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Revolving Funds for Sustainability Projects at Airports (2019)

Chapter: Appendix A - Frequently Asked Questions for Funding Airport GRFs

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Suggested Citation:"Appendix A - Frequently Asked Questions for Funding Airport GRFs." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
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Suggested Citation:"Appendix A - Frequently Asked Questions for Funding Airport GRFs." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
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Suggested Citation:"Appendix A - Frequently Asked Questions for Funding Airport GRFs." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
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Suggested Citation:"Appendix A - Frequently Asked Questions for Funding Airport GRFs." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
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Suggested Citation:"Appendix A - Frequently Asked Questions for Funding Airport GRFs." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
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Suggested Citation:"Appendix A - Frequently Asked Questions for Funding Airport GRFs." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
×
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Suggested Citation:"Appendix A - Frequently Asked Questions for Funding Airport GRFs." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
×
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Suggested Citation:"Appendix A - Frequently Asked Questions for Funding Airport GRFs." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
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Suggested Citation:"Appendix A - Frequently Asked Questions for Funding Airport GRFs." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
×
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Page 63
Suggested Citation:"Appendix A - Frequently Asked Questions for Funding Airport GRFs." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
×
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Page 64
Suggested Citation:"Appendix A - Frequently Asked Questions for Funding Airport GRFs." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
×
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Page 65
Suggested Citation:"Appendix A - Frequently Asked Questions for Funding Airport GRFs." National Academies of Sciences, Engineering, and Medicine. 2019. Revolving Funds for Sustainability Projects at Airports. Washington, DC: The National Academies Press. doi: 10.17226/25567.
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54 These FAQs were developed to address specific challenges regarding revolving funds at air­ ports. They have been reviewed by the FAA. The FAA did not identify any regulatory restrictions for an airport to implement a GRF. Original source content has been adapted with permission from Green Revolving Funds: An Introductory Guide to Implementation & Management, pub­ lished by the Sustainable Endowments Institute and the Association for the Advancement of Sustainability in Higher Education (Indvik et al. 2013). What Is a GRF? A GRF is a sustainability financing tool that invests money in projects to improve efficiency and potentially enable new sources of revenue, thereby reducing both operating expenses and GHG emissions. The cost savings that result from these efficiency projects are revolved back to the GRF, allowing it to return to its original size, or even grow. For the majority of fund models, after the initial project costs have been returned to the fund, additional savings accrue to the institution or a specific line of business’s operating budget. GRFs have three defining characteristics: • The fund must finance measures to reduce resource use (e.g., energy, water, or paper) or to mitigate GHG emissions (e.g., renewable energy). • The fund must revolve through a formalized mechanism, in which the savings generated by reducing operating costs are tracked and used to repay the fund to provide capital for future projects. • The fund does not have initial internal capitalization. Where Should an Airport Interested in a GRF Begin? When contemplating whether a GRF makes sense for an airport, it is useful to start by review­ ing current funding sources aimed at financing sustainability projects and obtaining a clear understanding of an airport’s governance structure. Identifying the advantages and limitations associated with various sources of financing, airport ownership, and level of service will provide significant insight regarding specific barriers to be addressed during the GRF assessment. Second, it is important to understand an airport’s standard accounting practices used for resource efficiency projects. Capital will exit the GRF account to pay for the materials and labor associated with a project, and the resulting project savings must be returned from the budget, where they accrue, back into the GRF account to finance future projects. These transactions must be tracked according to standard airport accounting practices, which will ensure that A P P E N D I X A Frequently Asked Questions for Funding Airport GRFs

