For five years, economic development officials in Toledo, Ohio, have operated a pilot program that allows residents to borrow money for energy-saving home renovations without paying exorbitant interest rates. The program has been widely seen as a success, with only one of 61 borrowers currently delinquent on their repayments.

But now officials at the Toledo-Lucas County Port Authority are preparing to expand the program to other parts of Ohio in a way that has led to trouble for some homeowners in other states — by turning over the program to a private, for-profit lender.

Those plans, which supporters say are necessary to grow the program to additional areas across the state, have many other local officials and housing advocates worried that borrowers will be harmed. Already, the leaders in the state’s two most populous cities — Columbus and Cleveland — have said they won’t participate.

The Toledo program is known as Property Assessed Clean Energy, and it allows borrowers to pay off home upgrades through their property tax bills. By operating on a small scale with strong oversight, the Toledo pilot stands in contrast to high-cost PACE programs in other states that have been run by for-profit lenders.

A ProPublica investigation in April found, for example, that Missouri’s PACE programs have charged high interest and fees, then enforced borrowers’ debts through liens, leaving more than 100 homes across the state at risk of being auctioned at public tax sales. Local and state officials exercised little oversight over the two companies that have run the programs, Renovate America and Ygrene.

The loans made to Missouri homeowners have carried a median annual percentage rate of 10%. The terms have stretched as long as 20 years, burdening some borrowers with total interest and fees that exceeded the cost of the project — or even the entire value of their home. Last month, Missouri Gov. Mike Parson signed into law a measure that added consumer protections and oversight to the state’s PACE programs.

Dave Rinebolt, executive director of Ohio Partners for Affordable Energy, which advocates for weatherization and energy assistance, said PACE programs run by governments are safer than those run by private companies “because these loans aren’t sold through contractors to poor people.” Companies like Renovate America and Ygrene, he said, sometimes lend to homeowners who can’t repay their loans, leaving them in financial peril.

“And that’s who they target,” Rinebolt added. “Low-income, elderly, disabled clients.”

The program in Toledo, according to officials there, didn’t experience those problems. With an interest rate set at 4.25%, its loans have been affordable. And the program has featured strong oversight: A local nonprofit, the Lucas County Land Bank, has helped make sure borrowers have the means to repay their loans, matched homeowners with contractors and ensured improvements are completed correctly before releasing the loans.

In this hub of glass manufacturing on the western end of Lake Erie, many borrowers have come from vulnerable communities. Many of the borrowers were retired, according to officials, and many had incomes that put government free energy assistance programs — an alternative for some homeowners — just out of reach.

“We can’t move terribly fast under this model, but I do think that this model provides a level of security and safety that might not otherwise exist” for borrowers, David Mann, the land bank’s president and CEO and a member of the port authority board, said at a forum about PACE lending in early 2020.

But rather than build on the success of Toledo’s PACE program by adding staff or replicating it in other Ohio cities, some local governments across the state are set to join an expanded PACE program. The port authority has sought partnerships with the same companies that contributed to Missouri’s crisis and to widespread problems in Florida and California, the other states with statewide programs.

Exactly when Ohio will launch its expansion is unclear, but Ygrene, which is set to operate the program, said it expects to start funding projects “in the near future.”

Though the port authority and Ygrene have agreed to some consumer protections that appear to go farther than Missouri’s in ensuring borrowers can repay their loans, housing and consumer advocates are skeptical these changes will offer real protection for homeowners.

Under one provision, a loan cannot exceed 10% of a borrower’s annual household income. So, a borrower with Ohio’s median household income of $56,602 would be limited to a $5,660 loan. That, according to advocates, may protect some homeowners from taking on debt they can’t afford but also prevent them from borrowing enough to do the work their homes need.

Under another provision, a loan cannot exceed 20% of a property’s fair market value, while a borrower’s combined debt on a property — including the outstanding mortgage plus the PACE loan — cannot exceed the property’s fair market value.

It’s unclear how much that will protect borrowers. In Missouri, ProPublica found, PACE lenders relied on private appraisal services to assign property values that were frequently much higher than appraisals done by local officials.

Ygrene said it insisted on robust consumer protections. But Frank Ford, senior policy advisor for the Western Reserve Land Conservancy, which is based in the Cleveland area, said those protections do not go as far as those in, say, California, which required PACE administrators to verify each borrower’s income, assets and debts to determine their ability to pay.

Ford and other advocates said PACE programs run by private companies are less affordable than government-run programs and offer borrowers less protection from unscrupulous contractors and fewer costly finance charges. They said low-cost alternatives exist, including partnerships with credit unions or utility company programs.

“What made the Toledo model successful was that they spent money on staff time to go out and look at the house and then to go out and talk with the homeowner and counsel them on what does your house need, what's most cost effective, but also, what can you afford?” Ford said.

