Biogas and MunisLand Banks for Troubled Property

Biogas + Grants + L3Cs = Possible Municipal Salvation

By November 25, 2012 No Comments

Biogas is a new name for an ancient product. For thousands of years, farmers and animal raisers have utilized their plant and animal waste in compost heaps and cesspools to produce cleaner fluids and nutrient rich solids. Through history, the by-product gas produced by such processes was allowed to dissipate into the atmosphere. Biogas, generally, means methane, carbon dioxide and other small amounts of other gases.

New efficiencies in waste recycling now permits socially responsible communities to capture, clean and put into use the biogas as fuel to power a small energy plant and to run a fleet of vehicles.

A couple of forward-thinking municipalities are on the way to establish new standards for energy and social responsibility, and to earn a few dollars for their constituency in doing so. Pilot projects in Chicago (potential anaerobic digester for grocery store waste; urban farming using hydroponics and aquaculture), Akron (sewer treatment adapted from European model), and Cheyenne (fuel cell powering a small data center) use different scientific and engineering methods to produce methane – each can be studied for future applications. And different, new legal structures can help blend a government/private hybrid operation.

As to land, many a municipality has under-utilized or abandoned industrial property that blights the district and generates little or no real estate tax and other tax revenues. Municipalities can obtain control over such land by a variety of legal mechanisms, for example, by tax liens, purchase of tax delinquencies, seizure, land bank, foreclosure both friendly and hostile, donation, and others.

As to financing, charitable or scientific foundations may provide seed money by a grant to start a novel energy project. New IRS regulations regarding program-related investments (“PRIs”) create additional incentives to foundations to inject funds into energy projects with a calculated risk to obtain a return. Additionally, the federal government and some states provide grant money for such projects. Following the foundation lead, investors may appreciate the risk taken by a foundation’s grants or PRIs to experiment with a novel energy project coupled with creative municipal government.  Having decreased risk by riding the coattails of experimental projects funded by grants or PRIs, investors can enter the market place in a socially responsible manner via L3Cs, the new corporate structure available in more and more states defined as a low-profit, limited liability company with a corporate charter to engage in socially responsible, for-profit business ventures. Among the nine states that have approved the new L3C corporate structure (more jurisdictions have L3C laws pending), the definitions are similar: A low-profit limited liability company shall at all times significantly further the accomplishment of one or more charitable or educational purposes within the meaning of Section 170(c)(2)(B) of the Internal Revenue Code and shall have no significant purpose of the production of income or the appreciation  of property. Thus, profit is distinguished as between an LLC and an L3C – make profit in an LLC as usual, or make profit in an L3C as a means to further and to promote a socially responsible enterprise.

A new arm of marketplace opportunity is emerging both for bond and equity investors – Municipalities with troubled property can combine their misfortune with new technologies in energy and new legal structures and new funding mechanisms for raising capital.

 

See: http://en.wikipedia.org/wiki/Anaerobic_digestion#Solids_content

 

 

 

 

 

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