Green loan debate heats up in Vail Valley
VAIL VALLEY, Colorado – If Eagle County voters approve an energy “smart loan” program this fall, will participants be able to re-sell their Vail Valley homes?
That’s the main question bothering local mortgage broker Chris Neuswanger about Eagle County ballot issue 1A. The ballot measure would create a loan program that allows local homeowners to pay for energy-efficient improvements to their homes.
The loans would be repaid, generally over a 15-year term, through a homeowner’s property tax bill. The new assessment would stay with the property, so if a home is sold three years into the note, the bill would then be the responsibility of the new owner.
The measure is touted by supporters as a way for locals to more easily pay for improvements, as well as a way to kick-start at least a part of the local construction industry.
But Neuswanger and other critics claim the program isn’t ready to roll just yet. The primary problem is a June letter from James Lockhart, former director of the Federal Housing Finance Agency, raising questions about “energy loan tax assessment programs.” The letter raises questions about adding to homeowners’ debt, as well as the possibilities of either refinancing or selling a home encumbered by such a loan.
If Fannie Mae and Freddie Mac – the country’s federally-backed mortgage clearinghouses – won’t buy mortgages with energy loans attached as liens, it could be next to impossible to re-sell them, Neuswanger said.
“Virtually all home loans are sold to Fannie Mae or Freddy Mac,” he said. “That could eliminate 95 percent of the financing options out there.”
While Neuswanger and other critics worry about the prospect of re-sale, supporters say the laws and regulations governing the energy loans are no different than those for any other local improvement district.
“We’ve had local improvement districts in Colorado since 1913, I think,” Boulder County Commissioner Will Toor said. “I don’t think there’s ever been a problem with those.”
Critics, though, say the difference is that a local improvement district applies to an entire neighborhood, not just one home in it. That, Neuswanger said, could be a problem.
Another problem could be the tax bill attached to a home that received energy improvements.
If the owners of virtually identical townhomes in the same complex sell those units at the same time, and one has a loan attached to it, the taxes on that unit will be higher, perhaps much higher, than a home without those improvements.
A $10,000 loan in Boulder County – first in the state with an energy improvement loan program – carries an annual repayment price of about $1,100. That could double, or more, the property taxes on a unit at the lower end of the county’s price spectrum.
“That will be significant, and noticed,” Neuswanger said.
But one of the main supporters of the Eagle County ballot issue said looking just at the tax bill is looking at the issue the wrong way.
“People rarely look beyond the mortgage payment,” said Matt Scherr of the Eagle County Alliance for Sustainability, a local nonprofit that’s leading the campaign for this fall’s ballot measure. “People should look beyond the mortgage payment and the tax bill to the costs of operating a home.”
In that light, a home that’s had energy-efficiency improvements can look like a better deal, even with a higher tax bill, Scherr said.
“Sellers need to say, ‘Here’s what we used to pay in utilities, and here’s what we pay now,'” Scherr said.
Scherr said his family’s experience with an older home in Minturn shows the value of fairly inexpensive improvements.
“We insulated our crawl space for something like $1,100, after the tax credits,” Scherr said. “We cut our gas bill in half.”
That kind of return on investment is well worth an extra payment, he said.
And the point of the proposed loan program is to only approve projects that will generate that kind of return on investment, Scherr said.
While Scherr and his family have insulated their home and installed electricity-generating solar panels on the roof, they paid for the work using a home equity loan. Those loans are harder to come by these days, which means it’s harder to find the money to do those improvements.
The proposed loan program in Eagle County would pay contractors directly, once the final permits have been issued and the contractor’s bill doesn’t exceed the maximum amount specified in the initial contract.
Paying for improvements this way can also help a family’s credit picture, Toor said.
“These loans don’t count as personal debt,” he said. That means families who need cash flow for, say, college payments for kids, can make that money available and still have improvements made on their homes.
And the bonds to pay for those improvements have been popular investments, Toor said.
Before putting the first $8 million in bonds out to investors everywhere, Toor said Boulder County made the bonds available to local investors for about a day.
“We sold 80 percent of those bonds to locals,” he said.
That, Toor said, is just part of the popularity of the county’s program.
More than 2,000 people have been through Boulder County’s mandatory workshops for anyone interested in the loans. In just the first year, more than 600 applicants have more than $10 million in projects improved.
“The local construction industry loves it,” Toor said. “And our green construction companies haven’t seen the same kind of slowdown that others have.”
But Neuswanger still has questions, about the cost of the money and the potential costs to taxpayers. Scherr said the bottom line about costs to homeowners is simple: The program is voluntary.
“An individual will have to decide whether or not to do this,” he said. And Eagle County may not get the kind of response to make a program worthwhile, Scherr added. That means this fall’s vote merely clears the way to see if the program makes sense here.
Toor said Boulder County is still evaluating the administrative costs of its program, and may adjust its fees and charges to make the program pay for itself. But, he added, he expects the county’s general fund may have to pick up some of the program’s administrative costs in 2010.
That question may be easier to answer in Eagle County. The Governor’s Energy Office recently awarded Eagle County $135,000 in grant money to pay for a local energy efficiency coordinator.
County planner Yuri Kostick said that grant could pay for startup administrative costs if the “smart loan” program is created.
While proponents seem to have an answer for most questions, Neuswanger remains unconvinced the program is worthwhile.
“There are just way too many unanswered questions,” he said. “It may be a sexy idea, but I think it’s going to be a boondoggle.”
Scherr believes otherwise.
“It’s not a tax on everyone,” he said. “It can create jobs, and there’s no cost to you if you don’t participate.”
Business Editor Scott N. Miller can be reached at 970-748-2930 or email@example.com.
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