How to Guide: Ways to Get Funded
While rarely easy, there are many ways to identify internal sources of funding for locally-led focused on reducing energy and greenhouse gas emissions in municipal or privately owned facilities. Did we miss an internal best practice? Let us know at firstname.lastname@example.org.
One way to obtain resources is simply to ask for them as part of a local department’s annual budget proposal. While simple in theory, many local governments find it challenging to appropriate general fund dollars in an annual budget to support the upfront costs of climate and energy projects and initiatives. This may be due to political ideologies or because they view work outside of traditional health and safety services as discretionary and non-essential, especially during difficult budget years. However, given the growing level of urgency around climate change and the real world experience of impacts to health and safety (e.g. heat waves, wildfires, flooding), local governments are beginning to see these appropriations as a key investment that can avoid the overwhelming costs of climate change and build community-wide social, economic, and environmental resilience.
Alternatively, jurisdictions can ensure that all funds appropriated to any department or capital improvement plan are spent in line with municipal building standards. By adopting building standards, local governments can require all of their buildings meet specific criteria. For example, a jurisdiction could require all buildings to meet LEED standards, be Zero Net Energy, or produce no carbon emissions.
One way sustainability staff can pay for themselves and other sustainability priorities is to track and account for the monetary value of energy, water, and fuel savings and reinvest them to continuously replenish dedicated accounts, which some local governments call a “revolving fund.” Alternatively, rather than calculating actual savings, local governments can make assumptions about the value generated and instead bill departments an additional surcharge on utility expenses. The idea is the same – these savings have value that can be captured and recirculated to help sustainability staff continue lowering operating costs.
Energy Savings Performance Contracting (ESPC) is a budget-neutral approach to make building improvements that reduce energy and water use and increase operational efficiency. By partnering with an energy service company (ESCO), facility upgrades can be financed through Tax-Exempt Lease Purchase Agreements, capital leases, or General Obligation bonds. Essentially, today’s facility upgrades can be paid for by tomorrow’s energy savings without tapping into capital budgets. State and local governments can implement ESPC projects in their own facilities, as well as promote and support ESPC projects through ESPC programs.
When bundled together, measures with a short payback period, such as new HVAC controls or replacing less efficient lights with LEDs, can help finance measures with longer payback period measures such as wastewater equipment and other industrial equipment upgrades. Government facilities are ideal locations for ESPC projects as long-term ownership of facilities opens the potential for 10- to 20-year financing terms. Resource: The US Department of Energy Office of Energy Efficiency and Renewable Energy’s State and Local Solutions Center provides guidance and resources to help communities understand how to implement ESPC.
Cities and counties have the authority to create or increase taxes to generate new sources of revenue, such as utilizing a parcel tax to fund land conservation initiatives. A parcel tax, unlike a property tax, levies a flat tax on the parcel and does not take into account the size or value of the property. Parcel taxes can provide much-needed revenue for energy and climate projects when municipal budgets are restricted; however, special consideration is needed in how parcel taxes are structured as they can be highly regressive. Local governments may also tax or charge a fee to building projects for greenhouse gas emissions. A utility users’ tax (UUT) may be levied by municipalities to provide general fund revenue. The tax may be increased to generate funds for projects and programs that reduce greenhouse gas emissions.
Governments issue bonds, and investors receive principal and fixed interest payments in return. Voter-approved fund generation mechanisms can affirm a community’s willingness to invest in climate and energy measures. Green bonds issued by municipal entities help finance projects with a positive climate impact, such as renewable energy and energy efficiency. Funds can likely only be used for public buildings and infrastructure projects. Cities and counties can set aside a portion of a generalized obligation bond, ideally aligned with a jurisdictions adopted goals and objectives as outlined in a general plan or climate action plan. A portion of program funding can be reserved to fund the design, installation, purchase, user training and monitoring of energy efficiency and/or renewable energy projects. Green bonds have higher transactional costs than conventional loans and have standards and certification for use of funds to qualify attaching the green label.
Local government pensions can buy loans on the “secondary market”, which then get repaid into the pension fund. In addition to earning a return, public agencies can choose to invest in community projects with social benefits.
Internal sources of funding can be greatly supplemented by a wide range of available external resources like those described below. While obtaining dollars from external sources often requires significant time commitment and deep subject-matter expertise, these efforts can pay off immensely, particularly in the sustainability field, where opportunities are growing rapidly. Did we miss an external best practice? Let us know at email@example.com.
Grants, Incentives, And Other New Revenues from Ratepayers and other External Sources
Please see our funding database which points to dozens of grant sources ranging from HUD’s Community Development Block Grants and the DOE’s Weatherization Assistance Program to foundation and private funding. You can also check out:
One significant source of funding for local sustainability initiatives in California includes dollars paid by electricity and gas utility consumers (“ratepayers”) through surcharges that were established to fund sustainable energy programs regulated under California Public Utilities Commission (CPUC). Local governments can access these dollars in many ways, including the following:
- Take advantage of rebates, incentives, or grants offered by an Investor-Owned Utility (IOU), a Regional Energy Network (REN), or a Community Choice Aggregation (CCA) to offset the costs of municipal energy improvements. See specific opportunities in our funding database.