Frequently Asked Questions for Funding Airport GRFs 55 the circular flow of capital that defines the GRF is maintained. Consider which internal stake­ holders would handle the accounting and financial flows for the GRF including tracking the utilities’ budget where project savings accrue. If this involves stakeholders in different depart­ ments, do existing channels of communication and collaboration already exist or must these be developed? Next, consider which external stakeholders (airport lines of business, groups, airlines, con­ cessionaires etc.) need to be engaged in exploring and developing a GRF. Involving all relevant stakeholders early in the exploration process can increase the likelihood that obstacles will be uncovered, and support will be provided when the assessment turns into a GRF proposal. What Are the Benefits of Having a GRF at an Airport? Once capitalized, having a GRF ensures that sustainability projects will always possess a source of funding, which will ultimately save the airport money through reduced operating costs. If an institution already has dedicated money for sustainability efforts, using that money to create a GRF would capture the cost savings from the projects it finances and create a continuous cycle for funding (instead of a one­time funding allocation for individual projects). By tracking and reclaiming the project savings, GRFs continue to be available as a method of funding for effi­ ciency projects and sustainability work. GRFs provide the following benefits: • Achieve institutional environmental goals and advance reduction in GHG emissions and resource consumption. • Ensure initial investments in resource efficiency projects have an exponential impact by con­ tinually being reinvested. • Boost ROI by mobilizing new capital to accelerate efficiency outcomes. • Increase tracking of energy and water use (and other sustainability data). • Hedge against rising or volatile energy prices. • Create new opportunities for collaboration and cost­savings ethic among offices of finance, operations, maintenance, engineering, planning and environmental lines of business. • Foster a culture of sustainability and resource efficiency (Sustainable Endowments Institute 2017; Flynn et al. 2012; Indvik et al. 2013; Sustainable Endowments Institute 2018). What Is the Difference Between a GRF and a Revolving Loan Fund? A GRF is dedicated capital from which sustainability projects are financed. With the growing prevalence of revolving funds, especially at the state level, some parties may use different termi­ nology to refer to functions that could exist within a GRF. In some cases, revolving loan funds are established to finance projects unrelated to sustainability goals, and therefore do not count as a GRF. The best way to determine whether a revolving fund is a GRF is to refer to the structure of the fund, rather than its title (see the description provided in the first question). In this report, both “revolving fund” and “revolving loan fund” are terms referring to a GRF. The word “loan” is used in this report to refer to capital withdrawn from the GRF account to finance a sustainability project that must be repaid with that project’s savings. A “debt­based loan” is a term that can be used to describe initial sources of funding for initiating a GRF; how­ ever, projects that are capitalized by a GRF are also specialized “loans” that are repaid internally to the revolving fund. It is suggested that airports make a clear distinction between the two types of loans by referring to GRF sourced project funding as “GRF debt.”

56 Revolving Funds for Sustainability Projects at Airports What Sort of ROI Will a Fund Have? GRFs collect utility savings from efficiency projects and provide reliable ROIs. Repayment periods are often short. Established funds have reported ROIs ranging from 20% (Georgia Insti­ tute of Technology and University of North Carolina at Chapel Hill) to more than 57% (Boston University), with a median annual ROI of 28%. What Is the Average Payback Period for GRF Loans? At the time of the publication of this report, there were no known GRFs currently imple­ mented at an airport. Using 2012 data from higher education institutions, the reported average project payback of a GRF was 4.4 years. After loans have been repaid, additional savings begin to accrue to select institutional departments or distinct budgets within the organization. Most institutions stipulate that loans must be repaid within a certain amount of time. Among the institutions that identified maximum/minimum payback criteria, the minimum reported project payback was 1.6 years, and the maximum was 7.8 years. What Kinds of Projects Can a GRF Finance? Airports are motivated to finance any project that will increase efficiency and reduce resource use. The following list of suggested projects also includes references to ACRP reports that can be reviewed for additional guidance: • Lighting upgrades – Correlate lighting in public areas of terminals to flight schedules (ACRP Report 139: Opti- mizing Airport Building Operations and Maintenance Through Retrocommissioning: A Whole- Systems Approach) (Sebesta, Inc., 2015). – Install parking lot LED luminaires and controls (ACRP Report 139). – Replacement of screw­type bulbs (ACRP Synthesis 21: Airport Energy Efficiency and Cost Reduction) (Lau et al. 2010). – Multi­level switching and daylight harvesting (ACRP Synthesis 21). • Water­efficiency retrofits – Install water­conserving aerators in lavatories (ACRP Report 139). – Use low­volume, high­pressure sprayer nozzles on water hoses used for vehicle washing (ACRP Report 139). • Building efficiency improvements, such as heating, ventilation, and air conditioning (HVAC) upgrades – Upgrade building automations systems (ACRP Synthesis 21). – Replace variable frequency drive (VFD) controls to chilled water pumps or fans through a building automation system (BAS) (ACRP Synthesis 21). – Implement global set points for room temperatures. – Install low­e window films (ACRP Report 139). – Insulate ductwork (ACRP Report 139). – Provide additional roof insulation (ACRP Report 139). – Recommission and optimize existing buildings (ACRP Synthesis 21). • Alternative­fuel vehicles – Expand use of electric vehicles or bicycles for fleet (ACRP Report 139). • Measurement and Verification – Establish an M&V program to monitor energy use and identify potential opportunities for improvement (ACRP Report 139).

