certificates,” both of which are good tools for repaying debt from energy savings. The School Code and Debt Reform Act options are important to keep in mind, as well as grants and other incentives, whether your district is thinking of a standalone energy efficiency project or a master facilities plan. The Government Finance Officers Association (GFOA) has been ahead of the game on developing best practices related to ESG for government finance personnel. GFOA approved a best practice in 2010 on “Environmentally Responsible Practices in Capital Planning.” The best practice identifies four key components — policy, financing, analysis, and communication. The policy component recommends principles such as good stewardship and environmental safety be incorporated at the initial stages of a capital improvement plan. A tangible strategy is the use of an environmental factor when scoring capital needs. The financing component makes the point that there are a multitude of financial tools for environmentally responsible projects and that those tools can be strategically combined. For instance, cash on hand, state grants, federal grants, certain government low-interest loans, leases, traditional borrowing mechanisms granted by Illinois law, or even tax credits, subsidies, and deductions passed through the businesses partnering with you on energy-saving projects may be pieces of the puzzle for your district. The analysis component recommends an approach that (1) takes a long-term perspective because, although start-up costs may be higher, environmentally 10 • Illinois School Board Journal
responsible projects and materials can help reduce costs over the life of an asset and (2) understands initiatives to address energy consumption over the long term are often difficult to measure. Of course, resources and professionals are available to assist with measurement and assessment. Lastly, the communication component notes that to be effective stewards, school districts should educate taxpayers and families on the potential positive impacts of incorporating environmental responsibility into facilities planning. The facilities plan itself can serve as a method of communication, especially when it clearly states how projects relate to specific environmental considerations, improve quality of life, and save money. After developing a facilities plan, if the need for borrowing in the form of a bond issue is established, a credit rating will often be part of the borrowing process. Equifax and Experian are to a personal credit score as Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Global Ratings (S&P) are to a school district credit rating. These institutions translate the complex variables of a school district into a more or less objective scale that then determines a credit rating. A school district’s credit rating is one of the most important determinants of borrowing costs and may be a source of pride for school leadership. In January 2021, Moody’s published a new rating methodology related to public school districts. ESG considerations are part of that new methodology. For example, natural disaster risks and risks associated with
dependency on carbon-intensive industry can influence credit quality. In October 2021, S&P updated its rating framework for public school districts with ESG examples. An important component of the Moody and S&P rating methodology is something called “Institutional Framework” or “Management.” The rating agencies view school districts favorably for having long-term capital plans, debt policies, and other policies approved by your board of education, such as a fund balance policy. A positive example cited by S&P related to their “Management” component is a master facilities plan demonstrating a school district’s approach to infrastructure that increases energy efficiency or mitigates physical risks (such as flooding). A higher credit rating, all other things being equal, results in lower borrowing costs, and a higher credit rating may be achieved by providing rating agencies with ESG-related information and establishing policies like those mentioned above. In addition to ESG best practices in capital planning, GFOA has ESG best practices for disclosure in bond issuance documents (i.e., the Official Statement). In short, GFOA recommends three steps in drafting appropriate ESG disclosure. The first step is to identify risks with the help of your finance team. The second step is to consider how material risks could impact school district operations and finances, and the third step is to identify any proactive policy actions that could be or have been taken by your Board of Education to address