agency’s directive was within its jurisdiction as
conservator of the Enterprises. Federal regulation 12 U.S.C. ## 4513(a)(1)(B)
required that the FHFA “must ensure that the Enterprises operate ‘in a safe and sound
manner’, ‘foster liquid, efficient, competitive and resilient national housing finance
markets’ and operate ‘consistent with the public interest’ and comply with all
applicable laws.” In providing these assurances to the American public, courts were
prohibited from exercising any powers over the FHFA’s actions; as such, the Ninth
Circuit Court of Appeals “vacated” prior court orders and “dismissed” the case.
After the FHFA’s directive of 2010, FHFA Director Melvin L. Watt made the following
statement before the U.S. House of Representatives Committee of Financial Services on January
27, 2015, re-iterating the Agency’s stance behind its 2010 directive on PACE:
Certain Super Priority Lien Programs and Risk to the Enterprises
62
Federal Housing Finance Agency. (2011, February 28). PACE Programs. Retrieved from
http://www.nlc.org/documents/Influence%20Federal%20Policy/Advocacy/Regulatory/stmt-fhfa-
guidance-pace-feb2011.pdf.
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During 2014, FHFA has continued to monitor and assess two areas of state-level
actions that threaten the legal priority of single-family loans owned or guaranteed by
Fannie Mae and Freddie Mac: (1) through certain energy retrofit financing programs
structured as tax assessments and (2) through granting priority rights in foreclosure
proceedings for homeowner associations.
While FHFA is not opposed to energy retrofit financing programs that allow
homeowners to improve energy efficiency, these programs must be structured to
ensure protection of the core financing for the home and, therefore, cannot undermine
the first-lien status of Fannie Mae and Freddie Mac mortgages. Concerning certain
energy retrofit financing programs, such as first-lien Property Assessed Clean Energy
(PACE) programs, FHFA has reiterated that Fannie Mae and Freddie Mac’s policies
prohibit the purchase of a mortgage on property that has a first-lien PACE loan
attached to it. This restriction has two potential implications for borrowers. First, a
homeowner with a first-lien PACE loan cannot refinance their existing mortgage with
a Fannie Mae or Freddie Mac mortgage. Second, anyone wanting to buy a home that
already has a first-lien PACE loan cannot use a Fannie Mae or Freddie Mac loan for
the purchase. In addition to aggressive enforcement of these existing policies, FHFA
is continuing to evaluate or explore other possible remedies and legal actions to
protect the Enterprises’ lien position.
Additionally, FHFA has taken legal action in some instances in which unpaid
homeowners association dues may be deemed under the laws of a state to be senior to
preexisting mortgage liens owned or guaranteed by Fannie Mae or Freddie Mac on a
homeowner’s property. As conservator, FHFA has an obligation to protect Fannie
Mae’s and Freddie Mac’s rights, and will aggressively do so.
63
Potential Challenges in PACE Implementation
In addition to FHFA challenges, there are other challenges that municipalities should
consider with regard to PACE. For municipalities seeking to establish a local PACE program for
residents, it is important to understand the development, administrative, legal and informational
challenges associated with such programs. While experienced municipalities, such as Colorado
and Sonoma County, have developed brochures and publications that help guide municipalities
interested in implementing PACE on a community level, every jurisdiction’s needs are different
63
Federal Housing Finance Agency. (2015, January 1). Statement of Melvin L. Watt Director, FHFA
before the US house of representatives committee of financial services. Retrieved from
http://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-of-Melvin-L-Watt-Director-FHFA-Before-
the-US-House-of-Representatives-Committee-on-Financial-Services-1272015.aspx on October 1, 2015.
83
and should therefore be weighed against available information in the market. Clearinghouse
resources such as PACENow or the Federal Department of Energy, provide a library of PACE
resources on a national level that can give municipalities an objective perspective on the benefits
of PACE.
Development and Administrative Costs
Challenges faced by policymakers considering PACE include program development and
administrative costs that can exceed millions of dollars in startup and legal fees for jurisdictions.
Moreover, once a program is established, the financial ability of a municipality to expand the
program to meet a growing demand can also be a challenge. Municipalities like Palm Desert and
Sonoma County managed PACE programs for their communities that were fully supported
through public funds. However, both programs did not have the financial infrastructure to
support growing demands within their communities. In recent years both municipalities have
explored and pursued alternative funding methods for their programs that rely on private capital.
Programs like HERO, that are fully backed by private investment, became an alternative for
many municipalities that wished to offer affordable green technologies to their communities, but
could not afford to set up a local PACE program themselves.
Program Information Full Disclosures
This dissertation provided a snapshot of existing PACE programs, as well as their
similarities and differences. Of importance to note, are the variations in interest rates and costs
of reserve funds to homeowners. Families that live within a jurisdiction that offer multiple
PACE programs may have more competitive programs and products to choose from, but should
be cautious of potential hidden program costs associated with their improvements of interest. As
84
illustrated by the Huffs’ story on Page 59, families should have a full understanding of how a
program’s rates and ongoing costs will impact their property taxes before signing with a
program. HERO was made popular through contractors’ word of mouth. Contractors that
installed green technologies utilized a door to door sales method to inform residents of available
technologies and financing opportunities through the PACE program. As contractors are key
points of contact for these programs, information regarding PACE programs may not always be
conveyed as thoroughly as needed. As such, municipalities and homeowners must be diligent in
obtaining as much information as possible on PACE programs that they may be considering.
