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How the Federal Stimulus Package Can Help Your Building

July 24, 2009

The federal stimulus package provides a great opportunity for buildings seeking greater energy efficiency – here’s what you need to know before undertaking a stimulus-funded project

It’s no secret that the American Recovery and Reinvestment Act of 2009 (ARRA) creates a vast amount of opportunity in the commercial buildings industry, with $787 billion allocated to rebuild our nation’s infrastructure, create jobs, and invest in green building and energy efficiency.

But, with such a large sum of money being filtered down from the federal government to a wide variety of government agencies, and the mass of competing information available, it can be difficult to know how to get federal stimulus money for your project, and what to expect once you do.

“Most owners we’ve spoken with say they aren’t sure if they’re getting anything or if they qualify,” says David Carrithers, past industry chairman at the Center for Job Order Contracting Excellence (CJE) and vice president at Centennial Contractors in Washington, D.C. What’s more, the funds aren’t flowing into building projects as quickly as industry members thought they would. “The vast majority of funding that we’ve seen is going to major infrastructure projects, such as roads and bridges,” says Carrithers.

For helpful information on the stimulus funds, visit these sites:

Individual States:

Despite this delay in takeoff for many stimulus-funded projects, there’s plenty of money available for buildings in the commercial and public sectors. According to Ken Simonson, chief economist at Associated General Contractors of America (AGC) in Washington, D.C., “AGC of America has identified 61 separate funding programs covered by the American Recovery and Reinvestment Act.”

A document released by the Institute of Real Estate Management (IREM) and the CCIM Legislative Staff, The Economic Stimulus Package & Treasury Department’s Financial Stability Plan, has identified the following funds (among others) available to help in the commercial buildings sector:

  • $6.3 billion for energy-efficiency grant programs, including $3.2 billion for the Energy Efficiency and Conservation Block Grants from the U.S. Department of Energy, and $3.1 billion for the State Energy Program.
  • $5 billion for the Weatherization Assistance Program.
  • $300 million for the Energy Efficient Appliance Rebate program and the ENERGY STAR® program.
  • $4.5 billion for Electricity Delivery and Energy Reliability to modernize and improve the electricity grid.
  • $200 million for the clean-up of leaking underground storage tanks.
  • $4.5 billion to convert GSA facilities to high-performance green buildings.

There are also numerous tax provisions that can benefit commercial building owners seeking to make their facilities more energy efficient.

In total, the amount of funding available to building owners and managers is “around $20 billion,” says Jack Parchesky, applications specialist at Bourne, MA-based Onset, which released a white paper titled Measurement & Verification: Tapping into ARRA Stimulus Funds, which provides building owners and managers with information on using federal stimulus funds for their energy-efficiency programs and retrofits.

While $20 billion may seem like a lot of money, the “amount of money available isn’t enormous compared to the overall building stock,” says Andrew Goldberg, senior director of federal relations at the American Institute of Architects (AIA) in Washington, D.C. “In terms of commercial buildings, there’s not a huge amount directly available through the stimulus for commercial private-sector buildings. The main reason: There aren’t that many existing programs at the federal level that provide funding directly to commercial buildings.”

Energy Efficiency
“There’s still funding available through various pots of money,” says Goldberg. “Perhaps one of the biggest is the Energy Efficiency and Conservation Block Grant program administered by the U.S. Department of Energy.” According to Karen Penafiel, vice president of advocacy at Washington, D.C.-based BOMA Intl., “Energy efficiency is probably what the majority will find to take advantage of. But, I wouldn’t say it’s the only thing.” Penafiel points out that there are also funds available for smart-grid technology, renewable energy, and other green building initiatives.

The ARRA also provides helpful tax provisions for energy efficiency: “One thing they did was extend to 2013 the federal tax deduction for energy-efficient commercial buildings,” says Penafiel. “That provision provides up to $1.80 per square foot of building floor area for buildings that achieve a 50-percent reduction in energy use based on the 2001 version of ASHRAE 90.1.” Additionally, clean renewable energy bonds are available through the ARRA, as are extensions of other tax benefits for renewable electricity production, among others.

As far as the actual stimulus dollars for energy efficiency go, the money is delivered from the U.S. Department of Energy to state and local governments based on a formula, and the state and local governments decide how to use the money. According to Carrithers, “The stimulus funds are creating opportunities for local public bodies to receive money for energy-efficiency upgrades through an application process. The challenge is putting together a competitive grant application.” More specific information about how individual states are using the funding (and how to apply) can be found at www.doe.gov/recovery.

Education Facilities
Funding is also available for education facilities, including public K-12 buildings and public universities: “The main areas [of stimulus funding] are probably the bonds and the state energy programs – a school is a different story, though,” says Goldberg. “There’s a pot of money that was given to the U.S. Department of Education called the State Fiscal Stabilization Fund, and it’s about $53 billion that goes out to states and then to local school districts.” The money from the ARRA for school districts, however, doesn’t necessarily go completely toward facilities. “On the state side, it’s interesting,” says Carrithers. “A lot of those funds for education facilities aren’t getting into the building side. The states are deciding to use them to fund or continue to maintain teacher salaries instead of the funds getting into construction projects.”

How the stimulus funds from the U.S. Department of Education are used is up to the states. “The money can be used for a range of different purposes, including salaries or buying equipment,” says Goldberg. “But, it also can be used for renovation of school buildings, including making school buildings more energy efficient.”

Simonson also mentioned some indirect ways that schools and universities can use stimulus funding: “They should be able to qualify for weatherization, alternative-energy, or energy-conservation grants; depending on whether they have their own water or wastewater treatment facilities, they may qualify for some money,” Simonson says. “There’s also money for the ‘smart grid,’ which may allow them to add controls on electricity use.”

