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ClientAlert

Public Incentives for Large-Scale Sustainable Development

January 2009
People: Peter N. Kochansky
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Sustainable development principles are becoming increasingly important for large-scale development projects, particularly if they are seeking public support. The real estate industry has embraced “green building:” building construction and operation practices that are environmentally responsible and resource-efficient. This year, the United States Green Building Council (USGBC) will issue a revised version of its popular Leadership in Energy and Environmental Design (LEED) Green Building Rating System.™ Local jurisdictions increasingly require large projects to meet LEED standards.

Many state and local governments, including Massachusetts and Maryland, have also adopted “sustainable development” policies which seek to reconcile human activity with finite resources to achieve ecological goals on a larger scale than green building alone. Principles of sustainability shape development to avoid natural areas, to maximize the use of existing infrastructure, and to minimize auto use, harmful emissions and energy consumption.

Just as green building has become expected of large, individual buildings, both by approving agencies and the market, sustainable development is increasingly expected of large-scale, multi-building projects. It is likely to be especially favored, if not required, for large-scale projects seeking special governmental approvals or aid, and to qualify for Requests for Proposals.

Incentives

Our firm is closely monitoring the course of federal economic stimulus legislation. In the meantime, proponents of sustainable development should be aware of the incentives already available to promote energy efficiency and minimize environmental impacts from large-scale development.

These existing incentives can be grouped into three broad and overlapping categories: Energy Conservation; Smart Growth; and Public Infrastructure.

Energy Conservation

A key feature of sustainability is to use less energy, especially by lessening consumption of fossil fuels, whose combustion emits greenhouse gases. Developers and owners of property can qualify for a variety of government and utility-sponsored incentives to improve energy efficiency, such as by installing better insulation and fluorescent lighting. Similar incentives exist to promote the installation of on-site power facilities using renewable sources or alternative equipment, such as wind, solar or combined heat and power units. Examples include: grants from state agencies or regulated utilities; the federal energy-efficient commercial building tax deduction, production tax credit, and investment tax credit (IRS Code Sections 179D, 45, and 48, respectively); and the sale of renewable energy certificates (REC’s).

Smart Growth

Smart growth is an urban planning approach that favors compact, mixed-use development proximate to existing urbanized areas, often including affordable housing, in place of the dispersed, auto-oriented development patterns commonly known as urban sprawl. Existing public and private programs to spur smart growth include: grants to redevelop brownfields from various sources, such as the Center for Creative Land Recycling; Low-Income Housing Tax Credit equity and other subsidies or assistance for affordable rental housing directed at smart growth projects; and technical and financial aid from federal and state agencies to localities that implement smart growth zoning.

Public Infrastructure

Large-scale development of all kinds often entails significant new local public infrastructure, such as streets, parks and utility systems. Incentives are available for such improvements to support largescale sustainable development, such as: state-directed Transportation Enhancement funding under the federal Safe, Accountable, Flexible, Efficient Transportation Equity Act —A Legacy for Users (SAFETEA-LU); tax increment financing; and state and local programs, such as the Massachusetts Development Finance Agency’s I-Cubed Program, which authorizes the issuance of bonds for infrastructure associated with commercial development.

Definitions of Large-Scale Sustainable Development

  • USGBC, the Congress for the New Urbanism (CNU) and the Natural Resources Defense Council run a pilot program to rate large-scale sustainable development called LEED Neighborhood Development (LEED-ND).
  • LEED-ND seeks to integrate the principles of green building, the New Urbanist design movement and smart growth into a new standard for large-scale development.
  • By the end of 2008, the LEED-ND pilot program had 238 registered projects worldwide, including dozens in the Northeastern U.S. “Post-pilot”.
  • LEED-ND is expected to be launched in early 2009, and will be the first of the LEED certification programs to seek official status as an American National Standards Institute standard.
  • LEED-ND certification could help large-scale projects establish their eligibility—and greater worthiness— for incentives aimed at sustainable development. We are closely tracking LEED-ND and other competing standards.

It is important for developers and other project proponents to consider these resources as early as possible in the project cycle. Goulston & Storrs has extensive experience with large-scale sustainable development, including LEED-ND. Please contact us if we can assist you in analyzing whether one or more of these public programs might be appropriate for a particular project, or in securing coverage under any such program. We will continue to monitor the evolution of these programs and their likely impact on large scale sustainable development.

The authors are members of the real estate, tax and transportation groups, and can be reached as follows:

Matthew J. Kiefer
617.574.6597
mkiefer@goulstonstorrs.com

Peter N. Kochansky
617.574.3527
pkochansky@goulstonstorrs.com

Steven R. Schneider
202.721.1145
sschneider@goulstonstorrs.com

This client advisory should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and any specific legal questions you may have.

Pursuant to IRS Circular 230, please be advised that, this communication is not intended to be, was not written to be and cannot be used by any taxpayer for the purpose of (i) avoiding penalties under U.S. federal tax law or (ii) promoting, marketing or recommending to another taxpayer any transaction or matter addressed herein.

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