Multiple PACE Programs
HERO is only within its fifth year of operation while other developing programs in the
State, such as CaliforniaFirst and FigTree, are in their infancy stage. A potential challenge that
municipalities could face in offering multiple PACE programs within their community, is the
possibility of homeowners holding two PACE liens on their property. For example, HERO does
not have any provisions in place that prohibit participating homeowners from installing other
green technologies on their properties that are funded through another program. Information on
the potential impacts of such a scenario, where a homeowner could hold multiple PACE liens on
their property, is not yet available. However, it is an interesting scenario to explore as there are a
few municipalities that offer more than one PACE program within their jurisdictions. For
example, the City of Palm Springs offers the Figtree, Y Greene Works, and HERO residential
PACE Programs for their communities, while LA County offers CaliforniaFirst and HERO to
their residents.
85
According to LA County, offering multiple programs would provide competitive
products and pricing to their residents.
64
Interestingly, the County is developing its own
program, known as the LA PACE program, that will absorb residential PACE contracts created
under HERO and CaliforniaFirst once it is established. Again, information on the potential
impacts of such a scenario, where a homeowner could hold multiple PACE liens on their
property, is not yet available. However, as such programs create potential long-term impacts on
property taxes, particularly where the life of loans are 10 to 20 years in length, municipalities
must be diligent in educating their communities on all potential risks, if any, of utilizing two
different programs on a single property.
PACE and Property Liens
More than 90% of all mortgage loan origins are backed by the FHFA
65
, which means the
FHFA’s stance against PACE is a significant point to consider for homeowners that are looking
to PACE for home improvements prior to a potential sale. On the other hand, on August 24,
2015, the Federal Housing Administration (FHA) issued guidance for the “Use of FHA
Financing on Homes with Existing PACE Liens and Flexible Underwriting through the Energy
Department’s Home Energy Score,” with support from the White House, in order to improve
homeowners’ access to energy efficiency improvements for their properties.
66
The FHA is an
insurer of home loans that protect lenders against losses from home mortgage defaults. As the
64
Los Angeles County. (2015). Los angeles county PACE. [Public Information] Retrieved from
http://www.lapace.org/residential/index.html.
65
Ping, J. (2011, October 12). Percentage of new mortgages backed by US government = 90%+.
[Money Blog]. Retrived from http://www.mymoneyblog.com/percentage-of-new-mortgages-backed-by-
us-government-90.html.
66
Golding, E. (2015, August 24). Guidance for use of FHA financing on homes with existing PACE liens
and flexible underwriting through energy department’s home energy score. Retrieved from
http://portal.hud.gov/hudportal/documents/huddoc?id=FTDO.pdf on October 1, 2015.
86
largest mortgage insurer in the world, it was created in 1934 under the National Housing Act of
1934 and made part of the Federal Department of Housing and Urban Development’s (HUD)
Office of Housing in 1965.
67
A requirement that the FHA made clear in its guidelines for PACE
programs is that FHA-insured mortgages have superior lien holdings on financed properties
while PACE liens take a subordinate position. As of the writing of this paper, California had not
yet adopted policies to support the subordination position of PACE loans on properties.
However, in late 2015, Renovate America worked with policymakers to develop policies that
would allow for a subordinate position on PACE financing, consistent with the FHA’s
guidance.
68
As for the FHFA, no such guidance has yet been issued.
PACE Loss Reserve Programs
Since the Court of Appeals’ decision on the FHFA’s actions, California Governor Jerry
Brown expanded upon Senate Bill 96 and the PACE Loss Reserve Program under the California
Alternative Energy and Advanced Transportation Financing Authority (CAEATFA). Changes to
Senate Bill 96 in 2013 added responsibilities to the CAEATFA, by requiring them to “develop
and administer a PACE risk mitigation program for PACE loans to increase their acceptance in
the marketplace and protect against the risk of default and foreclosure”.
69
The CAEATFA is a
public entity under the State Treasurer’s Office that is responsible for providing financing tools
“for facilities needed to develop and commercialize advanced transportation and alternative
67
The Federal Housing Administration (FHA). What is the federal housing administration. Retrieved
from http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory on October 5, 2015.
68
Berry, K. (2015, August 25). Banks win fha support in lien fight with PACE lenders. National
Mortgage News. Retrieved from http://www.nationalmortgagenews.com/news/compliance-
regulation/banks-win-fha-support-in-lien-fight-with-pace-lenders-1059805-1.html on October 5, 2015.
69
State of California. (2013, September 10). Senate Bill No. 96: Chapter 356. Section 26060.(a)(b).
Retrieved from the Legislative Counsel’s Digest: http://leginfo.ca.gov/pub/13-14/bill/sen/sb_0051-
0100/s_b96_bill_20130911_enrolled.pdf on November 10, 2013.
87
energy technologies that reduce air pollution, conserve energy and promote economic
development and jobs”.
70
The reserve fund set aside $50 million to support up to 10% of a
PACE loan.
To help mitigate FHFA concerns associated with potential mortgage loan defaults tied to
PACE programs, the PACE programs mentioned in this study participate in the 2013 California
(CAEATFA) PACE Loss Reserve Program. The CAEATFA program minimized risks to
lending entities that either financed, or were considering financing, properties encumbered by
PACE loans through the coverage of the following losses.
71
(A) Losses resulting from the first mortgage lender’s payment of any PACE
assessment paid while in possession of the property subject to the PACE
assessment. Losses may also include penalties and interest where they have
accrued through no fault of the first mortgage lender.
(B) In any forced sale for unpaid taxes or special assessments, losses incurred by the
first mortgage lender resulting from PACE assessments being paid before the
outstanding balance.
