Testimony on the Failure of PACE

SUBHEAD: Testimony on PACE bill, killed by Calvin Say, shows just how far Hawaii is from becoming sustainable.  
Image above: The ubiquitous pissing Calvin turning his attention on energy sustainability.

Chair Morita, Vice Chair Coffman, and Members of the Committee: The Department of Business, Economic Development, and Tourism (DBEDT) has concerns with the language of the proposed resolution. We are working with the counties and others to develop the best possible program, so this resolution is not needed.

We are also concerned that the actual program and its intent are not accurately described in the resolution. Had the clean energy bond bill been scheduled through to conference committee it would have been demonstrated that:

1. A collaborative and cooperative effort with the respective counties will be established through the formulation of an Advisory Council on the PACE program. This council will actively address the needs and issues relating to PACE program implementation.

2. The counties have already been informed that they will receive monetary and structural support to assist in the collection of the PACE assessment lien.

3. The administrative rules will be based on successful programs established in nineteen other states; this will address lenders' concerns. We would like to take this opportunity to answer the questions presented in HR 47, Proposed HD1:

(1) What is the true burden on the counties with respect to administering the program -- for example, without limitation, the upgrading of software, separating the collection of regular real property taxes from loan repayments, and the handling of liens; Answer: It has been communicated and established with the counties the existence of an operating budget with the PACE program and in conjunction with the PACE program Administrator to assist in the additional software and accounting requirements necessary for successful program implementation. In addition, passing this legislation this year would enable the ability to access stimulus money that will not be available next year.

 (2) What jurisdiction should be responsible for underwriting loans and foreclosing on those loans when property owners default -- county or State Answer: It has been established that the State will hire an independent PACE program Administrator that will possess the underwriting background to conduct the underwriting process and be actively involved in assisting the counties in the foreclosure process.

(3) Whether property owners with clean energy loans fully understand that their loan repayments will be in addition to their regular real property taxes and that they should not expect to be shielded from probable real property tax increases in the future Answer: The establishment of the administrative rules would require disclosures to borrowers by the local government of the risks involved in borrowing, including the risk of foreclosure if a tax delinquency results from a default.

 (4) Whether the interest rates on the loans will be affordable to most homeowners, given that the loan repayments must cover the entire debt service on the bonds plus state and county administrative expenses; Answer: The original funding Structure of the GO reimbursable bond along with all encompassing administrative fees would have provided a very competitive fixed interest rate for the homeowner. Per White House guidelines at~Pacenow.org; principle that cost of paying off measure to be less than the cost of energy avoided.

(5) What type of government bonds should be issued for the program, given that the bonds changed from general obligation bonds to reimbursable general obligation bonds to revenue bonds through the different committee drafts of H.B. No. 2643 Answer: The original structure of H.B. 2643 had general obligation reimbursable bonds to provide for a less risky, more competitive interest rate to the homeowner. When the funding structure was changed by the Ways and Means Committee to revenue bonds, the retention of the priority lien status became critical for the program viability. General obligation reimbursable bonds would be the preferred structure to provide the best rates.

(6, 7) Questions: Whether the interest rate, terms, and conditions of clean energy loans will in actuality be more advantageous than home equity loans to fund renewable energy systems; and What the effect will be of prioritizing the clean energy loan lien above mortgage liens -- for example, will the subordination of mortgage loans result in higher mortgage interest rates in participating counties; Answers:

A home equity loan is a variable rate, meaning it can rise over time and the spending of the proceeds is solely at the discretion of the owner, meaning that there is no assurance that the consumer will utilize the proceeds for energy saving measures.

A home equity loan is not for the public good. In addition, liquidity remains tight at the banks and the banks are not currently providing adequately enough to the energy loan space. The clean energy loan is a fixed competitive rate whereby the proceeds are directly disbursed to qualified contractors for the permanent installation of energy saving equipment.

 PACE is for the public good. Further, as this loan program is classified as a special tax assessed lien, the effect on a lender is minimized by the fact that PACE loans are not accelerated by the triggering event of default. Anytime an increase in property tax or new assessment is levied on a property with an existing first mortgage, the lenders response is to increase the reserve amount required to be held in escrow to ensure the timely payment of taxes and assessments without the need to adjust the borrowers LTV and qualifying ratios. PACE is classified as an assessment and treated in the same manner.

We believe that the original structure of this legislative measure was conducive to its success in that it was modeled after many successful programs that are currently implemented. It was through the political process that the funding structure of the program was materially changed from a General Obligation reimbursable bond to a revenue bond structure by the Ways and Means Committee. This material change made by the legislature prohibited the ability to yield the priority lien position to assist in alleviating the bankers concerns.

Despite this fact, the retention of a priority lien position does not impact the lender in the negative format as our research and program implementation has demonstrated. As such the appropriate studies and structures of this program have been reviewed and were originally represented in earlier versions of the H.B. 2643.

We urge the Committee to work to implement the bill as originally proposed, realizing that the window of opportunity for significant Federal support is now. We appreciate the opportunity to present this testimony. Statement of THEODORE E. LIU, Director Department of Business, Economic Development, and Tourism Before the HOUSE COMMITTEE ON ENERGY AND ENVIRONMENT Thursday, April 22, 2010, 9:30AM State Capitol, Conference Room 225

What Calvin Say forced us miss out on


Aloha Chair Morita and Members of the Committee: The Hawaii Chapter of the Sierra Club opposes HR 47, which requests that DBEDT work with "interested parties" and the counties to resolve purported problems with the Property Assessed Clean Energy program or PACE. This resolution conflates questions -- that have ready answers -- to the level of "problems" seemingly to justify the House's current failure to act on HB 2643. This is a flimsy reed to stand on. By this summer, over 300 counties and one other state will have a fully functional PACE program.

The details of these successful programs have been worked out. Hawai'i, for a lack of political will, has yet to join them. This is a little bit of a tale of two cities. The federal government, under Vice President Biden, just announced that 25 communities would be eligible to receive up to $452 million in Recovery Act funding for such purposes as PACE programs. On the other hand, HR 47 seems to imply our proposed PACE program has problems without giving it a chance to set up. On the 40th anniversary of Earth Day, wouldn't it be better to advance HB 2643 and attempt to capture some of the federal funds that are available?

This act of political courage would not only create new green jobs in Hawai'i, but it would also help your constituents save money and move the state towards meeting our renewable energy goals. Thank you for the opportunity to testify. Robert D. Harris, Director

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