 If you're just joining, my name is Rocio Ortega and I'm the ProPublica Events Associate. Welcome to today's session, Clean Energy Loans Backfired in Missouri, Will Ohio Be Different? Today's event is brought to you by the generous support of McKinsey and Company. For those new to us, ProPublica is a nonprofit newsroom dedicated to investigative journalism with moral force. This fall, local governments across Ohio are considering expanding a residential Clean Energy Loan Program, known as Property Assessed Clean Energy, or PACE, which is intended to help homeowners make energy related improvements and lower their utility bills. A pilot of the program recently won praise in Toledo, but a recent ProPublica investigation found that a similar program in Missouri left some homeowners who participated in the program at risk of losing their houses and a flawed loans disproportionately affected homeowners in majority black neighborhoods. Through a comprehensive analysis, ProPublica found that more than 100 homes with PACE loans in metropolitan Kansas City and St. Louis were at risk of being sold at public auctions after their owners fell at least two years behind on repaying their loans. What were the differences in these two approaches? And what can Ohio learn from Missouri's experience? These are the questions our panelists will help us navigate through today. For our conversation, we're joined by two panelists. Jeremy Kohler is a St. Louis based reporter covering issues in Missouri and the Midwest. He came to ProPublica in January 2021 from the St. Louis Post Dispatch, where he worked for more than 20 years. Peru Corrine is a data reporter for ProPublica based in Chicago. He covers issues related to housing, business, and economic development in the Midwest. You can go ahead and turn on your videos now, panelists. Thank you to our panel so much for joining today. Our moderator today is ProPublica Deputy Midwest Editor Steve Mills. Steve is a Deputy Midwest Editor of ProPublica. He came to ProPublica from the Chicago Tribune, where for 23 years he was an investigative reporter and editor. You can go ahead and turn on your camera now, Steve. An additional note, this session is being recorded and a link to the video will be emailed tomorrow to everyone who registered. Thank you all so much for being here today and I hope you enjoy the session. I'll let Steve take it from here. Thanks, Rocio. I'd like to welcome everybody as well. And let's get started since we have sort of a minimal amount of time. I'd like to start with a question to Jeremy. You were fairly new when you came up with this idea. What was it that that prompted it? What did you see happening in Missouri that led you to tackle this story? Right. As Rocio mentioned, I came from the St. Louis Post Dispatch where I worked as an investigative reporter. And sometime in the last couple of years, starting in 2018, 2019, I saw a bill appear and disappear and reappear on the county council agenda that would give this group of finance years that run a PACE company access to a greater amount of St. Louis County customers. And PACE was not something that I'd heard of. You know, you don't see a lot of commercials for it. But I just kind of did a typical reporter scratch and sniff test and looked and found that a lot of the companies that were involved with Missouri's programs were the same companies that had more established programs in California and in Florida. And there was a lot of controversy with those programs, lawsuits, class action lawsuits in California, Attorney General investigation in investigation in Florida. So it struck me as interesting in the beginning. And I was able to obtain some documents from the Department of Energy in the state. Luckily, they had left some of their material unredacted so I was able to see some of the loans that were made only in St. Louis County and just pulled a few of them and it was struck by the high cost in the long, the long terms of these loans and just how much interest someone would pay over the life of them. And again, this wasn't comprehensive at this point, but just compared it to existing tax records. And I could see that particularly in neighborhoods where there were some, there were some low value properties that there were some property owners who were failing to make their payments on their taxes, which include their payments, even though before they had taken out their paste loan, they had been up to date on their taxes so clearly this was taking on this paste loan was a burden that some people were having a hard time adjusting to, and that it could be a systemic problem. So how did you go about sort of understanding the system, how it worked in the state, and reporting out the story, where did you find, you know, some of the people that gave the story, you know it's human element, and the data that sort of gave it its backbone. So, I can take this to start out with, I think one of the biggest challenges in tackling the story was understanding the kind of scope of the program and knowing how many people were enrolled in it, how many people were affected by it, and trying to get a sense of the kind of troubling anecdotes that Jeremy had discovered in his early reporting how widespread that phenomenon was, and I was not familiar with pace until Jeremy brought it to us and started asking questions about it. But I do have a background as a real estate reporter and was pretty familiar with with property records. And since this is a home loan program. These were these documents related to these loans were accessible through county recorders of deeds. So the first things that we did in order to kind