The pandemic has strained every area of local government. At the same time, municipalities need to stay the course to ensure critical services remain operational. Whether it’s modernizing infrastructure, improving technology or renovating buildings, making updates or performing maintenance before something breaks is far less disruptive and more fiscally sound than waiting until it fails.
Supporting economic growth and the safe return to work must also be top priorities, yet budgets continue to be slashed in these tough times. The challenges in the face of ongoing uncertainty can seem insurmountable, but there’s an easier, tried-and-true way to get the funding you need without burdening the taxpayers: energy performance contracting, also known as capital recovery and reinvestment opportunities.
Capital Recovery and Reinvestment
With this approach, you can generate funds based on projected energy and operational savings. Essentially, you find significant energy savings (i.e., capital) in your budget to help pay for infrastructure improvement projects (i.e., reinvest).
To begin, you would partner with an energy service company (ESCO) on a long-term project that tackles maintenance backlogs and facility improvements with energy efficient solutions. The ESCO performs an energy audit and makes recommendations on where and how to improve operational and energy efficiency.
The ESCO guarantees projected energy savings for the length of the project — from five to 20 years. Debt caps and bond regulations can be avoided, while the community you serve benefits from energy efficiency, modernized buildings and technology, better public facilities and more — without raising taxes.
Tax-Exempt Lease to Purchase and Refinancing
Two popular financing options under this model are tax-exempt lease to purchase and refinancing. No matter which funding route you choose, they all start with building the business case and conducting an analysis with the ESCO to find out how you can recover capital and reinvest to solve critical needs.
A tax-exempt lease to purchase (TELP) can be used for a range of equipment, property or upgrades. Savings would pay the projected debt, however, if savings are not achieved, the ESCO pays the shortfall to make up the difference. Often times this debt is treated differently than other structures, allowing capital dollars to be reserved for things that cannot be covered under this model.
TELPs traditionally have lower closing costs but higher interest rates than other forms of debt. However, with the current historically low-interest rates, that premium is now inconsequential if not completely removed.
The second option of refinancing allows you to maximize budget potential. Just like homeowners are taking advantage of rates to re-up their mortgages right now, public entities can do the same and restructure debt. The savings can then be reinvested into improvement projects.
Learn More about the Best Approach for Your City
In managing through tough times, citizens turn to their governments for resources, starting in their communities first. Tough times, however, usually mean critical projects get canceled or postponed. That doesn’t have to be the case. You can find capital to reinvest.
Here’s how one of our customers put it: “Through a partnership with Schneider Electric, we have a chance to catch up on work that was postponed and fill in any gaps in necessary improvements. This is a rare opportunity that we can’t pass up.”
Now’s the time to check the couch cushions and turn over every rock to find additional funds. We can help. Watch an on-demand webinar with Bank of America to find out more about how to cut costs by optimizing existing systems, take advantage of low capital costs and boost revenue in existing city services. Watch here.