Incentives could spur more work

May 28, 2010
| By Pete Daly |
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Two bills now pending in the Michigan Senate would provide financial incentives for construction and building rehabilitation projects that achieve Leadership in Energy and Environmental Design certification, providing a boost to developers and designers looking to go green.

The incentives — a property tax abatement under the Commercial Redevelopment Act and a tax increment financing reimbursement under the Brownfield Act — were drafted with the assistance of John V. Byl, a partner at Warner Norcross in Grand Rapids.

“The new legislation is designed to make Michigan a leader in green design of new and rehabilitated buildings,” said Byl.

Byl, who previously chaired his firm’s environmental practice group and currently is co-chair of its economic incentives group, noted that buildings account for 65 percent of total U.S. electricity consumption, 36 percent of total U.S. primary energy use, and 30 percent of total U.S. greenhouse gas emissions.

“As drafted, the proposed legislation will encourage developers, builders and manufacturers to achieve the highest possible levels of LEED certification. As a result, Michigan can expect to see more buildings with green roofs, geothermal systems, solar panels, wind turbines and other features that minimize water usage, manage storm water and limit energy consumption,” said Byl.

Byl maintains that developers have been reluctant to pay the increased up-front costs for the design and construction features required for LEED certification.

“It is difficult to finance these costs, as appraisals typically do not reflect sufficient increased value to justify additional financing, despite the long-term benefits that result from energy savings,” he said.

“The goal is to make Michigan a leader in sustainable construction and design,” said Byl. The tax incentives would encourage developers “to make every effort” to build at a higher level of sustainability, and it may also encourage lenders “to find ways, I hope, to provide more financing to the sustainable projects,” he said.

“The city of Grand Rapids has actually done a good job and has a large number of LEED buildings, but the same is not true statewide,” said Byl. “Most projects are not built to these standards, and this would help a great deal.”

Byl was present when the Michigan chapter of the National Brownfield Association organized a stakeholders group in the spring of 2008 to develop legislation that would promote green construction through financial incentives. Group members included banks, builders, the Michigan Department of Energy, Labor and Economic Growth, representatives of the U.S. Green Building Council, developers, the Michigan Economic Development Corp., the Michigan Department of Environmental Quality, the Michigan Municipal League, staff from the Michigan legislature and others. The group met six times over eight months and developed recommendations for legislation.

The first incentive in the proposed legislation is a tax abatement based on the level of LEED certification that a project achieves. The bill would amend the Commercial Redevelopment Act, P.A. 255 of 1978, which provides property tax abatements under certain circumstances.

Byl said that under the proposed amendment, a person planning to build a new building or rehabilitate an existing building could apply to the local municipality for a property tax abatement for up to 12 years. The abatement would be 20 percent for basic LEED certification, 30 percent for silver, 40 percent for gold and 50 percent for platinum.

Whether a requested abatement is granted will be up to the discretion of the local municipality. Municipalities eligible to grant the property tax abatement include townships with a population of at least 20,000, and all cities and villages regardless of population.

The abatement would apply only to the increase in taxable value resulting from the project, and would apply to all real property tax millages except for debt millage. There would not be any opt-out for any of the taxing jurisdictions.

Byl said there was considerable discussion regarding whether the property tax abatement should be available statewide, since it was noted that it is more difficult to achieve LEED certification in rural settings, and there was some concern that allowing the abatement in rural townships could result in urban sprawl. In the end, the consensus of the stakeholders group was to limit the abatement to the more populated areas.

The second proposed incentive is an amendment to the Brownfield Redevelopment Financing Act 381 of 1996, which allows for the “capture” of tax increment revenue from a new project to reimburse certain eligible activities on eligible properties, according to Byl. This form of financial incentive is commonly referred to as tax increment financing, and only the increased property tax revenue that results from a project is captured to reimburse certain eligible expenses incurred by a developer at an eligible property.

Only sites that are deemed "brownfield" sites — either contaminated or that have a functionally obsolete building or blighted conditions — are eligible for the TIF program.

Byl said that under the proposed legislation, sustainable design features that would be eligible for TIF reimbursement under certain circumstances are renewable energy systems — wind turbines, solar panels and geothermal energy systems — and storm-water management systems and underground parking.

These items would only be eligible for TIF reimbursement if the project is an eligible brownfield, the proposed project achieves LEED certification at any level, and the developer received credit in the LEED certification process for the item for which reimbursement is sought.

The process for receiving TIF reimbursement under Act 381 includes preparation of a brownfield plan; review of the brownfield plan by a local Brownfield Redevelopment Authority; approval of the brownfield plan by the governing body of the local municipality; and approval by the Michigan Economic Growth Authority if the person seeking TIF reimbursement desires to capture state/school millage in addition to all the local millage.

Under Act 381, there is no opt-out for any of the taxing jurisdictions, but the local municipality can only approve capture of the non-school millage. The school millage, which includes school operating costs of 18 mills and the state education tax of 6 mills, must be approved by the Michigan Economic Growth Authority.

Byl noted that there has been some discussion in the Legislature about not limiting the legislation to LEED certification alone. Other standards that have been mentioned include Green Globes, a system similar to LEED but “which offers an environmental certification rating system at a lower cost,” according to Data Center Journal.

“LEED certainly is the best known and has provided a very reliable measurement of sustainability, according to people familiar with sustainable construction,” said Byl. “And it also provides a simple mechanism for municipalities who may not have the resources to determine whether some other standard provides a comparable measure of sustainability. That’s the reason LEED was specifically selected.”

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