State Treasurer Calls for Suspension of State Small-Scale Energy Loan Program, Citing Major Defaults & Probable Bailout

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Governor Kate Brown has launched comprehensive review of the Department of Energy.

State Treasurer Ted Wheeler called for an immediate suspension of lending through the State Small-Scale Energy Loan Program overseen by the Oregon Department of Energy, noting that the loan fund has reported a $20 million deficit, lacks the necessary cashflow to cover its obligations, and will require a taxpayer bailout.

As a result, to cover loan payments, money will be allocated away from vital public services such as education, public safety and human services programs.

The Treasurer sent a letter to Gov. Kate Brown asking that the still-operating lending program be halted until the agency has been scrutinized and a recommendation made to the Legislature about the loan program’s long-term viability. The governor announced a comprehensive review in December, and the Legislature also has formed a special committee to examine the agency.

The formal recommendation by the Treasurer will be presented to the State Debt Policy Advisory Committee (SDPAC) when it meets on Jan. 19.

“The State Energy Loan Program is in trouble,” the Treasurer wrote. “Public debt is a powerful tool to benefit our state, but it must be utilized wisely and with restraint.”

The State Debt Policy Advisory Commission helps to monitor issues connected to state indebtedness. The State Treasury sells state debt on behalf of agencies once it has been authorized, and it is up to issuing agencies to manage their respective cashflows and ensure the loans are repaid.

In 2012, due to defaults of large loans made through the SELP, the Treasurer recommended to then-Gov. John Kitzhaber that the state augment the fund’s loan-loss reserves in order to ensure obligations of the fund could still be met. The reserves were not replenished.

Since then, additional large loans have fallen into default.

For the fiscal year ending June 30, 2015, SELP reported a negative fund balance of approximately $20 million. Starting in 2019, cash infusions will be required — continuing through 2034 — in order for the SELP program to meet its scheduled debt service obligations. The current estimate is that the payments would total at least $15.3 million, but the timing and size of necessary augmentation could change if additional outstanding loans become delinquent or uncollectable.

The Department of Energy Alternative Energy General Obligation Bond Program was established in the early 1980s to provide low-interest loans to individuals, companies, state agencies, local governments and nonprofits for a range of energy efficiency and renewable energy projects.

The State Debt Policy Advisory Commission advises the Legislature and Governor about the prudent level of state debt that is repaid by the General Fund and Oregon Lottery revenues. It also makes general recommendations about improving how Oregon prioritizes its debt, and protecting the state’s credit rating.

Oregon’s ratings are currently solid, and are helping to keep interest costs low on projects for which the state anticipates issuing bonds to fund.

The Oregon State Treasury protects public assets and saves Oregonians money through its investment, banking, and debt management functions. State investment policies are set by the Oregon Investment Council. The State Treasury also promotes public outreach and education to help Oregonians learn strategies to save money, invest for college and make smart financial choices.

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