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When CSLP launched in Spring 2009, statewide unemployment (reflecting the job market where many Boulder residents worked) had risen to 8.5%. 14 According to the Boulder Economic Council, Colorado lost 100,000 jobs in 2009. County economic development staff said the ratio of applicants to job openings in Boulder County, which for years never averaged more than 10 to 1, surged past 20 applicants per job in early 2009. Unemployment rates in Boulder County remained below the national average, but they were high by local historical standards.
Even as bad economic news toughened the market, it made businesses that provide energy improvements hungrier. The fact that more than 300 contractors from throughout the Denver metro area participated in the CSLP indicates their eagerness to compete. Motivated contractors played an important role in driving energy-related investments in some 600 homes.
On the August 2010 contractor survey described previously, respondents said they increased their workforce by an average of almost two employees between Fall 2008 and Fall 2009. A few respondents cut workers during that time, but others increased their workforces by 20%-50%.
Interviews with contractors indicated that some were reluctant to hire new employees but added hours for their existing employees. This was in dramatic contrast to the general job scene in the area in 2009.
A study from Sonoma County, California, focused on the comparison of construction employment in Sonoma County, where a large PACE program was underway, to that in nearby counties in 2009. That study showed construction jobs increasing in Sonoma County by 8.4%, while construction jobs in nearby counties fell off or stayed about the same. 15 Boulder Economic Council, Personal Communications, August 2010. See also, www.bouldereconomiccouncil.org.
“Growth in Construction Economic Activity in Sonoma County and the Sonoma County Energy Independence Program,” November 2009, www.sonomacountyenergy.org.
Anecdotal information suggests a similar, though not as dramatic, trend for the Boulder County program. One difference was that a high proportion of the contractors participating in the Boulder County CSLP were from outside of the county, and that diluted the local economic impact.
D. Impacts of Program Design and Anticipated Changes PACE financing programs nationwide have been much discussed, but, perhaps surprisingly, few have been implemented. Only about a dozen local programs were underway in 2010, and about half of them were suspended before they actually provided financing to home improvement projects. Boulder County’s CSLP was one of only a handful of programs that reached full-scale implementation. Program administrators were incorporating their “lessons learned” from Phase 1 implementation into a new Phase 2 round of residential lending, but those improvements were never tested.
Several elements of Phase 1 program design affected economic outcomes. Comments on these,
including how they affected future Phase 2 plans, include:
1. The decision to open contractor participation to all comers, so long as they were licensed within their resident and operating jurisdictions, had a strong impact on the program.
More than 40% of participating contractors were from outside of Boulder County. CSLP administrators did not plan to restrict contractor participation in Phase 2, either, but they intended to refine promotional strategies, to support local contractors.
2. CSLP administrators could not predict exact interest rates and fees of future loans because they depended on bond sales that would occur during program implementationyet the interest rates declined from the first to the second round in Phase 1, and were likely to decline again. Administrators said they hoped to see interest rates in the range of 4.5%, compared to a high of 6.8% in Phase 1 (unsubsidized). Fees were also expected to decline. These lower costs would improve marketing effectiveness and the cost-effectiveness of energy efficiency and renewable energy improvements.
3. One issue cited by many respondents to the July 2009 workshop registrant survey was that contractors had to “front” the cost of the work until completion. Reportedly, some small contractors could not carry this risk and withdrew their bids when they learned that they would not be paid until the job was fully completed. The program’s approach to aggregating projects, selling bonds, and then reimbursing contractors probably would not have changed in Phase 2. Most PACE programs nationwide have used a similar approach.
However, this approach does favor larger companies that can cover front-end expenses for their work.
4. The August 2010 contractor survey strongly suggests that contractors would have to cut back on employee hours because this program, like all PACE-related programs, had been suspended. Eighty-eight percent (88%) of respondents said yes, they would experience lost revenues and lost jobs. Anecdotally, contractors who were interviewed roundly complained of the need to constantly adjust their marketing as well as employment plans in light of policy-driven program changes. Consistent implementation of the CSLP almost certainly would result in greater efficiencies within these contractor businesses.
For example, the need for worker training related to program rules and paperwork would be reduced. Administrative procedures could be streamlined. Marketing approaches could be fine-tuned instead of abandoned.
5. CSLP administrators also anticipated improving program implementation efficiencies.
They reported that their Phase 1 experience gave them many ideas for administrative and outreach improvements.
By improving efficiencies through Phase 2 CSLP evolution, administrators believed they could free resources for new efforts. For instance, the Boulder County Sustainability Program staff had designed a new program to spark interest in comprehensive energy home improvement projects, which could then be financed by CSLP. The program focused on creating a one-stop shop for energy home improvement services so as to shorten the time and frustration between the energy audit and completed measures. It was launched with modifications in Fall 2010, minus the PACE financing component.
