No More Delay: Proven Policy Solutions for New York City

No More Delay: Proven Policy Solutions for New York City
Berkeley, CA: Improving Energy Efficiency and Promoting Renewable Energy

The Problem: Over three quarters of the city’s greenhouse gas emissions come from buildings. While New York City is promoting new ways to reduce emissions from the city’s largest buildings, small buildings also need energy efficiency improvements.

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Building operations—heating, cooling, and lighting as well as powering appliances—are responsible for 78 percent of the city’s carbon dioxide emissions. This is primarily because New York City’s building stock is so old. The median age of a residential unit in the city is 73 years and 43 percent of the city’s housing stock was built before 1939.By retrofitting older buildings with new, green building technologies, the buildings' energy usage can be considerably reduced.

For example, energy efficiency improvements in the Empire State Building, built in 1931, began in April 2009. The improvements are expected to reduce energy usage by 38 percent, for savings of $4.4 million annually. Energy efficiency upgrades are not just altruistic exercises for saving the planet, but also have a real impact on a building owner’s bottom line.

Even though energy efficiency improvements will reduce a building owner’s energy costs, the high upfront cost is both a psychological and financial barrier for building owners. The cost of energy efficiency improvements varies greatly from case to case. However, to provide an example, a case study of a 208 unit mid-rise apartment building in Buffalo, NY revealed that the building owners made an investment of nearly one million dollars to finance its energy efficiency improvements.53 Even after a building owner applies for the various tax breaks and other incentives offered at the state and federal level, the upfront cost is still a major impediment.

Given the fact that such a large percentage of New York City’s greenhouse gas emissions come from building operations, the city will need to take ambitious action to increase energy efficiency if New York is to meet the Mayor’s goal of reducing emissions by 30 percent by 2030.

The Solution: Berkeley FIR ST Municipal Financing

The Berkeley FIRST model of municipal financing spreads the costs of installing a solar energy system out over time so that payments for the system are matched by energy savings, month for month. The program allows property owners to borrow funds to install solar photovoltaic systems on their residential or commercial property and repay the cost of installation (plus interest) over a period of 20 years through their property tax bills. The program was initially conceived to provide financing for both solar projects and energy efficiency projects. However, during Berkeley’s first pilot phase of the project, the city decided to limit the project to solar power systems.

The City of Berkeley established a special tax district specifically for the Berkeley FIRST program. The tax district only includes those property owners that voluntarily “opt-in” to Berkeley FIRST as a financing mechanism for solar installation.
Berkeley issued bonds based on future tax revenue from the special tax district.
In order to administer the program, Berkeley has teamed up with Renewable Funding, a limited liability company that purchases the bonds and administers the application process.
Property owners that wish to secure financing through Berkeley FIRST apply online with Renewable Funding and pay a $25 “reservation fee.”
- At the time of application a property owner needs to have an initial bid on the solar installation from a certified contractor. The property owner must also apply for state and federal solar incentive programs.
After approval, a property owner has 270 days to complete the installation of a solar energy system.
Once installation is complete, the property owner submits a funding request. Participants can receive full funding for the project, after state and federal rebates, up to $37,500.
The city then places a lien on the property for the exact amount of the installation, plus interest.

The interest is set at a rate equal to the 10-Year Treasury Rate plus 3.25 percent, or 6.75 percent, whichever is greater.

After the lien is placed on the property, the property owner is issued a check for the cost of installation and the property owner pays the installation contractor. Property owners repay the city bi-annually through their property tax bill and the city pays back the bonds to Renewable Funding.

The tax assessment is transferable between owners; that is, if one sells a property prior to the end of the 20-year repayment period, the next owner takes over the assessment as part of their property tax bill. The energy systems are considered part of the property and ownership of the energy system will transfer to the new owner at the close of the real estate sale. Failure to pay the tax may result in foreclosure of the property. The tax is secured by a lien on the property, which ranks senior to the first mortgage. As a general matter, if a property owner fails to
pay property taxes for five years, the county will foreclose on the property to collect delinquent taxes.

Impact

Berkeley FIRST was rolled out in November of 2008 as a pilot project limited to 40 properties. The application process for the program was opened on November 6, 2008. After the application process was opened, the city received more applications than available slots within minutes. Since then, two projects have been completed and the funds have been distributed to the property owners. An additional 38 ongoing projects have funding commitments from the City of Berkeley.

The Berkeley FIRST program offers several benefits to property owners who wish to install solar power systems on their property:

There is relatively little up-front cost to the property owner.
The cost is spread over 20 years. The annual cost for the installation of a $28,000 system comes to about $2,089 a year, or $182 a month.
Energy savings are projected to match or exceed the cost of the annual assessment.
The financing costs are comparable to a traditional equity line or mortgage, but the owner doesn’t lose equity in the property and doesn’t rely on, or draw down, a property owner’s available credit line.
Since the solar system stays with the property, so does the tax obligation. If the property is transferred or sold, so is the remaining tax obligation. Since the average American lives in his or her home for nine years, the transferability is crucial.

Analysis conducted by the University of California Renewable and Appropriate Energy Laboratory in Berkeley explored the costs savings that single-family homeowners would receive after participating in the program. It was found that if a California homeowner were to use the Berkeley FIRST model to finance energy efficiency projects, homeowners would see savings between $671 and $2,902 annually, depending on how much electricity and gas prices increase over time.

Implications for New York

This spring, Mayor Bloomberg and City Council Speaker Christine Quinn introduced several ieces of legislation that will require energy efficiency improvements in the city’s largest buildings. This legislation represents the most ambitious effort of any local government in the country to improve energy efficiency in large commercial and residential buildings. However, several of the new laws do not address the need to improve energy efficiency in small and medium-sized buildings. The new legislation will cover the 22,000 buildings in the city that are over 50,000 square feet. Together, these buildings represent 45 percent of the city’s floor space.

However, smaller buildings, which make up the other half of the city’s total floor space, need a low-cost financing mechanism. Berkeley FIRST can provide that. The new legislation is estimated to reduce the city’s greenhouse gas emissions by 5 percent. By applying the Berkeley FIRST model to the city’s smaller buildings, New York can build on that success.

The City Council would likely need to gain the approval of the state legislature to create a new tax district similar to the one that was established in Berkeley. The city would also need to identify and partner with one or several non-profit agencies that would take on the same responsibilities that Renewable Funding did in Berkeley.