Hartford Business Journal

8 Hartford Business Journal • April 29, 2019 • www.HartfordBusiness.com Reporter's Notebook Matt Pilon | mpilon@HartfordBusiness.com Health Care/Bioscience, Startups & Entrepreneurs, Government/Law and Energy ENERGY & UTILITIES Amid cash shortfall, CT Green Bank engineers a financial lifeline T he Connecticut Green Bank has averted potential insolvency through a novel financing scheme it says will blunt the impact of the legislature's raid of nearly half its operating budget. The state legislature in 2017 reallocated $155 mil- lion in energy-efficiency program funds, which are paid by electric ratepayers, to the general budget in order to help balance a major two-year deficit. Of that total, $33 million was earmarked for the Green Bank, which represented nearly half of the quasi-public agency's operating budget. To deal with the impact, the Green Bank, which ad- ministers renewable energy and building efficiency financing programs that leverage $6 in private capi- tal for every $1 from taxpayers, has already trimmed staff, prioritized investments that have higher returns, and spun out a not-for-profit entity to take over some of its programs. But that wasn't enough. It still owes the state $14 million this June, which will be the final payment related to the budget-balancing sweep. However, the Green Bank would effectively run out of money if it made the payment, according to Bert Hunter, the organization's chief investment officer. To ensure that didn't happen, the bank this month issued a "green" bond backed by 15 years of revenue from solar credits, which are generated every time a residential rooftop solar system in the state produces a megawatt-hour of energy. When homeowners install solar panels on their roof, the Green Bank provides an upfront sub- sidy, or pays the subsidy over a six-year period if a system is leased from a third party. The arrangement gives the Green Bank rights to solar-system produced credits, which utilities Eversource and United Illuminating are required by state law to buy. Working with underwriter RBC Capital Mar- kets, the Green Bank issued the green bond to a major insurance company, which has not been publicly named. In all, the Green Bank received an upfront payment of $35.5 million from the deal, giving it much-needed liquidity. It will also receive ap- proximately $18 million in residual payments over the next 15 years. The credits sold — produced by 14,000 rooftop solar systems across the state — would have otherwise brought the Green Bank approximately $71 million over the next 15 years. That's more money, obviously, but the Green Bank's overseers say they didn't have much choice. Besides the budget sweep, the Green Bank was already grappling with cash-flow issues because state law requires it to pay out solar incentives much sooner than it receives revenue back from the credit sales. "Between us providing these incentives, and the budget sweep, it would have put us out of business," Green Bank CEO Bryan Garcia said. He said his board didn't view eliminating the solar incentive program as a good option either. For one, the program is enshrined in state law and meant to spur the adoption of green energy. Second, such a move would have hurt the solar-installation industry. "The successful execution of the … green bond enables the Green Bank to pay the state back for the sweeps, while at the same time maintaining the market for local clean-energy contractors, reducing the burden of energy costs on families through clean energy," he said. Hunter said it was the first solar asset-backed green bond deal made by any U.S. green bank. The Green Bank intends to do similar deals this year and next, though they will be a bit smaller, Hunter said. While the recent transaction was a private placement, available only to institutional inves- tors, he said the Green Bank is hoping to make fu- ture investments open to the broader public. BIOSCIENCE Bills take aim at 'kick in the teeth' bioscience tax T hink of it as the corporate income tax for corporations with no income. The "capital base tax," sometimes referred to as the capital stock tax, is a levy on a business's net worth or capital holdings. It's a particular annoy- ance to bioscience compa- nies, which tend to raise and spend capital for years before bringing in any revenue — that is, if they ever make it that far. Eliminating the capital base tax was a key priority of a bioscience industry working group that issued a legislature-ordered re- port in December outlining ways to boost the sector. Having raised $120 mil- lion in an IPO last year, New Haven-based Arvinas, which is developing thera- peutics for cancer and other diseases, has paid $600,000 in capital base taxes since 2013, despite never selling a product. That's frustrating to Arvinas' Chief Financial Officer Sean Cassidy. "I commonly refer to this tax as a 'kick in the teeth' for biotechnology compa- nies," Cassidy wrote in tes- timony on House Bill 5261, which would phase out the tax over three years. "This disincentivizes companies to locate such personnel and offices within the state and cre- ates a negative perspec- tive of Connecticut as a tax-friendly place to do business," he added. That bill, introduced in the Finance, Revenue and Bonding Committee by Rep. Christopher Davis (R- Ellington), hasn't made it out of committee, but there are several other similar proposals that appear to have bipartisan support. In March, Senate Bill 1026 unanimously passed the Commerce Committee. The biggest challenge going forward is whether or not lawmakers can cede revenue from the tax when they are trying to also tackle a two-year, $3 billion-plus deficit. Earlier this month, the Office of Fiscal Analysis estimated phasing out the capital base tax over three years would cost $11.4 mil- lion next year; $29.2 million in fiscal year 2021; $46.2 million in 2022; and $53 million from 2023 onward. About 16 states impose a capital base tax, OFA said. Connecticut's 0.31 percent rate is the high- est among the 16, but the state also caps the tax at $1 million. New York had a $5 million cap, but is in the process of phasing out its capital base tax by 2022. Meanwhile, Massachusetts has a 0.26 percent rate with no cap. Sean Cassidy, CFO of Arvinas, a New Haven-based drug developer that raised $120 million last year in an IPO, says Connecticut's capital base tax is unfair to bioscience firms. PHOTO | HBJ FILE Bert Hunter (left), CIO at the Connecticut Green Bank, and CEO Bryan Garcia, explain a recent securitization of solar energy credits during a recent visit to the Hartford Business Journal. HBJ PHOTO | SEAN TEEHAN

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