Green Building Law Blog : Green Building Lawyer & Attorney : Shari Shapiro: Calliope Communications, LLC

As the last days of the year wind down, Congress scurries around to finish its unfinished business, almost always with "surprises" for the regulated community. 

The House appropriations committee issued a final version of the 2012 Omnibus spending bill last night.  It has, of course, significant implications for energy and environment spending, particularly spending related to climate change.

The omnibus bill cuts spending on climate change programs, prohibits the appointment of a Federal "Climate Change Czar" and cuts spending on climate change research.

Most stunning, of course, are changes to EPA funding.  The summary of the omnibus bill issued by the House appropriations committee states that EPA funding has been reduced by almost 19% in 2011:

The conference agreement funds EPA at $8.4 billion, which is a $233 million reduction below the FY 2011 enacted level and $524 million below the President’s request. Overall, funding for EPA has been reduced by $1.8 billion (-18.4%) in calendar year 2011.

The conference agreement cuts $14 million (-6%) in clean air and climate research programs; $12 million (-9.5%) in EPA’s regulatory development office; and $14 million (-5%) to air regulatory programs. In addition, the bill includes:

• A 33% reduction to the EPA Administrator’s immediate office;
• A $101 million reduction for the Clean Water and Drinking Water State Revolving Funds, which received $6 billion in “stimulus” funding;
•  A $78 million reduction for EPA operations/administration, which includes $41 million
• (-5%) in cuts to EPA’s regulatory programs;
• A $14 million (-6.2%) reduction for uncoordinated climate and other air research; and
•  An elimination of $4 million in funding that EPA has used to delay the processing of Appalachian mining permits.

These are some other provisions in the omnibus bill that impact the green building community:

1. Funding for CBECS may be restored--Funding for the Commercial Building Energy which was defunded this year may be restored, paving the way for updating the baseline building energy data at the heart of Energy Star. Division B, Title III on page 44 provides $105,000,000 for the Energy Information Administration. 
2. New energy efficient lighting standards won't go into effect-- The omnibus bill includes a rider which would prevent the new energy efficient lighting standards from going into effect on January 1st, and actually rolls back standards in effect since 2008 for floodlights. 
3. Innovative Technology Loan Guarantee Program has $0.00 appropriated for 2012.  The loan guarantees are for eligible clean energy projects (i.e., agreeing to repay the borrower’s debt obligation in the event of a default), and by providing direct loans to eligible manufacturers of advanced technology vehicles and components. 
4. Appointment of Administration “Czars” for climate change and urban affairs prohibited.

A full version of the final bill is available here, a summary from the appropriations committee is here.

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Recently, there has been some momentum behind energy efficiency legislation, both in the House and the Senate.  There is the Shaheen-Portman ESICA bill, an energy efficiency only bill; Conrad's FUEL Act, a broader energy bill; Lugar is prepping an energy bill that incorporates strong energy efficiency language; and now a bill reviving PACE is being prepped in the House.

PACE, Property Assessed Clean Energy, allows the upfront costs of property owners’ clean energy and energy efficiency projects to be financed by local governments, and paid back by homeowners as an increase in  their property taxes. 

The concept behind the PACE program is that the energy savings from energy efficiency and clean energy projects would outstrip the costs over time, but that the upfront costs were a barrier to many people in implementing the badly needed changes. 

Several municipalities and states had implemented these programs, and it sounded like such a good idea that $150 million in the ARRA was dedicated to support them.  Unfortunately, in mid-2010 the Federal Housing Finance Agency, which regulates government sponsored mortgage buyers Fannie Mae and Freddie Mac, and the Office of the Comptroller of the Currency, which regulates national banks stopped the PACE programs in their tracks by refusing to issue mortgages that had a PACE loan in first priority. Go here for the full story. 

Now, there is draft legislation being sponsored by Representatives Hayworth (R-NY19), Thompson (D-CA1) and Lungren (R-CA3) to restructure PACE and allow it to move forward.  According to supporters of the Bill, it is due to be dropped in the House next week before the summer recess.  A draft of the proposed bill and more information is available here.

The PACE bill requires Fannie, Freddie and the other banking regulators not to "greenline" PACE properties by restricting lending or requiring higher underwriting standards.

To assuage the concerns of the banking regulators, the PACE bill:

• Requires homeowners to have at least 15% equity in the home
• Puts a cap of 10% of the value of the home on the PACE assessment
• Requires the homeowner to have a solid history of tax payment
• Requires an energy audit to ensure cost effective energy efficiency projects are undertaken
• Requires that there be no liens, bankruptcy, defaults, etc.
• Prohibits the PACE loan from being accelerated at foreclosure

Notably, the Bill does not take away the first lien priority of the PACE, but only requires payment of the delinquent PACE payments upon foreclosure, not the entire debt.

Notably, the Shaheen-Portman ESICA Act also incorporates PACE-enabling language at Section 202, although it is in the context of credit support for PACE bonds, which does not necessarily solve the PACE lien problem. 

Fannie and Freddie have gotten so far out ahead of this issue, the agencies probably could not dial back their objections if they wanted to at this point.  Only legislation will override their "veto" of residential PACE at this point.   

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