Executive Summary

California policymakers are considering how to allocate Proposition 39 funds — an estimated $2.75 billion over five years — to support energy efficiency and clean energy projects in K-12 schools and other public buildings. Proposition 39 presents a substantial opportunity to help school districts save energy and money.

In order to inform the ongoing discussion, Climate Policy Initiative analyzed existing resources and gaps in financing for energy-saving projects in K-12 school districts. Our analysis is based on a series of semi-structured interviews with school district officials and other practitioners and experts, as well as modeling of representative K-12 energy projects and funding sources.

School districts are interested in energy efficiency because of the potential for immediate bill savings. Proposition 39 presents an opportunity to help school districts get more energy-saving projects done.

• Many California school districts are interested in energy efficiency and are already pursuing some energy-saving projects — most commonly lighting upgrades, solar panels, upgrades to heating and cooling systems, and lighting and thermostat controls.
• School districts face severe short-term budget pressure and are counting on energy-saving projects to produce immediate budget relief through net bill savings. This budget pressure leads districts to focus on short-payback measures and measures for which generous rebates are available. They are generally not pursuing measures that cost more initially but produce greater energy bill savings over time.

For many districts, the biggest barrier to achieving energy savings is a lack of technical assistance to help navigate the range of energy-saving projects and financing options available to them.

• Most districts receive frequent sales calls from companies pitching energy-saving services and products, but many lack the staff resources or technical capacity to evaluate potential projects.
• Proposition 39 should offer assistance to school districts on vetting energy efficiency service provider proposals. School districts would like a source without a commercial interest to help them navigate project and financing options, review project proposals, and select reliable contractors. The California Energy Commission already provides this service through the Bright Schools program, but program funding is limited, as is awareness.
• Expanded assistance and outreach may also be necessary for small districts, which are less likely to receive communications and marketing materials about energy-saving opportunities from energy service companies. The energy savings potential in small districts is unknown.

Most districts can currently access private capital at low cost. This provides an opportunity to leverage Proposition 39 funds to help districts pursue projects with greater energy savings.

• Proposition 39 funds should target projects that achieve deeper and greater energy savings and that districts cannot finance within existing budgets. They should not support already economical projects such as lighting retrofits, which most districts can finance themselves through existing funding sources without taking a budgetary hit.
• More costly measures that produce deeper and greater savings are most easily financed when packaged together with shorter-payback measures. Therefore, Proposition 39 should complement and extend, rather than duplicate, financing for shorter-payback projects — for example, through matching grants to projects that achieve significant energy savings, along with technical assistance to help districts select projects and secure financing.
• Public loan funds may not have a significant impact on efficiency investment in the current environment, where private capital is available to most districts at very low interest rates.

The optimal role for Proposition 39 funds depends on which existing funding sources are available to a particular school district.

• For districts that are already funding ongoing facility improvements through local bonds and/or state modernization grants, Proposition 39 would be most effective as a “sweetener,” encouraging the district to add more energy-saving measures to already planned renovations. In particular, energy-saving projects receiving state modernization funding through the School Facility Program are already able to generate significant cost savings to the school district. Proposition 39 funds should facilitate adding further energy-saving measures to projects receiving modernization grants, but should not duplicate the existing support.
• For districts that cannot issue bonds but can access existing public or private loans for standalone energy-saving projects, Proposition 39 funds could facilitate access to these funding sources and, through additional financial support, make it feasible for them to carry out projects with deeper energy-saving measures that would not otherwise be economical.
• For districts that have difficulty accessing any of the existing funding sources — because they are too financially strapped, too small to qualify for a sufficiently large grant/loan, or for other reasons — Proposition 39 may need to fully or mostly fund project costs. The number of districts in this category is unknown but could be sizable, given current fiscal conditions. The School Facility Program’s financial hardship program provides an example of how matching/leverage requirements can be relaxed given proof of financial hardship.

If Proposition 39 funding is allocated in a way that takes school district resources and needs into account, it can help California’s schools start saving energy to help close budget holes immediately. And by taking advantage of existing sources of low-cost financing, Proposition 39 can help districts undertake more comprehensive, longer-lived projects, so that they can continue saving energy into the future.