The Toledo-Lucas County Port Authority initially agreed to partner with Renovate America, one of the lenders that operated in Missouri. Renovate America filed for bankruptcy protection last year after California passed legislation requiring lenders to make sure that borrowers could repay their loans, and the company’s business plummeted. As a result, the Toledo port authority contracted with Ygrene to take over the program. The port authority and Ygrene both plan to charge administrative fees on the sale of bonds made up of individual loans.

Port authority officials and Ygrene said that more than two dozen communities in five counties across the state have signed up to participate, and they anticipate more will join. The port authority’s board of directors in March 2020 voted 11-2 to issue $500 million in bonds to finance the program. The land bank’s Mann cast one of the two dissenting votes, saying he wanted a better understanding of how consumers would be protected from financial abuse or contractor fraud.

Ygrene has said its program provides much-needed financing for home upgrades, particularly in Black neighborhoods where traditional lenders typically don’t do much business. It has said that its interest rates and fees are lower than those of some credit cards and of payday lenders and that most borrowers make their payments on time.

The company said, too, that it was better suited than the pilot program to operate on a larger scale, in part because the pilot program is limited by its reliance on government resources. Ygrene said it has ready access to funding to meet the needs of residents in struggling neighborhoods.

“In the statewide PACE program,” the company said in a statement, “private entities like Ygrene will fund PACE projects without the use of any public funds.”

Thomas Winston, president and CEO of the port authority, said even before the pilot program, the agency had wanted to offer PACE across the state. He said a national lender can provide the financial backing for the program to grow and also run it more efficiently.

“The intent was always to do a statewide program with a national player,” said Winston, who pledged the port authority will exercise oversight over the program. While interest rates under the private-lender program, he said, “are anticipated clearly to be a little higher, I think there is access to capital that’s needed in the communities to be able to assist these homeowners in home improvements.”

ProPublica found the Missouri loan programs disproportionately burdened borrowers in predominantly Black neighborhoods. There, 28% of PACE loans were at least one year behind, compared with 4% in mostly white areas. The impact was especially heavy in the city of St. Louis and its suburbs near Ferguson.

The port authority’s pilot program offered much more affordable financing than similar Ygrene loans in Missouri, ProPublica’s analysis found. For example, Elana Echols, who owns a 1,152-square-foot one-story brick home in Toledo, signed up for the port authority’s pilot program in late 2018 to finance a new heating and cooling system.

Echols financed the $3,615 project with a loan from the port authority. Over the nine-year term of the loan, she will pay a total of about $1,000 in interest and fees.

“It’s a reasonable payment,” she said. “It won’t break the bank.”

In the St. Louis County suburb of Berkeley, Gary Tate Jr. also had a new heating and cooling system installed in 2019 in his 960-square-foot ranch house. He financed the $3,400 project with a 10-year Ygrene loan.

Over the life of the loan, he will pay a total of about $4,000 in interest and fees — roughly four times what Echols will pay.

“They are just taking advantage of the fact that you are in a corner and giving you a way out, but they are charging you for that way out,” Tate said. “It’s a costly way.”

Public officials across Ohio have been watching the controversy in Missouri, studying Ygrene’s plans in their state and weighing how to proceed.

A top development official in the Akron area said he sees demand for PACE in his communities. Several communities there have already agreed to join the Toledo port authority’s expanded program.

“I don’t think it’s the greatest thing since sliced bread,” said Christopher Burnham, president of the Development Finance Authority of Summit County. “I think it’s another financing option that people in a certain credit category could use judiciously.” Summit County, he said, has “a lot of housing stock that is in pretty decent condition,” where home values are high enough to secure PACE loans.

Grandview Heights, a suburb of about 8,000 residents outside Columbus, is going ahead with the program, too. The residents wanted it, Aubrey Hale, the city’s strategy and engagement officer, said in an email.

“We are aware,” she said, “that financing is going to be more expensive than some types of borrowing, like a mortgage, and less expensive than other types of borrowing, like a credit card.”

Although Toledo’s city council has already agreed to participate, two council members said they planned to ask more questions about whether the city should proceed. A group of public officials in the Cleveland suburbs has sought more information from Ygrene. And leaders in Columbus and Cleveland said they will not participate.

“Because of your article, I’ve already decided not to really push forward,” said Emmanuel V. Remy, a Columbus city council member who chairs the body’s environment and economic development committees. Remy said he had the authority to block any legislation that would authorize the city to participate in the residential PACE program: “Some of the concerns lingering in my mind — you demonstrated that they were real.”

In Cleveland, council member Anthony Brancatelli said that after considering concerns from local advocates, “there’s just not a chance, unless there are a lot more assurances, that this is ever going to get through my committee, because it’s just way too targeted to low-income minority communities.”

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