Feds stymied state, local green jobs programs

While the Obama Administration was pushing for greater energy efficiency in buildings, a federal agency born out of the U.S. housing bubble has stymied attempts by state and locals governments to retrofit homes.

The White House announced a US$4 trillion energy efficiency plan dubbed the "Better Buildings Challenge" in December. It argues that the plan will help businesses and government buildings save on energy costs with the added benefit of creating over 100,000 green jobs.

That may sound like a terrific idea that should be replicated across the country.  Indeed, the Rockefeller Foundation & Deutsche Bank have determined in a study that energy retrofits and renewables are a US279B$ market with the potential to employ 7 million workers. There's a nice multiplier effect.

State and local governments tried their hand at it only to be tangled in bureaucracy. It's a twisted tale of one hand of the federal government acting differently than another. The tale begins with a Federal agency born out of the housing crisis.

Local efforts were countermanded by Federal Housing Finance Agency (FHFA) rules that govern how would-be homeowners can obtain federally backed housing loans. The issue is its response to PACE (Property Assessed Clean Energy) laws that 27 states passed to finance home energy improvements.

Under PACE programs, a homeowner receives a loan to retrofit their household for added energy efficiency or renewable energy. Some communities affected by drought are using PACE to reduce water use. A tax lien is then placed on the property - the same as when a community builds a new school or sewage treatment plant. The beneficiaries shoulder the cost of any improvements.

FHFA objected to PACE laws, but couldn't legally stop them. Its solution was to treat liens for PACE improvements differently than it does all other liens. Normally, a new homeowner assumes any lien that has been placed on a property and has years to pay it down. FHFA told homebuyers to pay up for PACE improvements straight away.

There was a chilling effect on PACE communities, and FHFA created a huge, and likely purposeful, disincentive for the passage of more PACE laws, said Dennis Hunter, chairman of Ygrene Energy Fund. Ygrene has obtained $650M from Barclay's to kick start PACE programs.

That didn't sit well with California's Attorney General, Sonoma County, Palm Desert, Placer County, and the Sierra Club who filed suit in Federal court. The court ruled in favor of the plaintiffs, finding that FHFA did not adhere to the federal rule making process by failing to consider the environmental impact of PACE laws and was in violation of federal law by redlining areas with PACE programs for punitive action. It changed the underwriting requirements for those areas to discourage PACE.

That brings us to today, when the public comment period for the FHFA to amend its rules to allow for PACE laws to finance energy related home improvements ended. The bureaucratic stalemate is nearly over. The question is: could the administration have acted more decisively to help the states?

Could President Obama have helped?

President Obama took office as fallout from the subprime mortgage crisis distressed the U.S. economy, and inherited the previous administration's response to the crisis. In 2008, the federal government established FHFA, which put Fannie Mae and Freddie Mac under conservatorship.

The FHFA was born out of disarray, and shoulders the responsibility for handling around US$7.5 trillion in housing loans that were once controlled by financial institutions. It has been actively attempting to repair the nation's mortgage finance market and is guarded against impairing the safety of its loans. It's also an independent agency.

In 2010, FHFA found itself at odds with PACE laws, under the theory that there was too much going on that it didn't control, Hunter said. Even the White House supported PACE, offering financial guarantees. However, FHFA was dead against the concept and refused to buy in, Hunted added.

FHFA ignored the parameters of the PACE underwriting requirements for loans or tax liens on property, Hunted explained. "Mortgages must be current, and the homeowner must not be in bankruptcy. Taxes must be current, and they must own at least 15% equity before they put the tax on. Underwater, or close to it, FHFA loans don't quality."

In addition, the FHFA doesn't account for costs of garbage removal, sewage, and water in its loan underwriting. "It's not being very consistent," Hunter said. The FHFA has also issued statements about how energy efficiency increased home values, he added.

Hunter compared the FHFA's ownership of mortgages to when the government took interest in General Motors. "If Obama wants to do something, he does it. The question is, why isn't the White House doing something about FHFA and its position when the government really owns FHFA?"

It would seem that the White House has taken notice. Ygrene has been invited to a White House event next week on economic development in Florida. The event's focus will be on green jobs related contractor momentum. Pressure is also mounting for the President to fire FHFA's acting director.

Related on SmartPlanet:

U.S. Labor Dept.: green jobs hit 2.4 percent of total employment

This post was originally published on Smartplanet.com