Public schools can't use a tax credit, because they don't pay federal income tax. So for geothermal HVAC, the federal government pays them in cash instead. The program is called elective pay, and it turns the 30% to 50% geothermal investment tax credit into a check from the IRS. For a district replacing aging HVAC, that changes the math on geothermal completely.
Why schools are looking at geothermal now
A lot of St. Louis-area school buildings went up decades ago, and their rooftop units, boilers and chillers are reaching the end of their lives at the same time. Districts are putting HVAC replacement into bond issues and capital plans across the region. Most of those projects are being bid as like-for-like conventional replacements, which locks in another 15-year cycle of rooftop units.
Geothermal is the one HVAC option where the federal government covers a large share of the cost, and schools are one of the groups that get that share as cash.
The federal credit, in plain terms
Geothermal heat pump systems qualify for the investment tax credit under Section 48 of the tax code. The credit is a percentage of what the geothermal system costs:
| Piece | Amount | What it takes |
|---|---|---|
| Base credit | 30% | Start construction by the end of 2032. Larger projects also need prevailing wages and registered apprentices. |
| Domestic content bonus | +10% | U.S.-made steel, iron and manufactured parts. |
| Energy community bonus | +10% | A site near a retired coal mine or coal plant, in a qualifying fossil-fuel area, or on a brownfield. How to check. |
Most St. Louis-area schools can reach 40%. Schools in qualifying energy communities, such as those near Ameren's retired Meramec and Rush Island coal plants, can reach 50%. After 2032, the base credit steps down to 26% in 2033 and 22% in 2034, and it ends for projects that start in 2035 or later.
How elective pay works for a school district
- Build the system. The district pays for the project as usual, from bond funds or its capital budget.
- Register with the IRS. Before filing, the district completes a pre-filing registration for the project and gets a registration number.
- File and claim. After the system is placed in service, the district claims the credit on its annual return.
- Get paid. The IRS sends the credit amount as a payment.
The check arrives after the system is running, so the district covers the full cost up front. Plan the cash flow with your financial advisor, and confirm the details with a tax advisor before you bid.
What the math looks like
Take a building with a $1,000,000 conventional HVAC bid. Using our planning estimate that geothermal runs about 44% more:
| Conventional HVAC | $1,000,000 |
| Geothermal system | $1,440,000 |
| 40% federal payment | −$576,000 |
| Geothermal after the payment | $864,000 |
That's $136,000 less than the conventional bid, before counting a single year of lower operating costs. At 50%, the geothermal system comes in at $720,000.
Keep the check, or build something with it
A district can apply the payment to the HVAC project, or use it for something else the community wants. The well field has to go somewhere, and it's usually under a parking lot, an athletic field or a playground. If that lot or field is due for rebuilding anyway, the digging, grading and drainage get done once for both projects. The federal payment can then pay for the new surface on top.
The geothermal calculator shows both options with your own conventional price.
The savings after installation
- Energy. Oak Ridge National Laboratory found geothermal schools it studied used about 26% less energy. Lincoln, Nebraska pays about 70 cents a square foot a year to heat and cool its geothermal schools, compared with about $1.50 for conventional ones.
- Fewer replacements. Rooftop units last about 15 years. Indoor heat pumps last 20 to 25, and the ground loop about 50.
- No gas price spikes. No gas is burned for heat, so a cold winter with high gas prices doesn't hit the budget.
- Quieter, safer buildings. No rooftop condensers, no open-flame boilers, and less equipment outside to vandalize or steal.
Planning tips for districts
- Decide during design. The cheapest time to add geothermal is before a new building, addition, field or parking lot is designed, because the well field goes in first.
- Drill a test bore. It measures how well the rock carries heat and sets the size of the well field.
- Hire for the labor rules. Fischer Mechanical's pipefitters are Local 562 union labor, which meets federal prevailing wage and apprenticeship requirements.
- Specify U.S.-made equipment to secure the extra 10%.
- Schedule around the school year. Drilling happens outdoors, and indoor work can be done over the summer.
Want a feasibility review for a specific building? Get an estimate or call 636-327-4238.