Future looks murky for Energy Department tribal loan program

U.S. Department of Energy

Trump administration cuts to green energy funding are hindering tribal governments' efforts to obtain affordable financing for their energy needs.

Financial solutions for tribal government projects have never been easy. 

The barriers to entry on the legal side meant that most often tribal bonds have been done as private placements or limited offerings, said Debra Saunders, a 40-year municipal bond banker.

The Biden administration's efforts to provide funding to help reduce hurdles to tribal governments creating wind and solar power projects was far from seamless.

Biden's Inflation Reduction Act dedicated $20 billion to the U.S. Department of Energy's Loan Program's Office, but the lone tribal energy deal that got done was a $72.8 million loan guarantee for the Viejas Band of Kumeyaay Indians to finance a microgrid with 15 megawatts of solar paired with 70 MWh of long-duration energy storage east of San Diego. It was structured with guarantees from all different parties including the contractor, rather than the tribe's credit, and it took several years.

Under the Trump administration's fiscal 2026 budget outline, the DOE anticipates issuing up to $1.1 billion in direct loans under the Tribal Energy Loan Guarantee Program and $6.1 billion in new transmission loans, according to a blog post from Holland & Knight attorneys. But the emphasis at DOE has shifted away from renewable energy such as solar, wind and hydrogen toward fossil fuels and nuclear power, they wrote.

The shift away from renewables could slow or stall tribal microgrid energy projects powered by wind or solar aimed at creating energy independence on tribal lands.

The concept is tribal governments could produce enough power with solar or wind farms to make energy either reasonable or free to tribal members who live on the reservation, and sell excess power back to hospitals or universities.

Saunders, who retired last month, was hired last summer as a consultant with LPO's tribal energy loan program to help create public finance solutions. Federal laws unique to tribal governments have made it difficult for tribal governments to access the municipal bond market, often resulting in the issuance of corporate bonds at higher interest rates.

Saunders was hired by Jennifer Lerch, who ran DOE's Tribal Energy Financing Program, to help craft a program to tap public finance. But, the Trump administration froze DOE funding in January. 

Lerch, who was brought on in 2023, said she hired Saunders to help cut through red tape preventing money to tribal governments from getting out the door. Lerch said she left as the Trump administration offered buyouts to shrink the department.

"LPO is really a corporate-leaning, venture capital type of shop," Saunders said. "The majority of the loans were to investor-owned utilities. So, there was an absence of awareness of public finance."

The existing staff didn't understand the mechanics of issuing debt in public finance, she said. 

There were a number of tribal energy deals in the pipeline, but they are on hold while the Trump-era secretaries review the criteria, Saunders said. "They will move forward when the secretaries say it's time."

Lerch, who worked for bond insurers ACA Financial Guaranty Corp. and Ambac before the 2008 crash, crafted insurance wraps that helped bring tribal governments up to insured ratings of A, reducing interest rates to save several million dollars on one deal. It also provided market access, because the general wisdom was debt needed at least one rating to go to market, even if it wasn't an investment grade rating, she said.

One deal Lerch worked on: $17.85 million issued by the Aleutians EAs Borough as a conduit for the Aleutian Pribilof Islands Association Inc., was honored as the Far West small-issuer Deal of the Year in 2006 by The Bond Buyer.

Saunders notes that some of the arguments against issuing debt through the public finance markets for tribal governments also apply to charter schools — and that sector has taken off. For one, a significant amount of charter school debt is unrated, and the leasing contracts they have with traditional school districts for their buildings are often only for a few years, she said. An issue for tribal governments is that the land is held in a trust owned by the federal government.

The charter school sector "had been active for 25 years with the close of 2022 — a full-fledged municipal bond sector with nearly 2,300 transactions issued," according to Equitable Facilities Fund's 2022 Charter school bond default study report, its most recent report. Its 2021 version of the report showed that nearly 52% of charter school debt, roughly $2.5 billion out of the $4.8 billion of issuance in 2021 was unrated.

Though the volume is slim, governments have issued public finance debt, and some larger tribes have investment grade ratings.

The Southern Ute Indian Tribe of the Southern Ute Indian Reservation, Colorado, has AAA issuer ratings from Fitch Ratings and S&P Global Ratings, and used those ratings to price $182 million of general obligation bonds in May, according to data posted on the Municipal Securities Rulemaking Board's EMMA disclosure website.

The tax-exempt 2025 Series A bond proceeds refund all the tribe's existing tax-exempt and taxable variable rate demand notes, pay for swap terminations, and finance a capital tribal housing project, according to Fitch.

The dual aim of the DOE energy projects being contemplated is to help tribal governments achieve energy independence and sustainability through renewable energy projects, while also addressing economic and social need, said Robert Blake, founder and CEO of Solar Bear, a solar installation company, and executive director of Native Sun Community Power Development.

Blake, who is a member of the Red Lake Band of Chippewa Indians in Minnesota, is working on several projects with tribal nations throughout the Midwest.

The dual aim of his company is to help tribal governments achieve energy independence and sustainability through renewable energy projects, while addressing economic and social needs.

The mission of Blake's companies is rooted in tribal energy sovereignty, environmental healing, and community development, with an emphasis on reinvesting profits into the community, he said. They are also involved in workforce development, virtual tribal authority planning, and advocating for tribal representation in energy discussions.

He is developing an electric vehicle charging network across Minnesota, North Dakota, South Dakota, Wisconsin and Michigan. He said has secured roughly $17 million from the DOE, plus another $3 million from a separate federal agency.

The microgrid solar energy project he is developing for Red Lake Nation is meant to be a model other tribes can emulate, he said.

The company already has installed solar panels on the Red Lake Nation's government building, a few schools and other buildings, producing 1 megawatt of power. Eventually the plan calls for solar panels to be installed on 100 to 150 homes. They also have purchased property to build a 20-megawatt solar farm combined with a vegetable farm, practicing agrivoltaics. The plan is to create a utility to sell wholesale power.

Solar Bear is close to securing a power purchase agreement with a state university, Blake said, which is considered a necessary step to securing financing for a project. He declined to name the university since negotiations are ongoing.

The plan is to issue $50 million in municipal bonds to cover the cost of the solar project.

The project has already secured an $8 million grant from the Bureau of Indian Affairs. The timing is utcertain now on when debt will be issued.

"Six months ago, I would have said we were going to market in January," Blake said, adding changes at the federal level have slowed everything.