HomeMy WebLinkAbout188-13 RESOLUTIONRESOLUTION NO. 188-13
A RESOLUTION TO REQUEST THE FAYETTEVILLE CITY
ADMINISTRATION TO INVESTIGATE THE FEASIBILITY AND
POTENTIAL OPERATIONAL BENEFITS OF ESTABLISHING A
REVOLVING FUND FOR INTERDEPARTMENTAL RESOURCE
EFFICIENCY LOANS
WHEREAS, the City of Fayetteville has been unable to maintain optimum staffing
levels for many years; and
WHEREAS, labor costs make up a majority of the operational expenses of the City of
Fayetteville's General Fund; and
WHEREAS, a study of so-called Green Revolving Funds at Universities determined
these types of funds at universities had median project returns -on -investment of 32% and median
project payback periods of four years, which resulted in a near -term reduction in operational
expenses; and
WHEREAS, such a reduction in operational expenses may enable the City of
Fayetteville to fill frozen positions or add new positions; and
WHEREAS, the City of Fayetteville has sufficient reserve funds to invest $500,000 in a
program which reduces operational expenses.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF FAYETTEVILLE, ARKANSAS:
Section 1: That the City Council of the City of Fayetteville hereby requests that the City
Administration investigate the feasibility and potential operational benefits of establishing a
revolving fund for interdepartmental resource efficiency loans, to enumerate the implementation
steps for establishing such a fund, and to create a list of projects which merit a cost -benefits
analysis due to their potential to reduce operational expenses.
Section 2: That the City Council of the City of Fayetteville hereby requests that the
administration include information about the HEAL program in its feasibility analysis, a program
pioneered by the Clinton Foundation and L'Oreal, and ascertain the availability of technical
assistance from the Clinton Foundation for planning and implementing such a program.
PASSED and APPROVED this 3`d day of September, 2013.
APPROVED:
ATTEST:
TR�4i�
B `B� GAT Y pF:s�,`'�:
IONELD JORD , ayor SONDRA E. SMITH, City Clerk/TreIrRYEEVf LLE'
R � �p
AGENDA REQUEST
FOR: COUNCIL MEETING OF September 3, 2013
FROM:
CITY COUNCIL MEMBER MATTHEW PETTY
CITY COUNCIL MEMBER SARAH MARSH
ORDINANCE OR RESOLUTION TITLE AND SUBJECT:
A RESOLUTION TO REQUEST THE FAYETTEVILLE CITY ADMINISTRATION
TO INVESTIGATE THE FEASIBILITY AND POTENTIAL OPERATIONAL
BENEFITS OF ESTABLISHING A REVOLVING FUND FOR
INTERDEPARTMENTAL RESOURCE EFFICIENCY LOANS
APPROVED FOR AGENDA:
jv < --eq L-Z
City Council Member Nh4ew Petty Date
City Co ' arah Marsh Date
City Attorney Kit Williams Da e
(as to form)
RESOLUTION NO.
A RESOLUTION TO REQUEST THE FAYETTEVILLE CITY
ADMINISTRATION TO INVESTIGATE THE FEASIBILITY AND
POTENTIAL OPERATIONAL BENEFITS OF ESTABLISHING A
REVOLVING FUND FOR INTERDEPARTMENTAL RESOURCE
EFFICIENCY LOANS
WHEREAS, the City of Fayetteville has been unable to maintain optimum staffing
levels for many years; and
WHEREAS, labor costs make up a majority of the operational expenses of the City of
Fayetteville's General Fund; and
WHEREAS, a study of so-called Green Revolving Funds at Universities determined
these types of funds at universities had median project returns -on -investment of 32% and median
project payback periods of four years, which resulted in a near -term reduction in operational
expenses; and
WHEREAS, such a reduction in operational expenses may enable the City of
Fayetteville to fill frozen positions or add new positions; and
WHEREAS, the City of Fayetteville has sufficient reserve funds to invest $500,000 in a
program which reduces operational expenses.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF FAYETTEVILLE, ARKANSAS:
Section 1: That the City Council of the City of Fayetteville hereby requests that the City
Administration investigate the feasibility and potential operational benefits of establishing a
revolving fund for interdepartmental resource efficiency loans, to enumerate the implementation
steps for establishing such a fund, and to create a list of projects which merit a cost -benefits
analysis due to their potential to reduce operational expenses.
