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Green Buildings Get Tax Relief

Incentive programs promote sustainable buildings


By Tristan Roberts

Energy conservation tax incentives have been around for decades, but the U.S. Green Building Council’s development of LEED has provided a way for states like Connecticut, Maryland, Oregon, and New York to define green building and promote it through their tax codes.

In Oregon, developers of buildings certified LEED Silver or better have saved nearly $5 million since 2001 thanks to the state’s income tax codes which reward green building. Developers have another $20 million coming to them from projects with pending LEED certifications, and the program is growing—in 2006, the state received 29 applications, totaling $13.7 million in eligible costs, calculated based on square footage and LEED rating. About a third of the eligible costs are awarded as a credit, and a pass-through clause also allows a developer without income tax liability to sell the credit.

Image courtesy Jim Frazier
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Renée Worme, sustainability manager for Gerding Edlen Development, a West Coast developer, attests to the program’s benefits. “By being able to point to the state tax credit as an offset to some of the costs of LEED certification, that helps get the client to take that next step,” she says. Gerding Edlen has applied for the tax credit with 23 projects and has built only one non-LEED project since 2001.

In New York, the nation’s first green building tax credit plan awaits updated regulations from the state before it can spend a second round of $25 million. The incentive, using green building standards modeled on LEED, spent $25 million after being enacted in 2000. Seven buildings received the money, and according to developer Bruce Becker, AIA, whose company developed one of them, Octagon Park on Roosevelt Island, the program has made wav es. “The state created an incentive to build some prototypes,” he says, such as the Solaire, the nation’s first green residential high-rise building located just blocks away from Ground Ze ro in lower Manhattan.

Those bigger programs have also influenced the growth of numerous others. Following passage of a bill in 2006, Baltimore County, Maryland, gives a full property tax abatement for 10 years to commercial buildings achieving at least LEED Silver. Chatham County, Georgia, offers LEED Gold buildings property tax abatement for 10 years, while Cincinnati grants tax abatement for all LEED-certified buildings, including 15 years abatement for new construction. In Nevada, the state sales tax is not applied to building products purchased for use in projects LEED Silver or higher. Federal incentives are on green developers’ wishlists, but even with Democrats leading Congress, legislation encouraging more government green buildings, common at the state level and in some federal agencies, is a likely first step.

Not all incentives are tax-based. While some cities, like Boston and Washington, D.C., are requiring developers to follow LEED for buildings over a certain size, other cities are using perks in the development process to encourage green. Cities like San Antonio have reduced permitting fees for green building, and Santa Monica and others provide expedited reviews for green projects.

“We’re seeing very small upfront costs in the LEED-certified buildings we’ve analyzed,” says Joe Maheady, policy director for USGBC but “tax incentives give a builder an extra incentive to go green.” Economist Nancy Brooks of the University of Vermont agrees that tax incentives work, but, noting that the costs of incentives are borne by all taxpayers, she argues that punishing developers who don’t build green might be more effective. “You’d get a double dividend,” she says. “You’d get green buildings, and you’d have money to get rid of some taxes that you don’t like.” But whereas a smaller group of supporters can enact an incentive approach, a punitive strategy would likely spark backlash—requiring a mainstream acceptance of green building that hasn’t yet materialized.

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This article appeared in the April 2007 print issue of GreenSource Magazine.

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