1

Qualified Energy Construction Bonds (QECB’s)

CATEE Conference

December 18, 2013

• 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

What are QECB’s

• 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 Projects

4

• 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.

QECB Allocation Process

• 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

Texas Bond Review Board

• 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

Process to Funding

Allocated UtilizedArizona $ 67 mm $ 16 mmArkansas $ 30 mm $ 0 mmCalifornia $381 mm $275 mmColorado $ 51 mm $ 43 mmFlorida $190 mm $ 0 mmGeorgia $100 mm $ 5 mmIllinois $134 mm $ 50 mmKansas $ 29 mm $ 29 mmLouisiana $ 45 mm $ 30 mmMichigan$104 mm $ 11 mmMississippi $ 30 mm $ 0 mmOklahoma $ 38 mm $ 0 mmWashington $ 68 mm $ 40 mmTEXAS $252 mm $ 16 mm

*As of October 2013 7

QECB Utilization – Selected States

Houston, City of $ 23.4 mmHarris County $ 16.9 mmSan Antonio, City of $ 16.9 mmDallas, City of $ 13.1 mmAustin, City of $ 7.9 mmEl Paso, City of $ 6.4 mmDenton County $ 4.2 mmBrazoria County $ 3.1 mmCorpus Christi, City of $ 3.0 mmPlano City of $ 2.8 mmGarland City of $ 2.3 mmLubbock City of $ 2.3 mmBell County $ 1.7 mmWaco City of $ 1.3 mmUnallocated BRB $ 43.4 mm

8

QECB Texas Allocation – Selected Entities

• 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

QCEB’s Underutilized

• 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

20% Savings Clarified

11

Joshua BriggsVice President

Green Campus Partners, LLC

732.917.2322 | Office720.448.3015 | Mobile

josh.briggs@greencampuspartners.com

Contact Information