ITHACA, N.Y.—With the passage of the Green New Deal in 2019, Ithaca committed to what will have to be an aggressive pursuit to completely decarbonize its economy by 2030, while also fulfilling the additional promise to put social equity at the forefront of its efforts to fight climate change.
The first plan of the Ithaca Green New Deal (IGND) to approach these twin goals at scale is Ithaca’s Energy Efficiency Retrofitting and Thermal Load Electrification Program. Its vision would pioneer an innovative relationship between government, business and private equity to tackle the challenge of decarbonizing Ithaca’s building stock.
But this unprecedented program—which is already drawing national and international attention—has Ithaca’s Common Council tapping the brakes to thoroughly understand it before giving it the green light. They’ll likely discuss and vote on the program in November.
The Efficiency and Electrification Program is the brainchild of Ithaca’s Director of Sustainability, Luis Aguirre-Torres. He gave a presentation to the Common Council on Sept. 1 detailing the intricacies of the program and the work he has done on the IGND since he started working for the city in March.
While councilors called it dynamic, exciting and “completely out of the box,” many of them only had a peripheral awareness of the Efficiency and Electrification Program until Sept. 1. At the same time, Aguirre-Torres had already attracted $100 million in commitments from investors to the program if it were to get off the ground, and an additional $250 million in soft commitments.
Aguirre-Torres was hired to find or innovate the means by which Ithaca will address the estimated 400,000 metric tons of CO2 it puts into the atmosphere annually—and do it fast. He is currently the only person on city staff solely dedicated to meeting the goals of the IGND, and while this first program’s rapid progress is impressive and enticing to councilors, it also took them off-guard.
The experience has already yielded lessons for the city. Aguirre-Torres will be delivering more consistent presentations to the Common Council, and giving council members more one-on-one time to answer specific questions — a good precedent, especially as more ambitious IGND initiatives will inevitably come down the pipeline.
How does a city decarbonize 1,000 buildings?
In a nutshell, the Efficiency and Electrification Program aims to turn the process of decarbonizing Ithaca’s building stock into a low-risk investment opportunity. Private equity would back low-interest, opt-in loan and leasing options that Ithaca’s building and homeowners can utilize to pay for efficiency and electrification projects. The scheme is supposed to create zero liability for the city, according to Aguirre-Torres.
Aguirre-Torres estimated that around 40 percent of the CO2 that Ithaca puts into the atmosphere can be addressed with efficiency and electrification solutions, but those projects typically come with prohibitively steep upfront costs.
Swapping out a gas stove with one that runs on electric induction; replacing poorly insulated windows; or moving away from a furnace and air conditioner combo to a heat pump are all greener options for the home. They’re pricey, but are usually advertised as paying for themselves.
And they’re the kinds of changes that the City of Ithaca needs to facilitate en masse, while concurrently building up the supply of renewable energy sources so that electrification improvements aren’t running on fossil fuels. The latter is a project that will be pursued sometime in the near future.
The $100 million of commitments that Aguirre-Torres has attracted could pay for retrofitting and electrifying an estimated 1,000 to 1,500 of Ithaca’s homes and buildings. There are 6,000 homes and buildings in Ithaca, so for a city with a budget of about $80 million, taking that sort of cost on is completely out of the question.
To make the buildingstock go green, Aguirre-Torres makes the case that private equity is a necessity and that, in a sense, city government will need to reconceptualize its role.
“The role of government is not to pay for it. The role of government is not to do everything. The role of government is to articulate, to become a catalyst for investment,” said Aguirre-Torres.
Attracting investors is one thing, but investors are ultimately interested in profit. To get the most out of the private equity coming its way, Aguirre-Torres says the game that the City of Ithaca needs to play is mitigating risk and reaching an economy of scale.
Mitigating risk reduces the interest rates of the loans. Scaling the Efficiency and Electrification Program increases purchasing power and, conversely, cost reductions.
Aguirre-Torres explained that the risk investors take on would be reduced by the number of people that can opt-in to the program.
He said, “If you have 1,600 or 6,000 buildings, and you have a large number of building owners, you have a diversified portfolio, and that mitigates risk.”
The program also reduces risk by lengthening the term these types of loans and leases can be paid over, stretching them from the normal 7 to 10 or 15 years.
With enough capital and borrowers on board, Aguirre-Torres said that the city could negotiate bulk purchasing agreements of equipment, negotiate lower prices from contractors, and pass these savings onto home and building owners.
With the proper efficiency and electrification improvements, the estimated energy savings Aguirre-Torres calculated for the average building and homeowner in Ithaca is between $50,000 to $70,000 over 10 or 15 years.
And, as Aguirre-Torres makes the case, risk management and achieving scale are key for this program to direct its benefits to disadvantaged communities.