Summary
To date, the housing market is recovering while FHFA maintains its position against
PACE. Nonetheless the financing model under HERO has grown from eighteen communities in
2011 to more than three hundred communities in 2015, due to support from local policymakers
and leaders. While outcomes of this dissertation illustrated that PACE encumbered homes
70
http://www.treasurer.ca.gov/caeatfa/
71
State of California. Code of Regulations. Title 4. Business Regulations. Division 13. California
Alternative Energy and Advanced Transportation Financing Authority. Section 10082 (p .3). Retrieved
from Retrieved from http://www.treasurer.ca.gov/CAEATFA/pace/regulations/regulations.pdf on
September 20, 2015.
88
experienced an increase in property value, and PACE resulted in a positive economic impact for
participating communities, there are still many unknowns on the downsides of such programs.
Information on potential challenges of communities offering multiple PACE programs, or
homeowners that participate in two programs on a single property, are not yet available. The
benefits of PACE are well documented; however, municipalities and homeowners considering
pace must also be diligent in educating themselves on any potential risks, or any unknown costs,
associated with participating with any given PACE program as many of these programs are still
within their infancy stages.
In 2013, since the Court of Appeals’ decision on the FHFA’s actions, California
Governor Jerry Brown expanded upon Senate Bill 96 and the PACE Loss Reserve Program
under the CAEATFA. The CAEATFA is a public entity under the State Treasurer’s office that is
responsible for developing and administering a PACE risk mitigation program for lenders. The
reserve fund set aside $50 million to support up to 10% of a PACE loan. It is unknown at this
time if California’s mitigation plan for PACE would be accepted by the FHFA; however, a very
recent Federal Housing Administration (FHA) initiative provided support for the subordination
of PACE loans. The FHA expressed support for PACE programs throughout the United States by
issuing guidance to PACE lending institutions that support the subordination of PACE loans to
primary mortgage loans. Although the FHFA has not yet provided similar guidance for lenders,
Renovate America released statements identifying its support of the FHA’s PACE guidance.
Renovate America is working with State and local policymakers to implement policies that
would modify the first-lien standing of HERO loans, and gain support from the FHFA.
89
CHAPTER VII
SUMMARY
Introduction
During the formation of the HERO program in 2010, more than twenty states, including
the District of Columbia, had legislation in place to support the development of Property
Assessed Clean Energy (PACE) programs. More than ten programs (commercial and
residential) were in effect in various communities throughout the U.S.
72
The following themes
were true of PACE financing programs: a) programs were financed through public bond
offerings (taxing mechanisms combined with private investment) and were typically financed by
municipalities for their individual jurisdictions; b) products offered for financing were limited;
and c) an FHFA moratorium on residential PACE programs resulted in a national slow down,
suspension or elimination of the programs. WRCOG’s HERO program was not the first multi-
jurisdictional level PACE program in the nation, but it is the first to avoid the use of public funds
in the development and administration of the program. It is also the only residential PACE
program, to date, that has experienced incredible growth in spite of the FHFA’s concerns
regarding program impacts on the mortgage industry.
This doctoral project was developed with an interest in exploring three key questions
regarding HERO that were addressed in three separate chapters. This study utilized a data
comparative review, property value data analysis, and an economic impact assessment to answer
the following three research questions:
72
National Renewable Energy Laboratory. (2011, July). Economic impacts from the Boulder County,
Colorado, ClimateSmart Loan Program: Using PACE Financing. (Technical ReportNREL/TP-7A20-
52231). Retrieved from http://www.nrel.gov/docs/fy11osti/52231.pdf.
90
Chapter III: What makes the HERO program unique as compared to other PACE programs?
Chapter IV: As PACE loans are repaid through an owner’s property tax assessments, what
impact, if any, does HERO have on property value?
Chapter V: As HERO expanded during an economically challenging time for municipalities
outside of WRCOG’s jurisdiction, what economic impact, if any, does HERO
have on participating municipalities?
Chapter III illustrated that HERO was unique as compared to PACE programs that were
in effect prior to 2010, in that it was the first program that was fully financed through private
investment funds and administered by a joint powers authority. The public-private partnership
between a financing entity and a COG, allowed the program to grow beyond the limits of
Riverside County. And in fact, the success of the program made it a model for PACE programs
that were developed after 2010. Chapter III provided summary comparisons of PACE programs,
as well as a side by side comparison between HERO and another program that looked very
similar at first glance. Findings of the comparative exercise found a difference in: a) program
funding sources; b) the partnership structure and how the program is administered; c) program
interest rates; and d) qualifying projects. Following is a summary of findings:
A) HERO is administered by a public entity, while CaliforniaFirst is administered by
the financing entity;
B) The residential component of the CaliforniaFirst Program was delayed due to the
2010 FHFA directives, while HERO was launched in 2010;
C) The minimum project cost under HERO is $5,000 while the minimum project cost
under CaliforniaFirst is $50,000;
D) The interest rate for a 5-year term loan under HERO is 0.8 percent less than a 5-year
loan with CaliforniaFirst, while interest rates for 10-year, 15-year and 20-year loans
under HERO are about 0.5 to .2 percent higher than California First;
91
E) Loans with HERO cannot exceed 10 percent of the property’s market value at the
time of assessment, while loans with CaliforniaFirst cannot exceed 15 percent of the
property’s market value at the time of assessment.
