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Motion to Dismiss In USGBC v. Gifford Raises The Question: Who Is A USGBC Customer?
Posted on April 11, 2011 by Shari Shapiro
On Friday, the USGBC responded to Henry Gifford's amended complaint with a Motion To Dismiss for failure to state a legal claim (Federal Rule of Civil Procedure 12(b)(6)) and for lack of subject matter jurisdiction (Federal Rule of Civil Procedure 12(b)(1)).
In essence, the USGBC's response has two prongs: 1) the Plaintiffs lack standing, as I predicted here; and 2) that the Plaintiffs could not demonstrate that they had been harmed by the USGBC's allegedly illegal conduct. Stephen Del Percio does a nice job of outlining the standing arguments here.
In the back of the Memorandum of Law is an interesting discussion of the USGBC's marketing. In the context of arguing that the New York Consumer Fraud Statute does not apply, the USGBC argues:
USGBC's marketing--which is before this Court on this motion--is directed at businesses and professionals. The website, which is how USGBC advertises, defines the audience for USGBC's marketing. LEED users are 'architects, real estate professionals, facility managers engineers, interior designers, landscape architects, construction managers, lenders and government officials...
I think this is a difficult argument, and not one with a lot of factual merit.
The USGBC website has a link to a website entitled:
U.S. Green Building Council's Green Home Guide Connecting you to ideas, advice and green home professionals.
The purpose of the site is clearly to communicate information about LEED and green building directly to consumer homeowners. The Green Home Guide website offers a tool for homeowners to become acquainted with the LEED for Homes system:
LEED FOR HOMES SCORING TOOL
It's FREE.NEW – The LEED for Homes Scoring Tool
Q: How close is your project to earning
LEED for Homes certification?
A: Probably much closer than you think.
As the building industry evolves, more residential projects already include sustainable features that contribute to certification. The LEED for Homes Scoring Tool will help you assess your project. By answering a few simple questions, you’ll not only learn just how close you are to earning certification, but also various steps you might take to get there. Plus you’ll gain important insight on the LEED for Homes rating system.
The USGBC even publishes a brochure for LEED® for Homes™ FAQ for Homeowners available here.
So, it's pretty clear that the USGBC is marketing directly to consumers, contrary to the Memorandum of Law in support of the USGBC's Motion to Dismiss.
The worst part is that there was no need for the USGBC to make this factually unsupported argument. Even if the USGBC advertises to consumers, the consumers that might have been harmed by the advertisement are not included amongst the plaintiffs, and are not represented by the factual misstatements alleged in the Amended Complaint. Making factually unsupported arguments may weaken the punch of the USGBC's clearer grounds for dismissal, and provide a toe hold for the Plaintiffs to plant seeds of doubt about the rest of the USGBC's arguments.
Tags: Litigation, USGBC, building, consumer, fraud, frauds, gifford, green, lawsuit, motion to dismiss, new, suit, york
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Stormy Seas Ahead: Cuts to Budgets and Challenges To Regulatory Authority Will Mean Changes For The Green Economy
Posted on April 6, 2011 by Shari Shapiro
The United States is at a precipice with respect to public motivators for the green economy. Essentially, the carrot of public incentives or investment and the stick of potential mandatory regulation of carbon emissions are slated for elimination at the same time.
Although we cannot know what this two part challenge to the green economy will do, it will certainly change its trajectory for the foreseeable future.
First, of course, are the proposed revisions to the 2011 budget. With respect to green building, slated for cuts are most programs that promote green building or which invest Federal dollars in green buildings directly:
$3 billion of EPA funding overall
$1.6 billion (nearly 20%) of the Federal Building Fund at the General Services Administration (GSA)
$786 million (over 35%) of the Energy Efficiency and Renewable Energy (EERE) office at the Department of Energy (DOE)
$250 million in funds for the Department of Housing and Urban Development (HUD) HOPE VI program, which leverages private sector dollars to transform existing blighted public housing into vibrant and livable communities.
$10 million for the Energy Star program at the Environmental Protection Agency (EPA).
With respect to renewable energy, the proposed Republican budget bill slates for reduction or elimination over $900 million in investment. Among the programs slated for cuts or elimination is the Department of Energy Loan Guarantee Program for clean energy start up companies, established during the George W. Bush administration. According to Forbes, DOE officials have said that eliminating this program would do away with 20,000 jobs, along with the benefits for the environment.
In addition to the direct cuts, at least four different proposals are pending (potentially up for a vote this week) restricting or eliminating EPA's ability to regulate greenhouse gases. If the EPA is restricted in its ability to regulate greenhouse gases, one of the most potent motivators for investment in reducing carbon emissions through renewable energy, green buildings and other carbon reduction techniques will be eliminated.
The question will become not whether renewable energy and green building can compete without government subsidy, but rather whether renewable energy and green buildings can compete in the face of continuing subsidy to competing technologies like coal, oil, etc.
According to the Center for American Progress, the proposed Republican budget will make few changes with respect to the $40 billion+ Government support of these technologies through tax incentives and other mechanisms. Fox News was unable to get a commitment from House Budget Committee Chairman Paul Ryan (R-WI) that tax breaks for oil and gas companies would be eliminated:
WALLACE: A lot of Democrats that are already saying, even before they’ve seen your budget, that you do all of this balancing of the budget on the spending side, and unlike the President’s debt commission, you don’t do it on the revenue side. Do you eliminate tax breaks? Do you bring in new revenue by eliminating, for instance, tax breaks for oil companies?
RYAN: We don’t have a tax problem. The problem with our deficit is not because Americans are taxed too little. The problem with our deficit is because Washington spends too much money. … So we’re not going to down the path of raising taxes on people. […]
WALLACE: But for instance, you will not eliminate tax breaks for Big Oil and Gas?
RYAN: Those are the kinds of details that we’ll come out later with, that the Ways and Means Committee will work on. We’re not going to go into the little details of which tax expenditure goes and which tax expenditure stays.
[You can watch this portion of the interview on You Tube]
The next few weeks will be historic ones with respect to America's green future. For better, worse or otherwise, these are interesting times which will mean changes for everyone in the green sector in the United States.
Tags: 2011, EPA, Economics, budget, cuts, debate, economy, elimination, gas, green, obama, oil, renewable
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New Firm, New Look, Even More Green Building News
Posted on April 6, 2011 by Shari Shapiro
You may have noticed that it has been uncharacteristically quiet over at GBLB the past month. I have moved to the Energy, Environmental and Public Utilities Practice of Cozen O'Connor. Thank you for your patience, and now that the move is accomplished, we will be doing a redesign of GBLB with great new features coming very soon!
Tags: Articles, connor, cozen, o'connor, oconnor
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Redding, CT TOD Green Bond Project Failing To Meet Commitments
Posted on March 11, 2011 by Shari Shapiro
Like the Destiny USA project in Syracuse (which is mired in a controversy over whether the tax exempt green bonds issued for the project should keep their tax exempt status despite the project's failure to incorporate any green features--more about that project is available here), the Georgetown Redevelopment Project in Redding, Connecticut was also selected as a demonstration project to qualify for green tax-exempt bonds under the America Jobs Creation Act of 2004.
According to my research, at least $14.5 million in tax exempt bonds were issued for the Georgetown project. For you bond junkies, the details of the bond offer was:
Georgetown Special Taxing District
Nov 16, 2006 $14,450,000
General Obligation Bonds, Series 2006A (book entry)
Dated Nov 22, 2006.
Due Oct 1, 2036.
First coupon Apr 1, 2007.
Callable Oct 1, 2016 at par.
Purchased through negotiation by Banc of America Securities LLC, as
follows:
Due Amount Cpn Reoffered Ins
10/1/36 $14,450,000 5.125% 5.125%
L.O.: Shipman & Goodwin, Hartford, CT.
F.A.: Lamont Financial Services Corp, Wayne, NJ.
Like the Destiny USA project, the Georgetown project stalled, and is having difficulty meeting its bond obligations.
According to the Weston Forum, the deal to sell the site to a developer fell through in mid-2010:
With the advent of the country’s financial crisis in 2008, capitalizing the project became an issue. That, combined with the delay in state approvals, stalled the project, but the intersection work has since been funded and put out to bid.
As of July 9, 2010, according to Bond Buyer (subscription required) the Georgetown Special Taxing District in Connecticut received a forbearance on $1.5 million of tax anticipation notes after failing to pay them on time.
The district was unable to pay the notes on June 30 because it had not collected property taxes from a stalled mixed-use development. The project and district are located on a 51-acre tract in the town of Redding in affluent Fairfield County.
The forbearance gave the district two months to figure out what to do without defaulting on bond payments. The failure to make the payment by June 30 constitutes a technical default, according to disclosure documents. It is not clear whether the bonds were paid, but if they were not, another set of green bonds has gone into default.
Although the two projects are currently in the same boat financially, they are not equivalent projects. Unlike the Destiny USA project, which was a large mall extension which was going to be fitted out with green features, the Georgetown Redevelopment Project was actually a thoughtful green project. It was envisioned as a transit oriented, mixed use redevelopment of a 55 acre, contaminated wire mill site. The master plan includes residential (including 40 units of affordable housing), commercial and light industrial uses, as well as a YMCA, performing arts center and public open space oriented around a transit station. A powerpoint of the master plan and description of the project is available here.
The project would have encouraged transit use, created a mixed use community, redeveloped contaminated property and (theoretically) integrated green building and renewable energy features. This is exactly the sort of project which should be encouraged and supported.
The fact that the Georgetown project has not come to fruition is a bad outcome for the Georgetown project in specific, and green bonded projects in general. First, this is a good project. Doing transit oriented, mixed use development is positive for communities and the environment. So, the fact that it had difficulty meeting its financial obligations and may not come to fruition is disappointing.
On a more global level, projects like Georgetown and Destiny USA make bonds for green projects look risky, which may make financial institutions shy away from issuing and underwriting the bonds. This will make getting financing for green projects harder than it already is. Second, it makes the public sector more reluctant to support green projects if they fear that they will not be able to meet their financial obligations.
To end this on a brighter note, it appears that public entities are continuing with the site and transit work on the Georgetown project continue to progress, even though a private developer is not currently doing the mixed-use component.
Tags: Regulations, carousel, connecticut, destiny, green, green bond, redding, syracuse
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Good Intentions Gone Bad: The Cautionary Tale Of Destiny USA And Green Bonds
Posted on February 25, 2011 by Shari Shapiro
I covered the messy breakdown of the Carousel/Destiny USA project in Syracuse on Monday. In short, the Destiny USA project was selected as a green "demonstration" project under the 2004 Green Bonds program. $255 million in tax exempt bonds were issued on behalf of the project, the revenue of which was supposed to be used to implement the green features of the project. As of now, none of the green features have been implemented, and the developer has intimated that even if the project is fully built out, the green features will not be included. The IRS will have to decide whether to rescind the tax exempt status of the bonds for failing to meet the green requirements.
