The Treasury Department is considering issuing interim guidance that would clarify how qualified energy conservation bonds can be used after 12 House Democrats sent a letter to President Obama requesting the guidance, according to congressional staff.
Members of the White House’s Council on Environmental Quality met with congressional staff last week to address the concerns raised in the letter, according to a top aide to Rep. Gerald Connolly, D-Va., one of the 12 lawmakers. The White House then called the Treasury Department to inquire about guidance, a source said.
“Localities have encountered significant barriers to use of QECBs, which seems to be the reason there is an unreasonably high unobligated QECB balance,” the House members wrote in the Feb. 3 letter. “It seems that the lack of clarity, including what projects are eligible under the 'green community’ category, has delayed or prevented project delivery.”
The members also asked for guidance on how localities are expected to calculate whether 20% energy savings would result from QECB investments and what steps issuers could take to participate in pooled financings for QECBs to minimize issuance costs.
The QECB program is designed to help state and local governments provide low interest financing for renewable energy and energy-efficient projects.
However, of the $3.2 billion authorized by Congress — $800 million under the Energy Improvement and Extension Act of 2008 and $2.4 billion under the American Recovery and Reinvestment Act of 2009 — only about $610 million has been spent, according to the Energy Programs Consortium, which represents state and local groups and environmental advocates.
The authority to issue these bonds does not sunset under current federal law.
The EPC sent a letter to Obama in January requesting the Internal Revenue Service issue temporary regulations on QECBs by March 20, 2012. That prompted members of Congress to write their own letter on behalf of the House Sustainable Energy and Environmental Caucus.
A QECB is taxable and can be issued either as a tax-credit bond, for which an investor would get a tax credit, or as a direct-pay bond in which the issuer would receive subsidy payments from the federal government equal to 70% of interest costs.
“At current rates of inflation, money borrowed through the QECBs will most likely have a real interest rate close to zero, a boon for infrastructure investment,” the House members wrote.
Clean energy bond experts and environmental advocates say the QECB program has been underutilized because the federal statute defining a “green community” is too broad and has created challenges for state and local issuers.
As defined in Section 54D of the Internal Revenue Code, QECBs may only be issued for qualified conservation purposes, including: reducing energy consumption in publicly owned buildings by at least 20%; implementing green community programs; rural development involving the production of electricity from renewable energy resources, and any qualified renewable energy facility.
“I think guidance and some additional funding could help kick-start some new funding of renewable energy projects by state and local governments,” said Ed Oswald, a partner at Orrick, Herrington and Sutcliffe LLP.
However, it is unlikely that the QECB program would get a boost in funding this year due to congressional gridlock and Republican opposition to the ARRA, according to Oswald.
“Our concern at this point is that [states] use the funding that they have,” a staffer from Connolly’s office said. “We wouldn’t advocate for more funding until they use the existing money. This funding is through the Recovery Act and generally Republicans don’t want to touch it with a 10-foot pole.”