The city has negotiated to create a loan loss reserve through the New York State Energy Research and Development Authority (NYSERDA). This is what’s known as a credit enhancement, and would apply to lower income homeowners that opt-in to the Efficiency and Electrification Program. It would qualify low-to-moderate income residents and people with poor credit for loans. When these borrowers are unable to make a payment, the loan loss reserve would kick in and cover the cost.
Aguirre-Torres told Common Council on Sept. 1, that with the risk mitigation strategies he’s made ready, the interest on loans and leases would be between 2 and 3 percent, and that there are still more strategies that the city can pursue to further lower interest rates. He calculated this program could redirect 50 percent of its benefits to low-to-moderate income residents, putting financial tools at their disposal to make long term investments that may otherwise have been out of their reach.
“We’re talking about a debt that we have with society, and we want to use this to start paying that back,” said Aguirre-Torres.
The unprecedented part of Aguirre-Torres’ plan is not the incentives he’s creating to retrofit and electrify homes. There are already many organizations and programs that have streamlined ways to help home and building owners afford efficiency and electrification projects, like Heat Smart Tompkins.
While the scale and pace of change Ithaca is aiming for has never been attempted, the city needs capital to do it. Access to that kind of money is possible because of a financial jiu-jitsu Aguirre-Torres identified.
The $100 million that Aguirre-Torres has attracted won’t be managed by the City of Ithaca. The city actually isn’t an entity that can be invested in directly. Ithaca can attract equity, which can be handled by a subrecipient on its behalf.
Ithaca is aiming to contract a Program Manager that would act as the subrecipient of investments, and help create and manage the financing facility that will offer the lending and leasing programs, identify risk mitigation strategies and, in the future, advance objectives of the IGND like developing a green workforce.
Among the advantages the city can find in contracting a Program Manager, Aguirre-Torres said that it will give Ithaca access to expertise that it wouldn’t otherwise be able to hire as staff, and this Program Manager is ultimately why the city won’t be taking on any liability.
The liability is supposed to be on the Program Manager and the investors. The Program Manager will be accountable to the City of Ithaca to work out financial agreements with investors that adhere to the terms that Ithaca outlines. But the Program Manager will also be accountable to investors to find an agreement that fairly compensates them for the capital they put into the Efficiency and Electrification Program.
Aguirre-Torres said that the city’s contract with the Program Manager will have the opportunity for revisions structured into it, and that the financing facility established by the Program Manager will be routinely audited to ensure transparency. Aguirre-Torres has also proposed a steering committee that would report to Common Council and act as a watchdog on the work done under the IGND .
The maneuver to establish a sub-recipient to receive money on behalf of the city has always been a tool at the city’s disposal, but one that is rather obscure. For this plan to be kosher, the city just had to identify the Program Manager through a competitive process, which came in the form of a Request for Proposals (RFP).
Through that process, the city has found an ideal candidate in a consortium of companies and organizations: BlocPower, Guidehouse, Taitem Engineering, Alturus, and Energetic Insurance, with support from Cornell Cooperative Extension, NYSERDA, and the US Department of Energy.
While this consortium is the applicant Aguirre-Torres is recommending to serve as the Program Manager, ultimately, it will be the Common Council that awards the position. But their Sept. 1 meeting was the first time the council was given a presentation on the Efficiency and Electrification Program and the RFP that went out to find who would manage it—five days after the application window for Program Manager had closed.
RFPs and Learning Curves
All the council members who have publicly expressed concern over the speed at which the Efficiency and Electrification Program developed have also sung their praises for it, though there is a desire for more information before voting to approve a Program Manager.
After Aguirre-Torres presented the program on Sept. 1, Alderperson Graham Kerslick said, “The $100 million sounds great, but I don’t know how that was raised.” He suggested that the Common Council get more regular updates on the IGND, and the programs being developed as a part of it, “because they’re exciting, but […] when I hear creative financial instruments, I get nervous.”
“I want to make sure that I understand and my colleagues understand how this fits in with the city operations,” said Kerslick.
At the council’s Sept. 1 meeting, Alderperson Cynthia Brock said, “I was unaware that the city was putting its name or its commitment behind doing something like this.” Later in the meeting Brock asked about the RFP, saying, “Just a process question, did this come through committee, as a pre-approved decision that the city was entering into this. Did I miss it?”
The RFP and Efficiency and Electrification were not presented before a committee or the Common Council before being published, which seems unorthodox for a program of this magnitude, but it isn’t against any rules.
RFPs are published for everything from soup to nuts: bridge projects, public art, even housing developments. Due to their many faceted uses, the city doesn’t actually have any written guidelines for RFPs. For the most part, RFPs are issued based on the norms of the boards, committees, and city departments that concern the particular project. In the case of smaller RFPs, they may add unnecessary fat to committee and council agendas,
But the RFP issued for the Efficiency and Electrification Program was for finding an entity to be a part of an innovative relationship between government, business, and $100 million of private equity to decarbonize the City of Ithaca’s building stock.