I have written at length about creating effective green incentives and regulations (see my Regulating Green Series here). For me, the most interesting part of this debacle is what it reveals about a major green incentive program. The Green Bonds program was developed as a part of the America Jobs Creation Act of 2004. In theory, the program was intended to:
finance environmentally friendly development. The objective is to reclaim contaminated industrial and commercial land (brown fields), and encourage energy conservation and the use of renewable energy sources.
Although the goals of the Green Bonds program were clearly noble, as I see it the program was doomed from the start. No market rate project in 2005 could have met all of these requirements. Thus, the proponents of the projects had reason to overstate the green components of their projects to access $2 billion in tax free capital for the projects.
According to the IRS Guidance (available here) $2 billion in AAA tax exempt bonds were authorized by the Federal government to be awarded to four demonstration projects. To qualify for the bonds, the four projects in aggregate had to:
Reduce energy consumption by more that 150 megawatts annually compared to conventional generation;
Reduce daily sulfur dioxide emissions by at least 10 tons compared to coal generated power;
Expand by 75% the domestic solar PV market in the United States as compared to the expansion of that market from 2001-2002, which was 14.424 megawatts (which means an aggregate increase of approximately 11 megawatts, or an average of almost 4 megawatts of PV power per projects);
Use at least 25 megawatts of fuel cell energy generation.
In addition, each project had to be at least 1,000,000 square feet or 20 acres and:
At least 75% of the square footage had to be LEED certified;
The wood had to be certified under the Sustainable Forestry Initiative or the American Farm Tree System;
Reclaim a brownfield site
Beyond the green features, the projects also had to create at least 1000 construction jobs and 1,500 full time equivalent jobs.
In addition to the requirements of the Green Bonds, the Destiny USA project entered into a Memorandum of Understanding with the EPA (available here and summary below from Syracuse.com) committing to:
Using green building design, construction and operation principles to obtain the highest levels of certification from the U.S. Green Building Council's Leadership in Energy and Environmental Design
program;
Retrofitting more than 100 construction vehicles with diesel particulate filters and using clean fuel, which will reduce emissions by nearly 85 percent;
Implementing techniques to reduce idling of vehicles during construction
Becoming partners in EPA's Energy Star and WaterSense programs,
which require the use of energy- and water-efficient appliances;
Using over 3,000 tons of coal ash in place of using newly-manufactured Portland Cement, which will reduce greenhouse gases by over 3,000 tons.
As a policy measure, the green bonds were destined to be ineffective. For a green incentive to be truly beneficial, it needs to set out goals that stretch its recipients to higher levels of sustainability, but not so pie-in-the-sky that they create an incentive to greenwash their projects. This is a tough balance to strike. Doing so requires that the regulatory bodies have a good understanding of the state of the green market that they are looking to incentivize. It is not enough to throw public money at any project claiming to be green. The result is projects like Destiny USA, which give a bad name to green building and public financing of green projects.
By contrast, good investment in green projects can bring real benefits. I analyzed the investment of ARRA funds in green projects. Per public dollar, these investments were among the most efficient ways of creating jobs of all of the ARRA money spent. (See my analysis here). As Congress debates the value of continuing public investment in green projects and renewable energy, the debate must not only be about whether, but how, the support will be crafted and implemented. The road to green is paved with good intentions.
Tags: Regulations, Stimulus, arra, bond, carousel, destiny USA, green, incentive, irs, regulation
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Taken For A Ride On The Carousel: Failed Green Project Sets Stage For Suits
Posted on February 21, 2011 by Shari Shapiro
The foundation for a rash of legal actions arising out of a failed green project have been laid.
According to the Syracuse Post-Standard, the Carousel Center shopping mall was supposed to be a showcase of green features. To fund the project, the Carousel Center developers secured:
$228 million in federally authorized, tax-exempt “green bonds” to help finance the first phase of Congel’s expansion of the mall into an entertainment and tourism center to be called Destiny USA.
Unfortunately, six years later, those green features are no where to be found:
There is no 45-megawatt electricity generating plant running on “biofuel” made from soybean oil and recycled cooking grease. If there were, it would be the largest such plant in the nation and consume more than one-third of the total U.S. biodiesel supply.
Nor are there 290,000 square feet of solar panels on the mall’s roofs and other surfaces, enough to blanket six football fields.
The fuel cells that were to make 7 megawatts of electricity, five times more than the nation’s largest existing commercial fuel-cell installation? Nowhere to be seen.
The construction landscape is littered with the bodies of failed projects, grandly envisioned in 2005 and all but abandoned in 2011. The question--What becomes of the tax exempt status of the bonds?
Loss of the tax exemption would require Congel to pay higher interest rates on the bonds to compensate investors, who would suddenly be required to pay income taxes on the interest they earned. The increased cost would depend on the interest rate spread between taxable and tax-exempt bonds at the time of the IRS ruling. In 2005, a Destiny USA executive estimated the tax exemption would save the developer about $120 million over the 30-year term of the bonds.
If the IRS chooses to rescind the tax exempt status of the bonds, there could be a flood of legal fallout. A few possibilities:
Investors, particularly institutional investors, now forced to pay taxes on their previously exempt bonds could sue Congel.
Government entities, like the Syracuse Industrial Development Authority, could pursue Congel. Although the SIDA did not put up any money outright, it gave the project a 30 year tax abatement, presumably on the premise that completion of the project would bring economic development. If the project would not have gone forward without the $228 million in green bonds, SIDA might have grounds for seeking its property taxes.
Citibank and Congel entered into a settlement under which Citibank agreed to disburse the remainder of the $$155 million construction loan on the project. If the project is devalued by the impact of the tax issue, Congel may be in breach of whatever settlement he came to with Citibank.
According to the Post-Standard, the developer’s attorneys now say the promised conservation and technology goals will not be achieved with the current expansion and may never be achieved, even if future phases of Destiny are built. if the Federal government can prove that Congel fraudulently represented that the project would have the green features, this may be additional grounds for a suit.
However, Congel almost certainly protected himself and his development company behind a single purpose entity to develop the Carousel Center. If, at the end of the day, the only asset the single purpose entity has is the partially completed Carousel/Destiny USA Center, investors, the government and the people of Syracuse may have been taken for a ride.
Tags: Litigation, bond, carousel, congel, destiny, irs, sida, suit, syracuse, tax, usa
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Vote For GBLB!
Posted on February 18, 2011 by Shari Shapiro
GBLB has been named one of the top 50 Environmental and Climate Change blogs by Lexis Nexis, and has been nominated for a Jackson Design and Remodeling Annual Industry Blogger Award in the Green Category.
For the Lexis Nexis blogs, you can comment on the best blogs list until February 28 here. Once the comments have been compiled, the Lexis Nexis community will vote for the best blog.
For the Jackson Design and Remodeling competition, voting will start March 4, 2011 and closes on April 15, 2011.
Thanks to our great readers who nominated us and for voting for GBLB for best blog!
Tags: Articles, Jackson, Remodeling, and, award, best, blog, change, climate, design, environment, jdr, lexis, nexis, vote, win
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Are Green Building Codes The Only Answer?
Posted on February 15, 2011 by Shari Shapiro
There has been significant discussion over the past few months over the need for green building codes to achieve major green building goals. The International Green Construction Code Version 2.0 was published in November 2010, and CalGreen, California's mandatory green construction code went into effect in January 2011.
A developer friend asked me what I thought of CalGreen, and it got me to thinking:
Could you achieve the same environmental results by implementing regulations that did not require an overhaul of the building code?
Last week, San Francisco passed a regulation requiring owners of nonresidential buildings to
conduct Energy Efficiency Audits of their properties every five years, and file Annual Energy Benchmark Summaries for their buildings. The regulation is available here. San Francisco is following the lead of Washington DC and other municipalities mandating disclosure of energy performance.
Could mandatory energy, water use and indoor air quality disclosure, along with rigorous benchmarking be the foundation of an alternative green regulatory approach? An interesting thing that San Francisco did is not only to make the disclosures mandatory, but also to file them with the city, allowing public access to the records. Thus, they can be used by anyone looking to purchase or value the buildings. By mandating disclosure, it incentivizes building efficiency measures, and lets the market do most of the work to force the highest levels of efficiency.
The next piece would be to provide major incentives for infill development, brownfield redevelopment and trandevelopment around mass transit--and charge a premium for infrastructure improvements outside developed areas.
Another component would be to reduce parking requirements, and create parking maximums. The reduced parking capacity would reduce building costs, incentivize public transit usage and make properies built in strong transit hubs more attractive.
Finally, mandate recycling of construction and demolition waste. C & D waste is easy to track and waste management is already highly regulated.
These efforts address most of the green building focus areas--water, waste, energy, site, and indoor air quality. The question is whether this combination of market transparency, incentives and mandates would be as effective in reaching environmental goals as a drafting and implementing a new green building code.
Tags: Regulating Green, alternative, calgreen, code, construction, demolition, igcc, incentive, regulation
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But Is There Fire: If LEED Is A Fraud, Why Aren't Developers Suing?
Posted on February 9, 2011 by Shari Shapiro
NOTE: The opinions expressed in this post are entirely those of the author, and do not represent the position of the USGBC or the Delaware Valley Green Building Council.
Yesterday, I discussed the fact that Henry Gifford filed an Amended Complaint in his suit against the USGBC for fraudulently claiming that LEED buildings save energy. The post, as well as the Amended Complaint are available here. I also noted that Mr. Gifford and the other plaintiffs probably do not have standing to bring the suit because they were not harmed by the allegedly fraudulent advertising of the LEED system.
Mr. Gifford alleges that the people and entities that have been and will be harmed include:
USGBC's misrepresentations have and will continue to deceive consumers and voters, taxpayers, developers, municipalities, and legislators at the local, state and federal levels.
Amended Complaint at Paragraph 57.
This brings up critical questions about the legitimacy of Mr. Gifford's claims:
If developers were really experiencing energy performance vastly out of proportion to their expectations, wouldn't there be suits by developers against their design professionals and/or the USGBC?
If the Federal government, with one of the largest portfolios of LEED buildings, were really disappointed by their performance, wouldn't they stop using the system?
If design professionals were spending money to obtain worthless credentials, then wouldn't architects (whose profession is down something like 50%) be lining up to demand their money back?
If the problems that Gifford alleges are so fundamental, why is it that Henry Gifford and a few other plaintiffs who have rejected the LEED paradigm seem to be the only ones suing?
