Bond Financing & Eligible QEBC Projects - National Perspective from the Energy Programs Consortium

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Bond Financing & Eligible QEBC Projects - National Perspective from the Energy Programs Consortium

  1. 1. National View of QECBs Elizabeth Bellis, Energy Programs Consortium SE Sustainability Conference August 21, 2013
  2. 2. Disclaimers Circular 230: This presentation was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. Federal tax law. This presentation is intended to serve as a general introduction to the use of qualified energy conservation bonds. Nothing contained in this presentation should be construed or relied upon as legal advice.
  3. 3. QECB Review • QECBs are effectively a federal interest rate buydown program for state and local bonds. • Interest is taxable. • Issuer elects: Cash payments to the issuer OR tax credits to the bondholder. • Cash payments = 100% of the interest OR, if lower, 70% of the “qualified tax credit rate” set periodically and available at Treasury Direct’s website. • These payments are subject to sequestration (discussed below). • Maturities are also set periodically and have ranged from 12 to 22 years (see Treasury Direct website)
  4. 4. QECB Uses • Reduction of energy consumption in publicly owned buildings by at least 20% • Implementing green community programs (PACE financing, LED streetlights, etc.) • Rural Development • Renewable energy facilities (wind, solar, biomass, geothermal, landfill gas, trash to energy, hydropower facilities) • Certain mass commuting projects
  5. 5. QECBs by Use 79% 10% 11% Graph 7: Use of QECBs QECBs Known to be Issued for Energy Efficiency Projects QECBs Known to be Issued for Renewable Energy Projects QECBs Known to be Issued for Green Communities Projects August 7, 2013
  6. 6. QECBs for School Projects 25% 75% Graph 6: Known QECB Issuances QECB Known to be Issued for School Projects QECBs Known to be Issued for Other Uses August 7, 2013
  7. 7. Who got the allocations? QECB Regional Allocation 24.3% 20.7% 19.6% 16.4% 13.1% 4.5% Southeast Northeast Midwest Southwest Central Northwest 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Graph 3: Percent of Total Allocation, By Region
  8. 8. How much is left? • Up to 75% of the original $3.2b may be available. • State utilization rates range from complete lack of known utilization (22 states) to complete exhaustion of allocation (Kansas). • A number of states are approaching exhaustion of funds, including Colorado, Kentucky, and Montana. • On the other hand, a few states, including Hawaii, Mississippi, and Florida are not known to have authorized QECBs at this time.
  9. 9. QECB Utilization Nationally $795,370,197 $3,200,000,000 Amount Known Issued Amount of QECBs Allocated Graph 1: QECBs Known to be Issued v. Allocated August 7, 2013
  10. 10. QECB Issuances by Region $314,606,778 $158,836,267 $114,503,555 $105,011,353 $58,859,000 $39,665,000 Southwest Midwest Northeast Central Southeast Northwest $0 $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000,000 $350,000,000 Graph 4: Known QECB Issuances by Region Known Amount Issued
  11. 11. QECB Utilization by Region 60.0% 27.6% 25.3% 25.0% 17.3% 7.6% Southwest Northwest Midwest Central Northeast Southeast 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% Graph 5: Proportion of Allocations Utilized, by Region % Known Issued of Allocated
  12. 12. $0 $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000,000 0% 20% 40% 60% 80% 100% 120% Wisconsin Washington Virginia Utah Texas Tennessee South Dakota Pennsylvania Ohio North Dakota New York New Hampshire Nevada Montana Missouri Minnesota Michigan Massachusetts Maryland Maine Louisiana Kentucky Kansas Indiana Illinois Georgia Connecticut Colorado California Arizona Alabama Percent Issued Known Issued QECB Utilization by State Volume of known issuances Known Utilization Rate
  13. 13. Southeastern Region • Of $776,381,000 in QECBs available to the region, only $58,859,000 (7.6%) is known to have been issued. • All of these issuances have been for EE retrofits in municipal buildings and schools. • In the southeastern region, Arkansas, Florida, Louisiana, Mississippi, North Carolina and South Carolina have had no known issuances. • Kentucky leads the way with 3 issuances, followed by Tennessee, Georgia and Alabama with 1 issuance each. • Kentucky’s 3 issuances account for 93% of available funds, making it among the states with the highest utilization rates nationwide. • Louisiana’s 1 issuance (of $30M) accounts for 66% of the states allocation.
