Legislature(2017 - 2018)BARNES 124
03/28/2017 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB156 | |
| Presentation by Chris Rose, Reap and Bert Hunter, Connecticut Green Bank | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 156 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
March 28, 2017
8:02 a.m.
MEMBERS PRESENT
Representative Justin Parish, Co-Chair
Representative Harriet Drummond
Representative Dean Westlake
Representative George Rauscher
Representative Dan Saddler
Representative David Talerico
MEMBERS ABSENT
Representative Zach Fansler, Co-Chair
Representative Jonathan Kreiss-Tomkins
Representative DeLena Johnson
COMMITTEE CALENDAR
HOUSE BILL NO. 156
"An Act relating to a municipal tax exemption or deferral for
economic development property."
- HEARD & HELD
PRESENTATION: CONNECTICUT GREEN BANK
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 156
SHORT TITLE: MUNI TAX EXEMPTION: ECON DEVEL PROPERTY
SPONSOR(s): REPRESENTATIVE(s) TILTON
03/06/17 (H) READ THE FIRST TIME - REFERRALS
03/06/17 (H) CRA
03/23/17 (H) CRA AT 8:00 AM CAPITOL 106
03/23/17 (H) Heard & Held
03/23/17 (H) MINUTE(CRA)
03/28/17 (H) CRA AT 8:00 AM BARNES 124
WITNESS REGISTER
JOHN MOOSEY, Manager
Matanuska-Susitna (Mat-Su) Borough
Palmer, Alaska
POSITION STATEMENT: Testified in support of HB 156.
GEORGE PIERCE
Kasilof, Alaska
POSITION STATEMENT: Testified in opposition to HB 156.
JEREMY PRICE, Director
Americans for Prosperity - Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 156.
KEN SLAUSON
Wasilla, Alaska
POSITION STATEMENT: Expressed concern about some aspects of HB
156.
DAN TUCKER
Wasilla, Alaska
POSITION STATEMENT: Testified during the hearing on HB 156.
MICHAEL SHIELDS
Palmer, Alaska
POSITION STATEMENT: Testified during the hearing on HB 156.
CHRIS ROSE, Founder/Executive Director
Renewable Energy Alaska Project (REAP)
POSITION STATEMENT: Offered opening remarks for the Connecticut
Green Bank presentation.
BERT HUNTER, Chief Investment Officer
Connecticut Green Bank
Rocky Hills, Connecticut
POSITION STATEMENT: Gave a presentation regarding the
Connecticut Green Bank model and its possible applications for
Alaska.
ACTION NARRATIVE
8:02:42 AM
CO-CHAIR JUSTIN PARISH called the House Community and Regional
Affairs Standing Committee meeting to order at 8:02 a.m.
Representatives Talerico, Rauscher, Westlake, and Parish were
present at the call to order. Representatives Saddler and
Drummond arrived as the meeting was in progress.
HB 156-MUNI TAX EXEMPTION: ECON DEVEL PROPERTY
8:03:28 AM
CO-CHAIR PARISH announced that the first order of business would
be HOUSE BILL NO. 156, "An Act relating to a municipal tax
exemption or deferral for economic development property."
CO-CHAIR PARISH opened public testimony on HB 156.
8:03:51 AM
JOHN MOOSEY, Manager, Matanuska-Susitna (Mat-Su) Borough,
Palmer, Alaska, testified in support of HB 156. He mentioned
the state's heavy reliance on oil and municipalities being asked
"to share in that burden." He said the proposed legislation
would give municipalities the tools other states currently have
to compete in a world market and have a part in raising revenue
to cover governmental costs and provide jobs for their
communities.
8:05:11 AM
GEORGE PIERCE testified in opposition to HB 156. He said
legislators have taken an oath to represent all Alaskans, but he
opined that instead of doing so, they instill exemptions, tax
breaks, and incentives for "special people," corporations, and
non-profit organizations. He said the City of Soldotna owns
prime acreage along the Kenai River, yet its Chamber of Commerce
is allowed extended time to get enough funding to get land and
build a structure on it. He questioned why, if the city needs
financial support from the state every year, it does not sell
its prime acreage. Mr. Pierce emphasized that everyone should
pay equally, but when special interest groups are exempted, the
people pay the price. He stated, "It's a revenue killer - it's
not a helper. People who want to invest in Alaska should not be
getting special treatment." He urged the committee not to
support HB 156.
8:08:44 AM
JEREMY PRICE, Director, Americans for Prosperity - Alaska,
testified in support of HB 156, which he said would give local
governments greater control over managing long-term investments
that would provide greater tax revenue for municipalities. He
opined that local governments should have greater flexibility to
provide property tax exemptions based on the knowledge of local
elected officials who often have firsthand experience and
knowledge of development projects within their jurisdictions.
He stated that the current statute of five years seems arbitrary
and unnecessary when local officials should be able to make
decisions at the local level. He concluded, "Flexibility is
needed now more than ever for local governments to determine
where scarce resources should be used and how public investment
should be managed."
8:09:53 AM
KEN SLAUSON said that although he is the chairman of the Board
of Supervisors for the Central Mat-Su Fire Service, he is
testifying on behalf of himself. He said he is concerned about
certain aspects of HB 156. He stated that the Central Mat-Su
Fire Service derives its entire revenue for fire and life safety
operations from property taxes, and every time a commercial
structure is exempted, fire service is provided without any
revenue to cover it. He said, "We already do this for schools,
for government buildings, for churches, [and] for a number of
other worthy causes." He indicated that HB 156 does not have
sufficient checks and balances to accommodate the fire service
in dealing with large gas facilities or warehouses that have
"substantial fire exposure." He said while Mat-Su has a large
service area, he suspects that the impact [of HB 156] on even
smaller service areas would be worse, and he warned that giving
exemptions to large property operations would shift the cost to
homeowners, which he said gives him concern.