of just like measure the scope of this program was to take these documents that Jeremy had sunshine from the Missouri Department of Natural Resources for these annual reports that get that are statutorily required to be filed every year. And these reports were in some respects, not very helpful they were redacted in large, in large quantities, and in some of the largest pace programs in Missouri they didn't even provide very detailed information about specific homes for example that had these loans or that kind of thing they only had general total numbers of the people who were involved. But that those documents those annual reports basically gave us a kind of roadmap to where in the state we could start digging for more specific records. And so what we found, sorry go ahead. And I wouldn't just go back for one second, and when you say you sunshine them or the Jeremy sunshine them, you mean use the Freedom of Information Act to get those to get those documents I'm not sure all of our viewers would know it. Missouri it's called the sunshine law. So sunshine becomes the verb. Which is a word that I also learned from Jeremy. But yeah so using those reports, we were able to identify basically five counties or county level governments where pace was most active, and they were all in unsurprisingly metropolitan St. Louis and Kansas City. The city of St. Louis, St. Louis County, St. Charles County, and then Jackson and Clay counties. And each in each of these counties, I basically set out to try and obtain the actual liens, the documents that recorded the terms of the loan for each person who who had participated in this program. And so once we obtained all of those documents from each of these five counties, we were able to kind of extract some information from from the records, and build a database around them that allowed us to do some analysis. And then from that point, I kind of, that was kind of like the data end of the work, and I was able to kind of kick kick things back to Jeremy once we had this database, and he went knocking on doors. And I spent several weeks, just, just driving door to door in St. Louis and in Kansas City. And, you know, it was, it was during COVID so I a lot of times I couldn't enter the house, but you know I'd be talking to a property owner, and it just just ask what how did you know what led up to you. I didn't hear about pace why did you why did you do this instead of something else. And the answer that I heard over and over was, I had no choice. It was January 1. It was zero degrees outside. My kids were cold, or it was the middle of summer. My kids have asthma when you did air conditioning. And, you know, for the most part, there was there was no other access. There was no other access to cash. They didn't have money in the bank. They didn't have good credit. In fact, bad credit is a almost a cornerstone of this. And it was so it was a loan of last resort. It was this or suffer. And then I, you know, I'd be standing outside a house, a lot of them in North St. Louis, North St. Louis County in the east side of Kansas City. And you're looking at a house that's got multiple maintenance issues that the, you know, the pace loan that they're taking out doesn't really begin to address. And so even though they're improving some part of the house, there's the house just needs so much work. And, you know, and looking at some of the property records, you know, we're looking at some houses in some cases where people did $15,000 worth of work on a house that was worth $10,000 to begin with. The, the, the loan to value ratios were way out of whack in some areas. And so what, you know, if you were coming to conclusions about how the program was working, what were those conclusions, what did you see how, you know, were they, were they helping people were they hurting people or, and what was the state doing to sort of provide oversight for the program. Well, as Rosia mentioned earlier, we found that there's a massive amount of delinquency on these loans in certain areas. And so people are very likely to fall behind in their taxes and then be at risk of losing their homes. And really, we asked what the state said about it. There was, there was no, almost no government of this over this that there was very the state does not oversee it. St. Louis City, St. Louis County, each at least those areas had their own pace board, which was supposed to regulate it with local people in charge. But those boards had turned over the, the administration of the program to the lenders to the administrator that they had hired to run to run the company in those areas which was why Green Energy Fund. And, and actually, and when we asked them about, you know, questions about the program, first they were very dismissive of it but they really didn't have the detail oriented answers that we were looking for. They turned all those questions over to why green, you know, they didn't know about the delinquency they didn't know about the high loan to value ratios that we found. And really on a case by case basis didn't know about some of the kind of the stories of desperation that we that we had run into. But at least like I said St. Louis and St. Louis County had their own pace boards. Jackson County, which is most of Kansas City, St. Charles County, which is the far west suburbs of St. Louis are part of the Missouri energy district which is run by another company. And those areas didn't have any local representation. There was this pro there was this system where they were supposed to have a delegate to elect a board. But when we asked the county council of the county executive's office in those counties, who