Encouraging sustainable development

It is always nice when Nevada makes it to the top of a list that you can be proud of. And that is just what is taking place when it comes to the term sustainable development.

Sustainable development is meeting today's needs of development without compromising future generations' ability to develop, making sure that there is a linkage between the environment and development. According to Assemblywoman Marilyn

Kirkpatrick, a Democrat from Las Vegas, Nevada is being hailed from across the nation for its work on providing sensible and straightforward tax incentives for the development of green buildings. That model legislation and regulation process that just

finished up finally in October put Nevada on the map for giving developers and the companies that they build a reasonable incentive to do the right thing. Companies like Patagonia in northern Nevada and the Molasky Building in southern Nevada are two of the first to achieve a LEED certification that allows them to benefit from the tax breaks and incentives of the new legislation and are models for green building legislation.

But less than a year ago, the words sensible and straight forward would probably not have ended up in the same sentence as Nevada's tax incentives for green buildings. At the end of the Legislative session in 2005, the Legislature passed AB3, and state regulators subsequently adopted some very broad regulations which were designed to provide tax breaks to those builders and developers whose projects were considered environmentally friendly, or "green."

But at that time, Legislators and regulators had no idea that early in 2007 state economists would begin to calculate that the loss of revenue from just seven projects looking to go green and avail themselves of the tax breaks would be an approximate $940 million of lost revenue to the state in 10 to 15 years.

As was originally written, the law and regulations provided for such extensive interpretation that the tax breaks became too good, and state and local budgets would have been seriously depleted. And so the 2007 Legislature took on a monumental task with Assemblywoman Kirkpatrick Assemblywoman Debbie Smith, a Democrat from Reno, serving as the point persons for righting those wrongs.

As Assemblywoman Smith stated for this article, "I would say that the green building issue was one that was a good example of good intentions without enough vetting of the details."

Smith and Kirkpatrick took to that vetting like television's Cagney and Lacey after crime. While the policy ideals were sound, it

was the amount of the original 50 percent tax breaks allowed in AB3 of the 2005 legislative session that sent the state economists scrambling. It included both property tax relief and sales tax relief with a small three-month window for qualification for the sales tax relief.

And because of the broadness of the regulations, what could qualify for sales tax relief went beyond the initial scope and intent of AB3.

As those applicants for the tax incentives worked to qualify their projects and purchases under the tax incentives, local governments and school districts began crunching the numbers of potential tax revenues lost and alerted the legislature that action had to take place. So late in May of 2007, with less than a month remaining in the Legislature, hearings began and the initial framework of what was to become AB621 was started.

"The state, local governments and school districts had to have certainty," said Assembly-woman Kirkpatrick, "And there had to be accountability." Both Kirkpatrick and Smith spent hours and hours in public hearings, private meetings, and with bill drafters crafting a document that Smith said "was written through a process that involved business, conservationists, local governments and the public so that we could cut that fiscal note in half but keep our status as a leader in green buildings intact."

That was the balance the legislators had to walk. Could they change what had already been given in 2005 so as not to cripple governments, but still leave enough incentive to prompt folks to go green?

The legislation passed with some unique qualities. It identified special provisions in law for those finite number of projects that could qualify as what became known as the "pre-2007 applicants" under AB3 and it identified new incentives and standards for those projects going forward and applying once the new regulations were drafted and approved.

But even with a law passed, key legislators knew that the crafting of the regulations had to be very precise and follow legislative intent. The 2007 Legislature had passed changes in law that gave the Legislative Commission a great deal more authority over regulations by state agencies and the AB621 regulation process was the first to go through this much more intensive review.

The first meetings looking at the AB621 regulations took place in July and continued through October in an effort to review the regulations drafted by both the Tax Commission and the Office of Energy. During those hearings, there continued to be disagreement between members of the legislature on the application and approval process for the pre-2007 applicants. But the State Office of Energy, and its director, Dr. Hatice Gecol, put together an inclusive process in which again, business, conservationists, developers and the general public all had a chance to be stakeholders in the process. The end result that received the approval of the Legislative Commission were regulations that were clear, easily understood and set up a step-by-step process that owners and developers could follow to receive the tax incentives envisioned by the Legislature back in 2005.

As developers and business owners have said repeatedly, green buildings and sustainable development are the right thing to do for the environment and for our future.

The tax incentives that the Nevada Legislature created in 2005 and refined in 2007 won't break the public bank, and will provide a nice reward for those that want to do the right thing.

Dan Musgrove is a lobbyist at McDonald Carano Wilson LLP.

Commercial real estate professionals who would like to contribute to this column can contact John Seelmeyer at info@nnbw.biz.