Chapter IV answered the second research question by exploring HERO’s impact on
property values, including potential impacts on property taxes. A property data comparative
analysis conducted for one hundred HERO encumbered homes within the first quarter of 2014
found that HERO had a positive impact on property values, while also increasing property taxes
by more than 60 percent, or about $200 a month. Comps prepared within 15 communities of
western Riverside County revealed that HERO encumbered homes experienced an average of 62
percent increase in property value as compared to comparable homes that sold during the study
period. Heating and cooling improvements within HERO homes had a more positive effect on
overall project cost, and home valuation, as compared to photo-voltaic improvements. On
average, HERO encumbered homes were valued $60,000 higher than comparable non-HERO
homes that were sold within a 5 mile radius of participating homes.
Chapter V answered the third research question by exploring any economic impact that
HERO may have had on participating communities within the first fourteen months of the
program. Results of this research found that HERO: a) increased the number of green
technologies sold within the region; and b) created green construction jobs on a local and
regional level. More specifically, the economic impact analysis illustrated that HERO spending
within Western Riverside County created a total of 259 jobs and approximately $53 million in
earnings within the first fourteen months for the Southern California Association of
Governments (SCAG) region covering five counties. Moreover, HERO spending supported 60
jobs and $12 million in Riverside County, with over $20 million in regional (SCAG) leakages
92
within the first 14 months. Moreover, the economic impact analysis illustrated that economic
leakages occurred within the following counties in the Southern California Association of
Governments (SCAG) region: Riverside, Los Angeles, Orange, Ventura, and San Bernardino.
While outcomes of this dissertation illustrated that PACE encumbered homes
experienced increases in property values, and PACE resulted in positive economic impacts for
participating communities, there are still many unknowns on the downsides of such programs.
Information on potential challenges of communities offering multiple PACE programs, or
homeowners that participate in two programs on a single property, are not yet available. The
benefits of PACE are well documented; however, municipalities and homeowners considering
PACE must also be diligent in educating themselves on any potential risks, or any unknown
costs, associated with participating with any given PACE program as many of these programs
are still within their infancy stages.
93
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101
APPENDICES
102
APPENDIX A
California HERO Program Resolution
RESOLUTION NO. ______________
RESOLUTION OF THE BOARD OF SUPERVISORS OF THE COUNTY OF ________,
CALIFORNIA, CONSENTING TO INCLUSION OF PROPERTIES WITHIN THE
COUNTY’S UNINCORPORATED AREA IN THE CALIFORNIA HERO TO FINANCE
DISTRIBUTED GENERATION RENEWABLE ENERGY SOURCES, ENERGY AND
WATER EFFICIENCY IMPROVEMENTS AND ELECTRIC VEHICLE CHARGING
INFRASTRUCTURE AND APPROVING THE AMENDMENT TO A CERTAIN JOINT
POWERS AGREEMENT RELATED THERETO
WHEREAS, the Western Riverside Council of Governments (“Authority”) is a joint
exercise of powers authority established pursuant to Chapter 5 of Division 7, Title 1 of
the Government Code of the State of California (Section 6500 and following) (the “Act”)
and the Joint Power Agreement entered into on April 1, 1991, as amended from time to
time (the “Authority JPA”); and
WHEREAS, Authority intends to establish the California HERO Program to provide for
the financing of renewable energy distributed generation sources, energy and water
efficiency improvements and electric vehicle charging infrastructure (the
“Improvements”) pursuant to Chapter 29 of the Improvement Bond Act of 1911, being
Division 7 of the California Streets and Highways Code (“Chapter 29”) within counties
and cities throughout the State of California that elect to participate in such program;
and
WHEREAS, County of _________ (the “County”) is committed to development of
renewable energy sources and energy efficiency improvements, reduction of
greenhouse gases, protection of our environment, and reversal of climate change; and
WHEREAS, in Chapter 29, the Legislature has authorized cities and counties to assist
property owners in financing the cost of installing Improvements through a voluntary
contractual assessment program; and
WHEREAS, installation of such Improvements by property owners within the
jurisdictional boundaries of the counties and cities that are participating in the California
HERO Program would promote the purposes cited above; and
WHEREAS, the County wishes to provide innovative solutions to its property owners to
achieve energy and water efficiency and independence, and in doing so cooperate with
Authority in order to efficiently and economically assist property owners the County in
financing such Improvements; and
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WHEREAS, Authority has authority to establish the California HERO Program, which
will be such a voluntary contractual assessment program, as permitted by the Act, the
Authority JPA, originally made and entered into April 1, 1991, as amended to date, and
the Amendment to Joint Powers Agreement Adding the County of ____________ as an
Associate Member of the Western Riverside Council of Governments to Permit the
Provision of Property Assessed Clean Energy (PACE) Program Services within the
County (the “JPA Amendment”), by and between Authority and the County, a copy of
which is attached as Exhibit “A” hereto, to assist property owners within the
unincorporated area of the County in financing the cost of installing Improvements; and
WHEREAS, the County will not be responsible for the conduct of any assessment
proceedings; the levy and collection of assessments or any required remedial action in
the case of delinquencies in the payment of any assessments or the issuance, sale or
administration of any bonds issued in connection with the California HERO Program.
NOW, THEREFORE, BE IT RESOLVED THAT:
1. This Board of Supervisors finds and declares that properties in the County’s
incorporated area will be benefited by the availability of the California HERO Program to
finance the installation of the Improvements proposed in the Resolution of Intention.
2. This Board of Supervisors consents to inclusion in the California HERO Program of
all of the properties in the unincorporated area within the County and to the
Improvements proposed in the Resolution of Intention, upon the request by and
voluntary agreement of owners of such properties, in compliance with the laws, rules
and regulations applicable to such program; and to the assumption of jurisdiction
thereover by Authority for the purposes thereof.
