Tuesday, June 7, 2011

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Attend Summer Free Information Sessions at UC Davis Extension (10447499)








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UC Davis Extension
June 6, 2011
Dear John,

This summer, join us for a free information session at the Sutter Square Galleria in Sacramento. Learn about career opportunities as well as the essentials and requirements for our certificate programs. Faculty, staff and industry leaders will be on hand to answer your questions and discuss career trends and program content.

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Saturday, June 4, 2011

aMASSeco

Moving Green Forward, One Step at a Time

Posted on May 26, 2011 by Shari Shapiro
Steven Johnson, in his book Where Good Ideas Come From (read an excerpt here) explained that great ideas, the ones that transform the marketplace, are based on the “adjacent possible:”
The phrase captures both the limits and the creative potential of change and innovation. In the case of prebiotic chemistry, the adjacent possible defines all those molecular reactions that were directly achievable in the primordial soup. Sunflowers and mosquitoes and brains exist outside that circle of possibility. The adjacent possible is a kind of shadow future, hovering on the edges of the present state of things, a map of all the ways in which the present can reinvent itself.
Treehugger reports today that a cutting-edge green community, breaking ground both in its design and its site (it was gentrifying an historically lower income, African-American community) is facing foreclosure. The explanation, in part, is because the development skipped ahead of the adjacent possible:
This was a cutting edge design, by the greenest of cutting-edge architects. Most developers build the same thing over and over again so that they get to know their costs really accurately; when you are the first, you don't. You build in contingencies, and may even benefit from the fact that in a downturn, construction costs drop significantly, but green roofs, solar thermal hot water and other green features cost money. Purchasers are not often willing to pay their full value because they are thinking about investment and resale, and banks don't make it easy to get mortgages on the green goodies, so your margins on a green, innovative or different building are often smaller.
Move one square to the left, and you are a genius. Skip over a square, and you are a failure, ahead of your time. This seems to be one of the classic problems with the green movement. We try to skip over steps, assuming that the rest of society will make the leap with us. Not so. 
With respect to cap-and-trade, there has been significant argument that its advocacy skipped a vital step—linking cap-and-trade to where the American public is now. In the Daily Kos, Frank Luntz, the pollster and wordsmith, had this to say about bringing climate change into the adjacent possible:
Luntz's report, "The Language of a Clean Energy Economy," finds that the majority of the public across the political spectrum is convinced that global warming is happening and caused at least in part by humans. But, Luntz says, talking about the problem won't win support for the legislation that would solve it. Among both Democrats and Republicans polled by his firm, addressing climate change was the least important reason to support a cap-and-trade policy.
So what should environmentalists say instead? Luntz suggests less talk of dying polar bears and more emphasis on how legislation will create jobs, make the planet healthier and decrease US dependence on foreign oil.
In innovation, there are no skipped steps. Moving from the present to the adjacent possible is the only route to transformation, one step at a time. Many have argued that there is no time for incremental change, but moving along the continuum of the adjacent possible does not necessarily mean a lengthy timeframe. Rather, it means linking the next vision to the one we are already connected to. For example, the internet went from text based pages to picture to video to facebook in just over a decade.
Now let me bring this back to law. Laws, regulations and programs promoting green and energy efficient construction must build on the adjacent possible. When they do not, as in the IRS Bond Requirements for the Destiny USA Project (which mandated completely unattainable green features and job creation obligations), they are destined for failure. When they do, like the 1603 grant for solar power (great article on 1603 grant results here), they can spur a whole industry forward and radically reduce the price of solar panels. 
As of February 25, 2011, a total of 7,180 alternative energy projects were funded through the §1603 program, totally $6.4 Billion in Treasury funding...Whereas solar P.V. installations in 2010 grew by 114% over 2009, netting $757 Million in 1603 grants, industry analysts forecast that solar installation will grow by an even larger factor through 2011. Solar has been receiving more attention in recent months from consumers, industry analysts and property owners alike. This attention has raised awareness of the benefits to installing solar, resulting in a spike in ground mounted and rooftop P.V. installation. In 2011 and beyond, the authors are confident improved technology and increased economic incentives will meet with this awareness to result in a marked increase in the amount of cash grants dedicated to solar technology.