8:12:34 AM
CO-CHAIR PARISH asked if Mr. Slauson's concern is shared by his
peers.
MR. SLAUSON reminded Co-Chair Parish that he was testifying on
behalf of himself, but surmised the answer is yes.
8:13:41 AM
DAN TUCKER testified that he is a member of two local boards but
is testifying on behalf of himself. He said HB 156 has "snuck
up" in such a manner that he and [Mr. Clausen] have not been
able to get together to discuss its possible ramifications. He
indicated that they had spoken about the legislation that was
introduced during the Twenty-Ninth Alaska State Legislature. He
said he would "speak with the same knowledge and relative
awareness as Mr. Clausen." He stated that he is familiar with
efforts required to maintain adequate roads. He opined that HB
156 does not "take this into consideration." He said there is
great potential for increased traffic, for example, on a road
that carries numerous vehicles to a new facility, but [the
proposed legislation makes] "no consideration for the
maintenance of that road."
MR. TUCKER stated that he has worked over 35 years as a career
fire fighter - 29 of those years in Anchorage. He noted that
Mr. Clausen had made note of structures that are tax exempt or
tax-free, such as churches and large public facilities. He
added that those are the buildings that demand the highest level
of fire service response and for which insurance companies deem
the fire stations must be adequately equipped, manned, and
within close proximity. He said, "That takes money." He said,
"We're talking about adding potential structures that would tax
the limits of the services available without giving any credit
to responding to that from a fiscal standpoint."
MR. TUCKER said he does not know if there is much room for
development in the road service area number nine (RSA9), which
includes Wasilla, but the upgrade of the meridian in that area
has cost his residential service area $37,000 a year to maintain
a Seward meridian. He said he does not view that as a local
road, and if any more structure or "load" was added onto that
road, the maintenance cost of it would rise. He said he is
familiar with the infrastructure services pertaining to fire and
roads and realizes that "the fire insurance rates for all of the
residents and commercial structures are based on being able to
provide the required, adequate fire protection - but again it
costs money to keep that adequate." Mr. Tucker stated that road
maintenance has a significant effect on the ability of fire and
emergency medical services (EMS) to respond.
8:18:01 AM
CO-CHAIR PARISH asked Mr. Tucker what changes would make the
bill more palatable.
MR. TUCKER first suggested a time limit of five years on an
exemption should allow the developer a solid start on a project,
and he opined that after five years the developer should be
paying taxes like everyone else. Second, Mr. Tucker said
essential infrastructure services - fire and EMS - are not paid
for out of the general fund but solely by taxes. He said, "I
believe those should be exempted from the tax and that those
services should be covered and taxed as if there was no
exemption at all."
8:19:34 AM
MICHAEL SHIELDS testified that although he is a supervisor of
the Butte road service area in Palmer, Alaska, and the secretary
of the borough-wide local road service area advisory board, he
is testifying on behalf of himself. He echoed the comment of
Mr. Tucker that [HB 156] "snuck up on us." He said road
service, life/fire service, and emergency medical technicians
(EMTs) are funded by property taxes specific to those defined
services areas. He said HB 156 would add road miles, which he
said would probably increase traffic and related maintenance
costs, but it would eliminate the funding source. He said that
would leave raising the mil rate on residents in the service
area as the only option. He said he would like a cost/benefit
analysis done on that scenario to better inform the
legislature's discussion on HB 156.
MR. SHIELDS posited that service areas should be exempted. He
concurred with Mr. Tucker that a time limit on property tax
exemption should be made; he stated his preference that the
limit be set at 5 years - at the most 10 years. He opined that
if a developer cannot afford property taxes, which is a normal
cost of doing business, then he/she should not be in that
business. Mr. Shields concluded that Alaska is notorious for
building "new stuff" and not being able to maintain it, and he
expressed concern that HB 156 would accelerate that trend. He
added that he does not think the intent of HB 156 could "pass
the red-face test."
8:21:36 AM
REPRESENTATIVE SADDLER asked Mr. Shields what the trend has been
in the assessed valuation in the Mat-Su Borough.
MR. SHIELDS answered that it has been "pretty flat" in the last
few years. He explained that raising the mil rate above the
existing tax cap takes a vote of the people. He said he has
attempted that twice with no success. He said, "We're barely
holding our own with our current maintenance load." He
indicated that an attempt to raise the mil rate could counteract
HB 156 but, based on past history, he questioned the success of
asking people to pay more taxes.
REPRESENTATIVE SADDLER indicated that he has heard that Mat-Su
Borough has been growing at a rate that necessitates a new
school built every year. He said he assumes that reflects
increased residential construction. He asked Mr. Shields to
confirm that he had said the total assessed valuation has
remained flat in recent years.
MR. SHIELDS answered yes, but suggested part of that may have to
do with how often the existing property can be reassessed.
REPRESENTATIVE SADDLER said he would like to hear from the
borough about this issue, because the information from Mr.
Shields seems to run counter to the basis for the proposed
legislation.
MR. SHIELDS added that new homes are "going for good price"
while existing homes don't seem to be going for much.
8:24:15 AM
CO-CHAIR PARISH, after ascertaining that there was no one else
who wished to testify, closed public testimony on HB 156.