Section 2: That the City Council of the City of Fayetteville hereby requests that the
administration include information about the HEAL program in its feasibility analysis, a program
pioneered by the Clinton Foundation and L'Oreal, and ascertain the availability of technical
assistance from the Clinton Foundation for planning and implementing such a program.
PASSED and APPROVED this 3`d day of September, 2013.
I:1UUL4RIVAa13
LIONELD JORDAN, Mayor
ATTEST:
In
SONDRA E. SMITH, City Clerk/Treasurer
1 o.J
Green Revolving Fund
Local examples
Street lights
• Current cost: $575,000 annually
• Low bound of savings: 40% or $230000
Buildings built before 1991
• 45 buildings
•-340,000 sf
• Some buildings built in the 20's and 30's.
• 10% utility savings is typical (but we can't even find that out right now)
Stats
Medians from university GRF's:
• Project ROI: 32%
o If city established a $500k fund, annual ROI would be $150k/year.
• Project payback period: 4 years
In simple terms
1. GRF tracks savings explicitly
2. spends at least half of savings on new efficiency projects
3. an administrative fee is included in all project cost sheets
4. other half goes. to:
a. immediate operational needs, or
b. loans to employees, or
c. new programs, or.
d. loans to outside. institutions
Multiple models
Simple (can be done administratively):
• New line -item on each divisional budget to account for savings
• Commitment to revolve at least 500/6 of the savings to new energy efficiency projects.
More complex, but also more flexible (requires legislative action):
• Establishment of Green Revolving Fund makes interdepartmental loans
• Provides central accounting for efficiency projects
• Ability to charge interest on loans allows us to protect X dollars against inflation
Implementation steps
• Research case studies of the various models
• Perform an energy audit on at least 100/6 of our air-conditioned square footage.
o Hard to estimate costs at this stage but auditing 10% of our air conditioned space
. built before 1991 would be -$80k.
• Prioritize project proposals according to their ROI and payback period.
• Debate models and pass ordinance
Responses to "accounting gimmick" frame
• It's not a gimmick to set aside $500,000 in today's dollars for making city operations
more efficient and to protect that investment against inflation.
o Example: If we had a GRF today worth $500,000 and 2% inflation for the next 10
years, in 2023 the fund portfolio would be worth $610,000.
It's not a gimmick to hire new employees when our planning and IT departments are
understaffed
• We can't even track our energy use. Managing hundreds of thousands of air conditioned
square feet without an energy dashboard in 2013 is like not getting a computerized
payroll systems until 2009.
Case studies
Universities
• Harvard
• University of Illinois Urbana -Champaign
• University of Denver
• Iowa State University
Gov
1. Alabama
2. Alaska
3. Connecticut
4. Iowa
5. Kansas
6. Kentucky
.7. Maine
8. Maryland
9. Mississippi
10. Missouri
11. Montana
12. Nebraska
13. Nevada
14. New Hampshire
15. New Jersey
16. North Carolina
17.Oklahoma
18.Oregon
19. Pennsylvania
20. Rhoda Island
21. South Carolina
22. Texas
23. Vermont
24. Virginia
25. Wisconson
Industry
• L'Oreal
What kind of city do we want to be?
Project HEAL
• half goes to future projects, like usual
• other half goes to home efficiency loans for employees
• employee loans backed by local institution
• create a HEAL coalition with local industry
• get technical assistance from the Clinton Foundation
L'Oreal medians: $416 and 2.2 tons annually
o If that holds, 1000 employee loans makes for an annual impact of $416k and
2200 tons of CO2. In real terms it's like each employee cuts his or her driving in
almost half.
6/1.1113 Clinton Foundation Case Study: HEAL Works with L'Oreal to Reduce Greenhouse Gas Emissions
CLINTON f QUNDATION UP CLOSE
CASE STUDY: HEAL WORKS WITH L.' OREAL TO
REDUCE GREENHOUSE GAS EMISSIONS
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6111/13 Are green revolving funds the next frontier in corporate energy efficiency?
Published on GreenBiz.com (http://www greenbiz:com}<
eexAre en revoifunds t frontierte
�n cor orate ener e. c�ency?
p J3/
By Georges Dyer
Created 2013-06-07 05.00
Energy efficiency saves money But, as most sustamablity pract�troners knoanc there �s the
peretiniai callenge of justifying and securing the upfront capital often needed to �rnplement
efftdency prQ�ects The green revolving fund (GRF)model is emerge. gas an effective
sofut�on The madl is .ncreasingly common arnong higher education nstjtutions and state
overnments, and it rs aIrnri' traction mth Healthcare fac�litres, munrcipafres and
ustnOsses-:
ie.
