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Financing Energy-Efficient Projects
By: Renee M. Piché - Monday, November 20, 2006
Source: President, Municipal Leasing Consultants
In today’s economic environment, most public sector organizations are faced with increasingly tight operating and capital budgets. The utility budget can be viewed as a source of funds for making improvements. With uncertain and often increasing energy prices, the installation of energy-efficient equipment can be a way to upgrade your facility using dollars saved from future utility bills. Performance contracts are agreements in which an energy company guarantees the performance of the equipment being installed. They can be used for energy efficiency projects, water conservation and lighting upgrades, cogeneration projects, geothermal projects and any type of biomass projects for energy efficiency. Typically, the cost of the needed equipment or project is paid from the savings from the project.
Tax-exempt Lease/Purchase Agreements are the most common public sector financing alternative to traditional debt financing (bonds, loans etc.). An energy performance project allows a public entity to pay for energy upgrades with money already set aside in its utility budget. When properly structured, this financing mechanism draws on the dollars to be saved for future utility bills to pay for new, energy-efficient equipment today.
A Tax-Exempt Lease/Purchase agreement, also known as a municipal lease or an installment purchase agreement, is used to acquire personal and real property. Payments are generally level and are tied to the useful life of the equipment or to match the cashflow of an energy project. Interest rates are lower than those on a taxable commercial lease purchase agreement because the interest paid is exempt from federal income. In addition, a tax-exempt lease/purchase agreement does not constitute a long-term debt obligation because of the non-appropriation language included in the agreement. This language limits the payment obligation to the current operating budget period. If future funds are not appropriated, the equipment is returned to the leasing company. All manufacturer or vendor warranties are passed to the Lessee under the agreement.
Lease/purchase agreements are used to finance everything from telecommunications systems, highway equipment, fire, rescue and emergency equipment to jail cells. They are ideal for financing energy and water projects. The approval process for a lease is generally much easier, faster and ultimately less expensive than issuing a bond, especially when voter referendums can be avoided.
Leasing is an attractive and financially viable option for many municipalities as they face revenue shortfalls and need to continue to provide quality public services.
For over 20 years, Municipal Leasing Consultants has been a leader in providing innovative financing solutions for municipalities helping local governments get the equipment and projects essential to their budget constraints.
Renee M. Piché is President of Municipal Leasing Consultants. She has over twenty-one years experience in the tax-exempt municipal leasing industry. Her career began in municipal leasing in 1984 with Norstar Leasing Services in the newly formed Municipal Leasing Division of Norstar Bank. She continued to develop the product throughout the Fleet Bank acquisition until 1991. Subsequently, Renee joined KeyCorp Leasing, as Municipal Lease Manager, where she was responsible for establishing and implementing a municipal leasing product throughout the Bank nationwide. Ms. Piché is a member of the Government Finance Officers’ Association, Association of School Business Officials, Association of Counties, Association of Fire Chiefs and Conference of Mayors, Chamber of Commerce and various other municipal and private organizations.
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