[HB 156 was held over.]
8:24:33 AM
The committee took an at-ease from 8:25 a.m. to 8:32 a.m.
^PRESENTATION BY CHRIS ROSE, REAP AND BERT HUNTER, CONNECTICUT
GREEN BANK
PRESENTATION: CONNECTICUT GREEN BANK
8:32:46 AM
CO-CHAIR PARISH announced that the final order of business would
be a presentation by Connecticut Green Bank.
8:33:12 AM
CHRIS ROSE, Founder/Executive Director, Renewable Energy Alaska
Project (REAP) offered opening remarks for the Connecticut Green
Bank presentation. He stated that Alaska has had a lot of
success in energy efficiency and renewable energy in the last 10
years. For example, since 2008 the Alaska Housing Finance
Corporation (AHFC) - through its weatherization programs - has
helped over 40,000 households retrofit [energy saving devices],
which has resulted in an average savings of 30 percent on energy
bills. He noted that the legislature appropriated $600 million
to help low-income people get their homes weatherized and to
offer rebates to higher-income households. He reported that the
collective savings is an estimated 25 million gallons heating
oil, which if set at $2 a gallon is a savings of $50 million in
savings each year.
MR. ROSE noted that in 2010 the legislature directed the
Department of Transportation & Public Facilities (DOT&PF) to
start retrofitting the public buildings. He said the state has
over 5,000 public buildings, many of which are not energy
efficient. He said the cost to the state to provide electricity
and heat to those buildings was estimated a few years ago, when
oil prices were a bit higher, at $125 million a year. Even 20
percent of that is a tremendous savings to the state, he said.
Mr. Rose stated that AHFC has been directed to use bonding
authority to help public buildings [increase energy efficiency],
but the corporation has fun into barriers. He said there is a
bill being considered currently that would create a property
assessed clean energy (PACE) program in Alaska; it would be an
additional financing tool to energy retrofit.
MR. ROSE stated that the legislature had appropriated
approximately $259 million to the renewable energy fund, which
leveraged another $200 million in federal and private money to
build projects around the state. He reported there are now 60
projects that have been constructed through that fund and the
Alaska Energy Authority (AEA) estimates it is saving 30 million
gallons of diesel a year, which at $2 a gallon equates to $60
million a year that communities are saving.
MR. ROSE stated that Alaska now has a track record of
functioning renewable energy and energy efficiency; however,
most of the funding has been from grants. The current
restricted state budget does not allow for as many grants, and
Mr. Rose expressed his hope that grants that are given now would
be small grants for feasibility studies, for example, where it
would otherwise be difficult to borrow money.
MR. ROSE said other states have looked for other ways to get the
private sector to finance projects. He said the Alaska
Project's attention turned to "the Green Bank concept" because
of the success of the Connecticut Green Bank, which - as the
first green bank in the United States - is held as a model. He
said the Connecticut Green Bank has had an exceptional run in
its first five years, and he indicated that Mr. Hunter, from
Connecticut Green Bank, has been sought after around the globe
to consult governments in the process of setting up a green
bank. Mr. Rose continued:
This is an opportunity, I think, for Alaska to figure
out a way for us to ... continue the momentum we've
got in energy efficiency and renewable energy by
getting the private sector to come in and develop
these deals. The green bank's role really is to
catalyze and educate the private sector, not to use a
bunch of state money, so we're really hopeful that
developing this idea for the state -- if you will,
it's kind like ... [the Alaska Industrial Development
and Export Authority] (AIDEA), only for clean energy
investment. So, you ... would have a state authority
that would really be focused on these kinds of clean
energy investments. So, the banking community,
frankly, just doesn't have as much knowledge about
[it] as they need. And so, a green bank uses their
expertise to ... talk with these banks and to ...
bring them in and to make them understand how these
fields are good for both them and also for the
borrowers.
MR. ROSE noted that Mr. Hunter had met with investors in Alaska
in January, as well as the commissioner of DOT&PF, and during
this trip meets with the commissioners of the Department of
Revenue (DOR) and the Department of Commerce, Community &
Economic Development (DCCED), as well as other committees, with
the goal of giving people "an idea of what this option might
be."
8:38:31 AM
BERT HUNTER, Chief Investment Officer, Connecticut Green Bank,
related that Connecticut Green Bank was formed in 2011 by the
state's Governor Dan Malloy and legislature; it passed by many
votes - unanimous in the Senate and supported by all but six in
the House. He said the bill was supported because its energy
policy spoke to reducing the energy burden on businesses and
residents, as well as benefits to the state's economy and
environment. Mr. Hunter said throughout the 2000s, Connecticut
had a clean energy fund similar to Alaska's renewable energy
fund, and it was responsible for encouraging investments in
energy-saving technologies, using rebates and incentives but not
financing.
MR. HUNTER said the focus of the green bank is to attract
further private investment for clean energy deployment
including: energy efficiency, solar photovoltaic (PV)
[systems], oil to gas conversions for space heating, renewable
thermal, electric vehicle charging networks, wind, small hydro,
fuel cells - everything related to clean energy. He said the
Connecticut Green Bank does this by using public dollars to
attract local banks, credit unions, national lenders, and global
financial institutions in order to provide businesses,
consumers, municipalities, and schools access to capital to
solve their clean energy needs.
