Schools struggle with heating bills, but no takers for loan program

Every year, the state spends $100 million on school districts’ utility bills. Back in 2010, the legislature established a loan program to help bring down those costs. The loans would cover energy upgrades to public buildings, and they would be paid back with the money saved on heating fuel. But even though rising energy costs continue to be a problem for districts, schools haven’t used the funds as a fix.

The Alaska Housing Finance Corporation (AHFC) is in charge of managing what’s called the “energy efficiency revolving loan fund.” They can issue up to $250 million dollars in loans to school districts, boroughs, municipalities, and the university system. Given what a big problem energy costs are across the state, you might expect Eric Havelock, who administers the program, to be swamped with applications.

You would be wrong.

“We’ve had a lot of calls and some basic questions,” says Havelock. “But we’ve actually only received two applications.”

Those came from the Cities of Kenai and Seward, and neither one of them ended up going through with the loan. Meanwhile, there’s been no shortage of private property owners turning to AHFC for financing.

“The idea was to bring the same benefits to public buildings that we had brought to residential buildings,” says CEO Bryan Butcher.

Here’s how the program is supposed to work: A public entity decides they want to get an energy upgrade, so they get a building audit where a contractor guarantees a certain percentage of energy savings. AHFC then provides a loan to cover the cost of the audit and any retrofitting that happens. After the upgrades are made, the building owner pays off the loan using the money that would have otherwise gone to heat and electricity. After the loan is paid off, the energy savings can be put toward another part of the budget.

And what happens if those promised savings don’t materialize? Butcher says the contractor is on the hook for the difference.

“You don’t want to borrow money on the assumption that you’re going to be getting a 25 percent energy reduction, find out it’s only five percent, and then say, ‘Uh oh. What are we going to do now?’”

Butcher only took the reins at AHFC this year, after serving as the state’s revenue commissioner. But back in 2010, he handled government relations for AHFC and helped shuttle the loan program through the legislature.

Originally, the loan fund was going to be started with seed money from the federal government as part of the stimulus package. It was a controversial fight, with the $18 million in funding initially being rejected by then-Gov. Sarah Palin and then being re-approved by the legislature. In the end, lawmakers decided to just use the stimulus money for energy audits, and they separately gave AHFC the authority to bond for $250 million whenever they started getting applications in. Because no loans have been made, no bonds have been issued so far.

Given that the state has 5,000 public buildings, Butcher is surprised by the lack of loan applications.

“Okay, we have a program. We feel like it’s set up to work. We know that reducing energy costs by 15 to 30 percent is going to be beneficial for any community. Why isn’t it happening?”

Butcher says it’s not for lack of trying. He says AHFC has done outreach, and they’ve been looking at why school districts aren’t biting:

“We can’t obviously do this program alone. We can set the program up, and we can laud the benefits of it, but it takes a lot of different state and municipal agencies working together.”

Bruce Johnson is the head of the Alaska Council of School Administrators, and he says that Butcher is right — that it’s not unfamiliarity with the program that’s kept districts from applying. It’s a question of who can make long-term commitments about a school district’s budget.

“I think that everyone was aware that this was available,” says Johnson. “But I think we looked at who owns the facilities in the State of Alaska, the two entities are local municipalities, where they have a tax base and are either an organized borough or city, and the state owns the rest.”

Because school districts budget only one year ahead, committing to a five-, ten-, or fifteen-year loan isn’t something they can do easily. The decision to get an energy efficiency loan is really up to the state and local governments that own the school buildings.

Johnson says there’s another big reason AHFC hasn’t seen any takers for their loans. In the past, school districts have had success getting state grants to cover energy upgrades. It’s money they don’t have to pay back or worry about affecting their budget a decade out.

But with oil revenues declining and Gov. Sean Parnell implementing a cap on general fund spending, Johnson thinks there may be more interest from districts in the loan program. Johnson says energy upgrades will be a major point of discussion at the Alaska Council of School Administrators’ September conference. Lawmakers have also had regular meetings on the education budget this summer and have identified energy as an area where spending could be reduced.

“It’s a new era in Alaska,” says Johnson. “This next decade is going to be challenging financially. It’s going to impact public education, and as a result we want dollars in the classroom.”

Better that, he thinks, than paying the heat.