Frequently Asked Questions for Funding Airport GRFs 57 – Install continuous metering equipment for lighting systems and controls, boiler efficiencies, indoor water risers, and outdoor irrigation (ACRP Report 139). • Any project that can demonstrate cost savings by investing in energy, resource, or sustain­ ability concepts What Are the Criteria for Approving GRF Projects? Institutions typically establish criteria that must be met for projects proposed for GRF fund­ ing. Often there will be a maximum payback period (e.g., 8 years), minimum/maximum funding amounts, or a minimum ROI. Who Will Oversee the GRF? GRF governance covers the various tasks that must be undertaken when managing a GRF. These tasks are as follows: • Which individual or group will propose sustainability projects? • Which individual or group will select sustainability projects? • Which individual or group will account for financial flows out of and into the GRF? • Which group will implement projects? • Which individual or group will track and report project savings? There are different ways to develop the GRF governance structure to oversee these tasks. Some funds utilize a management committee comprising various stakeholders from different departments. Another option is to have staff and resources from a relevant office, such as ter­ minal operations, be placed in charge of the GRF. Some revolving funds will instead designate a dedicated manager to handle these tasks. Is There a Size Threshold for an Airport to Be Best Suited for a GRF? Technically, there is no size requirement for airports deciding on a GRF. However, airports that currently operate at a loss, or those that are projected to lose their current profit margin may not be good candidates for the savings reclamation model GRF. In the United States, self­ sufficient and profitable commercial airport operations tend to have greater than 1 million annual passengers enplanements. However, this may vary across airports given a range of factors that include debt commitments, infrastructure condition, and efficiency of operations. Airlines and debt obligations will likely mandate that all revenue sources cover losses and not permit the diversion of revenue to alternative budgets. If the airport operator has to cover a budget shortfall, operational cost savings generated by a GRF could not be reinvested into the revolving fund without first meeting the airport’s prior financial obligations. It is possible that an airport with a pre­existing GRF could suspend reinvestment for a single year of loss and then restart the retained cost savings after returning to profitability. Should a Large (Multi-Million Dollar) Fund or a Smaller Fund Be Proposed? There is often a tradeoff between risk and reward when allocating funding to a GRF. Large capital allocations from existing sources (e.g., a capital budget) enable the fund to finance large capital­intensive projects that will produce a high volume of savings. Large funds are also more

