Solar

Recovery and Reinvestment Act Boosts Municipal Solar Finance

Much has been written about the stimulus package signed into law by President Obama last month. However, there was one small and barely noticed change to the tax code that may turn out to be one its most significant achievements. With that change, Congress removed a roadblock to an innovative new financing program that can pump billions of private dollars into solar and energy efficiency projects with no direct cost to government.

Renewable Funding joined a group of cities and organizations, including the Solar Energy Industries Association and Vote Solar, to push Congress to support the new program — often referred to as CityFIRST — that enables local governments to provide property owners the option of installing clean energy projects and pay for them over 20 years through a voluntary line item on their property tax bills.

The idea may have started in Berkeley, but it has already spread to other cities and states. With dozens of cities in states across the country working to replicate this finance program, Congress and President Obama’s team got the message. Strong assistance from Congressman Mike Thompson, Speaker Nancy Pelosi, Senator Menendez and others provided the boost needed for Congress to take action.

Their most important move was to fix a problem with the tax code that may have prevented home and business owners from taking advantage of the 30% solar energy tax credit. The internal revenue code prohibited property owners who received subsidized energy financing from also taking the tax credit. While the CityFIRST program does not require any subsidy, the law was vague enough to leave room for doubt. That problem was eliminated — removing one of the last roadblocks to widespread use of the new program.

Congress also authorized state, local and tribal governments to use a portion or all of $2.4 billion of Qualified Energy Conservation Bonds to fund these municipal bond-backed solar and energy efficiency projects. Similar to Clean Renewable Energy Bonds, these QECBs are issued with a zero percent interest rate with federal tax credits provided to bond owners in lieu of the traditional bond interest. Energy conservation bonds differ from traditional tax-exempt bonds in that the tax credits issued through the program are treated as taxable income for the bondholder.

In a final boost, lawmakers also gave $3.2 billion of Energy Efficiency and Conservation Block Grants to help local governments implement energy efficiency and conservation programs — including municipal clean energy programs — and $5 billion to expand weatherization efforts for low-income family homes. The existing tax credit for energy efficiency upgrades in homes was also extended and tripled in size to cover 30% of the cost of the equipment, with a maximum of $1,500.

Taken together, these new incentives and financing options will help the private sector revolutionize the way our homes and businesses use energy. With subsidies to help low-income families, tax credits to bring the price down and the new municipal clean energy financing programs to pay for the rest of the cost, we are poised for rapid change.

In particular, CityFIRST overcomes the principal obstacle that has hindered widespread adoption of decentralized, local clean energy — the prohibitive up-front cost of the technology. Here’s how it works: a government sells municipal bonds that pay the up-front cost of solar and energy efficiency projects on properties. Home and business owners who want to install the clean energy projects agree to pay back the costs through a line item on their property bills over a 20-year period.

Property owners like the program because it is completely voluntary, repayment is transferred when they sell their property, energy savings offset costs and it is highly competitive against already stressed home equity lines of credit. Personal credit checks are unnecessary because loans are tied to property. Meantime, state and local governments are eager to adopt the finance program in spite of the credit crisis because it is tax neutral, it creates no exposure to the general fund, and it uses a municipal finance mechanism well known to them. The program also offers a silver lining to Wall Street. Investors in the growing socially responsible investing arena will be keen to buy the very first bona-fide secure green municipal bond.

The results may be staggering. A UC Berkeley study published in January found the potential for a $280 billion clean energy program nationwide, one that could eliminate a gigaton of CO2 emissions with no additional cost to local, state, or federal governments beyond existing incentives. Unlocking that clean energy program may well be the best green investment in the Stimulus package.

Cisco DeVries is President of Renewable Funding LLC. He has worked at the intersection of energy, environment, politics and government for more than a decade providing guidance to cabinet secretaries, elected officials, for-profit companies and non-profit organizations. As Chief of Staff to Berkeley Mayor Tom Bates, he envisioned and led the initial development of Berkeley FIRST, a nationally recognized city program designed to allow property owners to pay for solar installations and energy efficiency projects as a voluntary line item on their property tax bill. Now with Renewable Funding, DeVries helps local governments around the country administer and finance similar solar and energy efficiency programs.

Editor’s note:  To read an interview with Cisco DeVries with more on the CityFIRST program, check out Mark Braly’s commentary, “I Thought This Was a National Energy Crisis!”