- Enter a partnership agreement with an IOU, CCA, or REN to help implement local energy efficiency programs (multiple sectors).
- Respond to a solicitation issued by an IOU, CCA, or REN to develop distributed energy resources or implement a program.
- File a proposal directly to the CPUC to become a program administrator. For example, local agencies may file a business plan to establish a REN to administer regional-scale energy efficiency programs across multiple sectors.
- A more complex but particularly fruitful way to access electricity-related revenues is to complete all CPUC requirements to establish a CCA program. Local agencies can establish CCAs to procure preferred sources of power on behalf of the electricity accounts within the jurisdiction. CCAs receive revenues from electricity customers which can be used to purchase greener power and/or develop local renewable energy. CCAs also request to administer regional-scale energy efficiency programs.
- Similarly, water utility providers often offer rebates or incentives to offset the cost of water efficiency improvements.
Outside of ratepayer dollars, local governments are eligible for various climate and energy related grant opportunities, which may come from surprising sources ranging from public health or emergency agencies to foundations. Under the new Biden administration, future federal economic stimulus appropriations could seek to spur economy recovery while also tackling sustainability and climate change priorities, much like the 2009 American Recovery and Reinvestment Act under President Obama. In California, Governor Newsom has made aggressive commitments to accelerate climate action and transportation electrification, which may prompt new funding opportunities on top of high dollar State granting programs like the Climate Change Investment program, funded by billions in cap-and-trade auction revenues. Now is an important time to be tracking and pursuing these opportunities and readying eligible and competitive sustainability projects and programs. These efforts can elicit millions in new revenue to support projects like adding green space, drafting a new plan, or developing a microgrid for critical facilities.
Tap into Financing
With budgets stretched thin, the upfront costs of desired capital improvement and other municipal projects may exceed available resources. Sustainability professionals can also investigate and pursue numerous options to projects like those showcased below. We also recommend reviewing DOE’s Better Building Financing Navigator.
Offered by all Investor-Owned Utilities (IOUs) in California, OBF loans are 0% interest and monthly payments are aligned with the expected energy cost savings to come from the upgrades. Since 2015, California IOUs issued $157 M in OBF loans with a 0.06% default rate. PG&E, for example, offers on-bill financing with and without rebates to nonresidential customers within PG&E territory. This financing provides zero interest, zero penalty loans and eliminates up-front costs. The loans are repaid based on projected energy savings through installments on the customer’s PG&E bill. Customers may install the equipment themselves or hire a contractor to perform the work. PG&E may need to inspect the site before the old equipment is removed and may perform another inspection upon project completion. Loan terms include 0% financing with loan periods of up to 120 months. Project energy savings must be more than $1,000 per year. Financing amounts from $5,000 to $250,000 of the project cost, after incentives and is available to fund many energy efficient technology upgrades, including LED lighting, refrigeration, HVAC, food service and LED streetlight projects. Loans up to $4,000,000 may be available for projects where a unique opportunity to capture large energy savings exists. To qualify, a project’s total cost savings must be sufficient to repay the loan within the maximum loan term limits. Energy generation, such as rooftop solar, is not eligible under this product.
- PG&E’s Energy Efficiency Financing website
- PG&E Energy Efficiency Financing overview handout
- PG&E blog on the ABCs of OBF
Local governments can play a role by encouraging participation in on-bill financing, utilizing on-bill financing for their own building retrofits, and by crafting policies that facilitate utility development and implementation of OBF programs. Currently, California IOUs dominate the OBF offerings space in the state, but municipal owned-utilities (MOUs) and electrical cooperatives have an opportunity to offer OBF programs for their customers, as is occurring in other states.
Tariffed on-bill programs, based on the Water Upgrades Save (Previously called – Pay As You Save® or (PAYS®) system allows a utility to pay for cost-effective energy improvements at a specific residence and to recover costs over time through a dedicated charge on the utility bill that is immediately less than the estimated savings from the improvements. This model has been successfully implemented in eight states by 18 utilities, including investor owned, cooperative, and municipal utilities. More than $30 million has been invested in energy efficiency and renewable upgrades at 5,000 locations.
California Statewide Communities Development Authority (CSCDA) creates innovative, low-cost, pooled finance programs to respond to the fiscal needs of city and county participants. The program is designed to address short-term borrowing needs, budget shortfalls, and provide access to capital for critical infrastructure improvements. City and county participants control all private activity bond issues through required local public hearings. https://cscda.org/Public-Agency-Programs/
California Infrastructure Economic Development Bank (IBank) was created in 1994 to finance public infrastructure and private development that promote a healthy climate for jobs, contribute to a strong economy, and improve the quality of life in California communities. Local governments finance energy efficiency projects by leveraging IBank’s California Lending for Energy and Environmental Needs (CLEEN) Center, which offers two programs:
- Statewide Energy Efficiency Program (SWEEP) for comprehensive efficiency improvements to new and existing facilities that save energy. Eligible projects include advanced metering systems, energy management and/or control systems, demand response programs, lighting and control systems, HVAC systems, building envelope improvements, and more.