58 Revolving Funds for Sustainability Projects at Airports likely to become firmly established, because they have more flexibility to finance projects and pay fund management expenses; however, the scale of the commitment limits other options for an airport. Conversely, incremental funding strategies (e.g., annual allocations from the capital budget or savings from existing projects) put fewer resources in play in case the fund encounters obstacles; however, this may prevent the fund from becoming established and quickly achieving the highest cost savings. Many institutions have started small funds to demonstrate effectiveness, then scaled up once the administrative structure is operational. As Rosa Kerr, Dartmouth College’s Sustainability Director, noted, “I would rather start small and knock it out of the park than bite off more than we can chew initially.” For example, the Harvard Green Loan Fund was capitalized with $1.5 million in 1993, and it was repaid to the GLF and enlarged to $3 million from the central administrative budget in 2001. As a result of its consistent success, the fund was doubled in 2004 and again in 2006 to arrive at its current size of $12 million. However, other institutions, such as Macalester College, have encountered problems with starting small, finding that less capital in a GRF leads to a proportionately higher administrative cost and burden on staff. Additionally, starting small may limit the range of potential projects because of capital constraints (Indvik et al. 2013). When deciding how to size an airport GRF fund and how to expand it over time, factors to consider include (1) the volume of potential projects and their ability to absorb capital, (2) your airport’s tolerance for change and financial innovation, (3) the capacity of your fund manage­ ment team and facilities department to support project implementation, and (4) historical per­ formance from implementing/undertaking past projects. Does a GRF Affect an Airport’s Capital Budget or Operating Budget? A GRF affects both the capital budget and operating budget in each of the three stages of the implementation process: seed investment, first­round of energy conservation project(s), and retained savings made possible through GRF projects. Because of the unique criteria and process of these stages, they are covered separately. Seed Investment Airports may plan to dedicate a specific dollar amount to serve as seed funding as part of their annual capital budget planning or could choose to designate a portion of unspent capital funding at the end of the year for the same purpose. The size of the source funding investment may require that capital budget funds be necessary, if internal operational budget thresholds are exceeded. Airports may decide that the seed funding is a one­time capital budget action to initiate their GRF (for the GRF endowment model, see question: What Types of Funding Sources Can Be Used to Start an Airport GRF?). Alternatively, an airport may decide to provide additional funding after the first year to make more funding available and accelerate its growth. If the seed funding level is below capital budget thresholds, airports could draw from operating budgets to start their GRF or initiate specific projects in which the savings capitalize a GRF (for the GRF reclamation model, see question: What Types of Funding Sources Can Be Used to Start an Airport GRF?). Initial Project Implementation If the first GRF project draws funding directly from the GRF (endowment model), it would eliminate the need to use either a capital or operating budget. Airports may be motivated to

Frequently Asked Questions for Funding Airport GRFs 59 generate funding from a GRF, because it offers a simplified and dedicated source for new proj­ ects that are prioritized by payback performance and sustainability impact. Depending on how the GRF is structured, it may be managed by the airport as a new independent funding vehicle or as part of the operating budget. Once the GRF is implemented and tracked projects gener­ ate savings, that revenue may be used to reduce the annual allocation for the operating budget. Depending on the magnitude of savings generated from the GRF, it is possible that this new source of funding could also reduce capital budget project allocations. Reclaimed Savings Over time the GRF enabled projects will likely generate funding that exceeds the original seed investment amount. Similar to the initial project, the full GRF will potentially provide an alternative source that could reduce demands on either operating or capital budgets. After a number of years, the overall GRF may reach an equilibrium as older project actions stop gen­ erating savings according to their predetermined lifespan, and new projects generate savings to fill that gap. What Types of Funding Sources Can Be Used to Start an Airport GRF? There are two approaches for capitalizing a GRF, and the approach chosen will determine the types of funding sources that can be used. The first approach is a traditional endowment model, in which an amount of funding is dedi­ cated for the express purpose of capitalizing a GRF. The benefit of this approach is that the fund is immediately able to finance new projects. The drawback is that a suitable source of funding must be identified, typically one that does not need to be repaid and is compatible with a GRF. The second approach, known as a savings reclamation model, starts with a project (already identified and either being implemented or soon to be implemented) that will result in opera­ tional cost savings. The project owner then captures the resulting cost savings and uses those savings to capitalize the GRF. To the extent that such cost savings are related to expenses allo­ cated to airline rates and charges, the airport would capture only its share of cost savings for the GRF. Or, depending on an airport/airline use and lease agreement and rate methodology, the airport could seek airline consent to capture 100% of cost savings for the GRF. The benefit of this model is that the funding used to implement the target project does not need to be ear­ marked for the GRF itself, because the resulting savings capitalize the GRF. For this approach to work, however, the GRF processes to capture and retain the savings must be in place and all stake holders must agree to use the operational savings in this manner. The drawback of this approach is that the process to capitalize the fund is slower. The savings reclamation model can also be used with projects that generate new revenue, not just cost savings. A savings reclamation model is often easier to implement, because it can indirectly lever­ age federal, state, and internal capital budget funds that might not be eligible for use as an endowment. Does Creating a GRF Constitute Revenue Diversion? No, there is no statutory prohibition on the use of airport revenue to support a GRF or GRF­ funded project for airport purposes; however, the GRF must adhere to the statutory limitations for revenue use and, where applicable, grant assurances and other restrictions.