The most audacious ideas are those that build on what already works, and makes it better, faster and more impactful. The same is true for regulation. Move forward to the adjacent possible, one step at a time.
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Annals of the Obscure--Accounting Rule Changes May Adversely Impact Energy Efficiency and Renewable Energy

Posted on May 25, 2011 by Shari Shapiro
I have tried to make simple and clear many complex legal topics before, including class action law suits and IRS tax-free bonds, but never have I faced this great a challenge.
Apparently, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), which are in charge of setting new accounting standards for companies, have set in motion a rulemaking process which would require companies to list leases as assets and liabilities on their books.  These leases would include Power Purchase Agreements, Sale-Leasebacks of renewable energy installations and ESCO contracts.
By putting these transactions "on the books," it has a variety of implications, including increasing the debt ratio of many companies, and increasing the disclosure and transaction costs associated with those efforts.  These implications may mean that companies are less willing to do renewable energy and energy efficiency transactions, and ESCOs and other companies have a harder time benefitting from the transactions.
 The folks over at the National Renewable Energy Laboratory have done a detailed analysis of the rule changes here and Forbes had a more user friendly (if less detailed) piece here.

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Time to Pay the Piper: Evergreen Solar Must Repay (Some) Tax Incentives

Posted on May 20, 2011 by Shari Shapiro
I have posted previously about the Destiny USA debacle, wherein the IRS is auditing a "green" shopping center project that failed to meet its sustainability obligations that qualified it for tax exempt bonds.
Now, according to the Boston Globe, a solar manufacturing plant in Massachusetts that received $4.5 million in property tax abatements will have to pay back a portion of the money.
Yesterday, the Economic Assistance Coordinating Council, the state board charged with overseeing the tax breaks, unanimously voted to cut short Evergreen’s 20-year property tax break, originally estimated to be worth $15 million, and voided another $7.5 million in state tax credits after the company eliminated the hundreds of jobs it promised to create and retain in Devens.
Out of the $4.5 million in property tax breaks they have received to date, Evergreen will only have to repay the current year's value, about $1.5 million, and in addition to the property tax breaks, the now almost defunct solar manufacturer also received over $21 million in other grants, the fate of which is uncertain.
A question which occurs to me is why didn't the government pull the plug sooner? At this point, it may be all but impossible to recoup the public investment.  To the extent that the public is taking a position in green companies (or any companies, for that matter), someone should be watching to guard the public's investment.  As early as 2009, the writing was on the wall for Evergreen. According to their 2009 Annual Report:
We cannot assure you that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us in amounts sufficient and on terms reasonable to us to support our liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, including our senior convertible notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. We may incur additional indebtedness. If we do so, our increased debt service requirements may adversely affect our ability to meet our payment obligations on our currently outstanding senior convertible notes and otherwise successfully grow and operate our business.
Moreover, Massachusetts rescinded Evergreen's property tax breaks for failure to create jobs, not failure to achieve environmental goals. The state should have known about this situation well before mid-2011. As early as 2009, Evergreen announced it was moving its manufacturing operations to China. According to its 2009 Annual Report:
In addition to our direct expansion into China, we also announced plans to begin shifting panel fabrication from our Devens facility to China using wafers and cells produced at the Devens facility.
[As a side note, Destiny USA had both obligations--to create 1000 construction and 1500 permanent jobs, as well as install its green features.  The IRS may follow suit and rescind the tax exempt status of the Destiny bonds for jobs reasons, thus avoiding the controversy over whether the green aspects were met]
According to the company's website, Vanguard Group, Inc., BlackRock Institutional Trust Company,  and Brigade Capital Management, LLC are the top holders of Evergreen stock. To the extent that Evergreen issued tax exempt paper, it will be interesting to see if these entities enter the fray if the tax exempt status of their investments is rescinded.
Moreover, if Evergreen declares bankruptcy, it will be fascinating to watch whether the public agencies which granted the incentives will be able to recoup any of their investment, particularly where they are competing with private creditors. 
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Garbage In, Garbage Out