The concept of abstract “rightness” does not play a very large role in the American judicial system. With few exceptions, only a person harmed can bring suit to right the wrong done to him or her. So, even if you or I see something terribly “wrong” happening, if we are not harmed by it, we have no standing to bring suit.
For example, a man stops by a street hustler and plays a shell game. You are standing on the corner. You see the street hustler take his money and bilk him. The man sees it too, but shrugs his shoulders and walks away. You cannot sue to get the guy’s money back—only he can (or press charges, etc).
If there are no victims of the USGBC's "fraud", then Mr. Gifford's is really just a gadfly who is calling attention to himself by suing the USGBC. If there is fraud, then we should see a rash of suits by plaintiffs who have actually been harmed--consumers and voters, taxpayers, developers, municipalities, and legislators at the local, state and federal levels.
NOTE: The opinions expressed in this post are entirely those of the author, and do not represent the position of the USGBC or the Delaware Valley Green Building Council.
Tags: Litigation, USGBC, amended, complaint, energy, fraud, gifford, lawsuit, standing
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Gifford Files Amended Complaint in Gifford v. USGBC Which May Lead To Discovery From USGBC
Posted on February 8, 2011 by Shari Shapiro
NOTE: The opinions expressed in this post are entirely those of the author, and do not represent the position of the USGBC or the Delaware Valley Green Building Council.
In October 2010, Henry Gifford filed a lawsuit against the United States Green Building Council alleging, essentially, that the USGBC had fraudulently represented the performance of LEED buildings, and doctored study results to support their claim that LEED buildings performed more efficiently than standard construction. Yesterday, Henry Gifford filed an amended complaint (you can download the amended complaint here).
The original suit was filed as a class action, and included claims against the USGBC for illegal monopolization and false advertising. I posted that these issues would probably not pass legal muster. The class action could not be certified (see my post here) and the suit did not establish that the USGBC was a monopoly (see my post here).
There are several changes to the new complaint:
It has been boiled down to essentially a False Advertising and Consumer Fraud Act case under Federal and New York State law.
It is not a class action.
The monopolization claim has been eliminated.
Several new plaintiffs have been added, including an architect, an engineer, and a "speciali[ist] in moisture barrier design and mold remediation."
The essential claims as alleged in the factual section of the Amended Complaint are that the USGBC has misrepresented the energy efficiency of LEED buildings, and that the LEED certification is not a verification of the actual energy performance of the building.
From a legal perspective, I believe that the Amended Complaint is still riddled with a fatal flaw--the plaintiffs probably do not have standing.
In alleging a violation of the Lanham Act, the Federal act prohibiting false advertising, the Amended Complaint states:
USGBC's misrepresentations have an will continue to deceive consumers, voters, taxpayers, developers, municipalities and legislators at the local, state and federal levels.
However, fraud requires "reasonable reliance" on the false statements. The difficulty here is that, although more plaintiffs have been added, they are still not plaintiffs that were "duped" by the USGBC's representations. The claims alleged by Gifford are really claims rightfully brought by people who have been harmed by spending too much on LEED buildings, or LEED accreditation. In essence, Gifford has not eliminated the standing problem that doomed his class action.
The Amended Complaint is also rife with hyperbole, which diminishes its credibility. For example, with respect to a study on the performance of LEED buildings:
The self-selection bias is so obvious, it's about as reliable as using breathalyzer tests of drivers who volunteer to be tested as a gauge of how many people drink and drive.
See Amended Complaint at Paragraph 32(b).
Despite the fact that Gifford's lawsuit is probably flawed by reason of lack of standing, as revised the Amended Complaint may be enough to survive a Motion to Dismiss. In that case, discovery will proceed, which will open the internal communications of the USGBC to public scrutiny.
As with the kerfuffle over the emails among scientists studying global warming, this may muddy the waters and slow the progress of green building, even if the claims against the USGBC are eventually proven to be unfounded.
NOTE: The opinions expressed in this post are entirely those of the author, and do not represent the position of the USGBC or the Delaware Valley Green Building Council.
Tags: Litigation, New York, USGBC, amended, complaint, discovery, fraud, gifford, lanham
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A "Perfect Storm" For Renewable Energy? Obama Makes Green Energy And Green Buildings A 2010 Priority
Posted on February 3, 2011 by Shari Shapiro
In last week's State of the Union address, Obama challenged America to embrace a "Sputnik Moment":
So tonight, I challenge you to join me in setting a new goal: by 2035, 80% of America's electricity will come from clean energy sources. Some folks want wind and solar. Others want nuclear, clean coal, and natural gas. To meet this goal, we will need them all – and I urge Democrats and Republicans to work together to make it happen.
Today, speaking in State College, PA, Barack Obama is scheduled to make a speech on committing to new programs for energy efficient buildings.
According to Reuters:
As part of that program, Obama will announce a plan to improve energy efficiency in U.S. commercial buildings by offering businesses incentives to help pay for clean energy upgrades of offices, stores and other buildings.
According to the White House, the "Better Buildings Initiative" will:
achieve a 20 percent improvement in energy efficiency by 2020, reduce companies' and business owners' energy bills by about $40 billion per year and save energy.
Most significantly, the Obama administration announced that the cost of the program would be "paid for by ending tax subsidies for oil, natural gas and other fossil fuels."
Obama faces many challenges in the process. At a recent American Council On Renewable Energy event on the new political climate in Washington, all of the speakers expressed skepticism that real energy policy moves could be made in 2010. The Republican party does not want to be perceived to approve of any discretionary spending. The fossil fuel lobby is very strong and the breaks and incentives for fossil fuels very well entrenched. Finally, states with nonrenewable resources like coal, natural gas and petroleum are loathe to threaten these high value industries, particularly in lean economic times.
Obama and the Democrats have a few unique elements which could turn into a "perfect storm" for renewable energy policy:
Public interest studies have demonstrated that Americans currently have a positive image of solar and other renewables.
The Gulf Oil Spill is still relatively fresh in the public's mind.
The turmoil in the Middle East is increasing by the day.
There were record weather patterns again this winter.
The ARRA demonstrated the capacity of public investment to grow green jobs.
If these components can be honed into a clear, coherent connection to the value of investment in renewable energy, then it may be possible to achieve a major step forward in energy policy.
One small step for Obama, one giant step for mankind.
Tags: Articles, better buildings, energy, obama, pennsylvania, policy, sputnik, state college, state of the union
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Part 3 Of Green Finance--Bumming Money From Your Uncle (Sam)
Posted on January 24, 2011 by Shari Shapiro
In Part 3 of GBLB's green finance series (find Part 1 on Top 10 Rules of Green Finance here and Part 2 on Alternative Green Financing Mechanisms here), I will address government incentives and other programs. I will also highlight some factors that may make green incentives go from rare bird to endangered species.
As always, I am not a finance professional, and the goal of these posts is simply to give a high-level overview of government incentives. As with all financial decisions, please consult your financial professional and attorney for advice specific to your project.
The Good News About Government Incentives
Programs are available at almost all levels of government--The Federal government offers grants, tax breaks, loan guarantees and technical assistance for green building and renewable energy components of commercial, residential and industrial projects. The Office of Energy Efficiency and Renewable Energy has a pretty user friendly site. States also run incentive programs, and many states have renewable energy credit trading programs (also known as RECs or green tags or SRECs, etc.) which enable producers of renewable energy to get an extra stream of income from their property. For special groups, like Native American Tribes and Veterans, additional resources are available.
Some programs come from unusual sources--Not all green building and renewable energy incentives come from government. Utilities sponsor a lot of programs for both commerical and residential projects (for example, see the programs available from PECO here). Some non profits and even faith-based organizations are providing green incentives. A loyal Twitter follower highlighted this program by the Jewish Free Loan Association (available to those of any faith) that provides interest free loans of up to $5000 for energy efficient upgrades for homes and small businesses in the Los Angeles area.
Don't neglect technical assistance programs-- One of the most underutilized incentive is technical assistance. Of course, homeowners and businesses can access technical assistance programs, but also municipalities, small businesses and Native American Tribes can get thousands of dollars in technical assistance for free or reduced cost. For example, in New York Con Edison provides small businesses with a free energy audit. This can ensure you maximize the benefit of your green project both environmentally and financially.
And The Bad News
The new House is seeking to cut almost all Federal green incentives--According to Green Building Chronicle,The Republican Study Group, made up of more than 100 GOP House members, is targeting the wholesale elimination of funding for:
• Department of Energy Grants to States for Weatherization, $530 million annually;
• EPA’s Energy Star Program, $52 million annually; and
• federal office space acquisitions (which have helped the government build a market for LEED-certified buildings), $864 million annually.
Just to be clear, in a bill seeking $2.5 TRILLION in cuts, these total savings would account for .14% of the savings.
States and municipalities are strapped for cash--Like the Federal government, states and municipalities are strapped for cash, and may cut their green incentives to provide things like trash pick up and police.
Some programs are not worth the effort to apply--All programs require paperwork, verification and in some cases, prevailing wage rates. Sometimes the benefit is not worth the hassle.
Some programs reward green bling rather than cost effective green improvements--Some programs reward the installation of renewable energy components or other "green bling" as opposed to better insulation or new windows. It is key to do a cost benefit analysis of any proposed green project to ensure that it has the greatest return on investment.
For more information, the DSIRE database of Federal and state renewable energy and energy efficiency programs is always useful, and be sure to check your state and local environmental departments and local utilities.
Tags: Finance, Incentives, assistance, federal, government, grants, loans, local, money, state, tax, technical, technical assistance
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Part 2 of Green Finance--Alternative Financing Mechanisms For Green Projects
Posted on January 18, 2011 by Shari Shapiro
Because of the enormous popularity of last week's post on green project finance--Let's Make A Deal--Top 10 Rules Of Green Project Finance--I have decided to do a series on the various aspects of green project finance.
Today we will discuss alternative financing mechanisms for green projects. Over the next few weeks, I will do posts on incentives available for green projects, an update on the PACE controversy, and the basics of renewable energy finance. If you have suggestions for other posts you would like to see as part of this series, feel free to email me.
Please note, I am not a finance professional, and the goal of these posts is simply to give a high-level overview of potential financing mechanisms. As with all financial decisions, please consult your financial professional and attorney for advice specific to your project. And now, without further adieu, a primer on alternative green financing mechanisms.
Basically, there are only a few mechanisms for financing projects. Self-finance (your bank account); equity finance (someone else's bank account); debt finance (the bank); government finance (Uncle Sam's bank account); and grant finance (your parents' third party bank accounts).
These basic mechanisms are no different for green projects. However, there are some interesting variants that have developed for financing green projects of various types. Many of the financing concepts are not mutually exclusive. To the extent that one of the models, like energy efficient mortgages, is applicable mostly to a specific sector, it can be used as a model for a specific project's financing arrangement with a particular financier.
