Qualified Energy Construction Bonds (QECB s) CATEE Conference December 18, 2013 1
What are QECB s Originally authorized by the Energy Improvement & Extension Act of 2008 American Recovery and Reinvestment Act of 2009 (ARRA) increased allocation to $3.2 billion Promote the use of alternative energy and energy efficiency This authorization does NOT expire, no sunset Used for projects that meet certain qualified conservation purposes and must achieve a 20% reduction in energy consumption Taxable Debt Federal Government will pay the issuing entity 70% of the Qualified Tax Credit Rate on date of funding. QTCR is published daily by Federal Reserve which offsets a large percentage (or all ) of the interest cost associated with the transaction Typical effective interest rates anywhere from 0%-2% depending on credit strength Bond issuance or private placement is acceptable 2
QECB Projects 70% of allocation must be for public use, 30% of allocation MAY be used for a private activity Representative projects include school improvements, energy efficiency, HVAC replacement, renewable generation, green community loan program, solar projects Water conservation projects can possibly be done, but you need to be able to quantify savings of energy. Savings of water will not qualify Maximum term is 20 years 3
QECB Allocation Process Allocated to states based on population Texas allocation is $252 million, one of the largest Texas Bond Review Board hands out sub-allocations to local governments with populations in excess of 100,000 School Districts not allocated, however they can request allocation from a local municipality or directly from Texas BRB School District requests allocation from city or county in the form of a letter. City or County passes a resolution which passes the allocation to the School District. District then follows its normal process to authorize the obligation. 4
Texas Bond Review Board Each state is different, process at BRB is evolving Governor s Office ultimately provides the approval No movement while legislature in session Each state has its own process and two deals have been done in Texas Will run the deal past the SECO office Will also rely on bond counsel to speak to the transaction May not know about all issuances within Texas Contact at BRB is Rob Latsha 512-475-4800 5
Process to Funding It takes a number of months to do this, longer than a normal bond issue Identify project which conforms to authorizing guidelines Secure allocation through preauthorized entity or through sub-allocation or through the Texas Bond Review Board School District can request allocation from Federal Government reimburses interest cost to qualifying school districts who implement energy conservation measures, obtain equipment develop curricula and/or train teachers 10% of the proceeds must be spent within 6 months of issuance and all proceeds must be spent within three years of issuance 6
QECB Utilization Selected States Allocated Utilized Arizona $ 67 mm $ 16 mm Arkansas $ 30 mm $ 0 mm California $381 mm $275 mm Colorado $ 51 mm $ 43 mm Florida $190 mm $ 0 mm Georgia $100 mm $ 5 mm Illinois $134 mm $ 50 mm Kansas $ 29 mm $ 29 mm Louisiana $ 45 mm $ 30 mm Michigan $104 mm $ 11 mm Mississippi $ 30 mm $ 0 mm Oklahoma $ 38 mm $ 0 mm Washington $ 68 mm $ 40 mm TEXAS $252 mm $ 16 mm *As of October 2013 7
QECB Texas Allocation Selected Entities Houston, City of Harris County San Antonio, City of Dallas, City of $ 23.4 mm $ 16.9 mm $ 16.9 mm $ 13.1 mm Austin, City of $ 7.9 mm El Paso, City of $ 6.4 mm Denton County $ 4.2 mm Brazoria County $ 3.1 mm Corpus Christi, City of $ 3.0 mm Plano City of $ 2.8 mm Garland City of $ 2.3 mm Lubbock City of $ 2.3 mm Bell County $ 1.7 mm Waco City of $ 1.3 mm Unallocated BRB $ 43.4 mm 8
QCEB s Underutilized State and local govt s need to work together to reduce uncertainty and risk on project qualification Clear guidance from Federal Government How to quantify 20% savings Sub-allocations to local governments may be too small to make a dent in the project Debt aversion at the local level Other projects may super-cede energy conservation projects 9
20% Savings Clarified 20% Savings rule was a major impediment to implementation IRS paper gave discretion to issuers Expected project energy savings can be determined using a reasonable expectation standard and do not necessitate ongoing energy use monitoring. Can use independent licensed engineer or other expert to certify the expectation of savings Can use energy savings estimation tools including an ASHRAE Level III audit, or simulation Freed issuers up, if you act in good faith, with a recognized methodology the IRS will not come after you or your project. 10
Contact Information Joshua Briggs Vice President Green Campus Partners, LLC 732.917.2322 Office 720.448.3015 Mobile josh.briggs@greencampuspartners.com 11