3.3 Qualitative Assessment Conclusions The qualitative assessment of CSLP provides strong evidence that total spending on energy- and nonenergy-related home improvements significantly exceeds that which was documented on homeowner invoices and analyzed in Section 2 of this report. Such undocumented spending likely includes qualifying measures that were not financed with PACE and nonqualifying measures. The latter includes, among other things, new windows that are not Energy Star-rated, roof improvements related to a PV installation and cosmetic improvements.
The HELOC seemed especially popular as a non-PACE financing alternative. Other non-PACE financing reportedly used by those who participated or considered participating in CSLP includes bank or credit union financing, solar company in-house financing, and credit cards. Many home improvements inspired by the program were just paid for in cash.
While participants reported that they were happy to use PACE financing, many seemed reluctant to take on too much tax-assessed debt, concerned it could raise their property taxes too high.
Alternative financing options helped them to diversify risks associated with this new PACE concept.
The total economic impact of alternatively financed, CSLP-related improvements is unknown.
Going roughly by the number of CSLP survey participants who reported using alternative financing, the spending that was documented on CSLP invoices would have to be increased by 20% or more. Contractors who provided survey information estimated an even greater amount of non-PACE spending. Certainly, the economic impacts discussed in Section 2 are a low-end estimate of total PACE-related impacts from Boulder County’s Phase 1 CSLP program.
Another conclusion involves the trajectory of the CSLP. The mortgage regulators’ challenge stopped PACE residential financing early on. Boulder County’s model had been field tested for about a year. It succeeded, but it almost certainly would have had even greater economic benefits after successive rounds. This is not to say that marketing might not have grown harder instead of easier. Phase 1 may have addressed a pent-up demand. Administrative staff and contractors who were interviewed reported that anticipation for Phase 2 workshops seemed less dramatic than it did for Phase 1, with fewer people signing up in advance. At the same time, it is clear that marketing and administrative improvements were in the works, and one of the strongest impediments to the program—high fees related to setting up a reserve fund—would have been reduced over time.
Rick Schwolsky, who lives with his wife and teen in a newer subdivision on the edge of Boulder, enjoyed participating in the ClimateSmart Loan Program from two angles. First, he had always wanted to add solar PV to his home, but he worried that his family might not stay in their home long enough to enjoy the payback. PACE financing meant that if he did sell, the new owner would pay his or her share of the system cost. Second, Schwolsky wanted to satisfy his professional curiosity about how a PACE program works. As editor of the online EcoHome Magazine, Schwolsky is a professional in the green building business. He looked forward to sharing his experience, from the energy audit through the 4.2-kW PV system interconnection, with his readers.
“The reality was, ClimateSmart made it so easy. There was no down payment. We didn’t pay until the system was installed, and the contractor (Boulder-based Namaste Solar) handled most of the paperwork,” he said. The installation took a total of 10 days, including the interconnection, though there was a delay in scheduling the project, because the CSLP had to aggregate projects, so they tended to happen all at once. Schwolsky found that the $26,000 project, minus utility incentives and tax credits, ended up adding about the same cost as it saves until the end of the 15-year term on the loan, after which the solar power will be practically free.
Schwolsky said the total loan cost covered some unexpected energy efficiency improvements, too. “We had some problems with door seals, air leaks—fortunately nothing big,” he said. The experience reminded him of the difference between theoretical discussions of energy savings and really achieving them. “I found that I was nervous. I waited until the second round of financing, figuring they’d have worked out any kinks in the program.” Now Schwolsky hopes to see PACE programs nationwide renewed. “It takes a long time to get the word out and to gain homeowners’ trust,” he said.
Rick Schwolsky said his family sometimes stops to glimpse the new solar panels that are barely visible on their house. Photo from MRG & Associates One program design decision stands out for its influence on local economic impacts. The relatively open invitation to contractors probably diluted the local jobs development impacts of this program.
One question for PACE program administrators in Boulder County and nationwide is how PACE—or similar financing programs—might be used more effectively to build a clean energy economy. Initially, some contractors and many of the materials they use are likely to come from outside the local area—but perhaps that is part of the process of building a green economy.
For example, solar PV module and balance-of-system manufacturing is just beginning to be established in the United States. One assumes that these high-value elements in the economic model would establish in-state or locally more frequently as the market for them appears more stable. Certainly the track record for established PACE programs is too short to have affected the upstream end of the clean energy value chain so far.
Yet it is important to return to the observation that Phase 1 of the CSLP had significant impacts, not only from directly financing, but also from starting a local conversation about home energy retrofits. Homeowners may ultimately choose PACE financing, an alternative type of loan, or cash to pay for their energy improvements, but the news in Boulder County was that they made their choices and installed improvements. CSLP provided information on how to make smart energy efficiency or renewable energy investments, including addressing the upfront cost barrier.