By Edward Feller, MD….
Coming up on the agenda at the Nov. 7 Palmetto Bay Council meeting is the second reading of an ordinance that would have the village join Cutler Bay and other municipalities to set up a taxing district to provide the financing for, and to encourage the refitting of, commercial and residential property with energy saving and hurricane resistant improvements.
This vote is only yes or no — the proposed contract itself cannot be amended. A non-cancelable five-year agreement would be made with a company, Ygrene Energy of Florida, to run this program.
The concept of what is being proposed, to promote the use of energy-saving devices, such as solar panels, increased insulation, water heater improvements, as well as many others, is admirable and is what is badly needed. Certainly no one should object to this.
It is the process of how this is being done that I object to and I believe the village council should defeat this ordinance. Several problems need to be solved so that the processes proposed are more to the benefit of the residents of our village.
The project’s concept is based on both federal and state legislation (PACE) that proposed setting up taxing districts that would enable a homeowner or commercial property to finance the improvements through increased property assessment and to pay the loan with taxes assessed by the district. I find several major problems with the contract signed by Cutler Bay and presented to our village.
1. In November 2010 Miami-Dade County passed an ordinance, sponsored by former Commissioner Katy Sorenson (Ordinance No. 10-78), that has as its basis a similar program but one that would be countywide. The county currently is in the process of working out what is the best way for it to do this, either independently, or with an outside company. Part of the delay is the legal issue of putting this tax lien ahead of a bank’s mortgage.
Although the State of Florida approved this, it is in dispute on the federal level. Fannie Mae and Freddie Mac, which have some interest in more than 50 percent of residential mortgages, have refused to allow a lien such as this to go ahead of their interest in the property. A bill has been submitted to the U.S. House of Representatives and at present is in committee. It is not certain how this will play out.
2. The proposed interest to be charged now is 7 percent. This would be paid through additional real estate taxes over a period of up to 20 years. First, many of the proposed energy-saving products may not reduce energy costs at the same rate after 20 years of use than they do at the beginning.
Second, the change in technology occurring in the near future will make some of these products obsolete in 5-10 years, yet their cost still needs to be paid for over a longer period. A product shouldn’t be financed longer than its functional use.
The agreement states that a property owner cannot remove the product from their houses until it is fully paid off. The tax liability from this loan goes with the property when it is sold.
Historically, the average house in Palmetto Bay turns over every seven years. When a homeowner tries to sell the house it could be like a “millstone around their neck.” This tax lien will go in front of the bank’s mortgage so the bank most likely will approve a lesser mortgage, or the price of the home on resale will need to be reduced.
Only those homeowners with good credit ratings (having paid all taxes and mortgage payments for the three preceding years) are eligible. A loan will not be given by the district if the existing mortgage is no more than 80 percent of the value of the home and the 80 percent threshold also will be subject to reduction by the amount of the proposed loan.
The current loan rate at commercial banks for home improvement loans is just above 4 percent. An individual who meets the requirement of solvency necessary in this program most likely would qualify for a commercial loan. Certainly the purpose of the district is to promote energy and cost savings.
The proposed plan is that an individual would apply and then the property would be evaluated for whether the saving in energy cost would be more or less than the cost of the project. The project would only be approved for the former. It would be an excellent pro-consumer approach to have at that point two tracts. The homeowner or commercial property owner would have the option to either finance it as a tax lien through the district or use commercial bank financing. I’m sure many local banks would be happy to work with the district to achieve this. This protects our residents yet still accomplishes the goal of the project.
3. When a municipality approves a project it is encouraging its residents to look favorably on it and participate in it. If anything goes bad with the individual projects or the administrator, the village could have potential legal liability. The administrator that will run the project is Ygrene, an energy company started in California, with only a few years’ track record.
Our program, if approved, would be run by a separate company, Ygrene Florida, a company with absolutely no assets or track record. The solution proposed in the contract is that Ygrene Florida indemnifies the municipalities in the district against all liabilities and the cost of lawsuits. What good is this from a company with no assets and no track record?
For this to have “teeth” the indemnification should be also from the national company and from a liability bond obtained by the financial backers in favor of the village. Without this, all of the municipalities could be left “holding the bag” and be the “deep pocket” if the project fails.
4. Ygrene in its contracts in California included an aspect that is not part of our proposed local agreement. They set up insurance so that the property owner would be guaranteed energy savings compared to the cost of the loan over 20 years. A local insurance company guaranteed it and this was secondarily guaranteed by reinsurance with a major international company. Why isn’t this part of the program in Florida?
When I asked one of the principles this question I was told the district could request this later from Ygrene. This is not satisfactory. Everythingmust be clear and in writing before anything is agreed to.
5. The proposed board of directors of the district is composed of one elected official of each of the municipalities joining the district. What is the purpose of it being composed this way? A corporate board member always should have certain qualifications. They must have knowledge regarding the business involved and should have no conflicts, real or potential.
A director should have knowledge and experience in the field of the business involved — in this case banking, finance, real estate, and/or construction. To just appoint a council member from each entity doesn’t satisfy the basic requirement of a corporate board.
At our council meeting last month we were told that the membership on the board of directors would be a paid position. I believe there is an ethics problem with the council voting to appoint one of its own members to a position on the board of a district of an entity that they created with their own votes.
What is the rush to passing this? First, our village should not accept the contract as a whole as negotiated by Cutler Bay but look into potentially changing some issues, some of which are delineated above.
Why are we not supporting the county in their plan? A county plan would have a larger base, eliminate the potential liability for our village, and would allow more time with more input for deciding the best approach, whether the county itself should run the project, set up an independent authority to run it, or contract with a profit- making company, such as Ygrene or others to run it.
Every member of the council has a fiduciary responsibility to represent all of our residents when making law. I suggest they turn down this ordinance as it has at this time too many unsolved questions. They should however continue to look into and work for programs that save energy and make it more affordable for all of us, whether through Ygrene in a renegotiated contract, through Miami-Dade County, or through other sources.
Edward Feller, MD, is a former councilmember in Palmetto Bay.