60 Revolving Funds for Sustainability Projects at Airports Are There Any Common Federal Funding Sources for Airports That Are Compatible with a GRF? Yes, under a savings reclamation model the operational savings resulting from projects implemented with either AIP funding or PFC funding could be used to capitalize a GRF; how­ ever, at this time, neither funding source is compatible with an endowment­model­funded GRF. See questions: Can AIP Funding Be Used to Fund a GRF? and Can Passenger Facility Charges Be Used to Fund a GRF? Is Directly Endowing a GRF an Allowable Use under AIP or PFC Rules? No, if the AIP statute does not provide the authority to fund an action or an item, that action or item cannot be funded under AIP. It is possible that special approval could be granted or a new sub­program like the Voluntary Airport Low Emissions Program (VALE) or the Airport Zero Emissions Vehicle (ZEV) and Infrastructure Pilot Program could be created that would make directly funding a GRF an allowable use of funds, but no such program exists at this time. Directly endowing a GRF is not a currently allowable use of PFC funds. Using PFC funds to directly endow a GRF would require special FAA approval. Can AIP Funding Be Used to Fund a GRF? Yes, indirectly. Under a savings reclamation model the operational savings (or additional air­ port revenue) from projects implemented with AIP funding could be used to capitalize a GRF, subject to general airport revenue use requirements and grant assurances. For the most part, AIP funding is not used to fund revenue generating projects, except for select project types (such as fuel farms) at non­primary airports. There is no such restriction on AIP­funded projects that result in operational savings. At this time, AIP funding is not an allowable capital source for an endowment­model­funded GRF. See question: Is Directly Endowing a GRF an Allowable Use under AIP or PFC Rules? Can Passenger Facility Charges Be Used to Fund a GRF? Yes, indirectly. Under a savings reclamation model the operational savings—or additional airport revenue—from projects implemented with PFC funding can be used to capitalize a GRF, subject to general airport revenue use requirements and PFC assurances. At this time, PFC funding is not an allowable source of capital for an endowment­model­ funded GRF. See also: Is Directly Endowing a GRF An Allowable Use under AIP or PFC Rules? Can Aviation Fuel Taxes Be Used to Fund a GRF? Yes, subject to general airport revenue use requirements, aviation fuel taxes can be used in either a savings reclamation model or an endowment model. Federal law requires that aviation fuel taxes be used for airport­related purposes, if airports are participating in AIP. Most states already have aviation fuel taxes, a portion of which could be directed for GRF use, or a state