Posted on May 18, 2011 by Shari Shapiro
There is a corner of the Federal government that, unless you are as data obsessed as I am, you never knew existed.  For the part 25 years, the Energy Information Administration (EIA) has collected  baseline data on commercial building energy usage, known as CBECS.  CBECS is the only government source of statistical data for energy consumption and related characteristics of commercial buildings.   The data EIA has collected forms the underlying data for programs like Energy Star and LEED, and laws like Energy Independence and Security Act of 2007 (EISA 2007).
Two pieces of bad news were released today.  First, the EIA tried to cut costs by contracting out its building energy information gathering.  Unfortunately, the data gathered by its contractor was so shoddy that the EIA is refusing to release the data. 
According to a press release from the EIA:
EIA regrets to report that the 2007 Commercial Buildings Energy Consumption Survey (CBECS) has not yielded valid statistical estimates of building counts, energy characteristics, consumption, and expenditures. Because the data do not meet EIA standards for quality, credible energy information, neither data tables nor a public use file will be released.
Worse still, according to the EIA, the budget cuts made in this year's budget negotiations have reduced the EIA budget so severely that it will suspend collection of 2011 data.  In other words, the best building data we have to work with at this point is almost 10 years old, and no further data is being collected.
Because approximately 30% of all energy is used by buildings, without a good baseline assessment of current building energy use, it will be difficult to:
  1. Accurately benchmark current building performance; and
  2. Accurately model building energy efficiency efforts. 
If energy models are based on bad or old or unreliable data, the results in practice may not live up to the predictions, and it will be easier to dismiss efforts to comprehensively transform building energy usage.  In other words, garbage in, garbage out.  
To address this situation, there are two choices.
 A relatively unbiased private organization, like ASHRAE or the International Code Council, could collect the data.  Although the standard setting organizations will have their own internal and external customers to serve, and questions will inevitably arise as to the bias and validity of the data, they possess the relevant expertise and are currently relied upon to provide input into laws (like building codes).  The other option is for the Department of Energy or other government agency to recognize data gathering as a priority, and reallocate funds for the purpose of building energy efficiency data collection. 
In any event, a reliable party must step up to fill the data void, or future efforts to actualize the most cost effective method of reducing energy use and greenhouse gases will be squandered.  We will pay now through unnecessarily high energy costs and the price tag for participating in conflicts in the Middle East, and future generations will pay for damage to the environment.  Garbage in, garbage out.

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How Is Energy Efficiency Like Dry Cleaning?

Posted on May 9, 2011 by Shari Shapiro
According to an AIA study, between 2006 and 2009, municipalities with green building programs increased by 50%.  Many programs sponsored by municipalities, states, utilities and the federal government are designed to promote energy efficiency and green construction.
Although green building has increased exponentially, only a small segment of companies have done energy efficient upgrades to their facilities. Why isn't every business looking to take advantage of incentive programs and the low cost of labor generated by the depression in the construction industry to green their facilities and implement energy efficiency measures?
My answer is that energy to businesses is like dry cleaning to lawyers.  Every lawyer needs clean suits, so the dry cleaning bill is part of the household budget.  Most people who use dry cleaners do not really know what happens at the dry cleaner  to get their clothes clean, or what the cost of the actual dry cleaning process is.  It is very difficult to get comparative prices for dry cleaning, so it takes research to find out whether you are paying your dry cleaner too much or could get a better deal elsewhere.  Switching from the dry cleaner you've always gone to requires figuring out which new dry cleaner to go to, new hours, etc., all with little guarantee that the cost and service will be as good or better than the dry cleaner they currently use.  And, at the end of the day, the potential savings from switching dry cleaners relative to the entire household burget is marginal.  In the presence of all of the transaction costs and with no particular event to motivate change, most people conclude that it is simply not worth the effort. 
Energy is very similar.  All businesses use energy and pay energy bills.  Few really understand where energy comes from and how it is priced.  Switching to more energy efficient systems, net meters, etc. requires commmitting corporate resources to figuring out which ones to invest in and believing that the energy efficiency measures will have a positive impact on energy usage.  And, at the end of the day, the potential savings from more energy efficient facilities relative to the entire corporate budget is, in most cases, marginal.  In the presence of all of the transaction costs and with no particular event to motivate change, most companies conclude that it is simply not worth the effort.
To each actor, the savings are small, but in the aggregate, incremental saving in building energy usage would have a significant impact on greenhouse gas emissions and fossil fuel use.  The dry cleaning example starkly highlights the disconnect between the individual benefit and the group benefit.  According to the ABA, there are 46,276 active lawyers in Pennsylvania.  Let's say each lawyer dry cleans one suit per week on average.
 
Per Household  
Lawyers 1
Weeks 52
# of Suits cleaned per week 1
Cost of suit cleaning  $10.00
Total suits 52
Total annual cost of suit cleaning $520.00
10% cost reduction $9.00
Total revised annual cost of suit cleaning $468.00
Total Annual Suit Cleaning Savings $52.00
   
