NASEO Releases Memo on Accessing QECBs

The purpose of this memorandum is to increase understanding of the levels of effort and resources used by states to administer projects and programs financed by Qualified Energy Conservation Bonds (QECBs)1. It is structured to provide an overview and present brief examples from states on activities including QECB authorization, information dissemination and education, simple issuances, stakeholder engagement and education, and more complex and involved uses of the bonds. 

Research from the Energy Programs Consortium (EPC) and NASEO, in their role assisting state and local governments interested in energy financing, reveals there are several ways that states have handled their QECB allocations and thus a wide range of possibilities and precedents for states with low utilization rates to use the bonds for qualified energy efficiency and renewable energy projects.

The information in the following sections can help to inform states’ decisions about using remaining QECB allocations, and we encourage you to take full advantage of NASEO’s and EPC’s peer exchange and technical assistance in this important area. To access our assistance, please contact Sandy Fazeli at 703-299-8800 or

“Low Touch” Efforts

A foundational, low-cost step that many State Energy Offices have taken to promote QECBs in their states is engaging decision makers to authorize use of the bonds and make state and large local government (LLG) entities aware of the allocations.

NASEO’s QECB Resources page2 includes several sample executive orders (including from the governors of Arizona, Connecticut, and Michigan, among others) that put the pieces in place to authorize and guide the use of QECBs. In rarer instances, states (including Colorado, Texas, and South Carolina) have passed legislation to authorize public entities to use QECBs. Components common to many of these authorizing documents include the following:

• Designating the agency(ies) responsible for administering the bonds and overseeing the allocation of volume caps to LLGs3;
• Reviewing guidelines to ensure compliance with Section 54D of the Internal Revenue Code of 1986, which defines use of QECBs; and
• Addressing the allocation and re-allocation of volume caps to LLGs.

To support these gubernatorial or legislative actions, states have also issued notices to LLGs to apprise them of their QECB allocation, inform them of the ability to waive this allocation in whole or in part back to the state, and facilitate local use of the bonds. For instance, the official notice sent from the Missouri Department of Economic Development, which houses the energy office, to the elected officials of LLGs provided an explanation of QECBs as well as forms assisting the municipalities in expressing their intent to issue, reporting the results of issuing, and/or waiving back the remaining allocation of QECBs to the state.4

An important outcome of these “low touch” efforts, even where there may not be an appetite at the state level to issue QECBs, is that they enable interested LLGs and private issuers to access the funds at a relatively low cost to the state (in terms of staff time needed to enlist the support of governors and legislators, identify the appropriate agency to administering the QECBs, draft documents, and disseminate information to state and local entities).

“Medium touch” efforts

The next level of effort for states to promote QECBs involves educating potential issuers and project developers (including state entities, LLGs, and businesses) and/or overseeing and conducting issuances with the statewide pool. With the increased need to devote time and resources to coordinate these activities comes a greater level of control over achieving the benefits of qualified energy efficiency and renewable energy projects and taking advantage of the significant opportunity posed by the bonds.

By delivering marketing and education to LLGs and other potential QECB issuers, the state can help reap the benefits of subsidized energy financing without necessarily adding to its own debt ledger (which occurs, for instance, when the state issues the bonds itself). The energy office in Maryland, the Maryland Energy Administration (MEA), has functioned as an important coordinator between local energy offices and financing entities with bond authority. MEA has organized meetings and sessions to bring these different groups of stakeholders together around QECBs, which has helped to generate demand and increase awareness of the bonds.5

An option exercised in several states is to coordinate a competitive solicitation to allocate available QECB volume caps to support eligible public and private projects. The energy office in Tennessee has released a request for proposals (RFP) to assess potential projects that would adhere not only to Internal Revenue Service (IRS) provisions for QECBs but also to the Office of Energy Programs’ economic development and efficiency goals.6

A positive outcome of this level of outreach and involvement is demand generation for QECBs, not only from state and local agencies but also from private businesses. For instance, Massachusetts navigated the waiver and competitive solicitation processes to ultimately facilitate over $10 million of private activity QECB issuances (accounting for three of the six known issuances to date of this type).7

Many states have opted to issue QECBs themselves, taking advantage of the large opportunity within state and local buildings to implement capital improvements to increase efficiency. Issuances are simplest and most common for “projects in need of money” within the state (i.e., deferred maintenance projects that reduce energy consumption in public buildings by 20%). States like Kentucky and Maryland, among others, have found particularly large opportunities in schools and universities, which account for approximately one-fourth of known QECB issuances.

For many energy efficiency projects in the MUSH market, project finances and repayment are typically clear, and bond investors are generally comfortable with the underlying credit of the state issuer. As a result, these types of projects are the most common usage of QECBs and avoid placing a heavy administrative burden on the state or municipal issuer. As of 2012, EPC data indicate that the vast majority (nearly 90%) of issuances stayed below the IRS-designated threshold for administrative costs, which allows issuance costs of up to two percent of bond size.

“High touch” Efforts

QECB issuances generally become more complex and resource-intensive for the issuer when used for projects and programs with which bond market investors are unfamiliar. Special attention, expertise, and partnerships are required to ensure the project and bond finances are appropriately structured with respect to the underlying credit and repayment streams associated with the project or program.

Among the most complex known usages are Green Communities Programs, which are recorded to have been established in only four states (Missouri, California, New York, and Colorado) and account for a small portion of QECB issuances. The multimillion dollar QECB issuance orchestrated by the New York State Energy Research and Development Authority (NYSERDA) in August 2013 highlighted the particular complexities, level of effort, and resources and expertise needed to QECBs to this end. The bonds were used to support a residential energy efficiency loan program (through Green Jobs-Green New York), which proved to be unfamiliar territory to rating agencies and bond investors. To receive a reasonable rating on the bonds, NYSERDA worked with the state’s Environmental Facilities Corporation and U.S. Environmental Protection Agency (EPA) to gain approval to use the Clean Water State Revolving Fund as a guarantee. This required NYSERDA to make tweaks on the basic bond structure in order to make it suitable for capital markets.8 Ultimately, this level of effort enabled NYSERDA to raise $24.3 million in support of residential energy efficiency financing within the state.

Accessing Technical Assistance

To connect with other states that have used or are interested in using QECBS, and/or to access direct technical assistance from EPC and NASEO on your state’s QECB allocation, please contact Sandy Fazeli at 703-299-8800 or  

1. For general information on QECBs, see NASEO’s 2012 QECB briefing report at and EPC’s periodically updated QECB status report at EPC’s most recent report, released December 2013.
2. Accessible at
3. At least 22 State Energy Offices have been charged with implementing QECBs.
4. View Missouri’s letter at
5. View “Making it Easier to Complete Clean Energy Projects with Qualified Energy Conservation Bonds” webcast organized by the DOE Technical Assistance Program, February 2013, at
6. View Tennessee’s RFP at
7. For more information on Massachusetts’s QECB issuances, see
8. NASEO’s QECB Resources page ( contains a suite of documents developed over the course of NYSERDA’s August 2013 issuance, including the energy office’s letter of intent and board resolution to issue QECBs, exchanges with EPA to use the State Revolving Fund for energy efficiency loans, the official statement, the indenture of trust, the guarantee agreement, and the tax certificate.