Sunday, July 22, 2007

What Happens In Las Vegas...

Although what happens inVegas is supposed to stay in Vegas, what has happened to tax incentives for green building in Las Vegas could spell trouble for the rest of the nation as state and local governments use tax incentives to encourage green building.

In 2005, the Nevada legislature established sales tax exemptions and a property tax exemption -- worth up to 50 percent of the property value for up to 10 years -- to projects that qualify under the Leadership in Energy and Environmental Design standards. Projects meeting the silver level of certification were eligible for a 35 percent property tax break.

Two years later it became clear that so many projects qualified for exemptions that the state budget was going to be severly impacted. There was a good deal of legal hand wringing while it was determined whether the tax break could be repealed. On May 3, 2007, the Nevada legislature voted to put the breaks on hold. On May 14, 2007, the governor vetoed the suspension bill.

On June 4, a compromise bill was passed. According to the Nevada Appeal, "AB621 preserves substantial tax breaks, between 25 to 35 percent in property taxes for up to 10 years, but requires that developers meet higher standards for energy efficiency. The breaks also do not apply to money owed to school districts. The bill also gets rid of sales tax exemptions on construction materials provided by the 2005 law."

More politics, more lobbying, and the the tax panel is now set to consider a proposed regulation to implement the new law on Aug. 6. According to at least one commentator, the new law is likely to have as large loopholes as the original one.

So what happened here? Clearly the idea was a good one--use the government's fiscal levers to encourage green building. But hurrying to implement a law before the implications could be thoroughly investigated may have done more harm than good. Now the lawmakers are having to find a way to scale back the incentives, and crushing any further progress for green building intiatives in Las Vegas for some time to come. And there are few places in the country who need to be concerned about conservation--especially water conservation--more than Las Vegas.

I believe that this is only the first legal explosion in the green building area--there are so many new laws and regulations being passed as government bodies seek to jump aboard the green building bandwagon. Financial incentives for green building have a surface appeal--they don't mandate anything, so opposition is generally limited, and they can be counted as "doing something" about environmental concerns. But all incentives are not good incentives--the key is for governments to develop careful, measured incentives by asking two key questions: what will the full fiscal impact be and will the incentive cause changes in behavior which could not be acheived by other, less costly methods. Governments cannot abdicate their responsibility to make good, effective laws which will encourage and enable green building for decades to come by passing easy, ill-thought-out tax breaks.

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