PROVIDENCE, R.I. (WPRI) – Gov. Gina Raimondo and General Treasurer Seth Magaziner on Wednesday proposed creating a new Rhode Island Infrastructure Bank that they say will boost jobs and save money by financing energy efficiency projects.
“This infrastructure bank is going to be a game-changer for our state,” Magaziner declared at a news conference.
Their proposal: take the Rhode Island Clean Water Finance Agency – an existing quasi-public agency with a AAA credit rating that already loans money for infrastructure work – and expand it. The two Democrats both proposed variations on the idea in their campaigns last year, and Raimondo included the proposal in her budget last week.
“The only reason this is possible – to expand Rhode Island Clean Water into an infrastructure bank – is because it’s such an incredibly well-run organization,” Raimondo said. This isn’t the first time she’s turned to the agency for a project: in 2013, she worked with former House Speaker Gordon Fox to create a revolving loan fund there to do municipal road and bridge projects.
If all goes according to plan, Magaziner said he thinks the new infrastructure bank could finance roughly $30 million worth of projects and create hundreds of jobs during its first three years. He said the bank would require minimal taxpayer money because the cost of the projects could be recouped over time through reduced energy bills.
As part of the effort, Raimondo is nominating retired Bank Rhode Island CEO Merrill Sherman as the new chairman of the Clean Water Finance Agency, with an eye on using Sherman’s financial expertise to help the revamped organization build its relationship with lenders. “This is a serious initiative; there are few people in Rhode Island more serious than Merrill Sherman,” Magaziner quipped.
“It’s just a win-win-win all the way around,” Sherman told WPRI.com.
Nationwide, a variety of initiatives have been done over the years under the name “infrastructure bank.” In this case, Raimondo and Magaziner are looking to create an entity that would serve as a middleman in the financing of environmentally friendly capital projects, such as deep energy retrofits or solar-panel installation.
In addition to continuing its current work of funding water, road and bridge projects, the refashioned Rhode Island Infrastructure Bank would start financing Property Assessed Clean Energy (PACE) projects repaid on property tax bills. It would also manage a new Efficient Building Fund to retrofit existing municipal buildings; loan money to flood-prone businesses that need to do stormwater projects, such as the Warwick Mall and Hope Global; and manage federal brownfield money.
“Right now some of this is happening, but it’s very dispersed – a little bit in DEM, a little bit in OER, a little bit here and there,” Raimondo said, referring to the R.I. Department of Environmental Management and Office of Energy Resources. “We are pooling it together and inviting private capital to the table so it’s a one-stop shop.”
The benefit of a PACE program, in their view, is that repayment of the loan for an energy retrofit is embedded in a property tax bill, which means the current owner will continue to pay it off even if the property gets sold. First, though, the new agency will need to convince cities and towns to allow PACE repayments to go on property tax bills.
Rhode Island’s PACE program was created by the General Assembly in 2013 but never actually implemented. Magaziner said the infrastructure bank’s version of it will be modeled on the Connecticut Green Bank, which he said has the most aggressive commercial PACE program in the country. He also cited California’s PACE program as effective.
“We wanted to start with those things that have worked in other places, that are low-hanging fruit and that we know have worked in other states,” Magaziner said.
Another infrastructure bank initiative would be the new Efficient Building Fund, which would allow municipalities and school districts to borrow money to increase the energy efficiency of their buildings. Raimondo suggested it could lower property taxes by reducing local communities’ utility bills.
Raimondo and Magaziner want to tap multiple sources to pay for the infrastructure bank.
PACE projects would be funded by private banks, with the infrastructure bank getting involved to secure the line on borrowers’ property tax bills. “All the lending is done by banks; the state doesn’t make any decision when it comes to PACE loans,” Magaziner said. He suggested PACE could do $6 million to $7 million worth of projects a year.
The Efficient Building Fund’s financing is more complicated, though Magaziner said the goal is for it to do $20 million to $25 million worth of projects over three years.
The bulk of its money would come from having the infrastructure bank float a bond of $15 million to $20 million. However, Magaziner said the cost of the bond would be sharply reduced because his aides had discovered a pool of leftover federal stimulus money – about $3 million in Qualified Energy Conservation Bond credits – that are specifically earmarked to subsidize energy-efficiency borrowing; Rhode Island still hasn’t used its allocation. “It’s very exciting that we found the federal dollars,” he said.
Magaziner said if borrowers were unable to repay the bondholders, existing National Grid surcharge money could be redirected to pay them, though he insisted that is highly unlikely. “The track record from around the country is that these types of things almost never default,” he said.
In addition to the bond proceeds, the Efficient Building Fund would use another $2 million in stimulus money currently allocated to the R.I. Commerce Corporation’s Energy Revolving Loan Fund, which has yet to close on a loan. It would also use $3 million in state proceeds from the Regional Greenhouse Gas Initiative, the Northeast states’ carbon cap-and-trade system.
On top of that, Raimondo’s budget has allocated $2 million to the infrastructure bank out of the proceeds from her proposed refinancing of the state’s bonds. Magaziner said that money could be used either to give the Efficient Building Fund more capital or to seed the PACE program.
“The energy savings are really what the payback is,” Sherman, who would be the infrastructure bank’s first chair, said. “Your payments are scheduled based on energy savings, so that makes it easy for people to borrow the money – they don’t have to worry about the interest rate on their payment, because it’s based on the energy savings, and the energy savings should be there.”
Magaziner acknowledged National Grid funds small-scale energy efficiency projects through its surcharge on utility bills, which brings in roughly $100 million a year, but said the new infrastructure bank would finance larger-scale projects such as factory overhauls that can’t be done through existing programs. He also said he has no plans to propose that the infrastructure bank start taking deposits the way a traditional one does.
Magaziner cited a state-commissioned study by Dunsky Energy Consulting released last month that suggested the state should do a review of its various efficiency programs and seek to get private lenders involved in financing projects.
Bill Sequino, the Clean Water Finance Agency’s executive director, said if the General Assembly approves the proposal he thinks projects could start by Jan. 1. He said he has already assigned two of his three program directors to work on the PACE and Efficient Building Fund programs.
“As the governor said, this program will be around for a long time,” Sequino told WPRI.com. “We’re going to operate it as a revolving fund.”
Oddly enough, the Federal Highway Administration reports Rhode Island previously created a State Infrastructure Bank in 1997 to fund road projects, which was capitalized with $1.5 million in federal money. Magaziner and his aides said they didn’t know what the FHWA was referencing.
Due to incorrect information provided by the treasurer’s office, an earlier version of this article misstated the amount of federal subsidy money available to Rhode Island through QECB credits.