Frequently Asked Questions for Funding Airport GRFs 61 could increase taxes or levy a new tax for the express purpose of supporting a GRF. If an airport chooses to pursue this funding option, it will need to consult with its state government. Can Revenue from Airline Fees Be Used to Fund a GRF? Yes, subject to general airport revenue use requirements and provisions of any airport/airline use and lease agreement, airport revenue can be used for capital and operating costs related to airport systems and facilities owned or operated by airports. Creation and capitalization of a GRF are eligible investments for this type of revenue. Can Revenue from Market-Rate Airport Operations Be Used to Fund a GRF? Yes, subject to general airport revenue use requirements and provisions of any airport/airline use and lease agreement, airport revenue can be used for capital and operating costs related to airport systems and facilities owned or operated by airports, which includes the creation and capitalization of a GRF. Revenue from market­rate airport operations—parking, terminal con­ cessions, car rental—is the most flexible revenue and can be used with both a savings reclama­ tion and an endowment model. Can Bonds Be Used to Fund a GRF? Yes, under a savings reclamation model the operational savings or additional revenue from projects implemented with bond proceeds can be used to capitalize a GRF, as long as those savings or additional revenues are not obligated for the repayment of the bonds. General obli­ gation bonds, general airport revenue bonds, and PFC­backed bonds would likely work with a savings reclamation model. Bond proceeds, with the exception of PFC­backed bonds, could also be used to directly endow a GRF, subject to any applicable tax regulations. However, the GRF would need to invest in projects with rates of return and repayment terms sufficient to cover the bond payments. Can an Airport with Existing Bond Debt Obligations Implement a GRF? Depending on the structure of the existing bonds and the terms, it is possible. There are four basic types of bonds issued to fund airport capital improvements: (1) general obligation bonds supported by the overall tax base of the issuing entity (the airport sponsor); (2) general airport revenue bonds (GARBs) secured by the revenues of the airport and other revenues as may be defined in the bond indenture; (3) bonds backed either solely by PFC revenues or by PFC rev­ enues and airport revenues generated by rentals, fees, and charges; and (4) special facility bonds backed solely by revenues from a facility constructed with proceeds of those bonds. Most bonds issued for large and medium hubs, and many small hubs, are GARBs. Bonds supported by spe­ cific revenue streams will likely be unaffected by use of either the savings reclamation or the endowment approach to GRF capitalization, as long as the creation of the GRF does not impact those revenue streams and the bond repayment. Airport staff should review the terms of the existing bond indentures. Choosing to capitalize a GRF through an additional bond issuance would impact the airport’s debt capacity. In the majority of cases, existing debt would have to be prioritized for repayment over the GRF loan.

62 Revolving Funds for Sustainability Projects at Airports Are There Other Sources of Funding That Should Be Considered for Funding a GRF? Yes, any source of funding that could potentially be used to pay for a capital project that generates savings or additional revenue should be considered. Some example sources include the following: • State grants • State infrastructure or green bank funds • Utility incentives • Utility savings resulting from rate optimizations, on­site solar or other renewable energy installations (depending on cost­recovery allocations under any airport/airline use and lease agreement) • Foundation grants • Savings from operational and behavioral energy efficiency—these could be from utility savings or other sources such as a reduction in labor requirements or decreased demand for services (e.g., converting actively landscaped areas to xeriscaping) Can a GRF Be Implemented in Any Airport Building? Yes, however, airport initiated GRFs will be most easily implemented in building assets owned by the airport. For building assets owned by other stakeholders, see question: Can an Airport Implement a GRF in Building Assets Not Owned by the Airport? In addition, considering how the airlines regard fairness of costs, operational cost savings or revenue generated from a GRF project(s) in one cost center (such as terminal) may need to be allocated within the same cost center to avoid any potential perceptions of unfair cost subsidization (Faulhaber et al. 2010). Therefore, it may be beneficial to set up a GRF account for each cost center at the airport. Can an Airport Implement a GRF in Building Assets Not Owned by the Airport? In general, the implementation of a GRF or specific GRF projects is the responsibility of the owner of the building asset in which the projects are being installed. However, an airport can structure a GRF to lend to third parties, such as an air carrier or other entity that owns a terminal or hangar. This would require buy­in from the building asset owner and established protocols for repaying the GRF. What Factors Determine a GRF’s Payback Mechanics? Establishing a GRF requires a clear outline of the fund’s payback mechanics (i.e., the size and timing of repayments). Though a GRF requires that all project costs financed through it be fully repaid, the amount and timing of repayments can vary. If an airport prefers to be conservative when forecasting project savings, a percentage less than 100% of the total can be returned each repayment period. This allows for greater caution about anticipated savings; yet, it lengthens the duration over which the project cost will be repaid. Airports will also have to determine how often savings will be repaid: monthly, quarterly, yearly, or by some other interval. Table 2 is an example of a $100,000 GRF financing a $100,000 project in 2017. In Scenario 1, the fund is repaid with 100% of the project savings each fiscal year until the project cost is fully covered; in Scenario 2, the fund is repaid with 100% of the project savings and then additionally paid 50% of project savings for 2 years to grow the GRF.