8:41:45 AM
MR. HUNTER said because Connecticut was the first state to
establish a green bank, it had to go "knocking on a lot of doors
to get the attention of lenders and investors." Five years
later, he said, after a billion dollars of investment in the
small state of Connecticut, those same lenders, investors, and
banks all around the world are now "knocking on our door." He
said this is the type of activity that could happen for Alaska.
MR. HUNTER stated that the Connecticut Green Bank has a number
of programs and financial products that are helping the state's
residents attain their own energy conservation and energy choice
goals while helping the state meet its ambitious environmental
goals. He said such improvements help the state's industrial
manufacturers become more competitive by lowering their energy
cost. The Connecticut Green Bank provides incentives and
financing to homeowners that want to install solar PV or upgrade
to cleaner and more efficient boilers for space heating. The
Connecticut Green Bank also helps businesses and communities
invest in micro grids, which he offered his understanding is "a
big activity" in Alaska. Mr. Hunter stated that the Connecticut
Green Bank has a devotion to its most economically challenged
communities where energy costs to residents represent 15-25
percent of their incomes. There are many residents "aging in
place" and many on fixed incomes, so the Connecticut Green Bank
works with social service agencies that focus on housing and
community development, as well as with financial institutions,
to help these families lower the energy costs they bear.
MR. HUNTER stated:
All of this has not only had benefits for businesses
and families, but it also has had an enormous impact
on economic development of the state. As I mentioned,
we've driven over $1 billion of investment in the
first five years - over 12,500 direct and indirect job
years - and this in a state that over the same period
generated 60,000 net new jobs.
MR. HUNTER said reducing energy costs, which are dollars that
for the most part go to other states, saves money, and that
money can be spent locally, invested in more goods, services,
and capital equipment to grow the local economy. He stated,
"So, the businesses of clean energy investment is a real
economic shot in the arm for our state's economy; it just makes
good sense."
8:44:46 AM
REPRESENTATIVE RAUSCHER noted that the AHFC has run into
barriers that have precluded it from making loans. He asked
what those barriers are.
MR ROSE answered that one of the issues with doing an energy
efficiency project is the need for someone "on the ground" to
develop the project, including the logistics of how it will work
and how to secure a loan. He said unless the upfront
development costs can be rolled into a loan, it is difficult for
people to make the first move. He clarified that he was talking
about the government and public retrofits. He said, "Making it
easier for folks in these agencies to develop these projects up
front and then get the loan is really one of the biggest
barriers." He offered his understanding that there have been
50-60 buildings that have used energy performance contracts - at
the state ... agency level - to retrofit, but there are 5,000
old buildings. He said there is a bonding authority agency, so
clearly there is something preventing people from "getting out
in front of these loans and getting the benefit." He ventured
one reason for having a green bank in Alaska is to identify the
barriers and alleviate them.
8:47:10 AM
The committee took a brief at-ease at 8:47 a.m.
8:47:34 AM
MR. HUNTER began a PowerPoint Presentation, titled "Connecticut
Green Bank Incentivizing Private Investment in Clean Energy,
Energy Efficiency & Resiliency with Public Capital." He turned
to slide 3, entitled "About Us." He echoed Mr. Rose's statement
that the Connecticut Green Bank was created in 2011 and
succeeded the Connecticut Clean Energy Fund, which had in its
coffers approximately $60 million. He said the Connecticut
Green Bank focuses on clean energy, which he said covers a wide
range, as he had stated in his introduction. Mr. Hunter stated
that the Connecticut Green Bank's balance sheet over a five-year
period has grown to $175 million in assets. He said the
Connecticut Green Bank is supported by a minimal surcharge on
electric bills, which he explained equates to one-tenth of a
cent per kilowatt hour ($0.001/kWh), which generates a stable
income of [$27-$30 million] a year. He said regionally the
Connecticut Green Bank participates in a cap and trade system
called "regional greenhouse gas initiative," and that is a cost
that is on emitters of carbon; it generates about $5 million a
year. He said the Connecticut Green Bank generates
approximately $2-$3 million a year in its portfolio income. It
also avails itself of contributions from private foundations and
the U.S. Government, which has proved successful.
MR. HUNTER pointed to slide 4, entitled "Microcosm of the U.S."
He noted that Connecticut is quite small, with a population of
about 3.6 million and $225 billion in state gross domestic
products - number 3 in per capita terms. He said the state has
some of the oldest buildings, one of the highest electricity
costs in the U.S., and grid reliability issues, with superstorms
that affect the state. He next drew attention to slide 4,
entitled "Connecticut & Alaska: 2 of the 'Top 10 Most Expensive
States for Electricity.'" He offered his understanding that the
information on the slide was provided by "the United States
Energy Information people" in 2011. Alaska ranks third and
Connecticut ranks fourth. He offered his understanding that
there are many places [in Alaska] where electrical costs top
those anywhere else in the U.S.
MR. HUNTER next pointed to slide 5, entitled "Five Macro Energy
Challenges," which lists the challenges as high energy costs,
old buildings, a need for cleaner energy sources and grid
reliability, and diminished government spending. Regarding the
clean energy, Mr. Hunter said the state is heavily dependent on
natural gas and half its energy comes from Millstone Nuclear
Plant, and it is trying "to look ahead to the future when some
of those sources will not be available." Regarding the
government spending constraint, he explained that Connecticut
has large state deficits linked to some unfunded historic
pension obligations.