Pennsylvania Aggregate  
Lawyers 46,276
Weeks 52
# of Suits cleaned per week 1
Cost of suit cleaning  $10.00
Total suits 2406352
Total annual cost of suit cleaning $24,063,520.00
10% cost reduction $9.00
Total revised annual cost of suit cleaning $21,657,168.00
Total Annual Suit Cleaning Savings $2,406,352.00
Most households are not going to bother with the high transaction costs of switching dry cleaners for a total savings of $52.00 per year, which in the scope of the whole household budget is a rounding error, but $2.5 million in annual savings for lawyers overall is real money.
Likewise, potential aggregate building energy efficiency savings in 2030 has been estimated at nearly $170 billion. But for an average business, the cost savings are negligable as a percentage of overall corporate spending.  For example, according to a Washington State study, the average annual small business energy costs attributable to buildings was about $5000. Even a 10% reduction in building energy costs would only result in a $500 annual savings. Another study puts the potential savings somewhat higher, at $2800.00, but most small businesses would still conclude that energy efficient upgrades are not worth the institutional investment.      
So how do you change the individual corporate decision making process with respect to energy efficiency?
The ultimate answer is to internalize the environmental and health costs of energy into energy prices, so the cost to the individual corporation and the percent of their overall budget attributable to energy is higher.  In other words, raise the price of energy.   
In the absence of energy price changes, which is not a politically palatable solution right now, there are still things that can be done to incentivize energy efficient construction:
  • Reduce transaction costs
  • Increase price transparency
  • Provide uniform metrics for quantifying savings
  • Construct motivating events 
  • Incentivize aggregators
I will address these five interim solutions in later posts, but I would love to hear feedback from the GBLB community on other ideas for motivating energy efficient construction.
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Inside Baseball No More--Why The Building Code Adoption Process Is Critical To Sustainability

Posted on April 26, 2011 by Shari Shapiro
A lot of attention has been paid to creating a greener building stock by incorporating green building practices into building codes.  The development of the International Green Construction Code is just one example.
However, there are two primary components to every regulation--policy and process.  Both components are critical to acheiving regulatory goals. Good laws that are not implemented and enforced might as well not exist, and bad laws which are well implemented create a different, but equally bad, outcome.
The process for approving building codes is arcane at best and impenetrable at worst. To those interested in sustainability, code process may seem like the ultimate "inside baseball" information, like knowing what the Lou Brock's 1967 out statistic was--simply not vital to understanding baseball as a whole.  HB 377, a law signed by Pennsylvania Governor Tom Corbett this week demonstrates how how process changes can impact green building and energy efficiency policy.
 Generally, the process for adopting building codes is as follows:
1.  The local or state government enacts enabling legislation requiring a building code, often incorporating the International Code Council's model code.
2.  The International Code Council updates their model building codes on a regular basis, once every three years.
3.  The state or local government has some mechanism, either automatic or through an approval process, for updating its building code to the new version.
Depending on what level of authority is provided to local governments with respect to their building codes, local governments may adopt additional or different changes to the building code requirements.
Pennsylvania has a state wide building code which, until this week, was an "opt-out" model.  Updates to the International Construction Code were automatically incorporated into the Pennsylvania code unless provisions were specifically rejected by a Governnor-appointed council comprised of builders, architects, code officials and so on.
The bill enacted this week switches the code adoption to an "opt-in" model.  Any changes to the construction code must be approved by a super-majority vote by the council, otherwise the prior code remains in effect.  In addition, the law adds an additional seat to the 19 member council for:
A GENERAL CONTRACTOR FROM AN ASSOCIATION REPRESENTING THE NONRESIDENTIAL CONSTRUCTION INDUSTRY WHO HAS RECOGNIZED ABILITY AND EXPERIENCE IN THE CONSTRUCTION OF NONRESIDENTIAL BUILDINGS
Policy watchers, like Penn Future , the Delaware Valley Green Building Council, and the Northeast Energy Efficiency Partnerships , anticipate that the super-majority vote of the council will make enacting updates of the ICC very difficult, and that the extra seat for the general contractor will bias the council against upgrading the stringency of the building code. This, of course, includes code changes for greater energy efficiency requirements and incorporating green building practices.
HB 377 said nothing about energy efficiency or green building.  Nonetheless, the changes to the building code adoption process creates a potentially significant barrier to a greener building stock in Pennsylvania.  On a 20 person board, It would require 13 votes to put a code change into effect, and each change must be lobbied for separately. 
Do you know what the code adoption process is in your state or municipality?  Are there any proposed changes?  Let GBLB know what you find out.  It might surprise you.   
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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.

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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.
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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!
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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.

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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:
  1. Reduce energy consumption by more that 150 megawatts annually compared to conventional generation;
  2. Reduce daily sulfur dioxide emissions by at least 10 tons compared to coal generated power;
  3. 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);
  4. 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:
  1. At least 75% of the square footage had to be LEED certified;
  2. The wood had to be certified under the Sustainable Forestry Initiative or the American Farm Tree System;
  3. 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:
  1. 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;
  2. Retrofitting more than 100 construction vehicles with diesel particulate filters and using clean fuel, which will reduce emissions by nearly 85 percent;
  3. Implementing techniques to reduce idling of vehicles during construction
  4. Becoming partners in EPA's Energy Star and WaterSense programs,
    which require the use of energy- and water-efficient appliances;
  5. 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.
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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:
  1. Investors, particularly institutional investors, now forced to pay taxes on their previously exempt bonds could sue Congel. 
  2. 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.
  3. 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.
  4. 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.

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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!
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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.
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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.
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