Leases
For commercial scale (and even residential) green and renewable energy projects, variants on leases have become an interesting project financing model. Essentially, a provider leases the equipment (typically to the owner of a facility through a long term lease), which reduces the up front costs.
There are a wide variety of leases available, and the decision among which lease is the best solution is largely based on tax and payment considerations. Most leases radically reduce or eliminate up front costs. Some leases allow the lessee to take advantage of the tax incentives, renewable energy credits and depreciation on the green equipment, others do not.
For a great overview of lease variants for renewable energy projects, see here.
Performance Contracting
Performance contracting is essentially a loan from the provider of the green/renewable equipment (known as an Energy Services Company, or ESCO) that is paid for out of the savings or benefits of the green project. For example, suppose you want to install energy efficient improvements on a facility which will cost $1000 and will save $100 per year. Typically, the ESCO arranges the financing, and you pay the ESCO through reduced energy bills, sharing the energy cost savings over a predetermined length of time, after which all of the energy savings revert to you. The ESCO often guarantees the energy savings from the project. This mechanism is used for both energy efficiency and renewable energy projects, and can be used with projects of almost any scale. The DOE has a handbook on performance contracting available here.
Grants In Lieu
As part of the Stimulus bill, the Department of Treasury made available "1603 grants" which are grants in lieu of tax credits which reimburse up to 30% of the cost of installing certain renewable energy projects. Environmental Leader summarizes the 1603 grant program here:
The grant is 30 percent of the full cost of the intended solar system. Without the grant, system owners could still claim the 30 percent as a tax credit, but some businesses weren’t profitable enough to make use of the full tax credit. This grant now keeps all businesses eligible for the 30 percent incentive, not just those with enough profits (or those with financing partners with enough profits).
The full description of the program is available from the Department of Treasury.
Energy-Efficient Mortgages And Energy Improvement Mortgages
A form of debt financing, energy efficient mortgages (and their friend, Energy Improvement Mortgages) work on the premise that implementing energy efficiencies on a property will free up cash which can pay down a debt. The Department of Energy has a great handbook and other resources available here. HUD has qualifications guidelines, approved lenders, etc. available here.
Mortgageloan.com has a nice overview here:
Green, or “Energy efficient” mortgages, let you borrow extra money to pay for energy efficient upgrades to your current home or a new or old home that you plan to buy. The result is a more environmentally friendly living space that uses fewer resources for heating and cooling and has dramatically lower utility costs...At this time, Energy Efficient Mortgages aren’t second mortgages. Though they are created separately from your primary mortgage, they are ultimately rolled into your primary mortgage—so you only make only one payment per month.
Technically, energy efficient mortgages:
give borrowers the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans thereby allowing borrowers to qualify for a larger loan amount and a better, more energy-efficient home.
And energy improvement mortgages:
are used for existing homes and allow borrowers to include the cost of energy-efficiency improvements in the mortgage without increasing the down payment.
The problem with energy efficient mortgages is that they are pretty small scale. For example, the FHA program only backs EEMs for one to four units.
Tags: Finance, contracting, efficiency, energy, loan, money, mortgage, performance, renewable, tax
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Let's Make A Deal--Top 10 Rules Of Green Project Finance
Posted on January 12, 2011 by Shari Shapiro
The first step to any green building or renewable energy project of any size is finding the financing to make it possible. Since the bottom fell out of the economy, finding investors and financial institutions willing to finance building projects of any sort has been close to impossible. Real estate finance prognosticators, however, indicate that 2011 will be a year to buy back into the real estate market. According to a Wells Fargo report:
In 2011, we expect trends in commercial and residential real estate, two areas of the economy that have been significant drags on headline growth, to turn positive for the first time since the beginning of the recession. Despite being near record lows, housing starts will begin to gain momentum breaking 700,000 in 2011. The turnaround in housing is largely attributable to gains in employment, consumer income, as well as favorable demographic trends. Meanwhile, from the financing perspective, mortgage rates remain low and housing affordability remains high. Though broadly positive, these trends do not reflect a return to the boom years, which were characterized by excessive liquidity and perverse incentives.
Commercial real estate should begin to contribute to growth by the second half of 2011. Operating fundamentals for all major property types are either improving or showing signs of stabilizing. Leasing has picked up, rents are rising or stabilizing and sales have increased. Demand for high quality properties in choice locations remains exceptionally strong, which has helped pull prices higher for non-distressed deals. There are still plenty of troubled projects that need to be disposed of, however, and prices for distressed projects are likely to fall further once lenders become committed to cleansing their portfolios.
Green projects are an increasing percentage of new and rehab projects, and renewable energy projects have very attractive balance sheets in certain areas. However, structuring financing for green building and renewable energy projects requires more legal creativity and effort than financing other types of more traditional projects.
Let me give you an example. Banks have been loaning money to companies to buy equipment for hundreds of years. Every bank has a set of documents designed for this purpose, and a specific set of rules and requirements for deciding when to take on the financing risk, and how repossession would work in the event of default.
Let's say Company A wants to borrow money from Bank B to buy a truck. Company A gives Bank B information on the value of the truck, the value of Company A's other assets, and so forth. Bank B goes to its set of standard form documents for equipment loans, confirms Company A's credit worthiness, and knows that it can repossess the truck and sell it for some known value in the event of default.
Now let's say Company A wants to borrow money from Bank B to finance a solar array. First, Bank B has to figure out what, exactly, it is financing. Is a solar array equipment, like the truck, or construction? Then, what value can Bank A put on the solar array? The value of the solar panels on the resale market? The value of the electricity the solar array produces? How about the renewable energy credits (Banker A says to Banker B, "What's a Renewable Energy Credit?") Then comes the issue about how to handle default. The solar array is worth a lot more in situ than it is as scrap, but Bank B has to figure out how to structure the relationship with its now-defunct borrower which would allow Bank B to get the benefits of the electricity and the RECs.
The same concept is true for green building projects. When examining a green building deal, what value, if any, should Bank B put on the potential energy savings from a high performance building? Will the high performance building command higher rents? LEED Certified or not certified? What happens in the event of decertification?
A few rules for green project finance:
Find a bank or financial institution committed to green projects--Some banks now have financial arms that are dedicated to financing renewable projects.
Pick a model--It's easier to tweak an existing project finance model than to create a new one from scratch. Construction? Equipment?
Recognize the need for tweaks--Whatever the model (see #2), it will need to be tweaked for the unique features of green building and renewable projects.
Set out the deal terms in advance, particularly the obligations of the parties in the event of default.
Identify and address the roles of the lender and borrower with respect to any incentives or other government financing that is part of the project. Each incentive has its own requirments regarding transferability and assignment, and ownership status is often an important factor.
Make sure your green project pencils out--Seems simple and obvious, but when seeking financing, it is important that the project actually be a wise investment.
Provide as much data about the beneficial financial features of the green project as possible--The growing body of data about the financial benefits of green buildings and the balance sheets of renewable energy projects should enable borrowers and lenders to better evaluate the risks and benefits of green projects.
Where available, use green specific financing tools, like energy efficient mortgages. A good primer is available here.
Be prepared to cross-collateralize--There is so much risk aversion, that many financial institutions are seeks cross-collateralization of non-green projects to alleviate the fear, real or imagined, associated with financing green projects.
Acknowledge a longer financing timeline--Getting all parties on the same page regarding the financing deal and the documentation may take longer than traditional projects. But, as lenders and borrowers get more projects under their belts, this timeline will shorten.
Tags: 2011, Finance, Incentives, bank, collateral, fargo, green, money, renewable, wells
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New Year's Green--Two Policy Measures That May Change The Face Of US Sustainability
Posted on January 3, 2011 by Shari Shapiro
Happy New Year and welcome to GBLB 2011. When the clocked struck 12:01 on New Year's, two important green regulations went into effect that may have a long term influence on green building and renewable energy. If successful, either of these regulations would do more to change the green industry than any legal challenge to LEED's legitimacy (see the continued coverage of the Gifford v. USGBC case here and here):
CALGREEN
As I have said before, green building practices are becoming code, and California has (as usual) taken the lead. California is the only state to have a state-wide green building code, CALGREEN, which went into effect on January 1, 2011. If California successfully implements this mandatory green building code without siginificant impact on building rates or building costs, look to other states and municipalities to follow. Implementing green via building code is being made significantly easier throught the creation of the International Green Construction Code (IGCC) which integrates with the ICC construction codes already in place in most jurisdictions.
An interesting question that has been bandied about is what a green construction code will do to LEED. California will be an interesting laboratory. Will developers still seek LEED certification for their buildings when all new construction must be green? How sensitive is the customer base to "green" vs. "more green?"
2. EPA Regulation Of GHG Under the Clean Air Act
EPA limits on greenhouse gases for power plants which also went into effect January 1 (a quick fact sheet from the EPA is available here). When cap-and-trade or cap-and-tax died in Congress last year, the EPA continued its plan to regulate GHG via the Clean Air Act. There is significant controversy over these limitations, and legal challenges have been filed. On Wednesday, December 29, 2010, the Fifth Circuit Court refused to stay the regulations, and on Thursday December 30, 2010, Texas filed a petition to the Court of Appeals in the Federal Circuit to stay the regulations. If the EPA regulations on power plants remain in place, more GHG regulation of other categories will follow, creating the same massive shift in the priority of green tactics to manage GHG emissions that cap-and-trade would have had.
The reason I started this post by saying that these regulatory efforts may (not will) shift the green building and renewable energy industries is because of the massive efforts being undertaken to derail the regulatory efforts.
According to the Center for American Progress:
The 20 biggest-spending oil, mining, and electric utility companies shelled out $242 million on lobbying from January 2009 to June 2010. Trade associations that generally oppose clean energy policies spent another $290 million during this time. This is over $1,800 in lobby expenditures a day for every single senator and representative.
Opponents of GHG regulations were successful in killing cap-and-trade legislation in Congress. In California, a referendum seeking to overturn California's cap-and-trade regulations was on the ballot in the November election, although it was defeated handily.
In the tug of war over between proponents and opponents of environmental regulations, watch these two hotspots in 2011.
Tags: EPA, GHG, LEED, Regulations, USGBC, calgreen, code, gifford, greenhouse, igcc
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Motion to Dismiss In USGBC v. Gifford Raises The Question: Who Is A USGBC Customer?
Stormy Seas Ahead: Cuts to Budgets and Challenges To Regulatory Authority Will Mean Changes For The Green Economy
New Firm, New Look, Even More Green Building News
Redding, CT TOD Green Bond Project Failing To Meet Commitments
Good Intentions Gone Bad: The Cautionary Tale Of Destiny USA And Green Bonds
Taken For A Ride On The Carousel: Failed Green Project Sets Stage For Suits
Vote For GBLB!
