Electric school buses offer health, climate and economic benefits to school districts across the country. By the end of 2023, federal and state governments had allocated more than $9.3 billion in funding for which electric school buses are eligible, bringing electrification within reach for districts across the country. But addressing the upfront costs of electric school buses remains a key barrier for school districts.

To make the economics work, some school districts look to complement this new funding with traditional financing sources, including bond issuance, leasing arrangements, depreciation funds and state funding to acquire electric school buses. This article highlights the innovative ways school districts have combined funding and financial mechanisms to electrify their fleet and introduce the benefits of electric school buses to their communities.

Funding and financial mechanisms

Funding is a capital award to support a project, organization or initiative without the expectation of repayment by the awardee. In other words, it’s money that doesn’t need to be paid back, such as a grant. The biggest funding programs for electric school buses have included Volkswagen Settlement Funds, California’s Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project, and the EPA’s Clean School Bus Program. More recently, New York and Michigan passed legislation to develop funding programs to electrify the states’ school bus fleets. In addition, the Inflation Reduction Act established a tax credit known as 45W through which non-taxable entities like school districts can receive up to $40,000 for purchasing an electric school bus.

Financing, on the other hand, is an arrangement that provides capital for costs today to be paid back over a future period, often with a small premium. School districts have access to low-cost financing through bonds that are backed by their taxing power. Leasing arrangements can be made with electric school bus original equipment manufacturers (OEMs), dealers, or commercial banks and are secured by the asset itself. In a lease-to-purchase agreement, it is assumed a public organization will own the asset after the lease expires. As a result, the interest rate is lower because interest paid is exempt from federal taxes. Commercial banks, public green banks, Community Development Financial Institutions and credit unions all regularly finance loans. The terms and eligibility criteria of loans offered by public and non-profit entities may be more favorable than those available on the commercial market because they are designed to achieve policy or social impact goals.

It’s important to understand limitations and barriers that underserved communities face when accessing funding and financing. Barriers can range from narrowed staff capacity for pursuing opportunities to a limited tax base and budget – reducing a district’s debt capacity. To ensure an equitable transition to electric school buses, its important underserved communities are prioritized for public funding with technical assistance. It is also essential that accessible, affordable financing mechanisms are available, with accommodations such as longer repayment periods, grace periods, guarantees and credit enhancement mechanisms.

To learn more, check out All About Funding and Financing Options for Electric School Buses.

Real world examples: how school districts are combining funding and financing to bring the benefits of electric school buses to their communities

Cypress-Fairbanks Independent School District, Texas: bond and grant

Cypress-Fairbanks Independent School District (ISD) is the third largest district in Texas, with 119,000 students enrolled and 85,000 school bus riders. Given that state funding for transportation purposes is limited – especially funds for capital expenditures – school buses are often included within local bond measures. The district’s 2019 bond measure included $88 million for transportation projects that covered school bus replacements, a new transportation center and the replacement of existing GPS hardware. The local community passed the measure, which did not increase taxes, with a robust 70.4% of votes in favor. The district’s Transportation Director, Dr. Kayne Smith, was very familiar with the benefits of electric school buses and searched for various grants to pair with the capital raised through the bond once it came time to procure new school buses. The Houston-Galveston Area Council, an association of local governments that promotes regional cooperation, awarded $2.7 million grant to Cypress-Fairbanks ISD, reducing the investment for ten electric school buses from $3.9 million to $1.2 million. After only four months of operation, the school is already experiencing reductions in fuel and maintenance costs.

Mercer Island School District, Washington: depreciation fund and levy

Mercer Island School District is located at the southern end of Lake Washington, with approximately 4,000 students. In April 2023, Mercer Island celebrated the arrival of its first two electric school buses, costing $382,786 each. These electric school buses were purchased with the district’s Transportation Vehicle Fund, which combines state funding and local levies to replace buses as they depreciate. The most recent local transportation levy was approved in 2017.

