Green Building Incentives

By: Jon Dougal
Date: October 21, 2008

Various municipalities have given the green light to the greening of their various agencies. Mandates for green cities proliferate across the country. One of the mechanisms, besides speedier permit processing, is tax incentives. 

The tax breaks were created during the 2005 Nevada State legislative session when the Assembly unanimously joined the Senate in special session to encourage businesses to build efficient "green" buildings. Businesses that qualify are exempted from all but the base 2 percent of sales taxes on construction materials and fittings. They also get a property tax break of up to 50 percent for 10 years.

CityCenter entered the LEED picture after 2005, when the Nevada Legislature created the nation's only statewide tax abatement program for owners of LEED-certified buildings. The legislation allows businesses to cut property taxes 35 percent to 50 percent.

Then in 2007, experts say, the four or five projects already approved for the breaks will cost the state about $85 million in sales tax revenue alone and much more down the road in property taxes.

While the intent of green building incentives was meritorious, no one suspected the potential impact to state and local government budgets. Now, with the mortgage meltdown and the credit crisis and shortly the credit card debacle, what will the incentive look like in coming years?  Can cities really honor their incentives to build green?

The revenue shortfall hits the school districts, which rely on the portion of the sales tax being exempted as well as a chunk of the property tax revenues. But it also affects the state budget because, under law, the state must make up any shortfall suffered by the school districts.

Nevada has recently in late 2007 rescinded the incentive after realizing how much money they were going to loose in the state coffers when all the various big building projects going green arrived. With 18 million square feet of building space, MGM Mirage planned CityCenter in Las Vegas, a $7 Billion project, will be the largest LEED-certified structure in the U.S. to date, the Las Vegas reports.

The tax abatement program has led to a trend that has been so rapid that by the time CityCenter opens its doors in November 2009, state and local officials say most casino companies and other big developers in Las Vegas will be considering, if not building, LEED-certified structures.

Boyd Gaming officials say they hope to obtain LEED certification for Echelon Place, a $4 billion resort complex to begin construction midyear at the Stardust site. The same is true for the Cosmopolitan resort under construction at Harmon Avenue and Las Vegas Boulevard.

"We're at a tipping point where (businesses) realize this green building is going to save them money, not cost them money," said Art Gensler of the global architecture firm Gensler, CityCenter's executive architect.

The bigger question in light of the current financial meltdown is whether more municipalities and states will withdraw green building incentives where they influence the revenue stream in a troubled tax income climate.