Are Green Building Codes The Only Answer?
But Is There Fire: If LEED Is A Fraud, Why Aren't Developers Suing?
Gifford Files Amended Complaint in Gifford v. USGBC Which May Lead To Discovery From USGBC
A "Perfect Storm" For Renewable Energy? Obama Makes Green Energy And Green Buildings A 2010 Priority
Part 3 Of Green Finance--Bumming Money From Your Uncle (Sam)
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Motion to Dismiss In USGBC v. Gifford Raises The Question: Who Is A USGBC Customer?
Posted on April 11, 2011 by Shari Shapiro
On Friday, the USGBC responded to Henry Gifford's amended complaint with a Motion To Dismiss for failure to state a legal claim (Federal Rule of Civil Procedure 12(b)(6)) and for lack of subject matter jurisdiction (Federal Rule of Civil Procedure 12(b)(1)).
In essence, the USGBC's response has two prongs: 1) the Plaintiffs lack standing, as I predicted here; and 2) that the Plaintiffs could not demonstrate that they had been harmed by the USGBC's allegedly illegal conduct. Stephen Del Percio does a nice job of outlining the standing arguments here.
In the back of the Memorandum of Law is an interesting discussion of the USGBC's marketing. In the context of arguing that the New York Consumer Fraud Statute does not apply, the USGBC argues:
USGBC's marketing--which is before this Court on this motion--is directed at businesses and professionals. The website, which is how USGBC advertises, defines the audience for USGBC's marketing. LEED users are 'architects, real estate professionals, facility managers engineers, interior designers, landscape architects, construction managers, lenders and government officials...
I think this is a difficult argument, and not one with a lot of factual merit.
The USGBC website has a link to a website entitled:
U.S. Green Building Council's Green Home Guide Connecting you to ideas, advice and green home professionals.
The purpose of the site is clearly to communicate information about LEED and green building directly to consumer homeowners. The Green Home Guide website offers a tool for homeowners to become acquainted with the LEED for Homes system:
LEED FOR HOMES SCORING TOOL
It's FREE.NEW – The LEED for Homes Scoring Tool
Q: How close is your project to earning
LEED for Homes certification?
A: Probably much closer than you think.
As the building industry evolves, more residential projects already include sustainable features that contribute to certification. The LEED for Homes Scoring Tool will help you assess your project. By answering a few simple questions, you’ll not only learn just how close you are to earning certification, but also various steps you might take to get there. Plus you’ll gain important insight on the LEED for Homes rating system.
The USGBC even publishes a brochure for LEED® for Homes™ FAQ for Homeowners available here.
So, it's pretty clear that the USGBC is marketing directly to consumers, contrary to the Memorandum of Law in support of the USGBC's Motion to Dismiss.
The worst part is that there was no need for the USGBC to make this factually unsupported argument. Even if the USGBC advertises to consumers, the consumers that might have been harmed by the advertisement are not included amongst the plaintiffs, and are not represented by the factual misstatements alleged in the Amended Complaint. Making factually unsupported arguments may weaken the punch of the USGBC's clearer grounds for dismissal, and provide a toe hold for the Plaintiffs to plant seeds of doubt about the rest of the USGBC's arguments.
Tags: Litigation, USGBC, building, consumer, fraud, frauds, gifford, green, lawsuit, motion to dismiss, new, suit, york
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Stormy Seas Ahead: Cuts to Budgets and Challenges To Regulatory Authority Will Mean Changes For The Green Economy
Posted on April 6, 2011 by Shari Shapiro
The United States is at a precipice with respect to public motivators for the green economy. Essentially, the carrot of public incentives or investment and the stick of potential mandatory regulation of carbon emissions are slated for elimination at the same time.
Although we cannot know what this two part challenge to the green economy will do, it will certainly change its trajectory for the foreseeable future.
First, of course, are the proposed revisions to the 2011 budget. With respect to green building, slated for cuts are most programs that promote green building or which invest Federal dollars in green buildings directly:
$3 billion of EPA funding overall
$1.6 billion (nearly 20%) of the Federal Building Fund at the General Services Administration (GSA)
$786 million (over 35%) of the Energy Efficiency and Renewable Energy (EERE) office at the Department of Energy (DOE)
$250 million in funds for the Department of Housing and Urban Development (HUD) HOPE VI program, which leverages private sector dollars to transform existing blighted public housing into vibrant and livable communities.
$10 million for the Energy Star program at the Environmental Protection Agency (EPA).
With respect to renewable energy, the proposed Republican budget bill slates for reduction or elimination over $900 million in investment. Among the programs slated for cuts or elimination is the Department of Energy Loan Guarantee Program for clean energy start up companies, established during the George W. Bush administration. According to Forbes, DOE officials have said that eliminating this program would do away with 20,000 jobs, along with the benefits for the environment.
In addition to the direct cuts, at least four different proposals are pending (potentially up for a vote this week) restricting or eliminating EPA's ability to regulate greenhouse gases. If the EPA is restricted in its ability to regulate greenhouse gases, one of the most potent motivators for investment in reducing carbon emissions through renewable energy, green buildings and other carbon reduction techniques will be eliminated.
The question will become not whether renewable energy and green building can compete without government subsidy, but rather whether renewable energy and green buildings can compete in the face of continuing subsidy to competing technologies like coal, oil, etc.
According to the Center for American Progress, the proposed Republican budget will make few changes with respect to the $40 billion+ Government support of these technologies through tax incentives and other mechanisms. Fox News was unable to get a commitment from House Budget Committee Chairman Paul Ryan (R-WI) that tax breaks for oil and gas companies would be eliminated:
WALLACE: A lot of Democrats that are already saying, even before they’ve seen your budget, that you do all of this balancing of the budget on the spending side, and unlike the President’s debt commission, you don’t do it on the revenue side. Do you eliminate tax breaks? Do you bring in new revenue by eliminating, for instance, tax breaks for oil companies?
RYAN: We don’t have a tax problem. The problem with our deficit is not because Americans are taxed too little. The problem with our deficit is because Washington spends too much money. … So we’re not going to down the path of raising taxes on people. […]
WALLACE: But for instance, you will not eliminate tax breaks for Big Oil and Gas?
RYAN: Those are the kinds of details that we’ll come out later with, that the Ways and Means Committee will work on. We’re not going to go into the little details of which tax expenditure goes and which tax expenditure stays.
[You can watch this portion of the interview on You Tube]
The next few weeks will be historic ones with respect to America's green future. For better, worse or otherwise, these are interesting times which will mean changes for everyone in the green sector in the United States.
Tags: 2011, EPA, Economics, budget, cuts, debate, economy, elimination, gas, green, obama, oil, renewable
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New Firm, New Look, Even More Green Building News
Posted on April 6, 2011 by Shari Shapiro
You may have noticed that it has been uncharacteristically quiet over at GBLB the past month. I have moved to the Energy, Environmental and Public Utilities Practice of Cozen O'Connor. Thank you for your patience, and now that the move is accomplished, we will be doing a redesign of GBLB with great new features coming very soon!
Tags: Articles, connor, cozen, o'connor, oconnor
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Redding, CT TOD Green Bond Project Failing To Meet Commitments
Posted on March 11, 2011 by Shari Shapiro
Like the Destiny USA project in Syracuse (which is mired in a controversy over whether the tax exempt green bonds issued for the project should keep their tax exempt status despite the project's failure to incorporate any green features--more about that project is available here), the Georgetown Redevelopment Project in Redding, Connecticut was also selected as a demonstration project to qualify for green tax-exempt bonds under the America Jobs Creation Act of 2004.
According to my research, at least $14.5 million in tax exempt bonds were issued for the Georgetown project. For you bond junkies, the details of the bond offer was:
Georgetown Special Taxing District
Nov 16, 2006 $14,450,000
General Obligation Bonds, Series 2006A (book entry)
Dated Nov 22, 2006.
Due Oct 1, 2036.
First coupon Apr 1, 2007.
Callable Oct 1, 2016 at par.
Purchased through negotiation by Banc of America Securities LLC, as
follows:
Due Amount Cpn Reoffered Ins
10/1/36 $14,450,000 5.125% 5.125%
L.O.: Shipman & Goodwin, Hartford, CT.
F.A.: Lamont Financial Services Corp, Wayne, NJ.
Like the Destiny USA project, the Georgetown project stalled, and is having difficulty meeting its bond obligations.
According to the Weston Forum, the deal to sell the site to a developer fell through in mid-2010:
With the advent of the country’s financial crisis in 2008, capitalizing the project became an issue. That, combined with the delay in state approvals, stalled the project, but the intersection work has since been funded and put out to bid.
As of July 9, 2010, according to Bond Buyer (subscription required) the Georgetown Special Taxing District in Connecticut received a forbearance on $1.5 million of tax anticipation notes after failing to pay them on time.
The district was unable to pay the notes on June 30 because it had not collected property taxes from a stalled mixed-use development. The project and district are located on a 51-acre tract in the town of Redding in affluent Fairfield County.
The forbearance gave the district two months to figure out what to do without defaulting on bond payments. The failure to make the payment by June 30 constitutes a technical default, according to disclosure documents. It is not clear whether the bonds were paid, but if they were not, another set of green bonds has gone into default.
Although the two projects are currently in the same boat financially, they are not equivalent projects. Unlike the Destiny USA project, which was a large mall extension which was going to be fitted out with green features, the Georgetown Redevelopment Project was actually a thoughtful green project. It was envisioned as a transit oriented, mixed use redevelopment of a 55 acre, contaminated wire mill site. The master plan includes residential (including 40 units of affordable housing), commercial and light industrial uses, as well as a YMCA, performing arts center and public open space oriented around a transit station. A powerpoint of the master plan and description of the project is available here.
The project would have encouraged transit use, created a mixed use community, redeveloped contaminated property and (theoretically) integrated green building and renewable energy features. This is exactly the sort of project which should be encouraged and supported.
The fact that the Georgetown project has not come to fruition is a bad outcome for the Georgetown project in specific, and green bonded projects in general. First, this is a good project. Doing transit oriented, mixed use development is positive for communities and the environment. So, the fact that it had difficulty meeting its financial obligations and may not come to fruition is disappointing.
On a more global level, projects like Georgetown and Destiny USA make bonds for green projects look risky, which may make financial institutions shy away from issuing and underwriting the bonds. This will make getting financing for green projects harder than it already is. Second, it makes the public sector more reluctant to support green projects if they fear that they will not be able to meet their financial obligations.
To end this on a brighter note, it appears that public entities are continuing with the site and transit work on the Georgetown project continue to progress, even though a private developer is not currently doing the mixed-use component.
