Durango City Council approved a funding mechanism for an energy performance contract it is pursuing that packages nearly 30 energy, water and solar efficiency projects worth $7 million for city buildings.
A tax-exempt lease purchase financing agreement was the subject of a public hearing at the City Council meeting on Tuesday where City Council voted 4-1 to approve the measure.
Councilor Olivier Bosmans voted against the agreement, saying too much of the cost is going to the developer, McKInstry, and the city has enough funding to pay for the energy performance contract out of its own pockets.
Marty Pool, sustainability manager for the city, said he has met with the city’s budget and strategic officer and finance staff members as well as the city manager and they have not found approximately $5.5 million, the cost of seeing the contract through, to spend.
“If we have $5.5 million sitting around unallocated, absolutely, let’s take the lease purchase off the table and council can vote to allocate $5.5 million for this project,” he said.
The tax exempt lease purchase agreement is less expensive than if the city independently financed the energy performance contract, which would cost the city about $150,000 more, he said. Projects would take longer to complete, some projects wouldn’t get done at all, and the city would produce 7,000 more metric tons of CO2, comparable to 7.7 million pounds of coal.
The tax-exempt lease purchase financing agreement is the best option available, Pool said.
The contract stands to save the city of Durango nearly $6 million over the next 20 years, including about $193,000 in annual utility costs, and will nearly halve greenhouse gas emissions over the same time span. All-in-all, it could boost the city to nearly three-quarters of its renewable energy goals, he said.
“This project is installing a substantial amount of solar energy,” he said.
The total cost for the energy performance contract is around $7 million, he said. The city can expect to pay about $100,000 in interest annually over the next 15 to 20 years.
An ordinance to codify the energy performance contract is likely to be codified via an ordinance passed by City Council, he said. It stipulates the contract will not continue past Dec. 31, 2043. The aggregate principal amount is $5,625,000. Maximum rental payments on leased equipment, which the city is essentially renting to own, will not exceed $565,000 and the city will pay back no more than $9,250,000.
“The lease purchase approach is specifically tied to the fact that we will have guaranteed energy savings from the EPC (energy performance contract),” he said. “It allows the city to direct existing capital funds to other projects.
“This is not a common opportunity where the city gets to access additional funding for projects. So we get to do more with our current available capital. That is why it’s been determined to be the most viable funding model,” he said.
Pool said the energy performance contract will accomplish various city building improvements worth $7 million. Annual payments by the city worth $200,000 will be offset by utility cost savings. And the city can use its building maintenance fund to further offset additional spending. He said that option helps the city secure over $2 million in grant funding and federal rebates.
Durango resident John Simpson was the only public participant in the public hearing about the tax-exempt lease purchasing agreement. His concerns were similar to Bosmans’. He said he supports the energy performance contract, but the financing agreement is unnecessary because the city has enough money in its coffers.
“You can do an energy performance contract with money in the bank,” he said. “... And this is a great opportunity to spend that money.”
Councilor Jessika Buell said the tax-exempt lease purchase financing agreement is the most efficient way to approach wide scale energy savings through the energy performance contract and meet the city’s sustainability goals.
In a November interview, Pool said the financing agreement is “budget neutral” because the city’s payments for the energy performance contract projects are exactly offset by energy savings. After the projects are paid for in full, the city will fully realize energy savings every month.
“This is a way that we can get these projects done without having to cannibalize other pieces of the budget, so to speak,” he said.
cburney@durangoherald.com
