Qualified Energy Conservation Bonds

 The bonds would be self-sustaining tax-credit bonds issued by CDA under its existing authority as a conduit issuer, or directly by municipalities. These traditional tax credit bonds for the benefit of municipal and private, for-profit entities lower the cost of capital and annual debt service requirements by providing a 70% interest subsidy effected through giving the bondholders a federal tax credit .

Conduit Structure:
CT’s  Qualified Energy Conservation Bond  Program(QECB), for both municipal and private activity projects, will be allocated and administered by CDA and DECD per Executive Order.  QECBs not issued directly by a municipal government, but by the CDA, will be self-sustaining with no recourse to the state or to CDA, the conduit issuer, in the form of guarantee or by other means. Bond proceeds are loaned to a municipality or private for-profit entity as the true borrower. 

Under the federal program criteria, in order to qualify as QECBs, 100 percent of the available project proceeds of such issue are to be used for one or more qualified conservation purposes, which include:           

1. Capital expenditures reducing energy consumption in public buildings by 20%; implementing green community programs; rural development involving the production of electricity from renewable energy resource
   
2. Facilities or grants that support research in
   a)      development of cellulosic ethanol or other nonfossil fuels
   b)      technologies for the capture and sequestration of carbon dioxide,
   c)      increasing the efficiency of existing technologies for producing nonfossil fuels,
   d)      automobile battery technologies and other technologies to reduce fossil fuel consumption in transportation,
   e)      technologies to reduce energy use in buildings
   
3.  Mass commuting facilities and related facilities that reduce the consumption of energy, including expenditures to reduce pollution from vehicles used for mass commuting
   
4. Demonstration projects designed to promote the commercialization of:
   a)      green building technology,
   b)      conversion of agricultural waste for use in the production of fuel or otherwise,
   c)      advanced battery manufacturing technologies
   d)      technologies to reduce peak-use of electricity, and
   e)      technologies for the capture and sequestration of carbon dioxide emitted from combusting fossil fuels in  order to produce electricity
5.  Public education campaigns to promote energy efficiency
   

Structure: 
QECB is a traditional tax-credit bond that provides issuers with a 70% interest subsidy by providing bondholders with a federal tax credit.  The advantage of these bonds is that they are issued- theoretically- with a 0% interest rate, as the borrower pays back only the principal of the bond and the bondholder receives federal tax credits in lieu of the traditional bond interest. The net cost to the issuer, however, is expected by underwriters to be 3-3.5%, as the borrower must pay a supplemental coupon given that the tax credit is only for 70% of the full rate set by the Treasury Department under 26 USC 54A. Energy conservation bonds differ from traditional tax-exempt bonds in that the tax credits issued through the program are treated as taxable income for the bondholder. QECBs are not subject to a U.S. Department of Treasury application and approval process. Bond volume is instead allocated to each state based on the state's percentage of the U.S. population as of July 1, 2008. Each state is then required to allocate a portion of its allocation to "large local governments" within the state based on the local government's percentage of the state's population. Large local governments, which are defined as municipalities and counties with populations of 100,000 or more, may reallocate their designated portion back to the state if they choose to do so. 

Use of Proceeds:
The bonds can be used to fund portions of larger projects, which include green energy components, as well as stand alone “green” improvement projects deemed to be a qualified energy conservation project.
The definition of "qualified energy conservation projects" is fairly broad and contains elements relating to energy efficiency capital expenditures in public buildings; renewable energy production; various research and development applications; mass commuting facilities that reduce energy consumption; several types of energy related demonstration projects; and public energy efficiency education campaigns. Renewable energy facilities that are eligible for CREBs are also eligible for QECBs.  These bonds can be used to fund a broad range of “green” projects including:
1. Capital Expenditures related to reduced energy consumption in publically-owned buildings by at least 20%, green community programs, renewable energy-based electricity generation in rural areas, or any NCREB-eligible facility
2. Research Expenditures- to develop or improve non-fossil fuels or reduce dependence on fossil fuels (e.g. Capture/sequester carbon dioxide, improve automobile battery technologies, increase efficiency of other existing alternative energy technologies)
3. Mass Transit Projects to reduce energy consumption or pollution
4. Demonstration Projects to promote commercialization of, for example, green building technology, improved battery manufacturing, reduced electricity use.
5. Public Education Campaigns (excluding events held primarily for entertainment)
Potential projects in Connecticut include mass transit purchases, waste removal and management, resources recovery facilities, and alternative fuels and solar projects in public facilities.

Qualified issuers:  State and local governments. Bond issuance can be by either by the State, via the CDA as the conduit issuer per Executive Order, municipalities with populations over 100,000 receiving mandated allocations from the State or municipalities which have received applied-for allocations from the CDA. Private activity projects will have to use the CDA as a conduit issuer.

Awarding the Allocation:
Program awards of bonding volume cap allocation by CDA to applying municipal and private activity projects will be on a competitive, ongoing basis based on criteria below established by CDA  and DECD to support and promote “Green Energy” development including, but not limited to:
1. Demonstrate that the project meets federal program and tax criteria.
2. Demonstrate applicant Project’s promotion of green energy as defined by the QECB federal program guidelines.