Tags: Regulations, carousel, connecticut, destiny, green, green bond, redding, syracuse
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Good Intentions Gone Bad: The Cautionary Tale Of Destiny USA And Green Bonds
Posted on February 25, 2011 by Shari Shapiro
I covered the messy breakdown of the Carousel/Destiny USA project in Syracuse on Monday. In short, the Destiny USA project was selected as a green "demonstration" project under the 2004 Green Bonds program. $255 million in tax exempt bonds were issued on behalf of the project, the revenue of which was supposed to be used to implement the green features of the project. As of now, none of the green features have been implemented, and the developer has intimated that even if the project is fully built out, the green features will not be included. The IRS will have to decide whether to rescind the tax exempt status of the bonds for failing to meet the green requirements.
I have written at length about creating effective green incentives and regulations (see my Regulating Green Series here). For me, the most interesting part of this debacle is what it reveals about a major green incentive program. The Green Bonds program was developed as a part of the America Jobs Creation Act of 2004. In theory, the program was intended to:
finance environmentally friendly development. The objective is to reclaim contaminated industrial and commercial land (brown fields), and encourage energy conservation and the use of renewable energy sources.
Although the goals of the Green Bonds program were clearly noble, as I see it the program was doomed from the start. No market rate project in 2005 could have met all of these requirements. Thus, the proponents of the projects had reason to overstate the green components of their projects to access $2 billion in tax free capital for the projects.
According to the IRS Guidance (available here) $2 billion in AAA tax exempt bonds were authorized by the Federal government to be awarded to four demonstration projects. To qualify for the bonds, the four projects in aggregate had to:
Reduce energy consumption by more that 150 megawatts annually compared to conventional generation;
Reduce daily sulfur dioxide emissions by at least 10 tons compared to coal generated power;
Expand by 75% the domestic solar PV market in the United States as compared to the expansion of that market from 2001-2002, which was 14.424 megawatts (which means an aggregate increase of approximately 11 megawatts, or an average of almost 4 megawatts of PV power per projects);
Use at least 25 megawatts of fuel cell energy generation.
In addition, each project had to be at least 1,000,000 square feet or 20 acres and:
At least 75% of the square footage had to be LEED certified;
The wood had to be certified under the Sustainable Forestry Initiative or the American Farm Tree System;
Reclaim a brownfield site
Beyond the green features, the projects also had to create at least 1000 construction jobs and 1,500 full time equivalent jobs.
In addition to the requirements of the Green Bonds, the Destiny USA project entered into a Memorandum of Understanding with the EPA (available here and summary below from Syracuse.com) committing to:
Using green building design, construction and operation principles to obtain the highest levels of certification from the U.S. Green Building Council's Leadership in Energy and Environmental Design
program;
Retrofitting more than 100 construction vehicles with diesel particulate filters and using clean fuel, which will reduce emissions by nearly 85 percent;
Implementing techniques to reduce idling of vehicles during construction
Becoming partners in EPA's Energy Star and WaterSense programs,
which require the use of energy- and water-efficient appliances;
Using over 3,000 tons of coal ash in place of using newly-manufactured Portland Cement, which will reduce greenhouse gases by over 3,000 tons.
As a policy measure, the green bonds were destined to be ineffective. For a green incentive to be truly beneficial, it needs to set out goals that stretch its recipients to higher levels of sustainability, but not so pie-in-the-sky that they create an incentive to greenwash their projects. This is a tough balance to strike. Doing so requires that the regulatory bodies have a good understanding of the state of the green market that they are looking to incentivize. It is not enough to throw public money at any project claiming to be green. The result is projects like Destiny USA, which give a bad name to green building and public financing of green projects.
By contrast, good investment in green projects can bring real benefits. I analyzed the investment of ARRA funds in green projects. Per public dollar, these investments were among the most efficient ways of creating jobs of all of the ARRA money spent. (See my analysis here). As Congress debates the value of continuing public investment in green projects and renewable energy, the debate must not only be about whether, but how, the support will be crafted and implemented. The road to green is paved with good intentions.
Tags: Regulations, Stimulus, arra, bond, carousel, destiny USA, green, incentive, irs, regulation
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Taken For A Ride On The Carousel: Failed Green Project Sets Stage For Suits
Posted on February 21, 2011 by Shari Shapiro
The foundation for a rash of legal actions arising out of a failed green project have been laid.
According to the Syracuse Post-Standard, the Carousel Center shopping mall was supposed to be a showcase of green features. To fund the project, the Carousel Center developers secured:
$228 million in federally authorized, tax-exempt “green bonds” to help finance the first phase of Congel’s expansion of the mall into an entertainment and tourism center to be called Destiny USA.
Unfortunately, six years later, those green features are no where to be found:
There is no 45-megawatt electricity generating plant running on “biofuel” made from soybean oil and recycled cooking grease. If there were, it would be the largest such plant in the nation and consume more than one-third of the total U.S. biodiesel supply.
Nor are there 290,000 square feet of solar panels on the mall’s roofs and other surfaces, enough to blanket six football fields.
The fuel cells that were to make 7 megawatts of electricity, five times more than the nation’s largest existing commercial fuel-cell installation? Nowhere to be seen.
The construction landscape is littered with the bodies of failed projects, grandly envisioned in 2005 and all but abandoned in 2011. The question--What becomes of the tax exempt status of the bonds?
Loss of the tax exemption would require Congel to pay higher interest rates on the bonds to compensate investors, who would suddenly be required to pay income taxes on the interest they earned. The increased cost would depend on the interest rate spread between taxable and tax-exempt bonds at the time of the IRS ruling. In 2005, a Destiny USA executive estimated the tax exemption would save the developer about $120 million over the 30-year term of the bonds.
If the IRS chooses to rescind the tax exempt status of the bonds, there could be a flood of legal fallout. A few possibilities:
Investors, particularly institutional investors, now forced to pay taxes on their previously exempt bonds could sue Congel.
Government entities, like the Syracuse Industrial Development Authority, could pursue Congel. Although the SIDA did not put up any money outright, it gave the project a 30 year tax abatement, presumably on the premise that completion of the project would bring economic development. If the project would not have gone forward without the $228 million in green bonds, SIDA might have grounds for seeking its property taxes.
Citibank and Congel entered into a settlement under which Citibank agreed to disburse the remainder of the $$155 million construction loan on the project. If the project is devalued by the impact of the tax issue, Congel may be in breach of whatever settlement he came to with Citibank.
According to the Post-Standard, the developer’s attorneys now say the promised conservation and technology goals will not be achieved with the current expansion and may never be achieved, even if future phases of Destiny are built. if the Federal government can prove that Congel fraudulently represented that the project would have the green features, this may be additional grounds for a suit.
However, Congel almost certainly protected himself and his development company behind a single purpose entity to develop the Carousel Center. If, at the end of the day, the only asset the single purpose entity has is the partially completed Carousel/Destiny USA Center, investors, the government and the people of Syracuse may have been taken for a ride.
Tags: Litigation, bond, carousel, congel, destiny, irs, sida, suit, syracuse, tax, usa
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Vote For GBLB!
Posted on February 18, 2011 by Shari Shapiro
GBLB has been named one of the top 50 Environmental and Climate Change blogs by Lexis Nexis, and has been nominated for a Jackson Design and Remodeling Annual Industry Blogger Award in the Green Category.
For the Lexis Nexis blogs, you can comment on the best blogs list until February 28 here. Once the comments have been compiled, the Lexis Nexis community will vote for the best blog.
For the Jackson Design and Remodeling competition, voting will start March 4, 2011 and closes on April 15, 2011.
Thanks to our great readers who nominated us and for voting for GBLB for best blog!
Tags: Articles, Jackson, Remodeling, and, award, best, blog, change, climate, design, environment, jdr, lexis, nexis, vote, win
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Are Green Building Codes The Only Answer?
Posted on February 15, 2011 by Shari Shapiro
There has been significant discussion over the past few months over the need for green building codes to achieve major green building goals. The International Green Construction Code Version 2.0 was published in November 2010, and CalGreen, California's mandatory green construction code went into effect in January 2011.
A developer friend asked me what I thought of CalGreen, and it got me to thinking:
Could you achieve the same environmental results by implementing regulations that did not require an overhaul of the building code?
Last week, San Francisco passed a regulation requiring owners of nonresidential buildings to
conduct Energy Efficiency Audits of their properties every five years, and file Annual Energy Benchmark Summaries for their buildings. The regulation is available here. San Francisco is following the lead of Washington DC and other municipalities mandating disclosure of energy performance.
Could mandatory energy, water use and indoor air quality disclosure, along with rigorous benchmarking be the foundation of an alternative green regulatory approach? An interesting thing that San Francisco did is not only to make the disclosures mandatory, but also to file them with the city, allowing public access to the records. Thus, they can be used by anyone looking to purchase or value the buildings. By mandating disclosure, it incentivizes building efficiency measures, and lets the market do most of the work to force the highest levels of efficiency.
The next piece would be to provide major incentives for infill development, brownfield redevelopment and trandevelopment around mass transit--and charge a premium for infrastructure improvements outside developed areas.
Another component would be to reduce parking requirements, and create parking maximums. The reduced parking capacity would reduce building costs, incentivize public transit usage and make properies built in strong transit hubs more attractive.
Finally, mandate recycling of construction and demolition waste. C & D waste is easy to track and waste management is already highly regulated.
These efforts address most of the green building focus areas--water, waste, energy, site, and indoor air quality. The question is whether this combination of market transparency, incentives and mandates would be as effective in reaching environmental goals as a drafting and implementing a new green building code.
Tags: Regulating Green, alternative, calgreen, code, construction, demolition, igcc, incentive, regulation
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But Is There Fire: If LEED Is A Fraud, Why Aren't Developers Suing?
Posted on February 9, 2011 by Shari Shapiro
NOTE: The opinions expressed in this post are entirely those of the author, and do not represent the position of the USGBC or the Delaware Valley Green Building Council.
Yesterday, I discussed the fact that Henry Gifford filed an Amended Complaint in his suit against the USGBC for fraudulently claiming that LEED buildings save energy. The post, as well as the Amended Complaint are available here. I also noted that Mr. Gifford and the other plaintiffs probably do not have standing to bring the suit because they were not harmed by the allegedly fraudulent advertising of the LEED system.
Mr. Gifford alleges that the people and entities that have been and will be harmed include:
USGBC's misrepresentations have and will continue to deceive consumers and voters, taxpayers, developers, municipalities, and legislators at the local, state and federal levels.
Amended Complaint at Paragraph 57.
This brings up critical questions about the legitimacy of Mr. Gifford's claims:
If developers were really experiencing energy performance vastly out of proportion to their expectations, wouldn't there be suits by developers against their design professionals and/or the USGBC?
