City Manager Tom reported to the Lexington City Council on April 17, 2025, that a proposed $340,000 rooftop solar array for the Department of Social Services (DSS) would produce an estimated payback period of 18.7 years when the federal direct-pay investment tax credit under the Inflation Reduction Act is included.

The payback figure reflects the 40% direct-pay Investment Tax Credit (ITC) that the city would receive as a cash payment after project completion; the report lists that line-item as approximately $136,000. City staff said that without that federal subsidy, the same analysis shows a payback closer to 30 years and that individual consultant reports ranged from about 11.9 years to 29.8 years depending on assumptions about future electricity prices and system performance.

The project cost in the report is $340,000. Council members discussed other factors that affect payback, including whether the city would borrow money (the staff report did not include debt-service in the payback calculation), prospective interest rates, and the 25-year useful-life assumption for solar panels. Staff noted the proposed financing would likely be a 25-year bond at about 3.97% and that manufacturer performance warranties generally assume panel degradation of roughly 1% per year over 25 years but that panels can and do generate beyond that time frame.

City staff told the council the direct-pay ITC is available to local governments even though they do not have a federal tax liability; the program provides a check from the federal government after the city demonstrates the installation is complete. The city manager said the subsidy is received after installation is demonstrated; staff described it as an up-front equivalent because it is paid in a single payment once the work is complete rather than spread out as a multi-year credit.

Staff also said the construction timeline would be about 14 months from notice to proceed, putting expected completion in the summer of 2026 if the project moves forward on schedule. Officials cautioned that timelines and the availability of federal incentives are outside the city's control.

Council members asked procedural questions and raised caution about relying on optimistic assumptions. One council member pointed out that including borrowing costs would lengthen the payback period and that disposal or end-of-life costs for panels should be considered. City staff emphasized that the three participating governing bodies (City of Lexington, Buena Vista, and Rockbridge County) had approved bids in principle at the joint meeting in January and that no equipment orders had been placed; any governing body with concerns could still change course before panels are procured.

The matter was discussed for information; no binding procurement action was taken by the council during the April 17 meeting.