Governor Deval Patrick's Budget Recommendation - House 1 Fiscal Year 2012

Governor's Budget Recommendation FY 2012

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Energy and Investment Program

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Governor Patrick    FY2012 House 1 Budget Recommendation:
    Issues in Brief

    Deval L. Patrick, Governor
    Timothy P. Murray, Lt. Governor


Governor’s Investment Proposal

In April, 2007, Governor Patrick signed Executive Order 484 Leading by Example – Clean Energy and Efficient Buildings which set specific targets for energy consumption and costs of state facilities. This initiative was an expansion of a number of the Division of Capital Asset Management's (DCAM’s) initiatives. In order to facilitate achievement of these goals, the fiscal year 2012 House 1 budget includes the creation of a permanent, low-cost funding program for financing sustainable energy efficiency projects. 

Over the last 25 years, DCAM has completed or initiated 56 energy efficiency projects with a total project investment amount of $213.5 million and estimated annual savings of $26.8 million. To date, over $138 million in savings has been realized. These projects have been financed with Tax Exempt Lease Program (TELP) and through private energy performance contracts.  The current economic climate has made private financing for these programs difficult and expensive. This restriction in available financing has created a 3-year pipeline of $237 million of projects at DCAM with no available funding source. 

To address this issue, this Administration has created an energy efficiency bond financing program, outside of the “bond cap”, for those projects that save enough to pay the debt service on the related bonds.  The Executive Office for Administration and Finance (ANF) analyzes each project to ensure savings are sufficient to cover debt service from reduced energy costs and have them applied to pay debt service.  This mechanism will ensure that the bonds will be self-supporting and therefore eligible to be outside bond cap (and ANF’s Debt Affordability Policy). 

The resulting financing package will have the characteristics of a lease between the host agency and DCAM, requiring savings to repay capital costs and an independent verification of savings at the agency level.  At the same time, to bond investors, it will be a Commonwealth general obligation credit. This feature should generally result in low cost of financing.  There will be a new budgetary appropriation, totaling $6.2 M in fiscal year 2012, within the office of the Treasurer and Receiver-General to collect a portion of the funds that are saved by agencies as a result of the projects, and the bonds will be paid from this source of funds.

Financing DCAM’s pipeline of projects through the clean energy investment program will provide from 2,000 to 2,500 jobs, including both on-site construction jobs and support positions such as project administrators, analysts and engineers.  In addition, as a result of the execution of DCAM’s pipeline of year 1 and year 2 energy efficiency and renewable energy projects, an estimated 75% of the energy use reduction and greenhouse gas reduction projected for state facilities for 2012 will be met.

The following describes the program in general terms:

Eligible Participants Any state agency that incurs energy costs in its normal operation.
Eligible Projects Wide variety of state-owned projects, including light, heat, ventilation, air conditioning, equipment controls, cogeneration and power generation.  Projects must be contribute to achieving goals of Executive Order 484 and must generate verifiable energy savings sufficient to pay for themselves.
Term As determined by ANF, the financing term for each project will be less than or equal to useful life of equipment or installations, but in no event greater than 30 years.
Savings Projected annual savings must be equal to or greater than 1.1 times annual debt service as determined by ANF.  Actual savings will be independently verified annually; to the extent actual savings are insufficient, the bonds that financed the project and associated debt service, will be added to bond cap for debt affordability purposes. 

The following is a description of the groups that will interact in order to achieve the goal of this program:

DCAM Department of Energy Resources (i) Identify, qualify and provide oversight on projects; (ii) provide or secure Measuring and Verification services to independently verify annual savings
Host Agency Commit to annually appropriate funds sufficient to cover debt service by 1.1 times (such obligations to be on parity with other debt-like obligations, such as TELP or CREBS) plus predetermined maintenance and cost to M&V savings
A&F (i) Determine annual debt service obligations of host agency – level annual payable semiannually in arrears based on the Commonwealth’s cost of funds at the time of ESA; (ii) Reserve right to find alternate budgetary mechanism to ensure host agency compliance and credit-worthiness of bonds; (iii) In event of insufficiency of host agency payments, adjust bond cap accordingly to be consistent with debt affordability objectives

Prepared by Brian Gosselin, Executive Office for Administration and Finance ·
For more information contact: (617) 727-2040

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