Frequently Asked Questions for Funding Airport GRFs 63 If the fund is designed to maintain its size over time, then repayment ends as soon as a project cost is repaid. However, if the fund is meant to grow over time, then an airport will also have to determine how the excess savings returning to the fund will be calculated. The calculations can be based on a percentage of total savings that will be repaid over a certain number of years (or the rest of the project’s lifespan), a percentage of the overall project cost (i.e., committing to pay back 120% of a project’s expenses), or as an interest rate on the outstanding project loan. Before plan­ ning for GRF growth via returned savings beyond the project cost, you must ensure that there are not stipulations or demands from stakeholders about these extra savings. Determining whether the fund should maintain its size or grow over time may be a matter of whether the GRF will connect with other airport initiatives or broader institutional goals, such as a sustainability master plan. How Are Savings from a GRF Measured? There are several methodologies to measure, verify, and capture the savings from GRF proj­ ects. For example, a straightforward and cost­effective approach is using front­end savings esti­ mates for the duration of the project. These savings estimates would be provided in an energy audit or by a product vendor. This process will not capture any deviations in the event that a project performs better or worse than expected. A more accurate approach is to retroactively calculate savings from an efficiency project based on actual performance. This requires airport operational staff to apply M&V protocols that account for factors such as annual weather changes and usage patterns. Some institutions combine the best of both approaches, basing the loan approval and repay­ ment schedule on estimated savings, and then performing an M&V to verify that the project is functioning according to projections. Selecting the right methodology will depend on a number of factors unique to each airport, such as number of submeters, airport/airline use and lease agreements, concessionaire lease agreements, airport operational process, and utility payment structures. Table 2. Example financing scenarios.

64 Revolving Funds for Sustainability Projects at Airports Do Loans Made by the GRF Charge Interest? While the majority of institutions do not charge interest on loans made by the GRF, for those that do, interest rates range from 1% (University of Texas at Dallas) to 5.5% (University of Minnesota, Twin Cities). The average interest rate that institutions applied to project loans was 3.3% (Sustainable Endowments Institute 2017). Which Stakeholders Will Be Affected by the Implementation of a Funding Source for a GRF? It depends on how the specifics of a GRF are implemented and the seed funding source. The following is a list of stakeholders that could be affected: • Air carriers • Passengers (education/promotion at a minimum) • State and local government officials involved with utility payments at the airport • Existing bondholders • Airport administrators • Finance • Sustainability • Planning/Engineering • FBOs (depending on whether the airport owns the facility) • Nonairline service providers (i.e., concessionaires) When Should Airlines Be Involved If an Airport Implements a GRF? As a critical stakeholder, airlines should be involved early in the GRF implementation process. The level of involvement will be dependent on the types of airport/airline lease agreements in place at the terminal where the GRF project(s) is being implemented. Operational expenses, such as utilities, can be the responsibility of the airport, airline, and concessionaires (or a com­ bination of all three), depending on the specifics of the airport leases. Therefore, airlines should be engaged early in the process to determine how GRF projects will affect the financial responsibility of the airlines, because GRF projects will measure and divert their corresponding utility savings back to the GRF. As a priority, airports should engage with airlines that enter into agreements that provide air carriers with greater control over airport operational revenues and capital decision­making. In some cases, GRF projects will be below an airport’s capital budget threshold and may not need airline approval (see question: Does a GRF Affect an Airport’s Capital Budget or Operating Budget?). As a general rule of thumb for GRF implementation, airlines should always be informed to maintain strong relationships. How Do Residual Airline Lease Agreements Affect a GRF? If the GRF seed capital comes from nonairline revenue, air carriers with residual lease agree­ ments may support GRF implementation, because a reduction in operational expenses will increase the airport’s ability to recognize a net surplus. During the GRF implementation stake­ holder engagement process, airlines may request (or require) a portion of operational savings generated by a GRF project(s) be shared with the airlines.

