GEMS to Cool Classrooms

by Tom Yamachika, President, Tax Foundation Hawaii

One passage in Governor Ige’s 2016 State of the State address dealt with the problem of sweltering and unbearable conditions in our public school classrooms. Last year the media often brought this to our attention during the long hot summer. The Governor proposed to deal with the problem in what seems to be an innovative manner:

To start, we will use $100 million of Green Energy Market Securitization funds to immediately install energy-efficiency measures and air conditioning units in classrooms where our children need it the most. By using existing GEMS program dollars, the Department of Education and its energy-efficiency partner, OpTerra, can quickly access affordable financing for a large portion of its cost to air condition our classrooms.

GEMS, as we discussed in an article last month, is a financing program that is supposed to provide loans at a low interest rate to finance alternative energy systems and other clean energy improvements for those who might not be able to get financing by other means.

Apparently GEMS is an attractive target for raiding because a 2014 bond issue raised $150 million for the program and little, if any, capital has been deployed to date. But three things need to be remembered: First, it’s a financing program, not a grant program. Second, it’s been established for specific purposes. Third, it is funded by all users of electricity through a “green infrastructure fee” on our electric bills.

Let’s drill down on this some more. The first point, that it is a financing program rather than a grant program, means that if we are using GEMS money we are borrowing it. If we use this $100 million of GEMS money, we need to pay it back in the future. The Legislatures of tomorrow, then, will need to appreciate and provide for payment of this debt. Some would call this “kicking the can down the road.”

The second point is that the financing program is for green infrastructure costs. Specifically, this means clean energy technology like solar and wind; demand response technology; and energy use reduction and demand side management infrastructure. To fund the program, $150 million was borrowed on the bond market. Now it is proposed that two-thirds of this, $100 million, be used to cool the schools. Existing investors bought into the program to support saving the planet, and now we are tweaking the program so that most of the money goes to save school kids. Can you say “bait and switch”? We can expect investors to be hopping mad even on a good day.

Finally, the principal and interest on the GEMS bonds are being paid by a surcharge on utility bills. Does being an electric company customer have anything to do with classroom conditions in the public schools? Absolutely not! If this is a problem affecting taxpayers in general, then it should be funded by a general tax, not by a raid on electric customer money. And let’s not forget that we already spend more than one out of every five State dollars on education, to the tune of $1.5 billion dollars a year. Why isn’t that enough to keep our children from roasting?

Perhaps the better thing to do would be for the Board of Education to conduct a thorough investigation on what has caused this tragedy, for the results of the investigation to determine how many heads will roll, and to focus the many good, hard-working people in our educational system on managing infrastructure competently.