If the Federal government, with one of the largest portfolios of LEED buildings, were really disappointed by their performance, wouldn't they stop using the system?
If design professionals were spending money to obtain worthless credentials, then wouldn't architects (whose profession is down something like 50%) be lining up to demand their money back?
If the problems that Gifford alleges are so fundamental, why is it that Henry Gifford and a few other plaintiffs who have rejected the LEED paradigm seem to be the only ones suing?
The concept of abstract “rightness” does not play a very large role in the American judicial system. With few exceptions, only a person harmed can bring suit to right the wrong done to him or her. So, even if you or I see something terribly “wrong” happening, if we are not harmed by it, we have no standing to bring suit.
For example, a man stops by a street hustler and plays a shell game. You are standing on the corner. You see the street hustler take his money and bilk him. The man sees it too, but shrugs his shoulders and walks away. You cannot sue to get the guy’s money back—only he can (or press charges, etc).
If there are no victims of the USGBC's "fraud", then Mr. Gifford's is really just a gadfly who is calling attention to himself by suing the USGBC. If there is fraud, then we should see a rash of suits by plaintiffs who have actually been harmed--consumers and voters, taxpayers, developers, municipalities, and legislators at the local, state and federal levels.
NOTE: The opinions expressed in this post are entirely those of the author, and do not represent the position of the USGBC or the Delaware Valley Green Building Council.
Tags: Litigation, USGBC, amended, complaint, energy, fraud, gifford, lawsuit, standing
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Gifford Files Amended Complaint in Gifford v. USGBC Which May Lead To Discovery From USGBC
Posted on February 8, 2011 by Shari Shapiro
NOTE: The opinions expressed in this post are entirely those of the author, and do not represent the position of the USGBC or the Delaware Valley Green Building Council.
In October 2010, Henry Gifford filed a lawsuit against the United States Green Building Council alleging, essentially, that the USGBC had fraudulently represented the performance of LEED buildings, and doctored study results to support their claim that LEED buildings performed more efficiently than standard construction. Yesterday, Henry Gifford filed an amended complaint (you can download the amended complaint here).
The original suit was filed as a class action, and included claims against the USGBC for illegal monopolization and false advertising. I posted that these issues would probably not pass legal muster. The class action could not be certified (see my post here) and the suit did not establish that the USGBC was a monopoly (see my post here).
There are several changes to the new complaint:
It has been boiled down to essentially a False Advertising and Consumer Fraud Act case under Federal and New York State law.
It is not a class action.
The monopolization claim has been eliminated.
Several new plaintiffs have been added, including an architect, an engineer, and a "speciali[ist] in moisture barrier design and mold remediation."
The essential claims as alleged in the factual section of the Amended Complaint are that the USGBC has misrepresented the energy efficiency of LEED buildings, and that the LEED certification is not a verification of the actual energy performance of the building.
From a legal perspective, I believe that the Amended Complaint is still riddled with a fatal flaw--the plaintiffs probably do not have standing.
In alleging a violation of the Lanham Act, the Federal act prohibiting false advertising, the Amended Complaint states:
USGBC's misrepresentations have an will continue to deceive consumers, voters, taxpayers, developers, municipalities and legislators at the local, state and federal levels.
However, fraud requires "reasonable reliance" on the false statements. The difficulty here is that, although more plaintiffs have been added, they are still not plaintiffs that were "duped" by the USGBC's representations. The claims alleged by Gifford are really claims rightfully brought by people who have been harmed by spending too much on LEED buildings, or LEED accreditation. In essence, Gifford has not eliminated the standing problem that doomed his class action.
The Amended Complaint is also rife with hyperbole, which diminishes its credibility. For example, with respect to a study on the performance of LEED buildings:
The self-selection bias is so obvious, it's about as reliable as using breathalyzer tests of drivers who volunteer to be tested as a gauge of how many people drink and drive.
See Amended Complaint at Paragraph 32(b).
Despite the fact that Gifford's lawsuit is probably flawed by reason of lack of standing, as revised the Amended Complaint may be enough to survive a Motion to Dismiss. In that case, discovery will proceed, which will open the internal communications of the USGBC to public scrutiny.
As with the kerfuffle over the emails among scientists studying global warming, this may muddy the waters and slow the progress of green building, even if the claims against the USGBC are eventually proven to be unfounded.
NOTE: The opinions expressed in this post are entirely those of the author, and do not represent the position of the USGBC or the Delaware Valley Green Building Council.
Tags: Litigation, New York, USGBC, amended, complaint, discovery, fraud, gifford, lanham
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A "Perfect Storm" For Renewable Energy? Obama Makes Green Energy And Green Buildings A 2010 Priority
Posted on February 3, 2011 by Shari Shapiro
In last week's State of the Union address, Obama challenged America to embrace a "Sputnik Moment":
So tonight, I challenge you to join me in setting a new goal: by 2035, 80% of America's electricity will come from clean energy sources. Some folks want wind and solar. Others want nuclear, clean coal, and natural gas. To meet this goal, we will need them all – and I urge Democrats and Republicans to work together to make it happen.
Today, speaking in State College, PA, Barack Obama is scheduled to make a speech on committing to new programs for energy efficient buildings.
According to Reuters:
As part of that program, Obama will announce a plan to improve energy efficiency in U.S. commercial buildings by offering businesses incentives to help pay for clean energy upgrades of offices, stores and other buildings.
According to the White House, the "Better Buildings Initiative" will:
achieve a 20 percent improvement in energy efficiency by 2020, reduce companies' and business owners' energy bills by about $40 billion per year and save energy.
Most significantly, the Obama administration announced that the cost of the program would be "paid for by ending tax subsidies for oil, natural gas and other fossil fuels."
Obama faces many challenges in the process. At a recent American Council On Renewable Energy event on the new political climate in Washington, all of the speakers expressed skepticism that real energy policy moves could be made in 2010. The Republican party does not want to be perceived to approve of any discretionary spending. The fossil fuel lobby is very strong and the breaks and incentives for fossil fuels very well entrenched. Finally, states with nonrenewable resources like coal, natural gas and petroleum are loathe to threaten these high value industries, particularly in lean economic times.
Obama and the Democrats have a few unique elements which could turn into a "perfect storm" for renewable energy policy:
Public interest studies have demonstrated that Americans currently have a positive image of solar and other renewables.
The Gulf Oil Spill is still relatively fresh in the public's mind.
The turmoil in the Middle East is increasing by the day.
There were record weather patterns again this winter.
The ARRA demonstrated the capacity of public investment to grow green jobs.
If these components can be honed into a clear, coherent connection to the value of investment in renewable energy, then it may be possible to achieve a major step forward in energy policy.
One small step for Obama, one giant step for mankind.
Tags: Articles, better buildings, energy, obama, pennsylvania, policy, sputnik, state college, state of the union
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Part 3 Of Green Finance--Bumming Money From Your Uncle (Sam)
Posted on January 24, 2011 by Shari Shapiro
In Part 3 of GBLB's green finance series (find Part 1 on Top 10 Rules of Green Finance here and Part 2 on Alternative Green Financing Mechanisms here), I will address government incentives and other programs. I will also highlight some factors that may make green incentives go from rare bird to endangered species.
As always, I am not a finance professional, and the goal of these posts is simply to give a high-level overview of government incentives. As with all financial decisions, please consult your financial professional and attorney for advice specific to your project.
The Good News About Government Incentives
Programs are available at almost all levels of government--The Federal government offers grants, tax breaks, loan guarantees and technical assistance for green building and renewable energy components of commercial, residential and industrial projects. The Office of Energy Efficiency and Renewable Energy has a pretty user friendly site. States also run incentive programs, and many states have renewable energy credit trading programs (also known as RECs or green tags or SRECs, etc.) which enable producers of renewable energy to get an extra stream of income from their property. For special groups, like Native American Tribes and Veterans, additional resources are available.
Some programs come from unusual sources--Not all green building and renewable energy incentives come from government. Utilities sponsor a lot of programs for both commerical and residential projects (for example, see the programs available from PECO here). Some non profits and even faith-based organizations are providing green incentives. A loyal Twitter follower highlighted this program by the Jewish Free Loan Association (available to those of any faith) that provides interest free loans of up to $5000 for energy efficient upgrades for homes and small businesses in the Los Angeles area.
Don't neglect technical assistance programs-- One of the most underutilized incentive is technical assistance. Of course, homeowners and businesses can access technical assistance programs, but also municipalities, small businesses and Native American Tribes can get thousands of dollars in technical assistance for free or reduced cost. For example, in New York Con Edison provides small businesses with a free energy audit. This can ensure you maximize the benefit of your green project both environmentally and financially.
And The Bad News
The new House is seeking to cut almost all Federal green incentives--According to Green Building Chronicle,The Republican Study Group, made up of more than 100 GOP House members, is targeting the wholesale elimination of funding for:
• Department of Energy Grants to States for Weatherization, $530 million annually;
• EPA’s Energy Star Program, $52 million annually; and
• federal office space acquisitions (which have helped the government build a market for LEED-certified buildings), $864 million annually.
Just to be clear, in a bill seeking $2.5 TRILLION in cuts, these total savings would account for .14% of the savings.
States and municipalities are strapped for cash--Like the Federal government, states and municipalities are strapped for cash, and may cut their green incentives to provide things like trash pick up and police.
Some programs are not worth the effort to apply--All programs require paperwork, verification and in some cases, prevailing wage rates. Sometimes the benefit is not worth the hassle.
Some programs reward green bling rather than cost effective green improvements--Some programs reward the installation of renewable energy components or other "green bling" as opposed to better insulation or new windows. It is key to do a cost benefit analysis of any proposed green project to ensure that it has the greatest return on investment.
For more information, the DSIRE database of Federal and state renewable energy and energy efficiency programs is always useful, and be sure to check your state and local environmental departments and local utilities.
Tags: Finance, Incentives, assistance, federal, government, grants, loans, local, money, state, tax, technical, technical assistance
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Part 2 of Green Finance--Alternative Financing Mechanisms For Green Projects
Posted on January 18, 2011 by Shari Shapiro
Because of the enormous popularity of last week's post on green project finance--Let's Make A Deal--Top 10 Rules Of Green Project Finance--I have decided to do a series on the various aspects of green project finance.
Today we will discuss alternative financing mechanisms for green projects. Over the next few weeks, I will do posts on incentives available for green projects, an update on the PACE controversy, and the basics of renewable energy finance. If you have suggestions for other posts you would like to see as part of this series, feel free to email me.
Please note, I am not a finance professional, and the goal of these posts is simply to give a high-level overview of potential financing mechanisms. As with all financial decisions, please consult your financial professional and attorney for advice specific to your project. And now, without further adieu, a primer on alternative green financing mechanisms.
