This is the third in a series of lectures I’m calling “The Law of Green Fiscal Mutualism,” which I recorded for my education law class this semester. Second one is here, first here. I’m proud of the way the videos came out, as there’s an emergent thesis about the dialectics of the approach to school finance I’ve called green fiscal mutualism.

This week is about the law of green banks, specifically focusing on New York state’s and New York City’s green banks. I’m particularly proud of this one, since I found myself articulating exactly why I get so excited about green banks: they’re like charter schools in reverse. Here’s a link to the video. Here are the readings that go along with it:

Downing, L. (2024). Building Blocks of a Just Transition: Green Banks and Residential Building Decarbonization in New York. Massachusetts Institute of Technology , Chapters 3 and 4.

Leonard, W. A. (2014). Clean is the new green: Clean energy finance and deployment through green banks. Yale L. & Pol'y Rev., 33, 197.

Order Establishing New York Green Bank and Providing Initial Capitalization, (the “Order”), issued and effective

2025 NYSERDA Bond Statement: Relevant Laws. + EMMA Page

NOTES

Last week we talked about the dialectic of circumvention. This week, with the law of green banks and how they work, we're seeing a dialectical negation of circumvention in the creation of a genuinely new structural entity by state governments. It's not about whether states or municipalities can circumvent legal restrictions and market dynamics on borrowing for capital expenditure. Rather, the green bank has formed within that circumvention to create an entity that uses limited public money to coax private investment in infrastructure financing that they wouldn't otherwise do in the market.

As one of the quotes in the law article say, someone who works for the NYGB, Jessica Aldridge, said it's teaching the market how to fish. In other words, it's the government seeing a problem--climate catastrophe--and trying to get capitalism to fix it by sort of bribing/tricking/cajoling it into sinking investment into green infrastructure. It's fascinating. I want to talk here about the NYGB and its nonprofit cousin NYCEEC, how they came out legally, what their legal foundations are, etc.

My thesis here, using Aldridge's comment, is that green banks follow a reverse charter school logic. Whereas charter schools taught public education dollars how to sell themselves on a market, the green bank teaches capitalists how to serve the public better. It does this through fun legal-financial contortions like loan loss, on-bill revenue, security warehousing, subordinated repayment; taking advantage of a quirk of discount rate benefits. In the case of the NYGB, there's a wholesale model.

THE PROBLEMS

--Problem of educational power: what this has to do with schools. A sub-problem of this problem is the "valley of death" problem, another evocative phrase, which is that green technologies that help reduce the carbon sent out by buildings can't get to market. They can't traverse the death valley of Silicon Valley to Wall Street. The reason? Capitalists don't want to invest their money in tech that won't make a good return. As Brett Christophers says, for them, "the price is wrong." It doesn't matter is fossil fuel will ruin the world, it doesn't make money, so they don't invest, even if the tech is there (recall the solar panels on the white house roof--during Carter's administration!). The question becomes: how to get investment behind this stuff that doesn't have a good return, or what Aaron Benanav names a "multi-criterial economy": not just profit, but lower carbon emissions?

--It's interesting that green banks come out of a attempt to solve these problems: financing infrastructure that doesn't ruin the world. Keynes: government does what isn't being done (from the MIT thesis).

(All of this is to say that we have to make these contortions because of capitalism and traditional monetary policy. In principle, we the treasury could issue direct loans and take care of this issue, as long as the real resources permitted it (which it does). Instead, we have to work around haeccetic fools who think money recycles...anyway.)

--first the federal government tried to do this through the loan programs office of the dept of energy. where they tried to "pick winners," but it didn't work bc government isn't good at that. rather than pick winners, state governments decided to trick the ruling class into picking winners for them, enticing them with. Here we have another sub-problem of the problem of power: the winner-picking problem. The green bank was an attempt to get capital to pick winners for the government. It's a winner-picking trick.

THE SOLUTIONS

What the green bank does, like a parent getting their little kids to jump into the pool, is tell capitalists: "hey, look, it'll be safe, don't worry about your precious profits, we'll catch you if you lose anything, we promise you won't sink, we got you."

Here's how it works: the state government (with federal monies too) "capitalizes" the GB, which is actually more like a semi-public investment fund. So there's money from tax appropriations given to it by legislators and governors and courts, rather than relying on the capitalists.

The GB then turns to the capitalists and does its parenting thing: listen, we'll set this up real sweet for you. Pretty please: we'll have a fund set up if you lose anything on your loan to us or our friends; we'll setup repayment plans based on property taxes and utility bills, which are sure things; we'll warehouse all these little small projects that you're kinda iffy about and make them bigger, more understandable things for you; we'll standardize the contracts involved so there's no guesswork when it comes to the lawyers; oh, and we'll even subordinate our own repayment needs so you can get your money first just in case of bankruptcy.

The GB creates financial products for investors to buy that will generate revenues for green infrastructure firms to do their work: install solar panels, retrofit building envelopes, redo HVAC systems with electric pumps from oil and gas stuff, and install solar panels.

NYGB and NYCEEC

So let's look at the NYGB, which was the second GB in the country after CT's. Talking about CT's is helpful here actually to give us a contrast. CT passed this legislation creating the CEFIA (clean energy financing investment authority) as an offshoot of its Clean Energy Fund, a quasi-public authority. You can see the dialectic of circumvention there.

The CEFIA adopted the retail model, offering these financing products directly to consumers, which was really successful: little homeowners could put solar panels up on their roofs with these products, but also municipalities could do, using all kinds of little lender programs through the state and market.

But in NY there's a wholesale model. What does that mean? Similarly to CT, there was legislation at the state level that, through the Public Service Commission and the state's Greenhouse Gas Initiative, capitalized a division of the NYSERDA (NY energy research and development authority) called the NYGB. The wholesale model, instead of going to consumers, goes to the lenders themselves and says, you create the investment products, we'll back you up. They thought this model would actually help green investment happen in the bond market more directly.

So since the NYGB is part of NYSERDA it moves a little more slowly. (And there's an anecdote of the state legislature misunderstanding how all this works and thought CEFIA's balance sheet showed a surplus--it didn't--and underfunded it). And since it was started, the NYCEEC was born. Let's talk about that for a moment:

The NY Energy Efficiency Corporation is a local green bank, the first in the country, just by NYC--even though it now serves the region. The local laws that started it were the Greener Greater Buildings Plan. It's a publicly-started nonprofit that came out of the 2008 financial crisis, using federal relief money. Two members of NYC government serve on the board. It works closely with the NYGB, sort of creating a more CT-like model for the city, where the NYCEEC originates a loan and then NYCEEC has a loan loss reserve for itself.

As of 2023, NYCEEC mobilized 493m upgrading 569 buildings, reducing 1.09 megatons of carbon, creating almost 2k jobs and 7k affordable housing units. Like, it fitted the Marcus Garvey apartments, housing projects, with battery storage microgrid.

Imagine what it could do if it started working on school buildings!