8:49:40 AM
MR. HUNTER drew attention to slide 6, entitled "Give Macro
Energy Challenges." In terms of rates per kilowatt hour, he
said, Alaska ranks third in the country; Connecticut ranks
fourth. He offered his understanding that there are many places
where power cost equalization (PCE) is in effect and the cost of
energy is much higher and tops any electricity costs in the
United States. As shown on slide 6, Mr. Hunter named the
following energy challenges: high energy costs; old, energy
inefficient buildings built prior to 1970; the need for diverse
and economical energy sources; grid reliability; and constrained
government spending related to large state budget deficits
linked to some unfunded pension obligations. He stated that
Connecticut is not looking to ask for funds from the federal
government, but rather to access existing pools of funds
available and redirect them into the Green Bank.
MR. HUNTER continued to slide 7, entitled, "Basic Green Bank
Model." It shows that the government provides public
capitalization and/or ongoing revenue streams [to the Green
Bank], which mitigates risks to private investors, so that low-
carbon projects related to energy efficiency or renewal energy
can move forward. There is a focus on getting private investors
more comfortable with the idea of investing in the projects. He
said throughout the U.S. there is no problem with grid scale
activity; it is not difficult to attract private investment in
big wind and big solar energy. When that effort is moved to the
state level, there becomes concern on the part of investors as
to how they will get a return on their investment. He said
there are mechanisms that the Green Bank puts in place to get
those investors much more comfortable with their investments.
8:52:50 AM
MR. HUNTER turned to slide 8, entitled "How Green Bank's [sic]
Leverage Public Capital with More Private Capital." He named
the ways the Green Bank deals with risk are by: co-investing
with private capital; investing side-by-side on a senior basis;
or by acting as a subordinated lender. The Green Bank can also
act as credit support by offering a partial guarantee. He
explained that the Green Bank has not and will never offer a
hundred percent guarantee, because "it's not necessary." He
explained that the investments illustrate that there is plenty
of cash flow, with benefits, available to support the loans.
8:53:43 AM
CO-CHAIR PARISH asked for an explanation of senior private
capital.
MR. HUNTER answered that when more than one lender comes in to a
project, they can either be on equal terms specific to "priority
to the cash flow" or one party will choose to subordinate itself
to the other lender and become second in priority to all the
cash flow. He explained that the benefit of that to the senior
lender is having more coverage on its loan from the collateral -
the cash flow that is available from the project.
MR. HUNTER talked about financial warehousing. He said that
smaller projects are more time intensive until a program can be
set up, and banks are not willing to make that step to come in
to the market, because they just don't have the interest or
resources. If a Green Bank can come forward and do the projects
and the aggregation of these projects, then the banks will step
in behind them and fund the project. He said this is what has
happened in Connecticut and other states.
8:55:27 AM
REPRESENTATIVE WESTLAKE expressed an interest in talking to Mr.
Hunter after the meeting.
8:55:59 AM
MR. HUNTER continued to the next portion of the presentation,
bringing attention to slide 9, which asks, "What Impacts are
Being Achieved through the Connecticut Green Bank?" He directed
attention to slide 10, to a table that shows that the
Connecticut Clean Energy Fund (CCEF) operated for 11 years
through the 2000s and put together investments totaling roughly
$350 million at a ratio of 1:1, clean energy fund money to
private sector money. Then in five years, the Connecticut Green
Bank has done $1 billion in capital investment. That increase
is because of Connecticut Green Bank's ability to leverage the
private sector's investment at ratios ranging from 3:1 up to
11:1, sometimes through a guarantee program, which as he noted
before is not at 100 percent but offers just enough guarantee to
take the risk out of the market.
8:57:05 AM
MR. HUNTER highlighted slide 11, which offers a table showing
that as a result of its activities, the Connecticut Green Bank
has eliminated over 2 million tons of carbon dioxide. He said
slide 12 shows the half a billion dollar impact that Connecticut
Green Bank has had with its public-private partnerships,
including U.S. Bank, Key Bank, Bank of America, and Onyx, which
is a subsidiary of a private equity company called Gladstone.
He said the slide also shows a progression. The bottom-left of
the slide shows that Connecticut now has a facility with Hannon
Armstrong to provide financing for commercial PACE (C-PACE)
activities. He said, "This is an industry ... that's maturing
rapidly, and lenders and investors throughout the country are
seeing the value of C-PACE." He applauded Alaska for doing what
it can to move forward in C-PACE.
MR. HUNTER noted that slide 13 recaps the results he had
previously mentioned, including the reduced energy burden on
over 20,000 households and businesses and the deployment of over
200 megawatts of renewable energy, which has reduced over 2
million tons of greenhouse gas emissions.
8:59:40 AM
MR. HUNTER guided the committee to the next section of the
presentation, on slides 14-18, which addresses project and
program examples. As shown on slide 15, he said one of the
first programs launched was the Smart-E Loan, which is a
flexible, unsecured loan for homeowners. He said Connecticut
Green Bank asked credit unions to make loans to homeowners with
lower interest rates. The loans could be higher than a typical
car loan, for example, but the interest rate must not be the
typical 10-12 percent for the unsecured loan. He said
Connecticut Green Bank meant to prove that these loans are as
good as all the other loans made by credit unions, and it did so
by providing "excess loss protection to a certain extent." He
reported that the Connecticut Green Bank has done $16 million of
these transactions through the groups of lenders in about three
years and has experienced no loss in the loss reserve.
9:01:25 AM
REPRESENTATIVE RAUSCHER asked what "to a certain extent" meant.
