For one week following each TAP Webcast, which is hosted by the U.S. Department of Energy Technical Assistance Project (TAP) for state and local officials, you are invited to ask questions of the presenters, enter comments about the topic of the presentation, and share your thoughts with others. You can find copies of presentations from the August 26 Webcast in PDF format and audio files in MP3 format and background materials and reports in the TAP Webcast archive.

Mathew Araiza asks:
What is the definition of a revolving loan fund? Is an internal accounting process whereby savings from energy efficiency projects are used to fund other projects considered a revolving loan fund?

Sam Booth, National Renewable Energy Laboratory (NREL) replies:
A revolving loan fund is a source of money from which loans are made consistent with standard prudent lending practices. As loans are repaid by the borrowers, the money is returned to the fund to make additional loans. In that manner, the fund becomes an ongoing or "revolving" financial tool. Note that there are many revolving loan funds in operation that do not relate at all to energy.

Therefore, the internal accounting procedure you describe below is too narrow to be a revolving loan fund. Such a fund is a separate entity that is managed by professionals who have financial oversight.

Which states and local governments have enacted revolving loan funds for energy efficiency and renewable energy?

Sam Booth, NREL, replies:
The best place look for information on the existing incentive programs by states, utilities, and local governments is the DOE-sponsored Database of State Incentives for Renewables and Efficiency.

Mary Ellen Carroll, Rice Building Institute, asks:
What is the meaning of two terms from the presentation: national harmonization and M & V?

Sam Booth, NREL, replies:
National harmonization refers to the standardization or near standardization of the lending practices of loan programs. So this would be things like making underwriting standards and loan terms similar between programs. M&V stands for monitoring and verification, which refers to the process of comparing actual savings versus estimated savings for a particular energy project.

Sarasota asks:
How do loan guarantees work in a revolving loan program to reduce the risk of unallowed costs from defaults?

Sam Booth, NREL, replies:
A loan guarantee is an agreement with an individual, government, insurance firm, or third party to repay a loan if the borrower defaults or is unable to do so. Thus the energy loan program is made whole by the issuer of the loan guarantee and there is no loss of funds.

J. Regante asks:
What is the desired ratio of lending cost of administration to total amount of loans?

Kathi Montgomery, Montana Department of Environmental Quality (DEQ), replies:
Our legislation required our program to provide low interest loans, and allows us to use up to 10% of the loans made each year for administration. So we didn't set out a goal up front. (We actually had to use other funds to subsidize the program in the early years, since we had considerable staff time into the program before we were able to make the first loan.) We are still expanding the program, so plan to stay within that 10% for the next few years. We hope that when the program matures we will be able to use less than the statutory 10% allowed, but have no firm number in writing.

Jerrae Williams asks:
What are typical interest rates and fees for revolving loan funds for energy efficiency and renewable energy?

Kathi Montgomery, Montana DEQ, replies:
Montana charges a $50 or $100 nonrefundable application fee for the Montana Alternative Energy Revolving Loan Fund, depending on whether it is from an individual or business. This covers the cost to pull the credit report for the applicant. The interest rate on the loan is 3.5%. We also charge a 2% closing fee, with a minimum fee of $250. Since we do not have a minimum loan amount, this fee ensures that the finance contractor covers its costs to set up a loan. Of the interest collected each month, about 2% goes to the contractor and 1.5% comes back to DEQ for program administration.

Melissa asks:
Would it be possible to enlist a credit union to administer a revolving loan fund for energy efficiency and renewable energy?

Kathi Montgomery, Montana (DEQ), replies:
It may be possible. When the Montana DEQ made some inquiries about this with credit unions a few years back, we didn’t find any that were interested. At the time, we were looking at $10,000 maximum loan amount, and the credit unions told us they thought they would lose money administering the program.

The nonprofit agency that agreed to take on the program did lose money the first year, but we were able to structure subsequent contracts to help it recoup losses. Now that agency is doing quite well, so much so that we were able to reduce the percentage of interest fees that are accrued to the finance contractor in the new contract. We used our state procurement option to extend this agency’s contract, recognizing in so doing that it had undertaken a substantial up-front risk in setting up the revolving loan program. In the next 2–3 years, we will probably put out for competitive bid for this contract to the financial community.