was your representative. They didn't know anything about it had never been done before. So it's just kind of going on an obscurity in these places without kind of any, any oversight at all. I'd be remiss if I didn't go ahead. Oh, just one thing I wanted to add was just another principle finding of this which Rocio also mentioned at the beginning was that, you know, that this is a program where if you want to understand the harm of it you have to put it kind of in terms of inequality, specifically racial inequality. And what one thing that we were able to do once we kind of built this database of loans was we were able to kind of map them out. And specifically map out the outcomes of these loans and how, how often in some parts of the state, you would see extremely high delinquency rates, and extremely high delinquency rates and really high loan to value ratios. And that was another principle finding of this was that if you kind of looked at where the harm was concentrated in terms of what parts of the state where people were most likely to be foreclosed on. And most likely to be saddled with a debt that was way out of proportion to the actual value of their home. It was almost exclusively in black majority black census tracts. And I think a really like revealing anecdote here is something that we talked about in the story is that there was a person in the suburbs of Jackson, excuse me of Kansas City, who took out alone for you know maybe about $10,000 using pace, and was able to clear it within a couple of years when they sold their house without even really breaking a sweat. Another person in North St. Louis who took out a very similar size loan had virtually no chance of selling that house and clearing the debt for a similar amount, because their home was worth so much less. And so, in terms of the unequal impact that was kind of an example of how in certain parts of the state, because of this severe housing inequality that kind of undergirds the market there. Lots of people were basically being sad or what that's they couldn't afford as a result of this program. I know we worked hard to capture the point of view of the companies that were involved. Jeremy you want to talk to that issue. What did why green say what was their point of view about how the program works. Yeah, again, why green energy fund is the company that is the the administrator for St. Louis, St. Louis City and St. Louis County which are two different entities, and then also have begun to try to spread out statewide they have been trying to get into Jackson County. They have started making some residential loans in St. Charles County, which is a very populated area. And why greens also it's a national company. They have made loans in California and Florida. Their position is that they are providing access to capital to communities that are cut off from that, you know, traditional lending that that has been the big selling point for why green. And that there. It's almost like an egalitarian system in that it's not, you know, the interest rate that you pay is not tied to how rich rich you are how you know valuable your property is but everyone is paying more or less the same. And that is true. However, we found that the interest rates that people are paying combined with the fees and interest, the median APR annual percentage rate on these loans was about 10%. And so everyone is paying the same high rate of interest and fees for these loans. And they, you know, they, they also talk about their ability to run these programs on a large scale. They, they're a bit of their company, they can run these things, you know, a much larger program than let's just say if a city city of St. Louis or the suburb of St. Louis wanted to run it on its own. This company has got a bigger capacity, a better capacity to run it, you know, on an overall large system. So, we often talk about accountability at ProPublica, who or what was held accountable in this what institutions or individuals. Okay, I think what kind of change did this bring about the story bring about. And really, you know, this was a program that, if you want to get into like the kind of original intentions of pace was designed to provide affordable access to capital so that people could improve their homes, cut their rentals and do something good for the environment. And that each kind of step of that requires some degree of kind of close observation and regulation from government. And that did not happen in this case. So I would say that principally the local county and state officials who were tasked with overseeing this program and making sure that it actually fulfilled its intentions. Frankly, we're not doing so. And so that's one of the first aspects of the accountability. Jeremy mentioned that in a lot of cases when we went to these people and asked them detailed questions about the program. They repeatedly deferred us to to their private partner. And I think he can talk a little bit more about about the lending companies. And, and I think the lending companies also have been held accountable. Why green is now, as we reported, as a matter of fact a press release came out today that they are launching their Ohio program in more than two dozen communities in Ohio. And now I think our story provides those communities with the ability to ask questions about to why green about what this program is, how much is it going to cost is this something we want to get, you know, to our, the people who live in our community to to participate in. And so the companies themselves. You jumped a little bit ahead there to Ohio. Maybe let's step back for a moment and explain the one of the next