Depreciation Fund

A depreciation fund allows school districts to set aside funds to replace an asset at the end of its lifetime. In fact, certain states reimburse the depreciated value of a school bus back to the school district annually. Establishing a depreciation fund can help plan for future school bus purchases and limit financial strain at the end of the school bus lifetime. This can be thought of an intermediate between funding and financing as costs are being “paid” today for a future purchase.

Beaverton School District, Oregon: bond, depreciation fund, grants and rebates

Beaverton School District has committed to rolling out 55 electric school buses, the most of any district in Oregon. To get there, Beaverton is leveraging its usual school bus funding model, in which the school district issues modernization bonds every eight years for school bus replacement and pairs this with depreciation reimbursement from the state. When Beaverton started its electrification journey in 2020, it combined these resources with a grant from its electric utility, Portland General Electric, which covered the incremental costs of four electric school buses and eight chargers. In the next round of procurements, Beaverton used its own funds combined with a $50,000 Diesel Emission Reduction Act (DERA) rebate per school bus to buy 10 electric school buses. In addition, the Oregon Department of Environment Quality provided a grant to fund charging infrastructure. In April 2024, Beaverton placed orders for another 50 electric school buses funded by the Clean School Bus Program.

Three Rivers School District, Michigan: grants, set-asides and tax credits

In 2019, Three Rivers School District funded its first electric school buses through the Volkswagen Settlement Funds. A portion of the charging infrastructure was covered by their utility company. Since then, the district has seen maintenance and fuel costs reduced by more than half. The district plans to continue to expand its electric school bus fleet and is building a transportation facility with charging infrastructure for future electric school buses. Three Rivers expects to apply for several upcoming funding opportunities and is setting funds aside to cover anticipated remaining upfront cost gaps after these awards are applied. These funding set-asides are also a strategic approach to managing cash flows around the reimbursement timeline of the 45W tax credit.

Section 45W tax credit

The Inflation Reduction Act of 2022 created the section 45W tax credit for qualified commercial clean vehicles acquired between December 31, 2022, and December 31, 2032. School districts and tax-exempt entities now have the option to receive the credit as direct payment after they procure electric school buses and charging infrastructure. Check out our 45W and 30C tax credit explainers.

Recommendations for successfully combining funding and financing

As school districts nationwide roll out electric school buses, transportation directors have shared some key learnings about how to pair funding and financing to secure electric school buses:

1. Communicate the benefits of electric school buses with your business officer, school board and broader local community. Communication strategies can include meeting with relevant stakeholders, organizing visits to an electric school bus depot, bringing an electric school bus on campus, hosting webinars and other engagement tactics. This is a key step for your local community to understand the expected health benefits, environmental benefits and operational savings expected from investing in electric school buses, especially during active campaigns that require community input. For more information, please see this Step-by-Step Guide for School Bus Electrification and Electric School Bus Pitch Slide Deck.
2. Understand how an investment in electric school buses could impact your school budget and financial position in the short and long terms. These considerations include operational savings, debt repayments, long-term financial priorities and set-aside funds to manage reimbursement timelines. Electric school buses are capital assets that need to be planned for and sustained. Districts that put in place mechanisms to be prepared for school bus replacements are better positioned to take advantage of other financial and funding mechanisms. Check out our article on complementing financing with funding to learn more.
3. Reach out to various financial institutions, public and private, as well as government agencies to understand the financing and funding options available and how they can meet your needs. There are many funding and financing mechanisms available that could be combined to enable cost-effective procurement of electric school buses. It’s important to evaluate how federal and state grants can be stacked with future bonds or low-cost financing provided by green banks or public agencies. Check out our Clearinghouse on funding opportunities.
4. Seek guidance from colleagues and experts that can share their expertise; these collaborators may also be able to support the process of applying for funding. The EPA’s EJ Clearinghouse compiles various resources covering technical matter expertise, funding opportunities and grant writing assistance.