Profile: Climate Benefit Districts, powered by green finance
District-wide sustainability is hot!
As we blogged about last week, equally hot are the green finance tools and mechanisms being created to pay for it.
Mithun Architects‘ has developed the Climate Benefit District (CBD) in the State of Washington (disclosure: Galley Eco Capital works with Mithun on other projects). The definition from their own documentation is here:
A CBD is an independent taxing district and a quasi-municipal corporation. It will have its own
taxing authority and its own debt capacity independent of the city.
A CBD must be located within an urban growth area and should approximate “neighborhoodâ€
scale, or roughly a square mile. It may include unincorporated territory that is within the city’s
urban growth boundary, but only if the unincorporated territory is less than 50% of the total area
and only after the city and county enter into an interlocal agreement. Multi-city CBDs may be
created pursuant to interlocal agreement.
While Climate Benefit Districts are not yet in action, parts of the structure are similar to other initiatives emerging across the nation, so this brief profile might be helpful to your efforts to expand your green finance toolbox.
How are Climate Benefit Districts financed?
A CBD is an independent taxing district with ability to issue general obligation, revenue or special assessment bonds.
It’s structure makes it eligible to create tax credit partnerships to take advantage of federal tax credit incentives such as: low-income housing tax credits, renewable energy tax credits, new markets tax credits, historic preservation tax credits and other federal tax credits that may be created. A CBD may also administer federal grant funds, is eligible to receive priority consideration for state grant and loan programs, and is eligible to create energy efficiency loan program.
Additionally, revenue can come from funds earmarked by the City where the CBD is located or from direct assessments within the CBD. The CBD chooses those assessments from a menu of “local option revenue tools”:
- Climate benefit services charges (similar to fire benefit charges, based on measurable benefits from CBD projects and services)
- A parking tax on commercial parking facilities
- A vehicle license fee
- The local option revenues available to transportation benefit districts
- Special assessments for the financing of local improvement district (LID) improvements.
- Voter approved excess property taxes for the repayment of bonds issued to finance climate benefit projects.
How is performance measured?
Performance measurement is a key strength of the Climate Benefit District. Each district’s sustainability plan would include “climate benefit targets” for:
- utility infrastructure and service;
- vehicle miles traveled reduction strategy;
- land use, green building and energy efficiency; and
- neighborhood social sustainability programs and services.
Opportunities & Challenges
One advantage within the mechanism is that the financing platform is based purely upon the coordination of existing financial products, allowing the municipal sponsor to “look under the hood” and quickly understand the proposed business plan.
But a challenge might lie within understanding ‘how much additional assessment buys how much additional value?‘ One of the primary arguments for climate benefit districts are that property within such districts would be worth more to those property owners.
We definitely agree from our own work that mixed-use projects usually achieve a sales premium to competing existing projects within their local market. There is also strong industry evidence that tenants typically prefer green buildings. Extending those facts to an entire district makes us think that this assertion of higher property value is very plausible.
But at what cost? And who pays?
Remember that this mechanism is based upon compulsory district-wide assessments based upon proportional benefit creation, as opposed to the voluntary opt-in by owners within energy efficiency financing districts here in California. That means that you are required to pay your calculated share of the additional costs if you live or do business there.
So we wonder how this mechanism works for the parts of town, where low-to moderate income residents and small businesses are too cash constrained to pay the special assessment for a district-wide sustainability program.
Will the City step in to subsidize improvements in order to allow those lower income residents and small businesses the same district-wide sustainability benefits?
Nonetheless, the Climate Benefit District offers deep green performance measurement, coupled with practical ideas that should stimulate thinking for many practitioners and communities needing district-wide solutions.
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$2 Million Grant for Affordable Zero Energy Housing Village
Bold stimulus and green building plans associated with AB32 are moving from the drawing board to the construction site.
West Village Community Partnership received a $2 million grant from the California Energy Commission for the study and development of advanced energy strategies for a 220-acre, 4,000 student and faculty housing development for UC Davis. The grant award came under the CEC’s Public Interest Energy Research (PIER) Program for Renewable-Based Energy Secure Communities (RESCO).
The grant essentially funds a living laboratory type of study of different energy applications to be designed for and installed in the community.
The developer and UC Davis will be studying how to put together an optimal mix of renewable technologies for the project — including creative financing structures to overcome the first-cost barrier for ultra-efficient green design as well as documenting resident behaviour; whether they actually save or waste more energy in this type of development. Since the project will be built in several phases, the developer will have a chance to improve each new phase’s energy delivery plans, based upon what is learned by studying prior phases.
I love the intersection of the real estate story with the AB32/2030 Challenge issues– they’re already putting together a mixed use addressing pent up demand in the student and faculty housing market in that area. UC Davis ground leases the land to the developer. His focus will be on getting the project financed, built and sold (and paying ground rent of some amount, of course). The project was reportedly already sustainably designed before the grant was awarded. Now grant money will pay for the advanced energy requirements and “study” (read: actually do) the creative financing.
We also point out that one word is missing from both the story and the project website:Â “LEED”. As much as the sustainability of the development is being touted, there is no mention of the design guidelines adhering to any particular third-party rating system, like LEED.
And what about the sustainability objectives?
- Housing units are to be sold at below market prices to attract top talent and students to the University.
- On-site renewable power generation.
- Strong focus on alternative transportation: bicycling and biking will be preferred mode of transport to campus for residents.
- Community layout takes advantage of sun and natural breezes.
- Landscaping is integrated with storm-water systems to cleanse run-off and create habitat areas
The energy strategies to be included are path-breaking for a development of this size. Those to be included and studied with grant funding are:
- energy-efficiency measures in building design (passive and active)
- demand response
- distributed solar photovoltaic to create electricity from the sun
- distributed solar thermal on homes to pre-heat water
- biogas coupled with fuel cell to generate electricity
- advanced energy storage using modern battery techniques
- smartgrid technology to efficiently manage energy supplies