stories that you did which looked at a pilot program in Ohio, in Toledo, Ohio, and how that worked and what was happening there. The city of Toledo, Ohio, about five years ago started its own small pace program. There was a need in the in the community for some low cost lending to people to fix up their homes. Toledo was hit hard by the recession and there were people who may have, you know, lost some property value, but they still had income they still had the ability to pay back loans. And so the Toledo Port Authority went in and made about 66 loans, PACE loans, working with a nonprofit Toledo land bank, and the loans we were able to pull from the recorder of deeds office the loans were made at 4%, 4.25%. So only one of the 66 property owners is delinquent to date, and they're on a payment plan. And so it was regarded as a very successful program. Talk to people who were some of the borrowers, you know, they were happy that they were able to access this money, and I talked to one landowner in Toledo. She was looking forward to paying off her loan because she wanted to take out a new one to do a new project in her house. Now, the Toledo Port Authority wants to take this program and have the Toledo Port Authority run a program statewide in partnership with Port authorities all over the state. And so we're talking about scalability. The Port Authority believes that it needs to have a partnership with a private company like Wiger and Energy Fund to be able to make these loans. It's too big a program for they say for, you know, the city of Toledo or the individual governments to run. And so the Toledo Port Authority has apparently today started a statewide program in more than two dozen communities. And, you know, what our story has said is that these loans and we compared the loans that the Toledo Port Authority made through its pilot program to a typical loan that was made in Missouri under why green to show the difference in cost of those loans. And so, in a lot of cases, the loan in Missouri, the borrower is paying three times as much in fees and interest as the borrower, the same borrower for the same type of project in Toledo. And are there differences in the Missouri program and the Ohio program, did why green make any changes from how it operated in Missouri to how it operates in Ohio? We don't know yet exactly how much, you know, how many fees and how much the interest will be for the loans that why green intends to make in Ohio. They have told the Toledo Port Authority that their rates are about 8%, which is generally what the simple interest rate was in Missouri before you include the fees. There were, there are some key differences in Ohio. Under one provision, a loan cannot exceed 10% of a borrower's annual household income. And so that actually has the potential to really restrict how many loans can be made. The median household income in Ohio is 56,000. So that means that, you know, that a homeowner with the median income would be restricted to a $5,600 loan. That's, comparatively, that's much smaller than the typical loan that we saw made in Missouri. And then in Ohio, a loan cannot exceed 20% of the property's fair market value, which includes the pace loan and the outstanding mortgage debt. It's unclear how much that is going to protect homeowners because as we saw in Missouri, the lenders tended to value the homes at a much higher rate than the local governments themselves value them. And so we might, you know, there might be a loan made on a property in St. Louis that the local tax assessor said was worth $15,000. And in some cases, the lenders are saying that those houses are much more valuable and that they should be able to make a much bigger loan there. Interesting. At this point, I think we should move to audience questions. So I'm going to turn things back over to Rocio. Thank you very much. Thank you so much Steve for moderating that discussion and overview of the reporting. Like Steve said, now we're going to move over to our audience Q&A. If you'd like to ask a question, just click on the Q&A icon at the bottom of your screen to submit it to us and we'll go ahead and review. So our first audience submitted question is another energy efficiency and solar financing tool, the PACE model that's P-A-Y-S likewise promises savings without a guarantee while adding a charge to the utility bills of customers who often have little or no discretionary income. The key for the lender is disconnection of utility service if customers fall behind on their bill. While acknowledging the difference between PACE and PACE, can you talk a bit about the dangers of adding surcharges to customers' bills when other programs offer energy efficiency and solar investments at no cost? I'll take this one. There are lots of ways that governments can help people borrow money to fix up their home or make energy efficient improvements. You mentioned PACE, PACE P-A-Y-S stands for pay as you save and it's a tool that utilities, particularly in the South, have used. And it's similar to PACE, except you pay it back on your utility bill instead of your property taxes. There's advantages there. PACE is much cheaper than PACE. The typical PACE loan is 4%, while we found that PACE was about 10%. But there are other governments that make agreements with credit unions and banks to make low interest loans. And the governments will set aside a loan loss reserve fund to take on some of the risk in case some of those loans aren't paid back. And when you look at the cost of those loans, they're all less expensive than PACE. PACE is the most expensive program out there that are run by, essentially run by local