Hopkins Academy—a public middle and high school serving a few hundred students in Hadley, Mass.—needs a new furnace and a new roof. But the elected school committee has struggled for years to find the right combination of funds and contractors for a project they hope will reduce the 70-year-old building’s environmental footprint.
Enter Sara Ross, co-founder of Undaunted K-12, a nonprofit supporting schools’ efforts to transition to clean energy. At a statewide conference for school committee leaders, Ross led a session about using federal funds to pay for green infrastructure.
“What I learned at that session really blew my mind,” said Humera Fasihuddin, chair of the Hadley school committee.
She’s likely not alone. The federal government is currently offering funds that Ross believes could be a lifeline for hundreds of districts nationwide that desperately need to upgrade their buildings to withstand the oncoming effects of climate change: extreme heat, unpredictable storms, rampant wildfires, and devastating flooding.
But those funds, tucked inside the sweeping climate change legislation Congress approved a year ago known as the Inflation Reduction Act, have flown under the radar. That may be because the mechanism for receiving them isn’t one school districts typically use.
Rather than applying for and securing grants or loans to pay for projects in the works, this new mechanism—known as “direct pay”—supplies school districts with the equivalent of tax credits for work they’ve already completed and paid for.
Every school district in the country is eligible for the federal government to cover 30 percent of the cost to install new building systems driven by renewable energy, including solar or geothermal. There’s no cap on the cost of individual projects and no limit to how much the federal government will dole out in the aggregate over the next decade-plus.
Ross is among the sustainability advocates pushing schools to take advantage of direct pay for any projects that started after Jan. 1 of this year. She believes many district leaders don’t realize the opportunity is there, much less magnitude of it.
“The majority of the questions I’m getting are, ‘Tax credits? I don’t pay taxes, I’m a school, what does that have to do with me?’” Ross said.
How districts can get big payouts for construction projects
School districts across the country have billions of dollars in deferred maintenance that their states and local taxpayers either can’t or don’t want to cover.
Advocates for school facilities have been pushing for years for the federal government to invest $100 billion in modernizing the nation’s aging school buildings. Those efforts haven’t gained traction in Congress, despite evidence that the right kinds of facility improvements can boost students’ academic achievement.
Nor has the Green New Deal for Schools, a legislative proposal from progressive Democrats that would invest $10 trillion in school building construction and renovation over 10 years. That proposal was recently re-introduced in both houses of Congress, though it’s unlikely to pass anytime soon.
The Inflation Reduction Act, the spending package signed into law by President Joe Biden in August 2022, included $500 million in grants for schools to improve air quality in their buildings. That program looks typical for school district administrators: apply for the funds and then use them to help pay for a project.
But the legislation also includes the direct pay provision, which operates differently.
Unlike a grant program with a fixed amount of money for districts to spend on particular expenses, schools and other tax-exempt entities like local and tribal governments can get reimbursed for work that’s already been completed simply by correctly filing tax return forms with the Internal Revenue Service.
Many of these systems cost more upfront than their more traditional, fossil fuel-powered counterparts. But they often lead to reduced energy costs in the long term, said Tony Hans, vice president of CMTA, an engineering consulting firm specializing in sustainable building projects whose clients include K-12 school districts.
“I see schools all the time using antiquated systems that are barely meeting code,” Hans said. “It’s sad that we look at spaces where our kids are going to be taught and we did the legally worst we’re allowed to do.”
Districts get an even bigger payout if they meet certain criteria. For example, a project that uses building materials produced in the United States is eligible for an additional 10 percent off.
The same is true for districts located in “energy communities,” defined by law as Census tracts where a coal mine or coal-powered electric plant has shut down in recent decades. The U.S. Department of Energy maintains a website with an interactive map showing all of the nation’s qualifying energy communities.
Some districts may be eligible for yet another 10 to 20 percent off because they’re located in low-income areas.
All told, some school districts could be reimbursed for 70 percent of the cost of a building project that meets the program’s criteria. Similar opportunities are also available for districts to get reimbursed up to $40,000 toward the cost of a new electric school bus and $100,000 toward the cost of new electric vehicle charging infrastructure.
To receive the credit, districts would need to submit two forms to the IRS:
- a pre-filing form explaining the project and the credits the district intends to claim.
- a follow-up 990-T form confirming the completion of the project.
One school district could save money by investing in a more modern facility
Hopkins Academy is right near a shuttered coal power plant. That means the federal government will cover 30 percent of the cost of installing a geothermal heating and cooling system, plus another 10 percent of the cost because of the district’s status as an “energy community.”
Before Fasihuddin met Ross, the original plan was to spend $1.8 million to replace the current oil-burning HVAC system with a newer version of the same thing. “We’re just throwing money and heat out” by continuing to use the existing system, the school committee chair said.
Now, the committee is preparing to vote later this year on a proposal to install a more energy-efficient geothermal heat pump system for less than $900,000 after utility rebates and the direct pay incentives—less than half the cost the district originally anticipated.
In the meantime, Fasihuddin said she hopes her district’s project can be a model for what other districts can accomplish with direct pay—if they know about the opportunity.
“It might actually cost us less to go in that direction than it would to just replace the boilers, which was the original strategy being proposed by all those entities we brought in,” Fasihuddin said. “The fact that it might cost less is just amazing.”