Financing Efficiency for City-Owned Buildings: New brief covers debt treatment options

October 2, 2017

Energy upgrades for city-owned buildings can reduce energy bills, increase worker productivity and comfort, and contribute toward air pollution reduction goals. But energy projects often need to be financed, and some cities want to avoid adding debt to their balance sheet.

Berkeley Lab's new brief, Energy Upgrades at City-Owned Facilities: Understanding Accounting for Energy Efficiency Financing Options, examines the possibilities. The brief draws on lessons from technical assistance Berkeley Lab provided for the City of Dubuque, Iowa. Dubuque's efforts demonstrate how even small cities can invest in energy savings opportunities and enjoy the benefits. The brief offers local government policymakers, as well as state governments and energy program administrators, an assessment of two mechanisms that could potentially warrant non-debt treatment:

  • Non-appropriation clauses in financial agreements that require a government entity to repay an obligation unless it is unable to appropriate the funds to do so.
  • Shared savings agreements in which the repayment obligation depends on a project's realized energy or cost savings, with a portion of the cost savings going to the lender and a portion retained by the facility owner.

Among the key findings:

  • Accounting guidance suggests that, for non-appropriations clauses to be treated as non-debt, it should be "reasonably certain" that the clause will be exercised.
  • It is more likely that a shared savings agreement should be treated as non-debt if there is ongoing measurement and verification of a project's realized savings.

Readers should consult an accounting professional to determine the proper treatment of any transaction.

The U.S. Department of Energy funded the research. Technical Assistance was managed by DOE's Office of Weatherization and Intergovernmental Programs.

The brief can be downloaded at https://emp.lbl.gov/publications/energy-upgrades-city-owned-facilities.

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