Budget committee mtg 12/17
Mike Ecke had two items on the agenda tonight: fund balance policy and performance contracting.
Due to the fact that the Town's consultant is a People's United Bank employee (as am I), I skipped this part of the meeting. I'll have to get the minutes and read them, but my understanding is that my call for a cost/benefit analysis was discussed. And my concerns about using $5,500 of bond insurance as an alternative to collecting $2,000,000 - 3,000,000 in taxes was also discussed. I don't really have much to say until I read the minutes.
However, I want to remind everyone that this fund balance policy is usually discussed in terms of the rainy day fund as a per cent of the operating budget. That is to say, if the budget is $100,000,000 and the fund balance policy calls for a 5% fund balance... then we should have $5,000,000 in the bank. If it's 8%, then we should have $8,000,000 in the bank. But remember... the Town's rainy day fund is just one of several reserves controlled by the Town.
The Town also has a "heart & hypertension" fund, a medical trust fund, a debt reserve... and there may be others. All of these should be considered as part of the rainy day fund. Otherwise, we should probably determine what the potential risks are beyond these risks... then use those risks to draft a list of other potential liabilities that may benefit from the rainy day fund... come to think of it... we probably should just draft of list of other likely liabilities, regardless. Anyway, more on this later.
I joined the meeting when we got to performance contracting. And since it's late, I'll cut this short. Mike Ecke gave me the floor and I conveyed my concern to the Council...
America is highly dependent on foreign oil. And I want to reduce that dependence. In order to achieve this goal, I want to conduct a comprehensive townwide energy infrastructure improvement project as expeditiously as possible.
Why?
Because while the pool runs on natural gas and Highland runs on electric... both are interchangeable with oil. That is... CHS runs on a dual-fuel heating system... depending on the price of fuel (NG or oil)... the facilities people can change it every day... so in that way, NG and oil (heating fuel is basically diesel fuel and petroleum-based) are interchangeable and, effectively, the same thing. If we use less NG at the pool, we can consume more at CHS... and our dependence on foreign oil decreases.
As for electric... about 30-40% of CTs electricity generating power plants are fueled by NG or oil. So to use electricity is to use oil... and is to increase America's dependence on foreign oil.
Anyway, I told the Council that I'm not worried about how we finance our energy conservation projects. My main concern is getting the projects done and done now. I don't want to wait for ten or twenty years to do a project that could be done in three years... that would just require us to consume that much more fuel in the interim... and if we can avoid that, we should.
So if we use performance contracting, that's fine with me. I personally believe that it may help us expedite these projects. What's key to me about performance contracting though is that it helped jumpstart a conversation that had been stalled in the fast lane to nowhere. So thanks to Mike Ecke for putting this on the agenda and asking the Energy Commission to take the lead on this. Until he took action... this concept had been collecting dust on a shelf in Town Hall.
Tim White
Town Council, Energy Commission liaison
13 comments:
I'm excited about these energy initiatives.
Two questions:
Why would using "less NG at the pool, we can consume more at CHS... and our dependence on foreign oil decreases."?
What's "performance contracting?"
Thanks.
Regarding the fund balance policy, do banks look at the "rainy day fund" balance to determine the town's bond rating? Would bond insurance provide the same benefit?
Quod... I gotta run to work, but quickly...
Let's say you have have 5 gallons (decatherm is the real unit) of NG and 5 gallons of heating fuel. And you need 5 gallons for heat for each of the two buildings for one day.
With the bubble, you need the 5 gallons of NG. But with a permanent structure (or no structure), you reduce the NG consumption to 1 gallon (or 0 gallons) and can then use 4 gallons of NG at CHS, along with 1 gallon of oil.
With the permanent structure, we now use 5 gallons of NG and 1 gallon of oil to heat the two buildings... instead of the current 5 gallons of NG and 5 gallons of oil.
Performance contracting...
You currently use 10kWh of electricity. A contractor gives you some new windows that he guarantees saves you 8kWh of electricity. He says... "pay me the value of 6kWh, you keep the value of 2kWh, and after the windows are paid off (using the value of the 6kWh savings), you keep the windows at the end."
