Governments and Utilities Entice Developers to Build Green

Nov. 1, 2007
U.S. incentives for building green are increasing, with federal, state, and local governments offering grants, tax offsets, expedited permitting, and shared costs

By Glen Phillips

Cities have much to gain from encouraging sustainable building. Green developments enhance livability and make cities more appealing; they are better for the ecology, create healthier living and working environments, and help conserve limited resources. From a financial perspective, city governments benefit because new development adds to the tax base and creates economic opportunity for the design and construction community.

For several years, federal, state, and local governments have tried to point the way for private developers by requiring public facilities to achieve green building objectives. In most cases, the U.S. Green Building Council's LEED (Leadership in Energy and Environmental Design) certification has been the standard by which facilities are built. While legislative requirements serve a purpose, luring developers to the table has a more compelling affect. Incentives spur excitement to keep developers engaged in green building and even draw them into the marketplace. Across the nation, incentives are growing in the forms of grants, tax offsets, expedited permitting, and shared costs.

Joint Efforts
Portland, OR, building owners can take advantage of several programs. The Energy Trust of Oregon is a ratepayer-funded organization with incentives for green projects. Projects can receive funding based on annual energy saved over the Oregon Energy Code baseline at 10 cents per kWh and 80 cents per therm. LEED projects can also receive incentives based on building type and on points earned under the LEED Energy and Atmosphere Credit 1 (Optimize Energy Performance).

The Oregon Department of Energy also offers incentives for green projects through its Business Energy Tax Credit program. Although offered as a state tax credit, the incentives can be sold at a rate set by the Oregon Department of Energy to "pass-through partners." One incentive based on project cost offers 35 percent of the eligible costs, including materials, labor, and engineering. The second incentive rewards projects achieving LEED-NC certification based on project square footage and the LEED certification level earned. As an example of the benefits, a 100,000-square-foot building achieving a LEED Silver certification would earn a tax credit of $140,000. The same building with a Gold rating would receive a tax credit of $177,485, or $292,495 at the Platinum level.

The City of Portland seeks to en­­courage sustainable development through a Green Investment Fund (GIF). Offered through a partnership through three city departments and the Energy Trust of Oregon, the GIF is a 5-year, $2.5 million grant fund that promotes exemplary green building projects with an emphasis on innovation. In its third year, the current round of funding has a total of $425,000 available. The maximum grant amount for any project is $225,000.

Michael Armstrong, deputy director at the City of Portland Office of Sustainable Development, says that the city has its own initiatives to promote sustainable strategies because it is concerned about the building stock's environmental performance. The programs are a way to help educate the marketplace and provide recognition for developers who are making positive strides. "There are issues completely ignored by much of the market today, and climate change is one of them. As local governments, we have an interest [in], responsibility [for], and obligation to what's happening in our city's future," says Armstrong. In addition, he says, there are economic benefits for all involved.

The city also provides a floor area ratio bonus to central city projects based on the inclusion of eco-roofs. A project can earn up to 3 square feet of additional floor area per square foot of the amount of eco-roof coverage on a building. Arlington County, VA, and Acton, MA, also offer floor area ratio bonuses, but they are based on the level of a building's LEED certification.

Austin Energy is the municipally owned energy company that provides electricity for Austin, TX. To promote more sustainable building measures, the utility has a Commercial Energy Management Rebate Program of up to $100,000 or 50 percent of job cost for items including energy-efficient air-conditioning, lighting, windows, roofs, and motors. For new construction, the utility has rebates on projects that exceed the state code. Smaller businesses that generate less than 100 kW per month can benefit from a program that pays up to 70 percent of a lighting retrofit and lower the customer to a less expensive, "non-demand" meter.

Austin Energy's Conservation Program Associate Chuck Ybarra says that it makes sense for the utility to offer the incentives to city customers. "The city has a green building program that educates building owners, but we have the funds to offer the incentives where the city does not," Ybarra says. "We want to show customers that they can conserve energy and still enjoy the standard of living they're accustomed to."

Thanks to its innovative green building features, the Oregon Health & Science University Center for Health & Healing re­ceived a Green Investment Fund grant offered through the City of Portland, OR, and the Energy Trust of Oregon.

Cosmopolitan Concerns
Large cities are very concerned about their energy capacity and recognize that green building strategies are an effective way to reduce energy consumption as well as dependence on external sources of fuel.

New York City has two existing resources for financial assistance, and more incentives are on the way. The New York State Department of Environmental Conservation offers a tax credit for building owners, developers, and tenants whose projects fall within certain categories and meet a range of sustainable criteria. The taxpayer receives 20 percent of the credit they are eligible for each year for 5 years. The cap per project is $2 million, and the program has a limit of $25 million in income tax credits allotted. The state is in its second round of funding and intends to accept applications for the program in early 2008.

The New York State Energy Research and Development Authority (NYSERDA) administers a systems benefits charge program for seven participating utilities. Consolidated Edison Co. is the electric utility provider in New York City, and customers can apply to NYSERDA's New Construction Program, which has a capital cost incentive cap of $400,000 per building. The program offers technical assistance on a cost-shared basis and a 40- to 50-percent incentive on the incremental costs of improved performance items in the building.

For a LEED building, the program matches the owners with consultants and shares the cost of achieving energy modeling, recycled-content materials, indoor air quality, and commissioning. Knowing that LEED certification requires more design effort, the owner/developer also receives a fixed-rate incentive based on the size of the building to help offset the costs of the design team once the building is certified.