Challenges of Working with Federal Funds
Due to the nature of working with funds from the federal government, there are challenges that building owners and managers will potentially face when trying to undertake a project using the federal stimulus fund. “Many companies or organizations may not have experience or knowledge of the substantive requirements that are going to be imposed by a federal agency,” says Michael Cornicelli, executive vice president at BOMA Chicago. “There’s a learning curve to understand what their objectives are and what strings are attached to any funding opportunity that might be available.”

Further confusion is caused by chain of command: “Provisions vary by state – the vast majority of funds that are going to be used to stimulate energy-efficiency improvements are being distributed through the states,” says Penafiel. “It depends on what the states are offering, and that’s why this is so frustrating for people trying to track the money.”

According to Cornicelli, just getting the funding can be a challenge. “Unless the building is exceptionally large, or unless it’s aggregated with others, the difficulty of obtaining stimulus funds for smart-grid projects through the DOE is probably prohibitive,” he says. Another difficulty is in the steps that must be taken at the start to get you into the system: “There are forms you have to fill out, and it can be tricky because, a lot of times, one of the things that helps is having previous experience with the federal government, so it’s a Catch-22,” says Goldberg. “A lot of firms partner up with the bigger firms or bigger contractors that already have federal experience.”

Working with federal agencies also has requirements that some building owners may not be familiar with. “There are requirements for reporting that are different, in that any funds that came from the stimulus that go to a federal project need to be highlighted and tracked from the beginning,” says Carrithers. “There also seems to be some debate by the different organizations about what’s required in the reporting.”

Perhaps one of the best ways to meet the reporting requirements of a stimulus-funded project, especially energy-efficiency projects (which require documentation that the project increased efficiency), is via monitoring. Parchesky stresses the importance of energy monitoring in meeting the ARRA goal of accountability: “The issue of accountability for facility managers is becoming really important,” says Parchesky. “In the past, you could obtain grant money for energy-efficiency improvements and you were never required to say, ‘This is how much energy I saved.’ So, now they’re mandating: ‘We want to see, in black and white, the old building and the old energy usage – and the new wind turbine, and how much energy was saved from having that wind turbine run for a year.’ ”

The complexity in deploying funds poses another difficulty for building owners. Knowing how the money is delivered, as well as what other financing vehicles are available to supplement the funding, can smooth the ARRA funding application process for building owners.

Not all projects eligible for funds from the ARRA will be paid in full by the stimulus money. The stimulus package provides money for some projects, including smart-grid projects, on a match basis. For every dollar the private applicant can pay, the federal government will match that amount. “This does a couple of things,” says Cornicelli. “It cuts the cost of some of those projects in half, and it also means that the half the building owner needs to put up can be more readily financed. A lender is now looking at a loan half the size or with a shorter payback period than would have been the case without the matching funds.”

Several tools are available to help building owners finance additional funds in stimulus projects, as well as to help get these projects up and running in an adequate timeframe: This is an important factor, as much of the stimulus money is only available for a limited amount of time (usually around 18 months).

According to Cornicelli, combining ARRA funding with something like a performance-based contracting agreement, which funds an energy-efficiency project with the money saved by reduced energy costs (see Newsworthy, page 8), can greatly benefit building owners in cases where the stimulus is only matching the cost. “There’s a very real potential for stimulus funds being applied to create a situation in which building owners are not out of pocket for anything – even the half they have to put up,” says Cornicelli.

Other contract types, such as job order contracting (JOC), which is a contract mechanism available for public-sector buildings (such as federal and state buildings) and public schools and universities, can help a building owner get his/her project out in a tighter timeframe. “JOC is ideal for stimulus projects because the funds can be applied quickly,” says Carrithers. “It’s competitively procured upfront, and it’s different than the traditional design-bid-build construction methodology.” According to Carrithers, JOC has firm fixed pricing; once the project is highlighted, scoped, and determined, the budget is fixed. There are zero change orders, and the project can begin in as soon as 30 days.

Goldberg also suggests that a smart way to maximize your benefit from the stimulus funding is to combine different “pots of money” provided by the ARRA. For example, “a school could use some money from the U.S. Department of Education stabilization fund, and some money from the U.S. Department of Energy’s Energy Efficiency Block Grant, and maybe some bonds,” says Goldberg.

ARRA tax provisions and utility programs can also be effectively combined with stimulus funds. “On top of the stimulus money, many states and utilities have energy-efficiency programs,” says Penafiel. “That’s completely independent of the stimulus money, but it’s another source of funds to finance different energy-efficiency improvements.”

Overall Impact
It’s still too early to tell how much of an impact the ARRA is making on the commercial buildings industry. “The impacts will be showing up at an increasing rate,” says Simonson, “but it’s not going to be enough to overcome the steep downturn we see happening in private and state and locally funded projects.”

The ARRA does provide a step in the right direction, however: “While this is a very good start, this is just a down payment on the amount of investment that needs to be done in infrastructure or green buildings,” says Goldberg. Even now, more is being done to invest in green building, including the recently passed cap-and-trade bill, but the funding does provide an opportunity for more research into green building and technology that wasn’t available before. Additionally, the ARRA projects will create a trickle-down effect into the larger economy.

“Although there’s not as much money in the bill for commercial facilities overall, if the bill does create jobs and get things moving, and takes projects off the shelf and gets them built, that will then create more demand for commercial building,” says Goldberg. “You’re not going to have funding opportunities like this that often – it’s a chance to show, in a pretty large-scale way, in every community and every part of the country, that we can do some important things with building and grow the knowledge base of the industry.”

Amanda B. Piell ([email protected]) is news editor at Buildings magazine.

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