For many homeowners, efforts to save energy start and stop with the low-hanging fruit–using fluorescent lightbulbs, for example, or caulking air leaks. Now the state is looking at a way to encourage investment in more expensive, more effective measures.

“You drive around, a lot of people still have old windows in their homes,” said Sen. John Fonfara, D-Hartford, co-chair of the General Assembly’s energy committee. “It’s not because they don’t know that double-pane energy efficient windows are out there. They just don’t have the initial investment, and that’s something we as a state can be helping with.”

Tucked into the main energy bill from Fonfara’s committee this session, SB1–190 pages in its original form–is something called Property Assessed Clean Energy, or PACE.

A favorite of energy efficiency and environmental advocates in recent years, PACE programs have been popping up nationwide as a way to finance big-ticket energy upgrades property owners couldn’t otherwise afford.

Under PACE, municipalities provide low-cost financing – usually from bonding, which the Connecticut legislation authorizes – for energy efficiency projects, mainly to homeowners. Although similar funding is available elsewhere, the key difference with PACE is that the loan is paid off through an assessment added to property tax bills. The obligation stays with the property if it’s sold, so the new owner assumes payments.

“People may not have $7,000 or $8,000 sitting around to put into energy financing,” said Charles Rothenberger of Connecticut Fund for the Environment. “They might not think it’s a worthwhile investment if not they’re not staying in the house 10 or 15 years. This gets to both issues in a very clever way.”

Advocates say program not only helps homeowners make improvements to their properties, but also serves to stimulate jobs and drive the economy.

“Municipalities see that there really is a value and clearly they see this as a good jobs benefit,” said Rothenberger. “It saves residents money, which then can circulate in the economy.”

Connecticut already is a leader in helping homeowners identify energy inefficiencies. The Home Energy Solutions program, started 3½ years ago through the Connecticut Energy Efficiency Fund and administered by state utility companies, provides an energy assessment worth about $800 for $75.

Simple improvements like new lightbulbs, caulking and duct sealing are provided free at the time of the assessment, along with a list of suggested additional measures and information on rebates and tax credits. But it was generally believed that few people opted for the additional work.

A year ago, CL&P began a one-year pilot program to finance additional work. Ten-year loans at either 2.99 percent or 4.99 percent were available for up to $20,000. The numbers have been so dramatic that as of June 1, the program will become permanent.

Of the more than 17,000 people who received home assessments in the first nine months of the loan program, nearly 1,000 used the new financing for things like heating, ventilation and air conditioning upgrades or insulation said Ron Araujo, CL&P’s conservation and load management group manager.

But the loans are classically constructed, so unlike PACE, do not stay with the home if it is sold. They also have slightly higher rates – PACE loans tend to be around 3 percent– and shorter terms – PACE loans typically are 15 to 20 years.

“Conceptually I do believe that the PACE model is the path to go down,” Araujo said. “Specifically if you’re looking for bigger ticket items, it allows you to spread it over more than 10 years.”

This is the second attempt to establish PACE in Connecticut: It was a component of last year’s major energy bill, but died when the bill was vetoed by then-Gov. M. Jodi Rell.

Since then, however, a major wrinkle has developed. The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, said it would no longer allow them to underwrite mortgages on homes with PACE assessments because in the event of foreclosure, PACE loans would have “first lien status” meaning they could be repaid before the mortgage.

Backers here think they can structure PACE so homeowner loans have secondary status after mortgages – though that might mean slightly higher interest rates – but the FHFA ruling has caused disruptions in other programs.

In Boulder County, Colo., among the earliest PACE adopters, the program ground to a halt after $10 million of a $40 million bond had been invested in 600 homeowner projects over 18 months.

Dan Rowland, a specialist in the county commissioner’s office, cautioned Connecticut about moving forward with PACE. “I just don’t think the rules are clear or as well-established about what’s going to happen in the future,” Rowland said.

Babylon, N.Y.’s PACE-style program is continuing even as it fights the FHFA in court – arguing it has no jurisdiction in local programs and only the portion of a loan that is in arrears would have first lien status anyway.

Instead of bond money, Babylon has classified carbon dioxide as a solid waste, which allows the town to use its solid waste improvement fund for the retrofits. In about 2½ years Babylon put $4.5 million into energy improvements in about 800 homes. But director Sammy Chu said the FHFA action has hurt them in other ways.

“We were at the cusp of having the private capital doors open up,” he said. “It’s scared away all the private investment.”

In the last month, the federal government through the Department of Housing and Urban Development has also entered the energy efficiency financing game with a program called PowerSaver – a two-year pilot conventional loan program.

“We’re trying to test a program and gauge market demand for modest energy efficiency retrofits,” said HUD spokesman Brian Sullivan. “We’re talking about people on the very brink of making a decision, who just cant get past the nut of paying for it and getting them over the hurdle.”

Rates are substantially higher than PACE — 5 to 7 percent. Loans are capped at $25,000 over 20 years, and borrowers must meet strict financial criteria and put down at least 10 percent.

Rothenberger and other advocates are aware of the hurdle PACE faces until the situation with the FHFA is resolved. He and others said it was still important to have a framework ready to go.

“There should be a very easy and seamless way to transition from the audit and its recommendations to low-cost financing for a suite of preapproved measures,” Rothenberger said. “The Home Energy Solutions program is really successful, probably the best of its kind in the country. We really have an opportunity to build on that platform.”