9:01:40 AM
MR. HUNTER explained that the Connecticut Green Bank contributes
7.5 percent of the loan value to an account that it holds on a
balance sheet and which is available for the lender to call on
if its portfolio losses exceed a certain amount. If that loss
reserve is exhausted, the lender cannot come back to the green
bank and asked for more unless the lender issues more loans and
builds its portfolio. For example, if a lender does $1 million
in loans, the Connecticut Green Bank would put $75,000 in an
account from which the lender could call only if its losses in
the green bank program exceed $15,000. If the lender had $5,000
in losses, it could just consider that there would be some
losses; if it had $30,000 in losses, then it could come to the
Connecticut Green Bank for compensation on those losses. He
said the Connecticut Green Bank has had no trouble attracting
its 11 lenders into its program.
9:03:43 AM
REPRESENTATIVE WESTLAKE asked about the qualifications to become
a lender working with a green bank.
MR. HUNTER answered that it is an opt-in program open to any
community bank or credit union in the state. The lenders enter
into a financing program agreement with the Connecticut Green
Bank that has been vetted by community banks and credit unions
to be in compliance with national credit union association
constraints and restrictions. The agreement spells out how the
Connecticut Green Bank will put the loss reserve aside and
compensate the lenders for losses. It also explains how the
Connecticut Green Bank will provide marketing and other program
support.
9:05:34 AM
CO-CHAIR PARISH offered a scenario wherein a bank in Alaska
makes $1 million in loans and then has a bad year with losses.
He said [the hypothetical Alaska Green Bank] essentially would
have an escrow account of $75,000 to cover losses on that $1
million investment. He asked for clarification that after the
bank covered the first $15,000 in loss, the Alaska Green Banks
would cover the next [$75,000], and beyond that the lender would
be responsible, but if there were that much loss, the lender is
probably in the wrong business.
9:06:36 AM
MR. HUNTER added that if, in that scenario, that bank had put in
another $1 million in loans, now totaling $2 million, and [the
hypothetical Alaska Green Bank] would have put in another
$75,000, then the program agreement allows the lender to recover
excess loss, because the lender is growing the portfolio. In
response to Co-Chair Parish, he recapped that there have been
$16,000 in loans over three years. He said there were two
defaults absorbed by lenders that did not rise above the 1.5
percent loss limit for their portfolio, so the $2.5 million loss
reserve that the Connecticut Green Bank had established on its
books for the lenders' benefit was not impaired.
CO-CHAIR PARISH summarized that the Connecticut Green Bank had
done $16 million in loans, which were an incentive given by
offering to cover catastrophic losses, had resulted in no cost
to the Connecticut Green Bank, and he said, "That's pretty
cool." He asked Mr. Hunter how much of that $16 million would
have been loaned in the absence of such underwriting.
MR. HUNTER explained that this type of lending is a choice.
There are other options for people, including using cash out of
personal accounts or refinancing a mortgage; however, the key in
the system offered by the Connecticut Green Bank is that it is
easy. Typically a lender will approve a transaction in two days
- some in as little as two hours. He said this has become
commonplace. He said contractors like the system, because it
makes their customers happy to have more energy efficient homes
and they have another sale without the red tape of financing.
He said the key is to figure out how to scale the market and
provide the access in a cookie cutter way that is repeated over
and over. Mr. Hunter said the Connecticut Green Bank started
with two ranges of credit scores: 680 and up, as well as a 640
to 679, which is riskier. Lenders have asked for permission to
lower their credit limit to 580 to accommodate customers whom
they know well, and the Connecticut Green Bank has said yes,
because "these are mission-driven financial institutions" that
know their communities - not predatory lenders. He indicated
that accepting the lower credit score has expanded the market.
MR. HUNTER, in response to questions from Representative
Rauscher, said the interest rate is not changed based on risk,
but the interest rate does slope based on the term length of the
loan. He said the interest rate ranges from 4.49 percent for a
five-year loan up to 6.99 percent for a twelve-year loan. He
directed attention to slide 18, which shows a Smart-E Bundle
interest rate of 2.99 percent at 5, 7, or 10 years for
combination projects such as solar plus insulation, solar plus
energy efficient windows, and solar plus high efficiency
heating, ventilation, and air conditioning (HVAC). He said the
Connecticut Green Bank has to "buy that interest rate down" and
does so by using the U.S. Department of Energy's American
Recovery and Reinvestment Act (ARRA) funds, which have been
available to a number of states starting 2009.
9:13:46 AM
MR. HUNTER returned to the presentation, to slide 19, entitled
"Residential 1-4 Owner Occupied Low Income Portfolio." He said
the far right information on the slide shows what he already
covered regarding the drop in credit score requirement. Shown
at the middle of the slide is the company called PosiGen, which
he said is based out of Louisiana and got its start about the
time of Hurricane Katrina in relation to solar hot water that
was being put in many reconstructed houses. He said the
Connecticut Green Bank invited PosiGen to Connecticut, and the
company is now operating programs in six cities - all focused on
lower income communities - where it brings solar and energy
efficiency savings agreements for the benefit of homes.
MR. HUNTER noted key players in a photo on slide 20, including
the governor of Connecticut and the president of PosiGen, and he
pointed out the average homes shown in the bottom photo all
taking advantage of solar energy efficiency. He said U.S. Bank
provided the tax incentive money in this structure and the
Connecticut Green Bank provided the debt financing in the amount
of $5 million to start.