governments. Jeremy, do any of those other models also carry a risk of foreclosure? Can you lose your house if you don't pay your PACE loan? No, you can. With PACE, you would run the risk of having your service shut off, which is certainly very serious, but not as serious as having your home taken in a tax sale. Yeah, PACE is the only mechanism where you put your house on the line. And so it carries the most risk for the power. None of these other programs do. Gotcha. Thank you, Jeremy. And I think a question for both of you now. So were the homeowners informed of the financial and legal ramifications if they were to fall behind on payments? Were they given warnings of this possibility where they informed nonpayment could result and the loss of the homes that you keep on talking about? So we don't have any evidence that PACE lenders or the contractors that they worked through failed to disclose any of the things that they were required to. And in many instances, we spoke to borrowers and anecdotally they would show us the records that they signed. And we could see, for example, that they had initialed every page of the loan agreement and that included things like the APR and things like that. So again, we don't have any evidence that PACE lenders didn't disclose what lenders generally speaking are required to disclose in terms of fees and things like that. What we do know from, again, talking to borrowers is that many really didn't understand what they were getting into. Like they didn't understand how much it would cost. In a lot of instances, they didn't understand how rapidly their tax bills would go up. That, for example, if you put a PACE lien against your home and you're in one of these really devalued neighborhoods, your tax bill is going to jump from, you know, I don't want to make up numbers, but it's going to increase at a very high rate if you were, let's say, only paying like $100 a year before the lien, now all of a sudden you're paying $500,000 in annual taxes. So that kind of sticker shock was really disruptive to people. In other instances there were people who fully understood what they were getting into, but did it anyway because, as Jeremy said, they were in desperate straits and didn't really feel like they had a choice. Thanks, Jeremy. Anything else you'd like to add to that? There were people that I talked to in both Kansas City and St. Louis, particularly elderly people who did not even know that they were involved in the PACE program. And part of this is this program a lot of times initiates with a call to a contractor. And so the contractor at the scene signs the borrower up to the entire program. So I knocked on a couple doors and asked, you know, did you notice that your, you know, your taxes had gone up, you know, and how did you get involved with the PACE program? And the borrower said that they noticed that their taxes had gone up, but they didn't realize that they were making repayments on a loan. There was a case that we focused on in St. Louis County, a homeowner that had obtained a home from a property from a family member. The property needed a lot of work. He hired a contractor to come put in a furnace and the contractor came, put the furnace in the basement, but the house had no utilities, had no electricity, had no hot water. And the borrower assumed that the contractor was going to do all of the connections and hadn't. And so the man had been camping in the house for a couple years waiting for, you know, trying to save enough money to fix it up further to be able to use the furnace that he had purchased through PACE. So, you know, there were there were a lot of borrowers that we found that just really did not understand what they had gotten into. So now our next question I believe should be helpful for folks looking for some resources, right? So one of our audience submitted questions is PACE can work very well for some consumers. In your view, one, what are the most important consumer protection rules to have in place for PACE financing to work? And two, which free online financial calculator, do you like to help people calculate the total cost for a project based on interest rate and time? So, you know, I can't speak specifically to what like exact regulations would make this better, but I will say that, you know, fundamentally, what makes this program, what resulted in a lot of the harm that we uncovered in our investigation was a lack of alignment between how much these loans cost in terms of their interest in fees and the size of the loan and what the borrower fundamentally was able to pay. So any kind of consumer protection metric or, excuse me, mechanism needs to be oriented around making sure that you only lend to someone who can afford that bill, making sure that someone who can afford 10, 15, 20 years of payments that within a few years might even in some instances end up exceeding the sticker price of the boiler or the solar panel that you're even buying. But in some instances even the value of the house. So again, making sure that you are only lending to people who can actually afford it seems like a kind of baseline protection. But of course, we'll see also that like, you know, even if you can afford it, that doesn't mean that it's not disproportionately expensive for you as well. A, as far as like a specific calculator that you could use I'm going to put something in the chat right now. The FFI EC, which is a federal, see if I can get this acronym right the Federal Financial Institution Examination Council, they have a tool out there that's for calculating your annual percentage rate, which again your APR is is the true cost of the loan it's not just