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No matter what enviros say, GreenFinanceSF was a bad policy 

Wednesday, Jul 21 2010
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As City Hall struggles to close a $483 million budget gap, the San Francisco Department of the Environment has faced the opposite quandary: It must figure out how to spend $2.6 million in federal stimulus money due to the city, but for which it has no immediate use. That's because two weeks ago, federal regulators shut down GreenFinanceSF, a nascent program designed to help city homeowners convert to solar power.

This was one of dozens of Property Assessed Clean Energy (PACE) programs nationwide, where municipalities would loan homeowners money for energy-saving improvements such as solar panels and insulation, then allow them to pay it off over 10 to 20 years by way of a senior tax lien on the property. But the programs were unplugged in June as regulators said they could endanger the mortgage market by creating mountains of questionable household debt.

On July 6, the Federal Housing Finance Agency, set up after the 2008 financial collapse to oversee lenders Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, issued a statement saying PACE programs demonstrated an "absence of Truth-in-Lending Act and other consumer protections, and uncertainty as to whether the home improvements actually produce meaningful reductions in energy consumption."

Indeed, GreenFinanceSF was an overhyped, poorly conceived plan to use local government taxing authority to finance energy-conserving home improvements. It was rolled out with great fanfare three months ago by a mayor campaigning to be California's eco-focused lieutenant governor.

In the end, however, it accomplished little, other than to reveal Gavin Newsom and his fellow Democrats' thin enthusiasm for meaningful measures to combat climate change. Meanwhile, city bureaucrats sought to violate public records law by making a secret of the inner workings of the program. I wanted to know what specific improvements were funded, which contractors benefited, how much improvements cost, and whether recipients were truly able to repay. After my column deadline, department officials relented and gave me the name of the program's sole beneficiary after a city attorney advised them that I was correct to say withholding public information is illegal.

From green bureaucrats' point of view, it may have seemed a nice idea to commit millions of tax dollars to a favored cause, and keep its inner workings under wraps.

But from the standpoint of federal regulators charged with averting disasters, this seemed like one waiting to happen. I, for one, am glad to see federal bank cops finally do their job.


On April 12, Newsom unveiled GreenFinanceSF with a special Internet town hall meeting explaining how property owners could save on their PG&E bills by signing up for a special loan for energy-saving improvements such as purchasing solar panels, adding insulation, and buying low-flow toilets. Under PACE, local governments finance the up-front installation costs, and homeowners repay those costs over a period of years through assessments on the property tax bill.

That way, GreenFinanceSF boosters claimed, the bill would pass to the building's next owner in the form of a special tax lien, and the full cost wouldn't have to be paid off for between 10 and 20 years. The program was one of many launched nationwide with the help of $150 million in federal stimulus money directed toward home energy improvements. By July, half the counties in California had signed up for some version of the program.

Too good to be true? I thought so.

On the day the mayor announced the launching of GreenFinanceSF, I predicted on the Snitch, SF Weekly's news blog, that the program might blow up in homeowners' faces.

In the early 1990s, similar California tax districts set up to help fund late-'80s-real-estate-bubble housing subdivisions went into default when property values declined, pushing municipalities such as Nevada County into bankruptcy.

Today, green business is touted as an economic panacea. But there's no guarantee that such spending would have created value for property owners. What's more, the program targeted people unable or unwilling to take advantage of regular home equity loans and the myriad green subsidies already offered by the government. Adding to the sense of loose-lending déjà vu, backers pushed the idea that the loans amounted to free money: Think of how much you'll save on your PG&E bill!

This was not sound fiscal thinking. I wasn't the only leery one. Mortgage lenders were concerned that these liens would make it harder for banks to collect if homes went into foreclosure. In May, Fannie Mae and Freddie Mac, which own more than half of all U.S. mortgages, told lenders they would refuse loans associated with these types of programs. And GreenFinanceSF was suspended two months after Newsom's special town hall.


Rather than praise stringent regulation, liberal partisans cried foul. Green banking, it turns out, should be seen differently from fat-cat Wall Street banking. Mother Jones even ran a July 12 article with the maudlin headline, "Fannie and Freddie won't let this teacher green her home."

On July 14, State Attorney General Jerry Brown filed a lawsuit against the Federal Housing Finance Agency, claiming the federal bank regulators erred in saying PACE created badly monitored loans. These are "assessments" or taxes, not loans, the lawsuit said. He argued that it's not bank regulators' job to stop California from collecting taxes. Brown's mid-gubernatorial-campaign hair-splitting will presumably be parsed in court.

But federal banking regulators were correct to fret that this program might be opaque. Before GreenFinanceSF was shut down, a solitary San Francisco homeowner got a project approved and finished, but didn't sign the closing documents. Now, green-building coordinator Rich Chien told me, the Department of the Environment is trying to figure out some other way to pay for it.

Chien declined to identify the home-owner or the property, so I filed a public records request. I got a note from department spokesman Mark Westlund saying he didn't have to give me any information, because "the GreenFinanceSF program is administered by a third-party contractor."

That's illegal. "The California Public Records Act prohibits a third party from controlling information subject to a Public Records Act request," says Jim Ewert, general counsel to the California Newspaper Publishers Association.

"You cannot let a private entity control the confidentiality of public information," says Adam Keigwin, chief of staff to state Senator Leland Yee, who sponsored 2008 legislation prohibiting government agencies from hiding public information behind a private veil.

When informed of this, Westlund invoked his right to take 14 days to process my request, meaning the information would come well past my deadline. I told him that the San Francisco Sunshine Ordinance specifies that maximum deadlines are not to be used to delay fulfilling a simple, routine, or otherwise readily answerable request. Two days later, Westlund called to inform me he'd again consulted attorneys, and that the department had decided to give me the name. But by press time, the homeowner, Nick Grover, hadn't returned a telephone message.

The idea that San Francisco would seek to hide the workings of GreenFinance-SF was fascinating. Here, it seems, "green" doesn't involve "sunshine." Just as amusing was the spectacle of seeing Democrats criticize federal regulators for doing their jobs.

Aside from the obvious lesson that pork transcends all ideology, the driver behind nonsense such as GreenFinanceSF is that Democrats have made a sort of cynical truce with Republicans over how to avoid containing the damage we do to the Earth.

Environmentalists correctly note that oceans are threatened, species are going extinct, and the planet is heating up at a catastrophic rate. Republicans counter that solutions aren't worth it because they might make some people uncomfortable, economically or otherwise.

The horrible truth is that Republicans are half-correct: The worthy task of saving the planet really isn't easy. Effective environmental remedies such as a $4 gas tax; a 25-cent-per-kilowatt-hour electricity surcharge; drilling, fishing, logging, and mining moratoria; laws compelling infill urban development; meaningful controls on manufacturers' waste generation; elimination of subsidies and perks for motorists; and comprehensive protection of open space would piss off a lot of people. And many of them would be Democrats.

So the party makes do with trifles such as GreenFinanceSF.

Witness Newsom's silly bid for lieutenant governor. He's so green that the "policy" area of his campaign website lists only environmental ephemera such as giving up bottled water and banning plastic grocery bags. Last on the 17-item list is this dated chestnut: Newsom "created GreenFinanceSF, which is a city-sponsored program to provide $150 million in loans to local residents for energy efficiency."

Fortunately, that's now in the recycle bin.

About The Author

Matt Smith

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