9:15:45 AM
MR. HUNTER, in response to questions from Representative
Westlake regarding a line on slide 20 that says 71 percent of
solar projects are with low to moderate income (LMI) families,
indicated that LMI status can be designated on "a [U.S.] Census
track basis," and that would be beneficial to lenders that
provide the funding for these programs, because they would then
receive Community Reinvestment Act credits. As shown on slide
21, he stated that the Connecticut Green Bank offers unbiased
information about solar PV and energy efficiency to homeowners,
businesses, and municipalities.
9:17:20 AM
MR. HUNTER next addressed slides 22-26, regarding multifamily
properties. He said multifamily properties are where many of
Connecticut's lower income families reside. He said, "It's very
difficult to get these properties to move, because you have a
landlord that owns the building but you have all the renters
that are really bearing the burden of the energy costs." He
related that the Connecticut Green Bank provides pre-development
resources to assist [landlords] in comparing their buildings
against others in the area. He said the program in which the
Connecticut Green Bank does "everything" is called "The Sherpa
Loan Program," while the program in which it offers merely
guidance is called "The Navigator Program." The Connecticut
Green Bank has a program for every need. It also will finance
the project by working with the financial institutions and with
C-PACE. He said the PACE program is not available to
"residential 1-4" but is available to multi-family properties.
MR. HUNTER said sometimes there is financing for energy
efficiency, but not necessarily for moving asbestos or changing
out poor wiring; the Connecticut Green Bank will provide "gap
financing" - incremental financing for those activities. He
said the Connecticut Green Bank has partnered to help support
1,300 rental units [in Bristol, Brookfield, Colchester, Gales
Ferry, Manchester, Middlefield, Newington, Trumbull,
Wethersfield, and Windsor Locks] and another approximately 1,300
rental units [in Bridgeport, Chester, East Hartford, East
Windsor, Farmington, Granby, Hartford, Manchester, Middletown,
Milford, New Haven, Stamford, Thompson, Waterbury, West
Hartford, and West Haven] - all in about 18 months.
9:19:41 AM
MR. HUNTER skipped slides 27 and 28, because he said he thinks
people understand how C-PACE works. He noted that slide 29
shows commercial buildings. One photo is of an office building,
whose owners had been trying to figure out which retrofitting to
do first, but were able to 100 percent financing of the project
through C-PACE while saving over $250,000 a year on a $2 million
project. Another photo shows a not-for-profit building that was
able to get its HVAC system fixed for a minor assessment each
year [through C-PACE]. Referring to slide 30, Mr. Hunter said
the Connecticut Green Bank also provides solar leasing for
commercial, industrial, municipalities, public schools, not-for-
profit organizations, and middle market commercial entities -
"everything that's necessary to finance all sorts of projects in
clean energy." Referring to slide 31, he said the Connecticut
Green Bank also works with utilities, which affects everyone in
the state. He said the utilities contacted the Connecticut
Green Bank to say that it has a small business energy program
that loans for up to four years and it was out of money and
looking for a source of funding. The Connecticut Green Bank ran
a request for proposals (RFP) from capital providers and
received over $300 million in proposals for a program that
needed $75 million. He said JP Morgan/Chase is stepping forward
to provide a financial facility for this program.
MR. HUNTER turned to slide 32, entitled "Lead by Example," which
he said is what the Connecticut Green Bank is trying to do by
working on state facilities and looking at geo bonds, green
bonds, and energy savings agreements. He noted that an energy
savings agreement can often be "off balance sheet," meaning that
it does not affect the state's credit rating, because the
savings pays for the performance contract. He next highlighted
slide 33, which shows the "Bridgeport Fuel Cell Park," which is
a the largest fuel cell power plant in the country built on land
that had spills cleaned up using a grant from the state. The
Connecticut Green Bank provided the co-financing to make this
project possible. He noted that slide 34 addresses micro grids.
He said the Connecticut Green Bank does a lot of micro grid
financing because resiliency and power backup is important to
the state.
MR. HUNTER, referring to slide 35, said the Connecticut Green
Bank is also involved in small hydro projects. He said the
illustration on the slide shows an Archimedes screw [generator],
widely used in Europe, used in the U.S. to move waste water
through water treatment facilities, but in this instance being
used next to a flowing river and dam where it spins the screw to
generate electricity with low impact on fish and eels. He noted
that slide 36 pertains to how the Connecticut Green Bank looks
to the "Grid of the Future" in terms of working on solar,
electric, and grid planning.
9:24:36 AM
MR. HUNTER addressed slides 36-37, entitled "Green Bank
Movement." He said the Connecticut Green Bank is seen as a
model for the Green Bank Act of 2016, which was introduced by
Connecticut legislators in Congress. He stated, "I'm not sure
where that's going to go with the present administration, but I
would say that with the infrastructure plan that the President
is talking about, there's certainly an intersection of that
infrastructure plan with investment ... in energy efficiency and
clean energy and transportation, which is where a lot of
emissions come from."
9:25:16 AM
MR. HUNTER announced he had concluded his presentation and
offered to entertain further questions.
9:25:41 AM
CO-CHAIR PARISH suggested that energy savings agreements can be
"off-balancing" and noted that Alaska is in [financial] trouble.
He asked Mr. Hunter to share any advice he could give to the
State of Alaska in instigating its own green bank.
MR. HUNTER illustrated one option wherein the Connecticut Green
Bank is the provider of the energy service arrangement to the
state. He explained that in this operating arrangement: the
state would enter into a contract with the Connecticut Green
Bank and receive all the benefits of the energy savings; a major
financial institution would provide the capital; the
improvements would be "on the books" of the Connecticut Green
Bank, which would administer the capital; and there would be a
service contract between the Connecticut Green Bank and another
provider wherein the other provider would act as a guarantor of
any shortfall benefit to the Connecticut Green Bank in case the
state does not achieve the savings named under the savings
agreement.