3. The consent of this Board of Supervisors constitutes assent to the assumption of
jurisdiction by Authority for all purposes of the California HERO Program and authorizes
Authority, upon satisfaction of the conditions imposed in this resolution, to take each
and every step required for or suitable for financing the Improvements, including the
levying, collecting and enforcement of the contractual assessments to finance the
Improvements and the issuance and enforcement of bonds to represent such
contractual assessments.
4. This Board of Supervisors hereby approves the JPA Amendment and authorizes the
execution thereof by appropriate County officials.
5. County staff is authorized and directed to coordinate with Authority staff to facilitate
operation of the California HERO Program within the County, and report back
periodically to this Board of Supervisors on the success of such program.
6. This Resolution shall take effect immediately upon its adoption. The Clerk of the
Board of Supervisors is directed to send a certified copy of this resolution to the
Secretary of the Authority Executive Committee.
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(Insert Voting Block for the County)
EXHIBIT A
AMENDMENT TO THE JOINT POWERS AGREEMENT ADDING COUNTY OF
____________ AS
AS AN ASSOCIATE MEMBER OF THE WESTERN RIVERSIDE COUNCIL OF
GOVERNMENTS TO PERMIT THE PROVISION OF CALIFORNIA HERO PROGRAM
SERVICES WITH SUCH COUNTY
This Amendment to the Joint Powers Agreement (“JPA Amendment”) is made and
entered into on the ___day of _____, 2013, by County of _______________________
(“County”) and the Western Riverside Council of Governments (“Authority”) (collectively
the “Parties”).
RECITALS
WHEREAS, Authority is a joint exercise of powers authority established pursuant to
Chapter 5 of Division 7, Title 1 of the Government Code of the State of California
(Section 6500 and following) (the “Joint Exercise of Powers Act”) and the Joint Power
Agreement entered into on April 1, 1991, as amended from time to time (the “Authority
JPA”); and
WHEREAS, as of October 1, 2012, Authority had 18 member entities (the “Regular
Members”).
WHEREAS, Chapter 29 of the Improvement Bond Act of 1911, being Division 7 of the
California Streets and Highways Code (“Chapter 29”) to authorize cities, counties, and
cities and counties to establish voluntary contractual assessment programs, commonly
referred to as a Property Assessed Clean Energy (“PACE”) program, to fund various
renewable energy sources, energy and water efficiency improvements, and electric
vehicle charging infrastructure (the “Improvements”) that are permanently fixed to
residential, commercial, industrial, agricultural or other real property; and
WHEREAS, Authority intends to establish a PACE program to be known as the
“California HERO Program” pursuant to Chapter 29 as now enacted or as such
legislation may be amended hereafter, which will authorize the implementation of a
PACE financing program for cities and county throughout the State; and
WHEREAS, County desires to allow owners of property within its jurisdiction to
participate in the California HERO Program and to allow Authority to conduct
proceedings under Chapter 29 to finance Improvements to be installed on such
properties; and
105
WHEREAS, this JPA Amendment will permit County to become an associate member
of Authority and to participate in California HERO Program for the purpose of facilitating
the implementation of such program within the jurisdiction of County; and
WHEREAS, pursuant to Government Code sections 6500 et seq., the Parties are
approving this JPA Agreement to allow for the provision of PACE services, including the
operation of a PACE financing program, within the unincorporated territory of County;
and
WHEREAS, the JPA Amendment sets forth the rights, obligations and duties of County
and Authority with respect to the implementation of the California HERO Program within
the unincorporated territory of County.
MUTUAL UNDERSTANDINGS
NOW, THEREFORE, for and in consideration of the mutual covenants and conditions
hereinafter stated, the Parties hereto agree as follows:
A. JPA Amendment.
1. The Authority JPA. County agrees to the terms and conditions of the Authority JPA,
attached.
2. Associate Membership. By adoption of this JPA Amendment, County shall become
Associate Member of Authority on the terms and conditions set forth herein and the
Authority JPA and consistent with the requirements of the Joint Exercise of Powers Act.
The rights and obligations of County as an Associate Member are limited solely to those
terms and conditions expressly set forth in this JPA Amendment for the purposes of
implementing the California HERO Program within the unincorporated territory of
County. Except as expressly provided for by the this JPA Amendment, County shall not
have any rights otherwise granted to Authority’s Regular Members by the Authority JPA,
including but not limited to the right to vote on matters before the Executive Committee
or the General Assembly, right to amend or vote on amendments to the Authority JPA,
and right to sit on committees or boards established under the Authority JPA or by
action of the Executive Committee or the General Assembly, including, without
limitation, the General Assembly and the Executive Committee. County shall not be
considered a member for purposes of Section 9.1 of the Authority JPA.
3. Rights of Authority. This JPA Amendment shall not be interpreted as limiting or
restricting the rights of Authority under the Authority JPA. Nothing in this JPA
Amendment is intended to alter or modify Authority Transportation Uniform Mitigation
Fee (TUMF) Program, the PACE Program administered by Authority within the
jurisdictions of its Regular Members, or any other programs administered now or in the
future by Authority, all as currently structured or subsequently amended.
B. Implementation of California HERO Program within County Jurisdiction.
1. Boundaries of the California HERO Program within County Jurisdiction. County shall
determine and notify Authority of the boundaries of the unincorporated territory within
106
County’s jurisdiction within which contractual assessments may be entered into under
the California HERO Program (the “Program Boundaries”), which boundaries may
include the entire unincorporated territory of County or a lesser portion thereof.
2. Determination of Eligible Improvements. Authority shall determine the types of
distributed generation renewable energy sources, energy efficiency or water
conservation improvements, electric vehicle charging infrastructure or such other
improvements as may be authorized pursuant to Chapter 29 (the “Eligible
Improvements”) that will be eligible to be financed under the California HERO Program.