Frequently Asked Questions for Funding Airport GRFs 65 How Do Compensatory Airline Lease Agreements Affect a GRF? In a pure compensatory agreement, the airport is solely responsible for its financial risk and airport operations. Airports with pure compensatory agreements will require less engagement with the air carriers, because they have more discretion over capital and operational expen­ ditures. However, air carriers will likely support the implementation of a GRF, because it will reduce the airport’s total operational expenses, resulting in a reduced rental rate set within air­ port cost centers in which GRF projects have been implemented. The airlines would receive the benefit of a lower rental rate. It is important to note that while airports are not required by law to share nonairline revenues with the airline users (such as air carriers), the FAA does encourage the practice. Generally, airports with compensatory agreements share some portion of nonair­ line revenue, such as operational expense reductions, with airline users. When Do Concessionaires Need to Be Involved? The airport’s level of administrative oversight will determine the extent concessionaires are involved in the application of GRF projects. Airports that lease and manage all concessions space will likely have the greatest ability to streamline the implementation of GRF projects. On the other hand, airports that contract out the management of concessions operations to an institu­ tional operator would likely require a higher level of stakeholder engagement and may reduce the efficiency of GRF implementation. Ultimately, the concessionaire contract manager will determine the level of engagement the airport will need to have with concessionaires. Factors that will influence the ease of concessionaire engagement include how the lease deter­ mines the concessionaires’ portion of airport operational expenses and the level of submetering in each concessionaire space. How Are GRF Procedures Typically Codified? It’s important to develop a written GRF charter to outline how the fund will operate and establish responsibility for its oversight. Sections include the following: • Fund mission • Source(s) of seed funding (and any accompanying regulations) • Fund governance • Project criteria • Procedure for project selection • Accounting and financial flows • Project implementation • Data tracking procedure for project selection and reporting • Payback mechanics • Process for reviewing and updating fund charter Creating a tentative GRF charter, in which these topics are addressed, can act as a proposal for airports considering the GRF model. Approaching decision­makers with this outline will allow for more productive discussions and establish a foundation from which negotiations about fund parameters can proceed.

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Airports continually balance demands to improve infrastructure within the realities of available budgets. Green revolving funds (GRFs) offer an alternative approach for investing in projects that generate operational savings. These funds work by tracking verified cost reductions from implemented actions, and then transferring those savings to a reserve that provides capital for future qualified projects such as energy system upgrades.

A number of universities have managed GRFs for over a decade. Municipalities are starting to adopt them as well. ACRP Research Report 203: Revolving Funds for Sustainability Projects at Airports includes several non-airport-related case examples that have managed GRFs and two airport-related case examples. Airports require a modified GRF approach because of financial structures, Federal Aviation Administration (FAA) regulatory requirements, airline agreements, and the wide range of tenant roles.

This ACRP report provides guidance to determine whether this innovative funding approach is suitable for a particular airport and instructions on how to deploy it. Airports that have the ability and determination to launch a GRF will gain a robust method for advancing their sustainability goals.

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