Local Option - Energy Efficiency Project Bonds

Summary

On March 2015, the Arkansas legislature passed SB 896 or the “Local Government Energy Efficiency Project Bond Act” which provides enabling legislation for a municipality or a county to issue energy efficiency project bonds. As currently effective, the law is a local option, meaning that local governments are permitted to decide whether or not to allow it. 

Eligibility

These bonds only apply to local governments, including municipalities and counties. The act expressly exempts the use of such bonds by State agencies, school districts, or special assessment or taxing district established by the State. 

Program Description

The local government may use these bonds to finance energy efficiency projects that i) provide guaranteed energy cost saving via reducing energy consumption or operational cost, and ii) to purchase and install energy efficiency projects. Local governments are authorized to enter into “guaranteed energy cost savings contract”, also  popularly known as Energy Performance Contracting (EPC), which is a financing technique that uses cost savings from reduced energy consumption to pay for the cost of energy efficiency projects. 

The energy efficiency project can be for both new and existing facilities, which must be designed to reduce consumption of energy or national natural resource or result in operating cost savings of the changes. These changes must be measurable and verifiable under the international performance measurement and verification protocol, as adopted by the Arkansas Energy Office, and must be measured and verified by an audit performed by an independent auditor. 

The local legislative body may only issue bonds after it determines that i) all of the energy efficiency project will be performed by a qualified providers, and ii) the qualified provider has provided a guarantee of the operating cost savings to be realized from the project. If the savings fail to meet the expected goal, then the provider must reimburse the shortfall. 

The bonds may be issued for a maximum of 20 years, or the useful life of the project. The bond is to be secured by a pledge of operating cost savings from the energy efficiency project, and will be paid through the revenues derived from taxes, or any other revenues available to the local government. 

Tax Exemption

These bonds and the income from the bonds are exempt from all state, county, and municipal taxes, including without limitation income, property, and inheritance taxes.