3. Establishment of California HERO Program. Authority will undertake such
proceedings pursuant to Chapter 29 as shall be legally necessary to enable Authority to
make contractual financing of Eligible Improvements available to eligible property
owners with the California HERO Program Boundaries.
4. Financing the Installation of Eligible Improvements. Authority shall develop and
implement a plan for the financing of the purchase and installation of the Eligible
Improvements under the California HERO Program.
5. Ongoing Administration. Authority shall be responsible for the ongoing administration
of the California HERO Program, including but not limited to producing education plans
to raise public awareness of the California HERO Program, soliciting, reviewing and
approving applications from residential and commercial property owners participating in
the California HERO Program, establishing contracts for residential, commercial and
other property owners participating in such program, establishing and collecting
assessments due under the California HERO Program, adopting and implementing any
rules or regulations for the PACE program, and providing reports as required by
Chapter 29.
County will not be responsible for the conduct of any proceedings required to be taken
under Chapter 29; the levy or collection of assessments or any required remedial action
in the case of delinquencies in such assessment payments; or the issuance, sale or
administration of the Bonds or any other bonds issued in connection with the California
HERO Program.
6. Phased Implementation. The Parties recognize and agree that implementation of the
California HERO Program as a whole can and may be phased as additional other cities
and counties execute similar agreements. County entering into this JPA Amendment
will obtain the benefits of and incur the obligations imposed by this JPA Amendment in
its jurisdictional area, irrespective of whether cities or counties enter into similar
agreements.
C. Miscellaneous Provisions.
1. Withdrawal. County or Authority may withdraw from this JPA Amendment upon six (6)
months written notice to the other party; provided, however, there is no outstanding
indebtedness of Authority within County. The provisions of Section 6.2 of the Authority
JPA shall not apply to County under this JPA Amendment.
107
2. Mutual Indemnification and Liability. Authority and County shall mutually defend,
indemnify and hold the other party and its directors, officials, officers, employees and
agents free and harmless from any and all claims, demands, causes of action, costs,
expenses, liabilities, losses, damages or injuries of any kind, in law or equity, to property
or persons, including wrongful death, to the extent arising out of the willful misconduct
or negligent acts, errors or omissions of the indemnifying party or its directors, officials,
officers, employees and agents in connection with the California HERO Program
administered under this JPA Amendment, including without limitation the payment of
expert witness fees and attorneys fees and other related costs and expenses, but
excluding payment of consequential damages. Without limiting the foregoing, Section
5.2 of the Authority JPA shall not apply to this JPA Amendment. In no event shall any of
Authority’s Regular Members or their officials, officers or employees be held directly
liable for any damages or liability resulting out of this JPA Amendment.
3. Environmental Review. Authority shall be the lead agency under the California
Environmental Quality Act for any environmental review that may required in
implementing or administering the California HERO Program under this JPA
Amendment.
4. Cooperative Effort. County shall cooperate with Authority by providing information
and other assistance in order for Authority to meet its obligations hereunder. County
recognizes that one of its responsibilities related to the California HERO Program will
include any permitting or inspection requirements as established by County.
5. Notice. Any and all communications and/or notices in connection with this JPA
Amendment shall be either hand-delivered or sent by United States first class mail,
postage prepaid, and addressed as follows:
Authority:
Western Riverside Council of Governments
4080 Lemon Street, 3rd Floor
MS1032
Riverside, CA 92501-3609
Attn: Executive Director
County:
[TO BE INSERTED]
6. Entire Agreement. This JPA Amendment, together with the Authority JPA, constitutes
the entire agreement among the Parties pertaining to the subject matter hereof. This
JPA Amendment supersedes any and all other agreements, either oral or in writing,
among the Parties with respect to the subject matter hereof and contains all of the
covenants and agreements among them with respect to said matters, and each Party
108
acknowledges that no representation, inducement, promise of agreement, oral or
otherwise, has been made by the other Party or anyone acting on behalf of the other
Party that is not embodied herein.
7. Successors and Assigns. This JPA Amendment and each of its covenants and
conditions shall be binding on and shall inure to the benefit of the Parties and their
respective successors and assigns. A Party may only assign or transfer its rights and
obligations under this JPA Amendment with prior written approval of the other Party,
which approval shall not be unreasonably withheld.
8. Attorney’s Fees. If any action at law or equity, including any action for declaratory
relief is brought to enforce or interpret the provisions of this Agreement, each Party to
the litigation shall bear its own attorney’s fees and costs.
9. Governing Law. This JPA Amendment shall be governed by and construed in
accordance with the laws of the State of California, as applicable.
10. No Third Party Beneficiaries. This JPA Amendment shall not create any right or
interest in the public, or any member thereof, as a third party beneficiary hereof, nor
shall it authorize anyone not a Party to this JPA Amendment to maintain a suit for
personal injuries or property damages under the provisions of this JPA Amendment.
The duties, obligations, and responsibilities of the Parties to this JPA Amendment with
respect to third party beneficiaries shall remain as imposed under existing state and
federal law.
11. Severability. In the event one or more of the provisions contained in this JPA
Amendment is held invalid, illegal or unenforceable by any court of competent
jurisdiction, such portion shall be deemed severed from this JPA Amendment and the
remaining parts of this JPA Amendment shall remain in full force and effect as though
such invalid, illegal, or unenforceable portion had never been a part of this JPA
Amendment.
12. Headings. The paragraph headings used in this JPA Amendment are for the
convenience of the Parties and are not intended to be used as an aid to interpretation.
