CHICAGO — The Illinois Finance Authority has launched a new state-supported borrowing program for its local government, school, not-for-profit, and business clients aimed at lowering their borrowing costs to finance energy-efficiency projects.
Legislation signed into law last year by Illinois Gov. Pat Quinn paved the way for the program by allowing for the issuance of up to $1.5 billion of debt supported by the state’s moral obligation pledge to jump-start projects aimed at reducing energy consumption.
“Our goal is to provide a method of financing energy-efficiency projects that is both faster and cheaper,” said IFA executive director Chris Meister. “We see a demand for a simple, fast, and understandable financing product.”
Under the program, which the IFA believes is the first of its kind for a state financing authority, the agency would work with applicants to structure either a loan or a taxable or tax-exempt bond sale supported by the state’s moral obligation pledge. The tax status would depend on whether projects qualified under the tax code and the type of borrower.
The financing structure would delay principal payments, allowing the borrower time to complete the projects and capture energy savings that would in turn go to repay the debt. The IFA believes that feature — coupled with the state’s moral obligation pledge backup — will provide a more affordable financing tool for many of its clients.
Many businesses, local governments, and nonprofits can’t afford the up-front costs for energy-efficiency projects and so can’t reap the long-term benefits of lower energy costs, according to Roger Herrin, an IFA board member who chairs its energy committee.
“Our program helps manage cash flow by allowing repayment of principal over as long as seven years so borrowers can repay the loan with energy savings,” he said.
Eligible projects include new windows, insulation, high-efficiency appliances, lighting systems, high-efficiency boilers and central-air units, programmable thermostats, and energy management systems.
Interested borrowers must use one of nine IFA-selected energy-efficient service companies. The firm calculates the potential savings and provides a guarantee on the amount that is then backed up by an insurance contract provided by Aon Risk Services Central Inc. or Mesirow Insurance Services Inc.
Some may question whether Illinois can afford to offer its moral obligation pledge, as it faces a liquidity crisis and a deficit of up to $15 billion going into fiscal 2012. Meister said the guarantee of energy savings provided by the service company and the insurance contract is geared to protect against the need to tap the moral obligation backstop.
The state’s Office of Management and Budget also would need to sign off on the use of the moral obligation pledge, and it’s unclear who will lead that office, since the Democrat Quinn is locked in a tight governor’s race with Republican state Sen. Bill Brady.
Meister said he is hopeful that whoever wins the race will support the program as it received bipartisan legislative support.
“While it is a state resource that is being used to leverage savings, it’s structured in a way that the state resources are protected,” he said.