Old House New House Living

Cap & Trade Legislation is first and foremost a tax. Secondly, it is a system of controls that are put in place to monitor and measure energy efficiency at every point in which energy is used; so this legislation affects everyone and everything we do while creating a new bureaucracy to manage it. It is my understanding that this legislation has already passed the House of Representatives and the final decision is now with the Senate.

As it relates to buildings, the legislation establishes a labeling system by which owners, occupants, tenants, buyers, sellers, lenders and government agencies will measure the energy consumption and/or efficiency of a particular piece of property. This system is laid out in Section 204 – Energy Performance Labeling. Simply put, this labeling will be required to disseminate knowledge about a particular property through the development of a database. Specifically, the legislation stipulates that the database should use existing database systems such as tax, title, and other records that localities maintain. The primary goal as stated on page 379:

“to aid the development of achieved performance measurement protocols for residential building energy use for at least 90 percent of the residential market within 5 years after the date of enactment of this Act.”

As you can see, if the goal is to provide performance for 90% of the residential market then existing older homes will be affected, which was part of the debate as well; and we all know that the majority of our homes fall in this category. The labeling system will utilize already established programs including the Home Energy Rating System (HERS) Index system, Energy Star Program and other federal, state programs in place to support this endeavor as well as a new system of measurement established by the ADMINISTRATOR. The point at which a label will be added to a property record is specified on page 386 as follows:

“(3) MEANS OF IMPLEMENTATION.—in adopting the model labeling program established under this section, a State shall seek to ensure that labeled information be made accessible to the public in a manner so that owners, lenders, tenants, occupants, or other relevant parties can utilize it. Such accessibility may be accomplished through—

(A) preparation, and public disclosure of the label through filing with tax and title records at the time of—

(i) a building audit conducted with support from Federal or State funds;

(ii) a building energy-efficiency retrofit conducted in response to such an audit;

(iii) a final inspection of major renovations or additions made to a building in accordance with a building permit issued by a local government entity;

(iv) a sale that is recorded for title and tax purposes consistent with paragraph(8);

(v) a new lien recorded on the property for more than a set percentage of the assessed value of the property, if that lien reflects public financial assistance for energy-related improvements to that building; or

(vi) a change in ownership or operation of the building for purposes of utility billing; or

(B) other appropriate means.”

Please note that this text does stipulate point of sale as a milestone for labeling. Additionally, please note that this paragraph also establishes lenders as a key holder in the need for information and in later passages stipulates that wherever federal funding is involved this will initiate the point of label.

FHA loans are federally backed mortgages and are the majority of loans executed in the endeavor of Home Ownership. Currently, FHA guidelines have protocols that were put in place to address previously enacted Federal Legislation such as Lead Based Paint and Americans with Disabilities Act and Building Codes; and this legislation will have a similar affect on these FHA Mortgages. These requirements stipulate that a “HOME” will not be approved for a loan unless certain physical condition requirements are met such as peeling paint, railings, disrepair of pathways and stairs just to name a few. These conditions always rest with the seller as they are required to make these repairs as a condition of selling their home or the loan will not be approved for the buyer. All federally backed programs where money is in play will be required to accommodate the energy efficiency requirements set forth in this bill.

Additionally, contracts for sale were modified to include Lead Paint and other inspection requirements; and based on the guidelines identified in this legislation, it would be logical to conclude that an energy audit will be required as part of the sale process and repairs based on “measurement protocols” that are not as yet defined but that are to be created as outlined on page 380 will be incorporated.

Other government sourced funding, such as down payment assistance programs, will be required to include energy efficiency protocols as well, as a stipulation of receiving funds. Reference item (v) above, as most down payment and assistance grants are placed as liens on a property.

The grants that are made available for property owners, to make energy efficient upgrades, is a part of the legislation but it is a very small and insignificant part based on the award amounts versus the initial cost of installation and worse yet the cost to a seller when they cannot pay for the retrofit work and will not be able to sell their home.

Traditionally, these types of maintenance issues were worked out between buyer and seller through the negotiation process and purchase price of the home. That will no longer be the case if this legislation is enacted. This legislation will hit the lower and middle income communities the worse as they typically live in districts with older homes and they will not have the money to make the repairs and will no longer have the option to just lower their price. They will have to have the money up front.

The market place is already in the process of including these types of energy efficiency protocols within its system. Specifically, the MLS systems in many states have modified their systems to include data fields that highlight energy efficient upgrades within a searchable field. Buyers and Sellers are already becoming very knowledgeable and are already doing energy efficient upgrades as a matter of course. Although I applaud and encourage energy efficient living; I don’t believe a large tax to create a bureaucracy that manages and controls what people will do is appropriate as people will be rewarded or not, based on the decisions they make in the maintenance of their own homes. They will either see reduced purchase prices and higher operating costs if they don’t make these types of upgrades or they will achieve higher sales prices and lower operating costs if they do. The free market is always the better motivator and it allows the end user to use the full value of their money because they get to keep it rather than losing half of it to unnecessary taxes that come back to them with a value of pennies on the dollar.

The data presented to you is based on the legislative language of the bill. If you interpret the information differently than I have that is fine, but the fact that two people can read the bill and interpret it differently is the point. In a perfect world, we can assume that everyone has the best interests of everyone else in mind; but I subscribe to the philosophy of Trust but Verify.