GEMS as a Target for Raiding?

by Tom Yamachika, President, Tax Foundation Hawaii

With all of the financing challenges facing our state government, it is very tempting when lawmakers find a large cache of unused money. As the old expression goes, in the spring a young (man’s) lawmaker’s fancy lightly turns to thoughts of (love) raiding.

Such is how it has been with the Green Energy Market Securitization, or GEMS, program. GEMS, as we discussed before, 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. A 2014 bond issue raised $150 million for the program and most of that $150 million is still there. Is it an attractive target for raiding? Governor Ige sought to use the funds to cool the schools, but lawmakers thought better of that idea and provided a general fund appropriation. Other lawmakers thought about establishing a grant or rebate program and funding it out of the GEMS fund, but even the Green Infrastructure Authority, who runs the fund, couldn’t stomach that idea because the GEMS funds were supposed to be loaned, not handed out for free.

What has the GEMS program actually accomplished? As stated in the Green Infrastructure Authority’s quarterly report for the quarter ended June 30, 2016 (which can be found in Public Utilities Commission Docket 2014-0135):

· The program has made 12 loans, all of them on residential photovoltaic system projects.

· The total amount loaned was $388,800.68 since program launch.

· The total administrative costs of the program were $1,710,088.49 since program launch.

· The current interest rate on the loans made by the program is 6.5% to 9.875%, depending on the borrower’s FICO score. The Authority itself commented that this rate structure “in some cases results in the underserved being charged rates that are not market-competitive.” In other words, the loan rates were higher than market. What happened to the intent of the program to make low-cost loans?

· Nonprofits made 43 applications for loans. All of them were declined. (According to PUC Decision and Order 32318, the intent of the program was to benefit underserved customers, which include nonprofits.)

· There was one application for a commercial photovoltaic application. It was declined.

· There were 190 residential photovoltaic applications received, of which 23 were approved. As mentioned above, only 12 of these were actually funded.

· As of June 30, 2016, the GEMS program had total assets in excess of $144 million.

· Expenditures for the quarter ending June 30, 2016 were $361,653.69. (Which is almost as much as the total amount loaned out since inception.)

Statistics like these make one wonder why the State got into the business of lending money in the first place. The GEMS program should be evaluated to determine whether there is a realistic need for this program, and if not figure out how to shut it down, return the remaining money in the fund back to the bondholders, stop the bleeding, and take away the potential for raiding.