Public Comment

New: Hancock's Senate Bill 555 Release is Wrong: Berkeley's Solar Program Went Up in Flames

By Nigel Guest
Saturday October 08, 2011 - 10:43:00 PM

Loni Hancock's press release for this bill that you published is seriously flawed. I wrote [the following commentary about the Berkeley Solar Program]for the (Berkeley) Council of neighborhood Associations' August, 2011 newsletter.

The key problems are:

1) The Federal Housing Financing Authority has ruled that solar property tax liens cannot be accepted for properties with "conforming" mortgage loans.

2) The BerkeleyFirst solar financing scheme was not a success. It was a disaster. Only 13 people went through with it, and, after the FHFA ruling, the City abandoned it. 

Mayor Tom Bates speaking about the solar financing program at the City Council meeting of September 16, 2008: 

“I want to compliment the staff on the ingenuity and the creativity that has brought us to this day … This could be the most important contribution we’ve made in turning around global warming, because it can provide the opportunity for people to have affordable solar for their homes and businesses, and do so over a long time at a low rate of interest. It’s not for everybody. But it certainly is an exciting prospect. The world is sort of watching us to see how we do it”. 

In 2008, Mayor Tom Bates recommended that the City Council approve the BerkeleyFirst residential solar program, which they did. I was one of the very few participants in the program. The basic idea was that homeowners would install electrical-generating panels on their roofs, with no batteries, and sell excess power to PG&E, or pay for any net consumption as usual (mainly during winter). The federal government gave a 30% tax rebate, the State then gave about 18% cash to the installer, and the City was willing to finance everything except the state rebate, and add it to your property taxes at an interest rate of 7.75% for 20 years. 

Some people balked at the interest rate, but l already had a mortgage, like most homeowners, conventional refinancing to cover the cost of the solar installation would have forced me into jumbo-lite territory, with stringent qualification requirements and high interest rates. So I thought the interest rate was reasonable, especially as it was possible that the whole of the additional property tax could be deducted from federal tax. My own house was not a very favorable location, as the roof is heavily shaded, but imaginative contractors found solutions that were not absurdly expensive, so in 2008 I went ahead. 

Then my troubles began. The City planned to add a tax lien to each affected property to secure the loans, and issue bonds to recover their money. They described the tax liens as “just like the lien for the taxes you pay to Alameda County”. I'm a born skeptic, and went down to the County Recorders' Office to check this. There is no County Tax Lien, unless you're in default, so the new City lien would stick out like a sore thumb. My standard (conforming) California mortgage contract states that that any tax lien must be paid off immediately. I confronted the City with this, and got pure evasiveness for an answer. The City had subcontracted all financial arrangements to a company called Renewable Funding, LLC. They were charged with answering questions, and did so in as vague and obfuscating manner as possible. 

Meanwhile, the City project manager sat back and appeared to be using commitment-delete software on the few emails that she sent. I contacted my mortgage lender, who said over the phone that the new lien was no problem. However, they would not commit to this in writing. I then posed the question to the City: What if I refinance or sell, so that I am dealing with a new mortgage lender? I got no sensible answer, and the City obviously hadn't done its homework on this issue. The problem was that if my lender, or a new lender, insisted that the lien be paid off, the City wanted all future interest payments for 20 years, which was absurd. When I challenged them on this, they claimed that it was a condition of their contract with the holders of their future bond holders. This became their standard answer to any difficult question. By the time I had obtained my loan, I had exchanged over 300 email messages with the City and Renewable Funding, and found out very little. 

The next thorn became the date when the City would pay me. They refused to guarantee this, which could have left me owing the solar installer a substantial sum of money for some time. Luckily, the installer was patient. 

The final major issues were the administrative fees that I would be charged for the loan, and the dates and amounts of the additional property tax payments. Quite basic, wouldn't you think? However, the standard documentation was so unclear and self-contradictory that I insisted on, and got, a detailed breakdown from the City Director of Finance. 

By then, I had discovered that the whole scheme, including the incredibly complex financing plan was developed by Cisco DeVries, former Chief of Staff of Mayor Tom Bates – and now President of Renewable Funding. Mr. Devries had used his political contacts to set up the BerkeleyFirst financing system, and had approached several other cities as well. 

The initial pilot scheme, for $1 million, was supposed to accommodate 40 homeowners. In fact only 13 completed the program. Last year, the Federal Housing Finance Agency ruled that Fannie Mae and Freddie Mac should not accept new “conforming loans” with tax liens like Berkeley's on the property, although they grandfathered in existing liens, like mine. This killed BerkeleyFirst, and other similar programs. Belatedly, City management addressed the problems with mortgage lenders, and the Council waived the pre-payment penalty on future interest, so now refinancers and sellers can simply pay off their solar loans in the normal manner. 

Unfortunately, this program is yet one more example of the City having good intentions, but lacking the ability to think through the problems, and develop real solutions.