A proposal to use state bonds to help finance loans so homeowners could move to solar and other clean energy systems appears dead at the state Legislature after concerns from counties and mortgage bankers.

Republican Gov. Linda Lingle and several majority Democrats believe the bond-financing program would help homeowners overcome the cost barriers to converting to clean energy systems. Homeowners would be eligible for loans that would be repaid through assessments on their county property tax bills.

But counties have questioned the administrative costs of the program and the Mortgage Bankers Association of Hawaii is concerned that the loans would be placed ahead of first mortgage liens on properties in the event of defaults. The association has warned that prioritizing the clean energy loans could lead to higher mortgage interest rates for borrowers in counties that participate in the program.

The Wall Street Journal reported in March that Fannie Mae and Freddie Mac — the government-sponsored mortgage financiers — are concerned about White House support for the concept nationally because the clean energy loans would have priority over mortgage liens.

Environmentalists still hope that lawmakers will take action by the Friday deadline to have bills ready for final votes before session adjourns next week. But state House leaders have not appointed negotiators on the bill and are instead moving a resolution to study the issue for next session.

State House Speaker Calvin Say, D-20th (St. Louis Heights, Pālolo Valley, Wilhelmina Rise), said there are too many questions about the impact on the housing market.

"They are very much concerned that they will be second in line if this particular proposal goes through," he said of mortgage bankers. "The overall concern is that it may jeopardize housing."

State Rep. Hermina Morita, D-14th (Hanalei, Anahola, Kapa'a), one of the leading environmental voices in the House, agrees with Say. She said the resolution would create a working group at the state Department of Business, Economic Development and Tourism to study the issue with the counties.

"The real issue is, are we doing this for political expediency, or to have a good bill?" she said.

PROPONENTS UPSET

Jeff Mikulina, the executive director of the Blue Planet Foundation, said the bond-financing concept, known as Property Assessed Clean Energy, is being tested in several other cities and counties and has been praised as innovative by the White House and the Harvard Business Review.

Mikulina said he does not understand why Hawai'i would not move forward given the bipartisan support from Lingle and several Democrats. Others in the environmental community have suggested privately that Lingle's involvement — the Republican governor highlighted the idea in her State of the State speech in January — has colored the way some Democrats have looked at the bill.

"This has such popular support," Mikulina said. "We think Hawai'i residents deserve to have access to clean energy this year."

Ted Liu, the DBEDT director, said the state has offered to help counties with administrative costs by diverting federal stimulus money to the bond-financing program. He said the state has told mortgage bankers that it would be willing to consider a subordinate position for the clean energy loans so the lenders could be paid first after defaults.

Liu believes these concerns are being used as cover by Democrats who do not want to see the bill advance because of Lingle's involvement. "That is why I think it died," he said.

State Sen. Mike Gabbard, D-19th (Kapolei, Makakilo, Waikele), is also disappointed. He, too, questions why lawmakers are hesitant given that cities and counties on the Mainland have found the tools to provide the bond-financing for the homeowner loans.

He said he would introduce the idea again next session. "The concept is so huge for Hawai'i," he said.

Homeowners interested in solar and other clean energy systems are often deterred by out-of-pocket expenses, which can run into the thousands of dollars even after tax credits and rebates.

The bill would authorize the sale of state bonds and the proceeds would go into a revolving loan fund directed by the state. Homeowners would be eligible to take loans from the fund to finance clean energy systems, and the loans would be collected over time by counties through property tax assessments.

State Sen. J. Kalani English, D-6th (E. Maui, Moloka'i, Lāna'i), who had concerns about using state bonds for the program because of the state's budget deficit, said a study is the fair approach.

"This is a very new idea. The large idea makes a lot of sense, but the details have to be worked out," he said. "I think it is perhaps more prudent to have the local guys study it more and come back with various scenarios for how it could work.

"It also allows the counties more time to examine it and buy into it."