the interest rate. And you can use this tool to verify the cost of any loan you might get whether it's a, you know, it's solicitation for a credit card that you get in the mail, or a bank loan that you want to get for your local branch. But again, like financial literacy is not really the problem here but if you want to understand how much alone costs, understanding the APR is an essential first step. And this is one tool that can help you. Thank you so much for sharing that that'll be very useful for folks and sure. So if the equipment is purchased via credit. Do the purchasers grant the second mortgage or any form of lean on their homes. Yeah, if, if, if paces use to borrow money for the improvement, then what happens is it's similar to a mortgage a lean is filed in the county courthouse that requires the money to be paid back. And, but the pace lean actually takes precedence over the mortgage so in the event of foreclosure, the, the pace lean gets paid first. And so the, the banks generally don't like that. One of the advantages that paces proponents tout the fact that pace runs with the property, you can transfer a pace lean to the next home. In other words, you can sell the home with the lean and then the next homeowner can can take it over. But the reality is, a lot of banks don't allow that required that require that pace lean to be repaid at the time of the house sale. And so there are homeowners can be surprised by, you know, having that extra cost at the time of their home sale. And that's something because, you know, they, the next homeowner is going to have to realize that they're purchase purchasing a home with this extra obligation. And, and, you know, that that could make it more difficult to sell the home. Thanks Jeremy, we have another question from the audience how has by being responded to your data mapping showing how racially concentrated pace hardship is. Jeremy just read to this earlier and I mean one of the, one of the main defenses, or that the company has offered, as far as the racial disparity and outcomes is concerned is that, you know, they're the only game in town in some of these neighborhoods and that they are providing a service that nobody else is, you know, they point out accurately that traditional banks foreclose on houses, foreclose on mortgages all day long, and that they're not unique in having low home loans that people end up defaulting on. You know, so that's that's kind of the primary response that they've given another response that they've given is specifically in the weeds of like how much the loans actually cost. So, you know, if you look at like a traditional mortgage right now. You know the going interest rate is something like two or 3%, which is much lower than a pace loan. Why greens are committed other pace lenders have made this to is that that's not really apples and apples. These are different types of loans marketed to different types of people, and you can't really, you know, make that comparison. I do think it's telling that when we talked about the high cost of these loans, one of the things that they said was that that they charge lower interest rates than payday lenders, which I think says kind of something about who they consider to be their peers. As far as the service that they're providing and the markets in which they do business. Thank you and we will end on this question, which I know you touched on a bit earlier but wonder if you have any additional thoughts on what kind of oversight if any does the legislation have and if this is a case of state government passing off is the responsibility of actually helping and serving people by outsourcing to a for profit business, a part of a larger transformation wide of that attitude, especially when it seems complex and time consuming and expensive. Well the legislation that was passed this year in Missouri requires that programs be reviewed by the state division of finance at least every other year which has never happened before. We've had the PACE programs have had to report make annual reports to the state, but we don't know what we found that there was very little oversight, very little state oversight, and the bill also requires PACE programs to provide residential borrowers with complete information about the potential impact of the loan including a notice that the home could be sold in a tax sale if they fail to repay the loan. And it also, frankly prevents some of the lopsided loan to value ratios that we found, because it requires the PACE programs to use the property value that signed by the local government instead of, you know, a third party property value which some of the lenders have used. And so that would actually make a lot some of the loans that we looked at, they would not be possible today under that under that law. Any last thought you want to add her. Nope, that's, that's all I'm sorry I was I was deep in the in the great questions that are coming in so I would love to follow up with some of these people. Any questions, we will try to follow up so that is our time for today I want to thank our panelists Jeremy Kohler and her Korean for this excellent conversation and our moderator Steve Mills I'd like to give a special thank you to McKinsey and company for its support. And thank you to our audience again for your excellent questions and joining us today. Again this event has been reported so you'll receive an email tomorrow with the full video of today's event to everyone who's registered. We also post this recording to our YouTube channel. And from all of us at Republic. Thank you so much for joining us. Have a great rest of your evening. See you next time.