Leveraging Private Investments & Localizing Finance: An Overview of Public Banks
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Transcript of Leveraging Private Investments & Localizing Finance: An Overview of Public Banks
Leveraging Private Investments & Localizing Finance:
An Overview of Public Banks
EARN Conference – September 14, 2011Anthony Gad
Four Public “Banks” to Leverage Private Investments & Localize FinanceGreen Banks• Green Bank of Kentucky • Connecticut Clean Energy Finance & Investment AuthorityInfrastructure Banks • California Infrastructure & Economic Development BankLand Banks • Michigan Land Bank Fast Track AuthorityState Partnership Banks• Massachusetts Small Business Banking Partnership• Bank of North Dakota
An Economic Development Fund Is Not a Bank
A bank . . .– is able to quickly raise its own finances– has flexibility to offer a range of interventions– can leverage private investments– brings banking expertise– is permanent and independent
Green BanksIssues:•Misaligned price signals from the external cost of global warming•Capital market shortcomings in financing innovative industries & rules that favor incumbent technologies•Cost of R&D, commercialization, manufacturing, and deployment
Green Bank of Kentucky
• Launched by Gov. Beshear in September 2009• Gov. Beshear’s energy plan calls for 25% reduction in
statewide energy demand by 2025• Green Bank of Kentucky set up as a revolving loan
fund for public building retrofits
Green Bank of Kentucky
Source of Funds:• Started with $14.4 million in State Energy Program
funds from the American Recovery and Reinvestment Act (ARRA)
• Fixed Rate of 3.25% and 14 year terms• Loans are repaid to the bank over a period of time
with the monetary savings realized through reduction in energy usage
Green Bank of KentuckyUse of Funds:• eSelf Revolving Loan Program: self-performed energy
efficiency projects costing between $50,000-$225,000
• Hybrid Revolving Loan Program: agency procured labor and materials with a cost between $50,000-$600,000
• Energy Savings Performance Contract Revolving Loan Program: typically over $600,000 and utilizes ESCOs
Green Bank of Kentucky
Energy Savings Performance Contract Revolving Loan:• $1.3 million to the Kentucky Department of
Education (KDE)• Combined reduction of carbon emissions equivalent
to 1,383 tons of CO2 annually• Rate for financing the KDE performance contract
through a traditional loan would have been 5.1% (+ $160,000)
Green Bank of Kentucky
“The $14.4 million Recovery Act investment provided a great start, but we have more than a $200 million need expressed by state agencies alone. And that does not include the even larger universe of county, municipal, and school boards across the state.”– Testimony of Jonathan Miller, Secretary of the Kentucky Finance and Administration Cabinet to the U.S. House Ways and Means Committee on May 13, 2010
Connecticut Clean Energy Finance and Investment Authority
• Created July 1, 2011, the law allows the Authority to provide financing support to clean energy projects if the total amount financed by the authority and other non-equity financing sources does not exceed 80%
• The Authority may seek to qualify as a Community Development Financial Institution
Connecticut Clean Energy Finance and Investment Authority
Source of Funds:• Primarily supported by a 0.1 cent per kilowatt-hour
charge on electric bills • Contracts with private funding sources to raise debt
or equity from private sources• Pledges its revenue to secure any borrowing
Connecticut Clean Energy Finance and Investment Authority
Additional Sources of Funds:• Charitable gifts, grants, loans, federal funds,
contributions• Earnings and interest from financing support
activities• Funding from the Community Development
Financing Institution Fund (if qualified)• Investments by depository institutions• Auction allowance proceeds from the Regional
Greenhouse Gas Initiative
Connecticut Clean Energy Finance and Investment Authority
Use of Funds:• Low-cost financing and credit enhancement
mechanisms to support a wide range of renewable energy and energy efficiency projects
• Support projects that seek to deploy electric, electric hybrid, natural gas, or alternative fuel vehicles and associated infrastructure and any related storage, transmission, distribution, manufacturing technologies or facilities
Infrastructure Banks
Issues:• Risk of delay as state officials wait for the state or
federal funds to become available• Risk that a poorly selected project will fail to produce
social or economic benefits and tie up scarce capital resources
California Infrastructure and Economic Development Bank
• The state’s only general purpose financing authority, the CA I-Bank has extremely broad statutory powers to issue revenue bonds, make loans and provide credit enhancements for a wide variety of infrastructure and economic development projects and other government purposes
California Infrastructure and Economic Development Bank
Source of Funds:• State general fund appropriations of $50 million in
FY1998 and $425 million in FY1999• Current sources of funds include fees, interest
earnings and loan repayments• “Leveraged Loan Program” which involves the
issuance of revenue bonds secured by the repayments from previously-approved loans
California Infrastructure and Economic Development Bank
Use of Funds:Infrastructure State Revolving Fund –low-cost loans up to $10 million per project to local governments for:
City streets Public transit
County highways Sewage collection and treatment
Drainage, water supply & flood control Solid waste collection and disposal
Educational facilities Water treatment and distribution
Environmental mitigation measures Defense conversion
Parks and recreational facilities Public safety facilities
Port facilities State highways
Power and communications Military infrastructure
California Infrastructure and Economic Development Bank
Serves as a “conduit issuer” for Industrial Development Revenue Bonds and 501(c)(3) Revenue Bonds.
CONDUIT FINANCING – The issuance of municipal securities by a governmental unit (referred to as the “conduit issuer”) to finance a project to be used primarily by a third party, usually a for-profit entity engaged in private enterprise or a 501(c)(3) organization (referred to as the “conduit borrower”). The security for this type of issue is customarily the credit of the conduit borrower or pledged revenues from the project financed, rather than the credit of the conduit issuer. Such securities do not constitute general obligations of the conduit issuer because the conduit borrower is liable for generating the pledged revenues.
