Even before the Recovery Act was finalized, Kentucky officials were pondering one of the most important questions about stimulus dollars: How can you get the most out of the cash influx, even after the incoming dollars dry up? When it came to the energy dollars, Bluegrass State officials had a head start. They had long been thinking about “greening” state buildings. They knew this would save money in the long run, but, “in a rough economy it was hard to pay for the initial infrastructure,” explains Secretary of Finance and Administration Jonathan Miller.

So, when the funds finally arrived, Kentucky had devised a Green Bank concept, which would use some $14 million of Recovery Act money (plus another $4 million) to offer revolving loans to state agencies. These loans were intended to help make energy-efficiency improvements in their buildings. While many other states have been making one-time energy efficiency upgrades in state facilities, Kentucky’s loan program allows state agencies to repay the funds (plus 3.25% annual interest) out of the energy savings realized from the projects—and thereby makes the state’s energy efficiency financing sustainable over the long term.

Kentucky is also using stimulus dollars to implement an energy management software system that will track energy usage building by building, allowing the state to monitor energy savings and consumption just as it follows agency finances and program expenditures.

With the smallest loans – those that generally run under $200,000 -- agencies can do relatively straightforward activities like replacing inefficient light bulbs or installing more efficient toilets. For bigger ticket loans, agencies are required to have an energy audit to determine potential savings.

 For the largest loans, totaling over $600,000, agencies may not do the work or procurement themselves, but must contract with an energy savings performance company (ESCO) that guarantees the energy savings. These ESCOs are paid as they complete the projects, and then the ESCOs also measure and verify the savings annually. “If the savings don't take place, the ESCO has to write a check for the difference," explains Paul Kaplan, Director of the Green Bank of Kentucky. But in all the millions of dollars of work these ESCOs have done with the state in the past, he says, “Not one ESCO has had to write a check yet—these ESCOs know what they are doing."

The Department of Education received the first loans in December in order to upgrade the Kentucky School for the Blind, the Kentucky School for the Deaf, and the Future Farmers of America (FFA) Leadership Training Center. Many more projects are on the way, but even Kentucky’s Green Bank funds are insufficient for all of the projects the state could be doing. “There are several hundred million dollars needed among state agencies alone,” says Miller, and that isn’t counting local government or school projects.