13. Amendment. This JPA Amendment may be modified or amended by the Parties at
any time. Such modifications or amendments must be mutually agreed upon and
executed in writing by both Parties. Verbal modifications or amendments to this JPA
Amendment shall be of no effect.
14. Effective Date. This JPA Amendment shall become effective upon the execution
thereof by the Parties hereto.
IN WITNESS WHEREOF, the Parties hereto have caused this JPA Amendment to be
executed and attested by their officers thereunto duly authorized as of the date first
above written.
109
APPENDIX B
Economic Impact Analysis for the Home Energy Retrofit Opportunity Program of
Renovate America, Inc.
Final Report by Dr. Qisheng Pan
June 12, 2013
1. Introduction
Renovate America, Inc. provided data about residents and contractors who had projects funded by The
HERO Program between December 2011 (Program launch)and April 1, 2013 . The last data set sent by
Renovate America, Inc. on April 3, 2013 records the information of the latest participants, including
property address, exact location with longitude and latitude, name, address, and exact location (longitude
and latitude) of its contractor company, the amount of loan requested and approved, energy saving
product installed, NAICS codes for installer, wholesaler, and ma manufacturer, etc. A summary table by
product category was also provided.
2. Data Preprocessing
The data set provided by Renovate America was preprocessed step by step.
1. The longitude and latitude information is used to pinpoint the 1,936 properties and 200
contractors in the region (see Figure 1). All the properties are located in Riverside County while most
contractors spread out in the four Counties of Southern California, including Riverside, San Bernardino,
Orange, and Los Angeles.
2. A total of 3,091 separate product installation requests were submitted by the 1,936 properties. A
total of 2,895 or 93.66% of these requests were 100% funded by the H.E.R.O program. The minimum
percentage of funding received is 43.76% while the maximum is 200%. The total amount of initial loan
requests is $30,743,229.9 while the total amount of approved loan requests is $30,501,750.99, indicating
99.21% of total amount of initial requests was approved in the program.
3. The total amount of $30,501,750.99 was funded for the 3,091 product installations submitted by
the 1,936 properties that had projects funded by the H.E.R.O program. They were aggregated by NAICS
(North American Industry Classification System) Code for Manufactures, which was converted to
IMPLAN code to facilitate economic impact analysis in the following steps. The conversion between
NAICS code and IMPLAN code was based on a bridge table provided by IMPLAN. The sector of
semiconductor and related device manufacturing (NAICS 334413 or IMPLAN 243) has the highest dollar
amount, which is $12,045,273.58.
110
The average funded financing amount per product installation in the H.E.R.O program is $9,867.92
($30,501,750.99 is divided by 3,091) while the average financing amount i funded for each property is
$15,755.04 ($30,501,750.99 is divided by 1,936). The largest average cost per installation is $21,623.69
for Solar PV, which accounts for 39.49% of total dollar amount and 18.02% of total product installations.
More details about the average cost by product category are shown in Table 1.
According to the report from the GreenHomes America, a nationwide leading residential energy services
company, average materials account for 45% and labor account for 55% of the total costs in energy
efficient measures, which includes wood windows and doors; insulation; sealing; indoor and outdoor
water efficient devices; and energy efficient Heating, Ventilation, and Air Conditioning (HVAC) systems
(Pozdena and Josephson, 2011). According to a report by the Lawrence Berkeley National Lab in 2010,
materials account for 52% and labor costs represent 48% of the total costs of renewal energy projects,
which includes Solar Photovoltaic (PV) (Lushetsky 2010). These ratios are used to split materials and
labor costs in energy efficient and renewable energy projects, shown in Table 2. The total materials costs
are $14,568,957.10 and the labor costs are $15,932,793.89.
4. Economic Impact Analysis
This study utilizes the well-known Southern California Planning Model (SCPM) to trace all the regional
economic impacts at a high level of sectoral and spatial disaggregation. The model was developed for the
five-county Los Angeles metropolitan region, and has the unique capability to allocate all impacts, in
terms of jobs or the dollar value of output, to sub-regional zones, mainly individual municipalities. This
is the result of an integrated modeling approach that incorporates two fundamental components: input-
output and spatial allocation. The approach allows the representation of estimated spatial and sectoral
impacts corresponding to any vector of changes in final demand. Exogenous shocks treated as changes in
final demand are fed through an input-output model to generate sectoral impacts that are then introduced
into the spatial allocation model. The first model component is built upon the well-known IMPLAN
input-output model
73
which has a high degree of sectoral disaggregation (509 sectors in IMPLAN 2.0 and
440 in IMPLAN 3.0). The second basic model component is used for allocating sectoral impacts across
the 308 geographic zones in Southern California. (Pan et al. 2009).
3.1 IMPLAN input-output analysis
In this study, IMPLAN 3.0 is utilized for economic impact analysis on the H.E.R.O program. Different
from the previous version, the new IMPLAN 3.0 has few numbers of industrial sectors, 440 vs. 509 in
version 2.0. This research also conducts input-output analysis step by step as follows.
1) Construct a new model
A new model is constructed for the five county Southern California Association of Government
(SCAG) region using the most recent IMPLAN 2011 data (see Figure 2).
2) Set up activities
73
Made available by http://www.implan.com/
111
Create a new activity for Economic Impact Analysis (EIA).
3) Create events
Create events for the EIA activity using the Labor Costs and Material Costs for Product Installation in
Table 2 (Figure 3).
4) Analyze scenarios
Create a scenario with the EIA activities and analyze the scenario. IMPLAN reports the results of
impact analysis, including direct, indirect, and induced effects (see Figure 4).