- Light Emitting Diode Street Lighting Program (LED) for the installation of LED street lights.
The CEC Energy Conservation Assistance Act (ECAA) Low Interest Loan Program provides 1% interest loans to cities, counties, special districts, public colleges and universities, public care institutions, and public hospitals to finance energy efficiency and energy generation projects throughout California. Example projects include: lighting system upgrades, pumps and motors, streetlights and LED traffic signals, energy management systems and equipment controls, building insulation, energy generation including renewable and combined-heat-and-power projects, HVAC equipment, water and wastewater treatment equipment, and load-shifting projects, such as thermal energy storage. Jurisdictions looking to include energy generation in their project might be a good fit for this program, since energy efficiency and generation are eligible for this financing product. The maximum loan amount is $3 million and there is no minimum amount. Energy efficiency projects must be technically and economically feasible.1% loans for energy projects: The loan can fund 100% of the project cost within a 17-year (maximum) simple payback. The loan must be repaid from energy savings (including principal and interest) within a maximum of 20 years. The repayment schedule is based on the estimated annual energy cost savings from the project.
This mechanism operates on the assumption that the property values of an area will rise as a consequence of development. [xviii] The increase in value from developed properties is considered city revenue and, after the city fulfills obligations investors and bond-holders, can be used to support sustainability staff and projects
Property Assessed Clean Energy (PACE) provides opportunities for local governments to finance the upfront costs of energy upgrades with costs paid over time through voluntary assessments on their property tax bills. The cost savings realized from energy efficiency improvements can cover the increased tax bill. By utilizing PACE, local governments can reduce the initial upfront cost of a large retrofit project, making it more affordable and less susceptible to short-term budget constraints, and without putting general funds at risk. Additionally, the PACE model can be promoted to residential and commercial property owners to generate further energy saving and economic benefits. California is one of 3 states that offers Resident PACE (R-PACE). Over 47,000 residential PACE assessments worth nearly $960 million have occured in California.
- The California market is the largest of the 3 participating states, as CA “is home to dozens of programs in hundreds of cities and counties across the state.” Most programs are operated by private program administrators in partnership with individual local governments or joint powers authorities
- Some jurisdictions (such as Placer and Sonoma Counties) operate their own programs.
Leveraging Partnerships and In-kind Support
In addition to generating new revenue, knowledgeable sustainability staff can leverage non-monetary support provided by public, private, and nonprofit partners to build capacity and reduce the time commitment and investments needed to advance local sustainability goals.
Public-private partnerships provide opportunities for local municipalities to partner with private entities in order to successfully finance infrastructure or community development projects in the sustainability space. These partnerships enable sustainability staff to overcome initial budget hurdles by leveraging private capital to fulfill public commitments and ensure that local resources are resilient to unpredictable financial and physical climates. Community Land Trusts are another example of public private partnerships. CLTs are nonprofit organizations with community-led governing structures that hold land in trust for the benefit of the community, often providing and preserving affordable housing, stewarding community amenities like parks and greenspace, and providing low-cost commercial properties that can support small businesses and economic resilience. A report by the Georgetown Climate Center provides an overview of how community land trusts (CLTs) can present a solution to help cities mitigate both of these challenges by promoting community ownership and decision making and providing permanently affordable and resilient housing.
Group purchasing supports city and community sustainability projects by leveraging collective purchasing power to reduce upfront administrative and installation costs for new projects. This reduces the burden on sustainability staff to fund and manage projects with limited resources while still contributing to the city’s sustainability goals.
In-kind support like subsidized staffing can enhances local capacity by addressing community resilience needs and providing a low-cost way to keep sustainability initiatives moving forward. Programs like CivicSpark, a Governor’s Initiative AmeriCorps Program, have provided over 518,000 hours of services in crucial areas such as climate change, water management, affordable housing, and mobility.
Obtaining free or low-cost technical assistance, trainings, or informational resources from external subject-matter experts is another way to build capacity on a range of sustainability topics while easing the burden on internal staff that may have had time reallocated to other needs. The California Climate and Energy Collaborative provides Technical Assistance as well as a directory of other technical assistance providers, such as SoCalREN’s Energy Efficiency Project Delivery Program, the National League of Cities’ Leadership in Community Resilience Program, the State’s California Climate Investments Technical Assistance Program, the Tri-County Regional Energy Network (3C-REN)’s Energy Code Connect program. and the BayREN Municipal Zero Net Energy/Zero Net Carbon Assistance program.
Finally, there are organizations that can help overburdened local governments participate in policy and regulatory proceedings and track other key updates in the sustainability field. For example, the Local Government Sustainable Energy Coalition (LGSEC) is a statewide membership network representing local government energy and climate interests to state agencies such as CPUC, CEC, and CARB and encourages knowledge sharing and partnerships within its network. The Statewide Energy Efficiency Best Practices Coordinator also curates a wEEkly Update on energy and climate news for subscribers like California local energy professionals.