"Part of what we are trying to do is move the marketplace forward and give building owners the tools and education they need to make the best choices," says Mark Eggers, program manager for NYSERDA's High Performance Buildings Group. It appears to be working. Eggers says that they've seen a marked increase in people pursuing sustainable measures over the past 2 years. In the approximately 250 applications that NYSERDA receives each year for incentives, about 40 percent of them are interested in doing something green with their developments.

The City of New York is revising the NYC Construction Codes, which Mayor Michael Bloomberg enacted into law in July and will take effect on July 1, 2008. The codes will provide fee rebates to builders who incorporate green designs. The city anticipates offering rebates that will encourage the recycling of construction and demolition waste, water conservation, the use of brownfield sites and renewable energy, energy conservation beyond the New York State Energy Code, and the achievement of LEED or comparable certification. The Buildings Department is working to develop operational guidelines and standards for administering the fee rebates.

In Los Angeles, the municipally owned Los Angeles Department of Water and Power (LADWP) breaks its incentives into two formats. One is the Prescriptive Design Incentive. This menu format allows developers to choose from energy-efficient features and obtain funds based on the savings generated by exceeding Title 24 standards. In an attempt to advance sustainable buildings as a whole, LADWP developed the Green Building Design Incentive for buildings seeking LEED certification as a more lucrative prospect for applicants.

To qualify for the LEED format funds, a project must earn at least 1 point for optimized energy performance, water efficiency, and enhanced commissioning. After that, each energy point receives an incentive based on square footage. The maximum allowable funding is $1.20 per square foot. The FY07-08 budget is $2 million, and 50 projects have submitted so far. Projects in the LEED program also benefit from expedited service planning and installation of water and electricity, which is a big draw for developers. "In one-on-one interviews, developers tell us that the real value is in the expedited services, because time is money when you're trying to get a project to market," explains Thomas Gackstetter, director of conservation at LADWP.

Located on New York City's Roosevelt Island, The Octagon received a package of incentives and low-interest financing for energy efficiency and green building improvements from NYSERDA.

A Quicker Process
According to Gackstetter, who is involved in the City of Los Angeles' current effort to promote sustainable buildings, the city is developing a process for expedited planning and permitting for buildings seeking at least a LEED Silver certification.

Other California cities are offering expedited services for varying levels of LEED certification, including Santa Monica, CA; San Diego; and San Francisco.

The City of Cincinnati's Community Reinvestment Area has been around since the 1980s. The program offers a net 75-percent exemption on improved value of property for new construction up to 15 years, and for renovations up to 12 years. Although the program is not specifically for green buildings, in May, the city revised the requirements to allow a developer constructing to LEED standards to receive an automatic exemption. This expedited approval reduces the length of the process by approximately 1 month for building owners.

In Chicago, expedited permitting provides true value to large, complex projects. After a pre-permit review, qualifying commercial and large residential projects seeking LEED certification can receive permits in as little as 6 weeks through the Green Permit Program. According to Erik Olsen, green projects administrator, Chicago, that's about half the time of the normal process. "In Chicago, we are fortunate to have a mayor [who] has chosen to make sustainability a priority," says Olsen. "This incentive is a real benefit, because we put the schedule back in the control of the developer." Projects in the program also receive a waiver of up to $25,000 for the city's plan review consultant services.

Recently, the town of Miami Lakes, FL, also established a green building program that reduces permitting fees for commercial building owners who comply with LEED, and Miami-Dade County, FL, implemented an expedited permit-approval process for green buildings.

Getting on Board
Multiple cities across the United States are determining their role in supporting green buildings. The city council of New Orleans approved a resolution in August for a green building program that included the provision of incentives for commercial and residential developments that meet LEED and ENERGY STAR® standards.

According to the City of Las Vegas' Department of Planning and Development, the city is looking at what other cities have done and is assessing what measures make sense for Las Vegas. At this point, no one is sure if the incentives will be in the form of expedited permitting or zoning, but recommendations will be taken to the city council by the end of the year.

In the past year, Nevada grappled with an unusual dilemma resulting from a hefty incentive. The 2005 Assembly Bill 3 offered developers a partial property tax abatement of up to 50 percent for not more than 10 years. By June of this year, developments totaling 63 million square feet of space (including large casinos) had applied for the abatement, which was projected to lead to lost tax revenue of $900 million. As a result, the Nevada Legislature passed another bill to reduce the abatement to 25, 30, and 35 percent based on a project's LEED rating level.

"We did receive interest and inquiries from our intended target (industries that provide primary jobs)," says Joe Reel, director of research and business development at the State of Nevada Commission on Economic Development. "Many people became interested in green building even if they didn't pursue LEED. When you realize you can cut your energy bill by up to 40 percent, that's pretty appealing."

To be a true market force, incentives need to be well known, broadly publicized, and easy to understand. When developers can't readily recognize the rewards that cities offer for building sustainably, they aren't apt to utilize them. Local and national experts who specialize in green building can help building owners navigate the requirements and determine how to make the most of the dollars available. Numerous tactics are available to reward green building, and incentives are a smart way for cities to pique the interest of developers. By doing so, cities create better places to live and help address worldwide environmental challenges. 

Glen Phillips is a project manager at Green Building Services Inc., a firm that helps clients successfully adopt green building and facility management practices. Phillips can be reached at (866) 743-4277 or ([email protected]).

PHOTO: PAUL WARCHOL/courtesy of Becker + Becker


Located on New York City's Roosevelt Island, The Octagon received a package of incentives and low-interest financing for energy efficiency and green building improvements from NYSERDA.

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