That is different from finding a contractor to build a bridge.
The search for a Program Manager did become public knowledge when the RFP was released, on Aug. 2. Stories on the Efficiency and Electrification Program even appeared in local and international media. In that sense, the information was accessible for council members, despite it not being formally presented to them. Though early reporting excludes some important information from the RFP: the Guardian’s neglects the Program Manager’s role for the sake of simplicity, and the Voice’s earlier depiction of the role was inaccurate.
The RFP didn’t make it onto an agenda until the Planning and Economic Development Committee meeting on Sept. 15. Before the recommended applicant to the RFP can be put in front of the Common Council for a vote, it has to be moved there by the Planning Committee. Aguirre-Torres had the RFP put onto the committee’s agenda at the last minute, asking for it to be a voting item, but committee members were only willing to discuss it, citing the need for more information before they were willing to consider sending it to council.
Brock, who sits on the Planning Committee, asked Aguirre-Torres at the committee’s Sept. 15 meeting what would happen if a borrower, who qualified for the loan loss reserve credit enhancement, then sold the property they had retrofitted. With the credit enhancement, a borrower doesn’t have to put up a lien. The loan would be secured entirely through the loan loss reserve.
In the theoretical and seemingly likely case of that property being sold, Brock wanted to know if the loan would be tied to the individual or the property.
Aguirre-Torres told Brock that he didn’t have an exact answer for her at the moment, but said he believed that if the property were sold, then the loan would be sold along with it. He said he would have to talk to the program’s financial consultants to confirm that detail.
Though it seems like these granular aspects of the Efficiency and Electrification Program were originally intended to be shared after the Program Manager is selected, or when the financial facility and the loan and lease products are developed, it appears that presenting these details are what’s necessary to win the vote of certain council members like Brock.
“The global climate change clock is ticking, right?”
Aguirre-Torres said that he conceived of this Efficiency and Electrification Program in June, and developed it with the supervision of Mayor Svante Myrick, City Attorney Ari Lavine and City Controller Steve Thayer.
“I got the instructions that the city should not take any risks, and also the city should not acquire any new debt,” said Aguirre-Torres. “And we should make sure that with any scheme or any program that we develop, the city would be protected at all times from any liability.”
Aguirre-Torres’ background is mostly in reaches higher than city government, having worked for former California Governor Arnold Schwarzenegger on green legislation and also for the US Department of State, helping to draft climate legislation for foreign nations. Aguirre-Torres’ breadth of experience is deeply valued by the city, but is also the explanation that’s been presented for why he wasn’t familiar with the best practices to move the Efficiency and Electrification Program before Common Council.
When asked why he didn’t have Aguirre-Torres present the Efficiency and Electrification Program and the RFP for Program Manager to the Common Council earlier, Myrick called the RFP process, “more art than science.”
“It’s not at all unusual for us to go through an RFP process and then bring a project to council,” said Myrick. “In fact, that’s almost always how we do it.” He said that Aguirre-Torres is working fast, “…because we’ve asked him to pull off the Green New Deal by 2030, which is an enormous task.”
When asked if he would have, in retrospect, had Aguirre-Torres present the RFP and the program to council earlier, Myrick said, “Yeah. I think we also could have asked Luis [Aguirre-Torres] to do what he’s done since, which is do one-on-one briefings with council members, walking them through the proposal. But in the scheme of things, it’s not like it was a blunder or anything.”
While the city’s budget season is set to kick off on Oct. 6, Myrick said that, as far as the Efficiency and Electrification Program goes, there aren’t any decisions that need to be made on a deadline, “except the global climate change clock is ticking, right? So in that sense, I’m eager to get it passed.”
Myrick said that the Common Council needed more time to study this program, and consider this decision, so they will have more time.
For Brock, there are still details that she wants to see explained, but she said in an interview, “This is clearly a commitment of the city and I think the program—with the way it has been discussed with Luis [Aguirre-Torres] and with the risk management structure that he has put into place—I believe this can move forward.”
The Planning Committee will likely discuss and possibly vote on the program during their Oct. 20 meeting, in which case the Efficiency and Electrification Program could next appear on the Common Council’s Nov. 3 agenda.
It is possible for the Planning Committee to organize a special meeting, vote on the Efficiency and Electrification Program and send it to the Common Council for a final discussion and vote in October. As the Common Council works through the budget, they sometimes meet two or three times a week.
Whenever the decision is made though, the world will be watching. Ithaca is working through ideas and programs on the bleeding edge to try and decarbonize its economy and elevate the people that stand the most to lose from climate change.