Diana Murphy asks:
What are the plans in Montana to collect on delinquent loans in the event of a default?

Kathi Montgomery, Montana DEQ, replies:
Three of the four defaults have been bankruptcies, so we had to work with the bankruptcy court in those cases. When an account goes delinquent past 90 days, our contractor turns the contract over to the state, and we use our staff attorneys to pursue collections. We have repossessed and resold equipment from three sites (at a loss!) and have one delinquent case in process.

Cary Brazeman asks:
In Montana, does the state form a committee of experts from the financial sector to evaluate loan applications?

Kathi Montgomery, Montana DEQ, replies:
We hired a finance contractor—the Montana Business Assistance Connection, a local nonprofit economic development agency—to evaluate credit and cash flow. This contractor has a loan committee for larger loans. Since we have a loan maximum of $40,000, the loan officer is allowed to recommend to the director, who makes the final decision in each case.

What is more interesting to me is the technical review within the state energy office (Montana DEQ). Program staffs approve simple projects. For more complex projects, staff engineers or a contract professional engineer (PE) must review and approve the project before the loan application can be finalized.

Mary Ellen Carroll, Rice Building Institute asked:
Have you ever heard of neighborhood associations using revolving loan funds to finance residential retrofits for energy efficiency or weatherization?

Kathi Montgomery, Montana DEQ, replies:
I have had local government officials ask me about how to start their own revolving loan programs. (The Montana Legislature also considered a bill in one legislative session to allow financing of energy conservation measures without the renewable energy requirement. The bill did not pass.) The answer is that nonprofits are allowed to borrow from our program, as long as they can show adequate cash flow to repay the loans. We have two different condo associations that have installed solar panels using financing from the Montana Alternative Energy Revolving Loan program.

Dane County Supervisor Matt Veldran asks:
Have any of the presenters explored putting repayments of the loans on property or municipal tax bills? In such a set-up, the loan would not have to be paid back when the property is transferred or sold. Instead, it would run with the property and not the owner. If so, how is it accomplished?

Kathi Montgomery, Montana DEQ, replies:
We have discussed this idea but instead opted to keep this process as simple as possible. Our loans can be approved and funds transferred in 3–4 weeks. Since it involves relatively smaller projects, this procedure seems to be working. But we never rule out options. :>)

Nick Flores asks:
Is there a way to leverage private-sector investment in a revolving loan fund for energy efficiency and renewable energy? Similarly, how could a state or local government get nonprofit foundations involved in such a project?

Sam Booth, NREL, replies:
Several states utilize the private sector in there revolving loan fund. Some of the ways this occurs by getting the private sector to administer the program, having the private sector handle loan applications and conduct due diligence on the borrowers then after the private sector representative has approved the loan the state will buy down the interest rate to lower costs, finally some states only fund a percentage of a project through revolving loan funds so the private sector must fund and approve the additional part of a project prior to the energy loan fund issuing funds. Montana explained during the webinar how they got a private sector business organization enlisted to help administer their program. So nonprofits or foundations could be involved either as a source of capital or to help administer the program.

Andrew Baxter ask:
Can this type of loan be used with a performance contract? If so, how would that work?

Sam Booth, NREL, replies:
The Texas LoanSTAR program is one of the programs that does allow money to be used for a performance contracts. However not all revolving loan programs allow their loans to be used with a performance contracts. It depends the program, its requirements, and the specific allowed uses of the programs funding.

The way this would work is that the loan would be used as a source of capital to fund or buy down the performance contract. Under a buy-down, the performance contract would be funded at some amount, say 50%, by the loan fund and the remaining percentage by the private sector. Thus if the contract need $ 1 million, $500,000 could come from each source, etc. The advantage of this arrangement would be that the loan funds typically have lower interest rates than do private sector loans so the total cost of the project would be reduced.

Gerald comments:
The national NeighborWorks organization would be a good source of information about transaction costs for loan programs. Working through neighborhood housing service organizations, NeighborWorks has a 30-year history of making community loans. In addition, this organization might be a good candidate for a contract to administer a revolving loan program.