9:28:46 AM
MR. ROSE offered a correction to his previous testimony. He
explained that he had meant to the say the cost of utilities for
the State of Alaska is $642 million a year, and the $125 million
he had mentioned is actually the potential savings. He noted
that the savings is 20 percent of the cost.
CO-CHAIR PARISH indicated that [Alaska] has set aside money for
a lot of these programs, but he questioned how the state can
"leverage it for maximum gain."
MR. HUNTER suggested the State of Alaska would need to establish
an institution such as the Connecticut Green Bank.
Alternatively, the state could utilize a quasi-public entity of
the state. He noted that in Montgomery County, Maryland, a
green bank was established on which Mr. Hunter serves as chair
of the board. The county designated a 501(c)(3) to be its green
bank and used settlement funds from a Pepco/Exelon merger. He
said there are many ways to do it, as long as there are
protections on how the money is kept or advanced so that the
money benefits the state and is recovered at the end of time
when, perhaps, the green bank does not exist and all the money
comes back to the state's coffers.
9:32:41 AM
CO-CHAIR PARISH asked if there is a minimum capitalization
threshold.
MR. HUNTER answered that the Connecticut Green Bank has found
that it takes a certain amount of capital to get the attention
of private capital and demonstrate that the state is serious
about "this business activity." He estimated that $50 million
would be sufficient for the State of Alaska. He noted that
Connecticut started with $60 million. He said the money does
not have to be placed upfront all at once but through a periodic
and consistent advancement of funds that establishes a policy
that shows the state's commitment to the idea. The money could
come from other program funds that are not being utilized. He
reminded the committee that the issue being discussed is one
about investments that are repaid over time; it is not about
giving away money.
CO-CHAIR PARISH asked Mr. Hunter for an estimate of the time it
would take for the State of Alaska to get such a program up and
running and whether the Connecticut Green Bank would share its
notes on how it operates.
MR. HUNTER answered that the Connecticut Green Bank is a
"totally open source" that makes everything available. He
suggested that his presence for the presentation shows the
Connecticut Green Bank's willingness and to help other states
establish their own green banks and its commitment to this
activity. He emphasized that in the early years, it was
difficult for the Connecticut Green Bank, because it had to
"write the playbook" and experience some stumbling while finding
out what works. If Alaska were to use the playbook, it could
avoid the pitfalls. He estimated that a staff of seven would be
sufficient to get this program going, including people who can
underwrite transactions and administer the program. He
suggested that the program could benefit from shared
services/resources.
9:37:09 AM
REPRESENTATIVE WESTLAKE expressed excitement over the
information that had been provided thus far.
9:37:18 AM
CO-CHAIR PARISH indicated that he was sponsoring legislation to
"encourage one of our local energy authorities to look at the
prospect of on bill financing for home energy efficiency
improvements." He asked Mr. Hunter, "Is that something that
you're in the business of lowering the interest rates on?"
MR. HUNTER answered, "Absolutely." He said utilities generally
don't like to be in the loan making business, because they see
their activity as providing energy service for their community.
However, he reminded the committee of his previous comments
regarding the small business energy advantage program, which is
an on bill program in which [the utility] actually makes the
loans. He said one of the benefits of the new program that the
Connecticut Green Bank is moving to is that it will actually
make the loans while the utility will, through the reliable on
bill payments mechanism, continue to be the collection
mechanism, but will send the funds to the green bank, which will
have the duty of administering the loans. He said it gets the
loans off the balance sheet of the utility and into an
institution designed for making loans, but it uses the
collection of the utility to actually make the payment. He
emphasized that the loss rate for these small business loans,
over a 10-year period, is less than 1 percent.
CO-CHAIR PARISH remarked that that is exceptionally low, even
for on bill financing. He questioned the reason.
MR. HUNTER answered that in this particular program, all the
investments - the improvements - pay back in a three- to five-
year period. He stated, "So, these are generally [light-
emitting diode] (LED) lighting - ... the so-called 'low hanging
fruit' - so, that really accounts for the benefit here. What
happens is ... when the business makes the improvements, they
actually see their bill go down. So, even though the loan
payment is on the bill, their next month's payment is actually
lower than when they started. So, that really encourages the
business to keep ... making those payments, because they're
seeing a direct benefit - immediate benefit." He indicated that
the savings was prevalent even through the [economy's] downturn
of 2008-2009.
CO-CHAIR PARISH surmised this could be a huge economic boon,
especially to those in the building trades, as well as to people
who pay utility bills. He asked if Mr. Hunter could warn the
committee of any potential pitfalls.
MR. HUNTER answered that a pitfall would be inaction, because
the Connecticut Green Bank has seen no downside to what it has
done other than getting parties to move more quickly in the
direction of realizing the savings that could be had. He said,
"The waste is happening every day, so, by not acting, you're not
making anything any better." He encouraged Alaska to continue
in its exploration, and he reiterated the Connecticut Green
Bank's willingness to be a resource for the Alaska State
Legislature.
9:42:13 AM
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 9:42 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 156 Legal Memo 17-271dls.pdf |
HCRA 3/28/2017 8:00:00 AM |
HB 156 |
| Bert Hunter - Green Bank Presentation.pdf |
HCRA 3/28/2017 8:00:00 AM |
|
| GreenBankWhitePaper .pdf |
HCRA 3/28/2017 8:00:00 AM |