It's basically a financing mechanism.
Presumably banks would, but it's the ratings agencies (Moody's, S&P, etc.) that perform the rating, not any banks. Also keep in mind that a bond issuance is different from the town. The town is what is known as the "underlying." The bonds and the town are different.
My guess is that bond insurance provides basically the same benefit, with additional costs for the town being incurred on the margins. But when we're talking about $2-3million in onetime tax collections, plus $80-90,000 additional taxes collected annually... all for a typical annual savings of $20-40,000 per year... a few extra bucks at the margins is irrelevant.
Of course, I need to better understand what the "margins" are. Unfortunately, I didn't want to attend the meeting last night.
gotta run.
Performance financing is an alternative financing method for energy projects that require capital investment. Use the pool as an example; the town would contract with an energy services company to design and install all of the corrective actions to make the pool the most long term energy efficient facility possible. The annual energy cost is now about 400k, with the proper modifications; a clear, polycarbonate structure, new HVAC systems, Combined heat & power plant and others the energy costs under current market prices would be cut by 50%. The energy costs are reduced due to reduced consumption of fuel, natural gas and electricity. The energy company carries the cost of the project through a leasing firm or bank. The Town does not have to ask for increased taxes or bond the money. With a reduced energy cost of 50% or 200k annually, that 200k goes tot he energy company until the bill is paid off. The town cost avoids future energy expenses when costs rise because the demand for fuel is lower, therefore still a lower operating cost. This practice has been around for about 20 years, used mostly in areas of the world where energy concerns have been of greater importance than in the US.
The pool under this approach would be a win for all, better indoor environment, no tax increase for modifications, higher revenue due to increased use due to a better indoor environment. I believe the cost of the pool modifications would be paid back in 7-10 years through energy savings.
Let's assume the cost of energy rises during year 2 of this funding, thus the amount saved has also risen. Are the payments accelerated, or are they in fact set at a budgeted amount at the outset? Would it be possible for us to be facing a larger annual bill (with an earlier payoff date as well)? Though less likely, if energy prices actually fall, could we face lower annual payments and a longer payoff date?
We will need a new bubble soon and the "performance contracting" makes sense. Let's go for it...
Quod... those questions would be addressed in the contract and, presumably, would be negotiable terms. My guess is though that energy costs will not drop and will likely rise.
At last night's meeting, Elizabeth Esty mentioned that her husband, Dan Esty (who is a serious heavyweight in energy/environment circles... on a global basis, not just in CT or the USA) was speaking with some colleagues recently. And they felt that oil will likely hit $250/barrel within five years. I can't speak to that, but if you dig into just some basic stuff, such as understanding "peak oil," you'd probably agree that prices will trend up, not down.
5:08 agreed. Now we just have to find 5 votes on the Council that will deal with the bubble (and America's dependence on foreign oil). But if you saw the Council forum in October... you'd also know that at least two Council members are in a "state of paralysis" over the bubble.
"I told the Council that I'm not worried about how we finance our energy conservation projects. My main concern is getting the projects done and done now" This comment worries me as a taxpayer... anyone else?
5:41 Stated more precisely... if it is determined that an energy conservation project should be performed (say a project has a five year payback)... then to me, I won't worry if it is bonded or financed through a performance contract... or even some other financing mechanism.
5:41 btw, thanks for noticing that. I s/h/b more clear, but was kinda tired last night while I was writing... I think it's not uncommon for me to miss a key word or concept... particularly when I'm tired. So please, point stuff out whenever it makes you raise an eyebrow.
So, if the paralized two abstain you might have the votes?
Let us not make fun of the decisively challenged.
2:42 I haven't done a straw poll, but I doubt it. The majority could have done something by now, but as one paralyzed fellow said about the twenty thousand dollars of taxpayer money that was wasted on the pool consultant... "we just wanted someone to say, you're doing a good job!"
or something like that.
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