Basically, there are only a few mechanisms for financing projects. Self-finance (your bank account); equity finance (someone else's bank account); debt finance (the bank); government finance (Uncle Sam's bank account); and grant finance (your parents' third party bank accounts).
These basic mechanisms are no different for green projects. However, there are some interesting variants that have developed for financing green projects of various types. Many of the financing concepts are not mutually exclusive. To the extent that one of the models, like energy efficient mortgages, is applicable mostly to a specific sector, it can be used as a model for a specific project's financing arrangement with a particular financier.
Leases
For commercial scale (and even residential) green and renewable energy projects, variants on leases have become an interesting project financing model. Essentially, a provider leases the equipment (typically to the owner of a facility through a long term lease), which reduces the up front costs.
There are a wide variety of leases available, and the decision among which lease is the best solution is largely based on tax and payment considerations. Most leases radically reduce or eliminate up front costs. Some leases allow the lessee to take advantage of the tax incentives, renewable energy credits and depreciation on the green equipment, others do not.
For a great overview of lease variants for renewable energy projects, see here.
Performance Contracting
Performance contracting is essentially a loan from the provider of the green/renewable equipment (known as an Energy Services Company, or ESCO) that is paid for out of the savings or benefits of the green project. For example, suppose you want to install energy efficient improvements on a facility which will cost $1000 and will save $100 per year. Typically, the ESCO arranges the financing, and you pay the ESCO through reduced energy bills, sharing the energy cost savings over a predetermined length of time, after which all of the energy savings revert to you. The ESCO often guarantees the energy savings from the project. This mechanism is used for both energy efficiency and renewable energy projects, and can be used with projects of almost any scale. The DOE has a handbook on performance contracting available here.
Grants In Lieu
As part of the Stimulus bill, the Department of Treasury made available "1603 grants" which are grants in lieu of tax credits which reimburse up to 30% of the cost of installing certain renewable energy projects. Environmental Leader summarizes the 1603 grant program here:
The grant is 30 percent of the full cost of the intended solar system. Without the grant, system owners could still claim the 30 percent as a tax credit, but some businesses weren’t profitable enough to make use of the full tax credit. This grant now keeps all businesses eligible for the 30 percent incentive, not just those with enough profits (or those with financing partners with enough profits).
The full description of the program is available from the Department of Treasury.
Energy-Efficient Mortgages And Energy Improvement Mortgages
A form of debt financing, energy efficient mortgages (and their friend, Energy Improvement Mortgages) work on the premise that implementing energy efficiencies on a property will free up cash which can pay down a debt. The Department of Energy has a great handbook and other resources available here. HUD has qualifications guidelines, approved lenders, etc. available here.
Mortgageloan.com has a nice overview here:
Green, or “Energy efficient” mortgages, let you borrow extra money to pay for energy efficient upgrades to your current home or a new or old home that you plan to buy. The result is a more environmentally friendly living space that uses fewer resources for heating and cooling and has dramatically lower utility costs...At this time, Energy Efficient Mortgages aren’t second mortgages. Though they are created separately from your primary mortgage, they are ultimately rolled into your primary mortgage—so you only make only one payment per month.
Technically, energy efficient mortgages:
give borrowers the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans thereby allowing borrowers to qualify for a larger loan amount and a better, more energy-efficient home.
And energy improvement mortgages:
are used for existing homes and allow borrowers to include the cost of energy-efficiency improvements in the mortgage without increasing the down payment.
The problem with energy efficient mortgages is that they are pretty small scale. For example, the FHA program only backs EEMs for one to four units.
Tags: Finance, contracting, efficiency, energy, loan, money, mortgage, performance, renewable, tax
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Let's Make A Deal--Top 10 Rules Of Green Project Finance
Posted on January 12, 2011 by Shari Shapiro
The first step to any green building or renewable energy project of any size is finding the financing to make it possible. Since the bottom fell out of the economy, finding investors and financial institutions willing to finance building projects of any sort has been close to impossible. Real estate finance prognosticators, however, indicate that 2011 will be a year to buy back into the real estate market. According to a Wells Fargo report:
In 2011, we expect trends in commercial and residential real estate, two areas of the economy that have been significant drags on headline growth, to turn positive for the first time since the beginning of the recession. Despite being near record lows, housing starts will begin to gain momentum breaking 700,000 in 2011. The turnaround in housing is largely attributable to gains in employment, consumer income, as well as favorable demographic trends. Meanwhile, from the financing perspective, mortgage rates remain low and housing affordability remains high. Though broadly positive, these trends do not reflect a return to the boom years, which were characterized by excessive liquidity and perverse incentives.
Commercial real estate should begin to contribute to growth by the second half of 2011. Operating fundamentals for all major property types are either improving or showing signs of stabilizing. Leasing has picked up, rents are rising or stabilizing and sales have increased. Demand for high quality properties in choice locations remains exceptionally strong, which has helped pull prices higher for non-distressed deals. There are still plenty of troubled projects that need to be disposed of, however, and prices for distressed projects are likely to fall further once lenders become committed to cleansing their portfolios.
Green projects are an increasing percentage of new and rehab projects, and renewable energy projects have very attractive balance sheets in certain areas. However, structuring financing for green building and renewable energy projects requires more legal creativity and effort than financing other types of more traditional projects.
Let me give you an example. Banks have been loaning money to companies to buy equipment for hundreds of years. Every bank has a set of documents designed for this purpose, and a specific set of rules and requirements for deciding when to take on the financing risk, and how repossession would work in the event of default.
Let's say Company A wants to borrow money from Bank B to buy a truck. Company A gives Bank B information on the value of the truck, the value of Company A's other assets, and so forth. Bank B goes to its set of standard form documents for equipment loans, confirms Company A's credit worthiness, and knows that it can repossess the truck and sell it for some known value in the event of default.
Now let's say Company A wants to borrow money from Bank B to finance a solar array. First, Bank B has to figure out what, exactly, it is financing. Is a solar array equipment, like the truck, or construction? Then, what value can Bank A put on the solar array? The value of the solar panels on the resale market? The value of the electricity the solar array produces? How about the renewable energy credits (Banker A says to Banker B, "What's a Renewable Energy Credit?") Then comes the issue about how to handle default. The solar array is worth a lot more in situ than it is as scrap, but Bank B has to figure out how to structure the relationship with its now-defunct borrower which would allow Bank B to get the benefits of the electricity and the RECs.
The same concept is true for green building projects. When examining a green building deal, what value, if any, should Bank B put on the potential energy savings from a high performance building? Will the high performance building command higher rents? LEED Certified or not certified? What happens in the event of decertification?
A few rules for green project finance:
Find a bank or financial institution committed to green projects--Some banks now have financial arms that are dedicated to financing renewable projects.
Pick a model--It's easier to tweak an existing project finance model than to create a new one from scratch. Construction? Equipment?
Recognize the need for tweaks--Whatever the model (see #2), it will need to be tweaked for the unique features of green building and renewable projects.
Set out the deal terms in advance, particularly the obligations of the parties in the event of default.
Identify and address the roles of the lender and borrower with respect to any incentives or other government financing that is part of the project. Each incentive has its own requirments regarding transferability and assignment, and ownership status is often an important factor.
Make sure your green project pencils out--Seems simple and obvious, but when seeking financing, it is important that the project actually be a wise investment.
Provide as much data about the beneficial financial features of the green project as possible--The growing body of data about the financial benefits of green buildings and the balance sheets of renewable energy projects should enable borrowers and lenders to better evaluate the risks and benefits of green projects.
Where available, use green specific financing tools, like energy efficient mortgages. A good primer is available here.
Be prepared to cross-collateralize--There is so much risk aversion, that many financial institutions are seeks cross-collateralization of non-green projects to alleviate the fear, real or imagined, associated with financing green projects.
Acknowledge a longer financing timeline--Getting all parties on the same page regarding the financing deal and the documentation may take longer than traditional projects. But, as lenders and borrowers get more projects under their belts, this timeline will shorten.
Tags: 2011, Finance, Incentives, bank, collateral, fargo, green, money, renewable, wells
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New Year's Green--Two Policy Measures That May Change The Face Of US Sustainability
Posted on January 3, 2011 by Shari Shapiro
Happy New Year and welcome to GBLB 2011. When the clocked struck 12:01 on New Year's, two important green regulations went into effect that may have a long term influence on green building and renewable energy. If successful, either of these regulations would do more to change the green industry than any legal challenge to LEED's legitimacy (see the continued coverage of the Gifford v. USGBC case here and here):
CALGREEN
As I have said before, green building practices are becoming code, and California has (as usual) taken the lead. California is the only state to have a state-wide green building code, CALGREEN, which went into effect on January 1, 2011. If California successfully implements this mandatory green building code without siginificant impact on building rates or building costs, look to other states and municipalities to follow. Implementing green via building code is being made significantly easier throught the creation of the International Green Construction Code (IGCC) which integrates with the ICC construction codes already in place in most jurisdictions.
An interesting question that has been bandied about is what a green construction code will do to LEED. California will be an interesting laboratory. Will developers still seek LEED certification for their buildings when all new construction must be green? How sensitive is the customer base to "green" vs. "more green?"
2. EPA Regulation Of GHG Under the Clean Air Act
EPA limits on greenhouse gases for power plants which also went into effect January 1 (a quick fact sheet from the EPA is available here). When cap-and-trade or cap-and-tax died in Congress last year, the EPA continued its plan to regulate GHG via the Clean Air Act. There is significant controversy over these limitations, and legal challenges have been filed. On Wednesday, December 29, 2010, the Fifth Circuit Court refused to stay the regulations, and on Thursday December 30, 2010, Texas filed a petition to the Court of Appeals in the Federal Circuit to stay the regulations. If the EPA regulations on power plants remain in place, more GHG regulation of other categories will follow, creating the same massive shift in the priority of green tactics to manage GHG emissions that cap-and-trade would have had.
The reason I started this post by saying that these regulatory efforts may (not will) shift the green building and renewable energy industries is because of the massive efforts being undertaken to derail the regulatory efforts.
According to the Center for American Progress:
The 20 biggest-spending oil, mining, and electric utility companies shelled out $242 million on lobbying from January 2009 to June 2010. Trade associations that generally oppose clean energy policies spent another $290 million during this time. This is over $1,800 in lobby expenditures a day for every single senator and representative.
Opponents of GHG regulations were successful in killing cap-and-trade legislation in Congress. In California, a referendum seeking to overturn California's cap-and-trade regulations was on the ballot in the November election, although it was defeated handily.
In the tug of war over between proponents and opponents of environmental regulations, watch these two hotspots in 2011.
Tags: EPA, GHG, LEED, Regulations, USGBC, calgreen, code, gifford, greenhouse, igcc
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