California Infrastructure and Economic Development Bank
Other Financing Support:• Emergency apportionment Lease Revenue Bonds• Energy Efficiency Bonds• California Insurance Guarantee Association Bonds• Toll Bridge Seismic Retrofit Bonds• Clean Water State Revolving Fund Bonds• Tobacco Securitization Bonds• Recovery Zone Economic Development Bonds • Tribal Compact Asset Securitization Bonds• Imperial Irrigation District Preliminary Loan Guarantee
Land Banks
Issues:• Tax liens exceeded fair market value and state law set
minimum auction bids at the amount of delinquent taxes
• Investors elected neither to invest in improvements to the property nor pay subsequent years’ taxes
• Properties not sold to private investors automatically defaulted to the ownership of the local government
Michigan Land Bank Fast Track Authority
• Created in 2004 as a “Second Generation” land bank• In a structure not found in other jurisdictions, the
Michigan statute created a state authority both to deal with tax-foreclosed properties owned by the state as well as to exercise a limited degree of supervisory oversight of all locally created land banks
• Currently over 30 land banks in Michigan
Michigan Land Banks
Source of Funds:• Portfolio of properties with negative value, market
value, and values substantially exceeding management and remediation expenses
• 50% of all real property taxes for 5-years following conveyance to a private owner
• Bonds backed by 100% of future tax revenue increases from brownfield development
• Cash flow from interest and penalties
Michigan Land Banks
Use of Funds:Acquisition• Authorized to receive forfeited properties, but not
required and not automatically conveyed• Discretion to acquire properties through voluntary
donations and transfers from private owners• Can purchase or lease property on the open market
Michigan Land Banks
Property Management:•Michigan land bank legislation contains most
extensive management powers and includes a provision that such powers are to be broadly construed to grant complete control to the land bank “as if it represented a private property owner.”
Property Disposition:•Complete authority to establish the terms and
conditions for transfers of their properties
Genesee County Land Bank Authority
• Most active land bank in country• Responsible for more than 10,000 properties that
have been foreclosed in Genesee County since 2002• Demolished over 1,000 abandoned houses, conveyed
“side-lots” to next-door homeowners• Rehabilitated hundreds of homes• Redeveloped historic buildings
State Partnership BanksIssues: Credit crunch, decreased small business lending, stifled economic activity, loss in jobs, etc.
State Partnership Banks“Move Your Money” - Small and medium sized banks generally loan at a higher rate and make a greater percentages of small business loans. For example:
Massachusetts Small Business Banking Partnership
• Launched on May 5, 2011 by MA State Treasurer Steven Grossman
• Invests state reserve funds into Massachusetts community banks with the understanding that the financial institutions will use the deposits to make new loans to small credit-worthy businesses to help them expand and create new jobs
Massachusetts Small Business Banking Partnership
Source of Funds:• $100 million in state deposits under the control of
the Treasurer• Obtain competitive interest rates on the
Commonwealth’s deposits• Require that all funds are insured or collateralized to
ensure that there is no risk to the taxpayer’s money
Massachusetts Small Business Banking Partnership
Use of Funds:• Promote small business growth by providing
creditworthy enterprises with greater access to loans• Provide capital support through cash deposits to
banks with a strong record of small business lending• Banks commit to using funds to increase loans to
creditworthy small businesses or for commercial loans of $500,000 or less
• Banks make determinations of creditworthiness
Bank of North DakotaSelected Policies of the Bank of North Dakota (May 12, 1919):• To promote agriculture, commerce and industry.• To be helpful to and to assist in the development of state and
national banks and other financial institutions and public corporations within the State and not, in any manner, to destroy or to be harmful to existing financial institutions.• To base credit upon financial responsibility and integrity,
irrespective of party affiliation; to ignore politics and to recognize merit.• To mobilize the assets of the whole State and its entire
financial worth into one large central bank . . . thereby enlarging its powers and opportunity for the development of the whole State.
Bank of North Dakota
Source of Funds: • $2 million start-up capital from a bond issued in 1919• Legislature determines amount of profits to send to
general fund, the remaining becomes bank capital• North Dakota law grants the bank authority to
receive deposits from any source• All funds of state departments and state agencies
must be deposited with the Bank of North Dakota
Bank of North Dakota
Deposit Base: • Local governments may deposit funds at the bank
but are not required to do so• Bank allowed to receive deposits from any source,
including the United States government, individuals, corporations, and other entities
• At the end of 2010, 86% of deposits from state & local government and less than 3% from private individuals and businesses
Bank of North Dakota
More on Deposits:• Not a member of the FDIC and its deposits are not
FDIC-insured• All deposits are guaranteed by the full faith and
credit of the State of North Dakota• North Dakota law exempts all deposits from state,
county, and municipal taxes
Bank of North Dakota
Use of Funds:• Involved in direct lending and participation loans, or
loans made with another financial institution• Participant in secondary market for residential loans• Performs banker’s bank functions• Makes capital available to local banks via direct bank
stock lending• Majority of lending is with in-state customers
Bank of North Dakota
General Fund Profits:• In 1945, the state legislature began transferring
profits from the Bank to the state's General Fund• Because the North Dakota Legislative Assembly
meets every two years, the transfers in the budget are authorized over a biennial period
• Since FY 1999-00, the legislature has authorized $308.7 million in transfers to the state's General Fund
THANK YOUFor additional information on . . .Green Banks: Coalition for Green Capital
(coalitionforgreencapital.com)Infrastructure Banks: CA Infrastructure & Economic
Development Bank (ibank.ca.gov)Land Banks: Center for Community Progress
(communityprogress.net)State Partnership Banks: Center for State Innovation
(stateinnovation.org/statebanks.aspx)