6/11/13 Are green re,., ving funds the next frontier in corporate energy efficiency?
on building a business case that would be compelling even to those who were not as driven
by the social and environmental benefits of efficiency projects.
Surprisingly, the CFO was the loudest voice encouraging us to give greater emphasis to non-
financial side of the fund. He saw -the benefits a GRF could have in bringing people together
to make decisions about investments and in strengthening Dartmouth's standing as a
sustainability leader. We had proposed starting small with a fiscally conservative $10,000
fund, but it was the administrators who put forward the idea of a larger, more ambitious fund of
$1 million.
Dyer: Did you encounter any challenges? How long did it take to set up the fund?
Indvik: The big challenge was determining how money would flow between accounts to
support the fund. When we were working on this in 2010, there weren't a lot of resources
available to us. We felt like pioneers, and not always in a good way. Now there is a wealth of
resources that others can benefit `�om.
Our proposal took a couple years to be fully implemented, but if we had known then what we
know now and had access to today's GRF resources, I think we could have cut that time in
half or more.
Next page: Billion -dollar resources
Dyer: Many of the resources you're referring to come from the Billion Dollar Green
Challenge (BDGC). You had thp. opportunity to work on some of those,. how did that
come about?
Indvik: I first.talked to Mark Orlowski (executive director of the Sustainable Endowments
Institute, the group behind the BDGC) early in our process at Dartmouth.'The BDGC -- a
sector -wide initiative promoting GRFs -- was just.getting going. Mark encouraged us to follow
through*on our proposal and helped reassure us that this wasn't a crazy, fringe. idea but rather
an increasingly common one.
When I joined the climate change::and sustainability practice at ICF International, I had the
opportunity to support the Challenge. Specifically, my team helped develop the Green
Revolving Investment Tracking System as well as a GRF Implementation Guide, which was
released in January 2013 and recently presented as a webinar. I think both of these are
important resources that are leveraging the experiences from Dartmouth and countless other
schools to make GRFs more accessible and powerful.
Dyer: And you've continued to work on GRFs in your professional career? Tell us
about that.
Indvik: When I joined ICF, I realized there was a demand for strategic guidance on how to set
up a GRF, as well as.for al.l the technical services that make a GRF possible, like energy
auditing, investment analysis and measurement and verification of project savings. ICF's
expertise in climate, energy and sustainability positioned us well to support the rapid growth
6/11/13 Are green revolving funds the next frontier in corporate energy efficiency?
in GRFs. So I put together a team to create a GRF design and implementation offering to help
clients make the model work for them.
This led to several contracts, and though we initially focused on higher education, it's
becoming clear that that the GRF model could work very well in the private sector as well.
We're actively talking with several companies about bringing in ICF to help them set up funds.
In general, we're trying to help the private sector evaluate and take advantage of GRFs as a
new and potentially powerful tool in the energy efficiency toolbox.
Dyer: There are lots of similarities between higher education and business, but also
many critical differences. Do you think the GRF business case is as strong for for -profit
companies, which often have shorter time horizons than their non-profit counterparts
in higher education?
Indvik: If it's done right, yes! McKinsey estimates that there is $500 (billion) to $800 billion in
untapped but economically viable energy efficiency investments in buildings across the U.S.,
mostly in the private sector. About 23 percent of building energy use could be cut by 2020
using only investments with a positive net -present value. And companies are often.better
positioned to take advantage of tax incentives for energy efficiency investments, many of
which colleges can't fully capture as non -profits.
While it's possible to realize efficiency savings with one-off capital investments, it's often more
effective to do so through a comprehensive strategy that revolves cost -savings to finance
future projects. GRFs refrarne energy efficiency projects as investments, as opposed to how
they're frequently viewed: as costs. Leveraging savings from.past projects turns the initial
capital allocation into a continuous, targeted program of investment. The cost savings and
emissions reductions then pile up higher and higher with each round of projects, with. no
additional. capital infusion necessary.