  14. 14. Barriers to Use • Initial legal uncertainty • Notice 2012-44 clarified many of the FAQs regarding “green community programs” and proper measurement of energy savings • Sequester • Admin Costs • Lack of familiarity • Debt capacity/debt aversion • Pooling issues
  15. 15. Reasons for Success • Issuing QECBs as part of larger bond issuance • Proactive, persistent outreach • Engaging with facilities managers at schools, prisons, and public housing who may have projects • Engaging with private developers where there are debt issues or insufficient public pipeline • Working with local bonding authorities (where applicable) to expedite process • Experienced bond counsel
  16. 16. QECB News • Sequester cuts in place through September. No known current proposals on the table to continue the cuts after September. • Congress is reviewing the tax code, including energy provisions. However, the end effect on QECBs, if any, is not yet known. • Some have proposed renewing and expanding the 179D credit, which may be available for certain QECB- financed projects to sweeten the deal (for certain energy efficiency improvements to qualifying commercial and government buildings).
  17. 17. Where can I find more information? • The current version of the EPC QECB paper is available at http://www.energyprograms.org/wp- content/uploads/2013/06/QECB_Memo_June13.pdf. Updates will be posted periodically on our Publications page. • The NASEO website has a variety of resources, including documents other states have used and the EPC QECB memo which contains information about all known issuances. • http://www.naseo.org/resources/financing/qecb/index.html • DSIRE has a QECB page with links to relevant statutory provisions and IRS guidance. • http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US51F&r e=1&ee=1 • The Department of Energy’s website has resources including a QECB Primer and webinars. • http://www1.eere.energy.gov/wip/solutioncenter/financialproducts/m/qecb.ht ml
  18. 18. Questions? Please keep in touch. Elizabeth Bellis Counsel and Director, QECB & WHEEL Programs, EPC Email: ebellis@energyprograms.org
  19. 19. Sequestration Review • “Sequestration” -- government-wide budget cuts mandated by the Budget Control Act of 2011. • The sequester reduction is applied to section 6431 amounts claimed by an issuer on any Form 8038-CP filed with the Service which results in a payment to such issuer on or after March 1, 2013. • As determined by the Office of Management and Budget, payments to issuers from the budget accounts associated to these qualified bonds are subject to a reduction of 8.7% of the amount budgeted for such payments. • The sequestration reduction rate will be applied until the end of the fiscal year (September 30, 2013) or intervening Congressional action, at which time the sequestration rate is subject to change. • It is unclear whether the sequester reduction applies to tax credit QECB issuances that did not opt for direct payments and file Form 8038-TC rather than 8038-CP, as the IRS statement does not mention these issuances. EPC is looking into this.
  20. 20. Where did 8.7% come from? • Originally OMB released a report in 2012 stating the subsidy payments for the federal fiscal year ending September 30, 2013, may be cut by 7.6%. • OMB has now indicated in a report to Congress dated March 1, 2013, that the current percentage reduction will be 5.3%. • The 5.3% is the overall reduction in the program's total FY 2013 level. • Since the beginning of FY 2013 last October 1 some issuers have received payments that were not reduced. In order to achieve the overall annual savings of 5.3 percent, the remaining payments will have to be cut by a larger percentage. • The Tax Exempt Bond office ("TEB") of the Internal Revenue Service has now advised that subsidy payments to issuers through September 30, 2013, will be reduced 8.7%.
  21. 21. What Does It Mean? • Existing issuers have faced higher net interest payments. • Future issuers may consider tax credit QECBs in lieu of direct pay QECBs if they are exempt from sequestration. • All issuers and purchasers may now “discount” the value of the subsidy going forward due to uncertainty about the amount and continuity of its provision. • Many issuers have the right to repurchase their QECBs in the event of a subsidy reduction. • Such issuers may weigh alternative capital sources that could be drawn upon to fund a repurchase, and the costs thereof (including transaction costs) relative to the increase in interest payments on QECBs.

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