Creating a revolving loan fund to finance clean-energy and energy-efficiency projects could dramatically increase the economic impact of Proposition 39 compared to using grants and rebates, according to a new report by the UCLA Luskin Center for Innovation. The report was commissioned by the Los Angeles Business Council Institute.
Proposition 39, the California Clean Energy Jobs Act, was passed by voters in 2012. The measure requires businesses operating in multiple states to calculate their state income tax liability based on the percentage of their sales in California. A small percentage of the new taxes collected, between $50 million and $125 million per year for five years, could be invested in a loan fund to support improving energy efficiency and increasing the use of renewable energy resources, and the associated jobs created by doing so.
The UCLA research team analyzed several models for investing Proposition 39 funds: a traditional grants program, a revolving loan fund capitalized with only public funds and a fund that utilized a 50-50 public-private capital split. A revolving loan fund is a source of money from which loans are made and then repaid, thus replenishing monies and creating a long-term, self-sustainable source of funding. The study concluded that when compared to a grants program, the revolving loan fund would quadruple total investment and job creation benefits; these benefits would be even further multiplied if private capital was invested.
"With an allocation of $250 million, for example, the public revolving loan fund could reap an investment of $1.06 billion over 30 years, compared to $250 million from a basic grants program," said report co-author J.R. DeShazo, director of the Luskin Center and professor of public policy at UCLA's Luskin School of Public Affairs. This quadrupling for investment would be due to loan repayments replenishing and preserving Proposition 39 public capital. An investment of $1.06 billion for energy efficiency and clean energy could result in over 21,000 job-years.
In addition, such a fund could leverage public capital with private capital, resulting in additional resources and thus more investment and jobs. "If an additional $250 million of private capital was added to the $250 million in public funds, a plausible option, investment potential and job-years would double," DeShazo said.
The revolving fund would complement other Proposition 39–funded grant programs, according to the report, "Achieving Prop 39's Clean Energy Promise: Investing in Jobs, Efficiency Programs and Renewable Resources." Eligible participants could include schools, universities and other public institutions, and private sector agencies that commit to investing in renewable resources or retrofitting their buildings to save energy.
"Prop 39 has opened a wonderful opportunity to fulfill two of our state's priorities at once, to create thousands of green jobs and to increase our commitment to environmental sustainability," said LABC President Mary Leslie. "This revolving fund would encourage innovative projects in public-private partnerships that would maximize the benefits of these funds for workers, the economy and the environment."
The UCLA team recommends that the public revolving loan fund integrates with and/or complements existing grant programs for energy projects, such as On-Bill Repayment and Property Assessed Clean Energy programs. The report also references existing state and private funds that have either been depleted or need to be expanded, all of which could be replenished with capital from the fund.
The report calls for the California treasurer's office or another state agency to operate the revolving loan fund. It also urges strong accountability measures, including subsidies for energy savings guarantees or a tiered interest rate structure, to ensure desired energy savings.
"Lending programs for clean energy projects have kept California at the forefront of clean technology nationwide, but unfortunately these funds have been limited," said DeShazo. "The revolving loan fund, coupled with demand stimulation efforts, can provide the stability that both private- and public-sector participants require to achieve significant investments in energy efficiency and clean energy. This will result in benefit not only to consumers but also California's economy and environment."