These days, most companies see the importance of sustainability, but few companies have a
cutting edge financial mechanism to drive investment in that: area. GRFs canbe'a key
differentiator (see the recent article on Adidas' greenENERGY Fund)..The idea is still new
and evolving in the private sector. There's a lot of room for innovation and° a huge leadership
opportunity for early movers to create high -profile, flagship funds.
Dyer: Let's talk about potential challenges in implementing a GRF successfully in the
private. sector. First, opportunity costs. Can GRFs compete with other opportunities to
deploy capital?
Indvik: Companies often have a high opportunity cost of capital because they could put that
money into their core business operations rather than investing in efficiency. Compared to
higher ed, firms often have higher "hurdle rates" for what they see as an acceptable return on
investment, which can limit their portfolio of GRF projects. There's also the perceived risk of
efficiency. If firms aren't convinced that the savings will actually materialize or are generally
uncomfortable with efficiency, it may -lead them to increase the hurdle rate. to compensate -for
that risk.
6/11/13 Are green revolving funds the next frontier in corporate energy efficiency?
Next page: Hurdles to overcome
That said, the returns we're seeing in GRFs around the country are usually high enough to exceed even an aggressive
hurdle rate. The established higher ed funds have posted a median annual return of 28 percent. I've had conversations
with CFOs who think these numbers are simply too good to be true, but that figure is based on hard repayment data from
funds that have been operating for years and, in some cases, decades. The potential for energy efficiency to yield returns
in that range is also backed up by studies from groups like McKinsey and the Rocky Mountain Institute.
If there is concern about risk, GRFs can be a useful way to manage it. Funds can start small,
finance a. few select projects and grow over time as confidence in the model grows. They can
also provide a standardized process for evaluating and approving projects, so companies can
build. due diligence and assessment criteria into project selection to minimize risk.
Dyer: What about leased space? If a company doesn't own its buildings, can it still,
benefit from a GRF?
Indvik: This is a problem with energy efficiency generally: if a company leases space, it can
be challenging to deploy efficiency without support from the owner. Even if the owner is on
board, the tenant doesn't own the equipment that it purchases and therefore loses the value of
the CAPEX (capital expenditure) in exchange for savings. This all adds to the complexity of a
GRF, because repayments now involve capturing savings from assets that the tenant
companydoesn't own.
Fortunately, GRFs can be flexibly structured. They can still be viable if the.tenant pays the
utility bills and can capture savings,. or if an agreement can be struck with the building. owner..
One idea we are considering is that:a GRF could provide a vehicle to track.the:extent to which
the tenant recoups that "lost" asset value through.utility bill savings. In other words, a GRF
could be used, to. formally re -assemble the initial capital used for the investment out°.of the
captured savings. Beyond that;even in leased space, there are sometimes opportunities to do
limited upgrades over which the tenant has. ownership, like vending misers,. appliance
upgrades or lighting. Still, resolving.the split incentive between owners and tenants is an area.
where innovabon.is desperately needed.
Dyer:.Any other potential'. challenges you foresee for businesses in applying this
model?
Indvik: Companies may be hesitant to "lock up" funds in a GRF, as they often take ashorter-
term view compared to universities. But if companies are concerned about cash flows and
liquidity, there are a few things they can do. First, projects don't have to repay all of their
savings back into the.fund. Companies _can structure repayment schedules however they
choose. Most funds only require the original principal. to be repaid., sometimes with'a pre-
determined 'level of interest. Second, projects need. not even pay all of the savings into the
fund each year. Some fund models.require that, say, 90 percent or even 50 percent of annual
savings go towards paying back.thefund, and the rest can be used for other purposes: Third.,
the fund can "pay out" a portion of its balance to other accounts in the company. The
University of Vermont has a model like that. They allocated $13 million from their cash
reserves to seed a GRF, and the fund pays back into cash reserves at 5 percent per year. And
5/111'-3
Are green revolving funds the next frontier in corporate energy efficiency?
because the returns from efficiency are significantly higher than 5 percent, this still allows the
GRF.to be replenished at a decent rate.
Dyer: Any final thoughts?
Indvik: I think GRFs have shown themselves to be an effective strategy for making
sustainability happen in higher education. I'm excited to see how the private sector leverages
that experience in the next few years.
image credit: CC license by rediar/Flickr
Energy Efficiency Facilities Financial Models Funding & Finance Ccbedu Energy
Efficiency
Source URL: http//www.greenbiz com/bloc/2013/06/07/are-green-revolving-funds-next-frontier-corporate-energy-
efficiencv
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