The IMPLAN impact analysis results are comprehensive. They are compiled to two excel files (SCAG
EIA Scenario 1 All Impact Detail RPC-1.xls and SCAG EIA Scenario 1 All Impact Detail 100-1.xls),
which include output and employment by IMPLAN sector. One excel file (SCAG EIA Scenario 1 All
Impact Detail 100-1.xls) assumes 100% final demands are met by local supplies while the one excel file
(SCAG EIA Scenario 1 All Impact Detail RPC-1.xls) has more realistic assumptions that not all local
demands are purchased from local producers. The portion of local demands imported from the producers
outside of region is called “leakage”.
3.2
The second basic model component is used for allocating sectoral impacts across the geographic zones in
Southern California. The key is to adapt a Garin-Lowry style model for spatially allocating the induced
impacts generated by the input-output model.
The modeling results are summarized by County in Table 3. The total output impacts are $52.8 Million,
which creates 259 jobs. But there are $20.1 Million output and 86 jobs out of the region. In the five
county SCAG region, the total output impacts are $32.7 Million, which creates 174 jobs. Most of the
impacts are located in Riverside County, especially Riverside City. Detailed modeling results are
recorded in Table EIA-outputimpacts.xls. The location of the impacts in dollar value and job is shown in
Figure 5 and 6.
Reference
Pan, Q., H. W. Richardson, P. Gordon, and J. Moore (2009) “The Economic Impacts of a Terrorist
Attack on the Downtown Los Angeles Financial District,” Spatial Economic Analysis, Vol. 4, No. 2, 213-
239.
Pozdena R. and A. Josephson (2011) Economic Impact Analysis of Property Assessed Clean Energy
Programs (PACE), Research performed by ECONorthwest for PACENow.
112
Figure 1. Properties and contractors in the H. E. R. O. Program of Renovate America, Inc.
113
Table 1 Summary of the Costs by Product Category
Product Category
# Product
Category
Installations
% of Total
Product
Installations
Total Category
Dollars
% of Total
Dollars
Average
Costs Per
installation
Air Sealing and
Weatherization 16 0.52%
$
18,422.34 0.06%
$
1,151.40
Cool Wall and Roof
Installations 111 3.59%
$
1,520,292.73 4.98%
$
13,696.33
Water Efficiency 6 0.19%
$
8,778.70 0.03%
$
1,463.12
Insulation 160 5.18%
$
554,633.20 1.82%
$
3,466.46
Lighting 7 0.23%
$
8,259.00 0.03%
$
1,179.86
Pool Equipment 50 1.62%
$
120,929.19 0.40%
$
2,418.58
Solar PV 557 18.02%
$
12,044,393.58 39.49%
$
21,623.69
Solar Thermal 13 0.42%
$
93,338.00 0.31%
$
7,179.85
HVAC 906 29.31%
$
8,497,722.93 27.86%
$
9,379.39
Water Heating 27 0.87%
$
165,411.98 0.54%
$
6,126.37
Windows and Doors 1,235 39.95%
$
7,459,159.34 24.45%
$
6,039.81
Custom Products 3 0.10%
$
10,410.00 0.03%
$
3,470.00
SUM 3,091 100.00% $30,501,750.99 100.00%
$
9,867.92
114
Table 2. Summary of the Labor Costs and Material Costs for Product Installation.
115
Figure 2. Construct a new model for the Five County SCAG Region
116
Figure 3. Set up the activity and create events
117
Figure 4. The results of IMPLAN impact analysis
118
Table 3. Economic Impact of H.E.R.O Program in the Five County SCAG Region
Output ($1,000s) Jobs
Direct Indirect Induced Total* Direct Indirect Induced Total*
City of
Riverside 4,362 102 155 4,618 22 1 1 24
County of Los
Angeles 1,673 3,388 4,399 9,460 7 19 30 55
County of
Orange 5,288 1,201 1,589 8,079 24 7 11 41
County of
Ventura 0 242 357 599 0 1 2 4
County of
Riverside 11,007 434 626 12,067 52 3 4 59
County of
San
Bernardino 1,383 508 648 2,539 6 3 5 14
Sum of Five
Counties 19,351 5,774 7,619 32,744 89 33 52 174
Regional
Leakages 11,151 5,196 3,736 20,082 34 27 25 86
Total 30,502 10,970 11,354 52,826 123 60 77 259
119
Figure 5. Dollar value of total impact by Traffic Analysis Zone (TAZ)
120
Figure 6. Job impact by TAZ
Abstract (if available)
Abstract
Evolving energy policies have significant implications on the presence of energy efficiency gaps within communities. While municipalities utilized Property Assessed Clean Energy (PACE) programs, since 2006, to help mitigate energy efficiency gaps for homeowners, a 2010 anti-PACE directive by the Federal Housing Finance Agency (FHFA) paralyzed public funding mechanisms that supported PACE programs throughout the U.S. This dissertation was developed with an interest in exploring two questions within the FHFA’s directive regarding PACE programs’ effectiveness in addressing energy efficiency gaps, and the economic impact of such programs on participating communities. This study explored the aforementioned areas of interest through an assessment of a privately funded PACE program in California, known as the Western Riverside Council of Government's (WRCOG's) Home Energy Retrofit Opportunity (HERO) program, that expanded in more than three hundred communities during an economic recession. Questions that guided this study included the following: 1) What makes the HERO program unique as compared to other PACE programs
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Williams, Grace I.
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Mitigating the energy efficiency gap through Property Assessed Clean Energy (PACE): an assessment of the HERO Program in Riverside County, CA
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