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October 20, 2017

More crony capitalism in Frederick County

Ken Kellar

Does Frederick County government have to be about manipulating the market, plundering our money and giving it to their favorites?


I was just reading an October 16 county executive press release announcing the unanimously voted for PACE program. PACE stands for Property Assessed Clean Energy. The press release describes PACE as a way to give businesses long-term loans for energy, or conservation improvements that are paid back by placing a tax lien on the property. The lien stays with the property, not the loan recipient.


The press release said the county’s only role is collecting the loan payment for the lending bank through property tax bills.


The State of Maryland website makes these boasts of the PACE program: “Accessible to those with Non-Investment Grade Credit” and “Doesn't tie up balance sheet with debt.”


Wikipedia says that PACE loans are issued by a bank usually at 3 to 5% higher than mortgage loan rates. State law (I believe) gives PACE loan repayments higher debt collection priority than any existing mortgage.


Wikipedia also states that properties are often purchased without the new owner having any knowledge that they are taking on the burden of the outstanding PACE loan that stays with the property.


This program looks like a great way to stick somebody else with your bills. Imagine you are a green business owner, say an insulation company. You approach small businesses offering reduced energy expense with your pricey insulation service. But, as usual, most business people do a quick cost-benefit analysis and tell you to move along because the savings just aren’t worth the cost.


Business is still slow, but then you read about the PACE program. You ask around and focus on business owners who are near retirement or ready for a change of venue. You approach them and let them know they can get a nice upgrade and the future property owner will foot the bill. Many will still not be interested until you offer a rebate. The source of the rebate is that you overcharge for the job and pay the property owner the overcharge amount.


Consider this postulated scenario. A business owner may want to leave in five years. You offer him an insulation upgrade that would competitively cost $10,000 but you charge $15,000. The property owner gets a 20-year PACE loan for the $15,000 expense which starts being paid back by an annual increase to his property tax bill.


The owner gets a good insulation job which saves him some energy expense, but maybe not enough to offset his 20-year annual tax increase.


So, why did he do it? Because you hand him the $5,000 overcharge which more than compensates for his increased tax bill. The business owner sells in five years and the PACE expense transfers to the buyer. The buyer’s cost is buried in the property tax records, which he may not notice during the sale.


To summarize, the bank wins because they sold a high interest long-term loan. The loan risk is super low because the county serves as the collection agency for the bank, even paying legal fees if a property owner goes delinquent on the property tax.


The green companies benefit by the crony arrangement resulting in more business. The business owner gets his green upgrade at essentially no cost. And the politicians proudly boast their impact on our “sustainability.” We pay for more county legal and administrative staff to administer the program.


The big loser is the poor sucker who may unwittingly buy the property a few years later and be stuck with paying off the inflated high-interest debt.


Before you know it, some savvy property flippers will start incorporating PACE upgrades to all their investments to get a little extra kickback money from the green service providers.


Am I a paranoid conspiracy nut? Perhaps. But why is that these genius government pet projects need special financial arrangements to work?


Gas stations, burger joints and baseball card trading businesses pop up all over with no government help whatsoever. However, windmills, electric cars, solar cells, downtown hotels and energy saving efforts need special legal mandates, subsidies, tax credits and special financing mechanisms. It’s as if these products, maybe, really aren’t good for the consumer, that in a free market these products and services would not exist – or they would fail.


It is inefficient, unfair and perhaps unethical for the government to selectively pick individuals and industries to subsidize. These subsidies and benefits are the root of ineffective and corrupt government as every faction or special interest will seek to win the favor of politicians so they too can be granted a subsidy or special financial mechanism.


It doesn’t have to be this way. Traditional liberalism manifested as trade on its own merits, has brought prosperity and incredible advancement to humanity. Scheming-government market-manipulation has only brought shortages, poverty, expense and obscene profits for a select, government-chosen few.


[Editor’s Note: Wikipedia is an informational website on which anyone can add anything they wish to add regardless of the factual nature of their post. However, some of the material found there can be relied upon for accuracy.]



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