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F I S C A L I M P A C T R E P O R T

SPONSOR Wirth

ORIGINAL DATE

LAST UPDATED

2/06/07

2/13/07 HB 534/aHBIC

SHORT TITLE

Sustainable Building Tax Credit

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($450.0)

($700.0) Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

Duplicates SB543

SOURCES OF INFORMATION

LFC Files

US Green Building Council

Responses Received From

Energy Minerals and Natural Resources Department (EMNRD)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of HBIC Amendment

The House Business and Industry Committee amended House Bill 534 to correct an error in the

table of credits (Table A-1). The amendment also limits the credit for manufactured housing,

makes the definition of sustainable residential building for single-family residences conform

with the definition for multi-family residences, and clarifies that the credit is to be claimed when

the building receives certification.

House Bill 534/aHBIC – Page

2

Table A-1: New Table of Credit Amounts

Commercial

First 10,000 sq ft

10,001 to

50,000 sq ft

50,001 to

500,000 sq ft

LEED NC Silver

$ 3.50 $ 1.75 $ 0.70

LEED NC Gold

4.75 2.00 1.00

LEED NC Platinum

6.25 3.25 2.00

LEED EB/CS Silver

2.50 1.25 0.50

LEED EB/CS Gold

3.35 1.40 0.70

LEED EB/CS Platinum 4.40 2.30 1.40

LEED CI Silver

1.40 0.70 0.30

LEED CI Gold

1.90 0.80 0.40

LEED CI Platinum

2.50 1.30 0.80

Residential

First 2,000 sq ft 2,001 + sq ft

Build Green NM Gold

$ 4.50 $ 2.00

LEED H Silver

3.00 2.50

LEED H Gold

6.85 3.40

LEED H Platinum

9.00 4.45

EPA Energy Star

$5 up to 3,000 sq ft

Synopsis of Original Bill

House Bill 534 allows a new credit under both the Income Tax Act and the Corporate Income

and Franchise Act for the construction or renovation of a commercial building or the

construction of a residential building following “sustainable" guidelines as established by the US

green building council, Homebuilders of NM, or the Environmental Protection Agency for

manufactured housing. The guidelines, referred to as LEED for “leadership in energy and

environmental design," have different levels of compliance and the credit is scaled accordingly.

A taxpayer, who is the owner of the building being constructed or renovated according to LEED

standards and for which a credit has not previously been claimed, would apply to the Energy

Minerals and Natural Resources Department (EMNRD) to validate the credit. EMNRD issues a

certificate that can be transferred through sale, exchange or other means to another taxpayer.

The taxpayer holding the certificate can claim the credit against tax liability over four years if the

credit amount exceeds $25,000 in 25 percent increments. If the credit value is less than $25,000,

the taxpayer can claim all of it in the taxable year the certificate was issued. If the credit exceeds

liability in either case, the taxpayer can carry the credit forward for up to seven years.

The credit can be used for the construction/renovation of either commercial or residential

buildings. EMNRD can only issue an aggregate of $10 million in credits per year, $5 million for

commercial buildings and $5 million for residential buildings.

House Bill 534/aHBIC – Page

3

A solar thermal or photovoltaic system can be claimed as part of sustainable building if a solar

market development credit has not been and will not be claimed.

The credit is allowable for tax years 2007 through 2013.

The credit is awarded according to square footage by different levels of certification:

Commercial

First 10,000

sq ft

10,001 to

50,000 sq ft

50,001 to

500,000 sq ft

LEED NC Silver

$ 3.50 $ 1.75 $ 0.70

LEED NC Gold

4.75 2.00 1.00

LEED NC Platinum

6.25 3.25 2.00

LEED EB/CS Silver

2.50 1.25 0.50

LEED EB/CS Gold

3.35 1.40 0.70

LEED EB/CS Platinum 4.40 2.30 1.40

LEED CI Silver

1.40 0.70 0.30

LEED CI Gold

1.90 0.80 0.40

LEED CI Platinum

2.50 1.30 0.80

Residential

First 2,000

sq ft

2,001 + sq ft

Build Green NM Gold

$ 3.00 $ 1.00

LEED H Silver

5.00 2.50

LEED H Gold

6.85 3.40

LEED H Platinum

9.00 4.45

EPA Energy Star

$5 up to 3,000 sq ft

Note: NC = New Construction; EB = Existing Building; CS = Core/Shell; CI = Commercial

Interiors; H = Homes

A complete explanation of LEED standards is included as an attachment.

FISCAL IMPLICATIONS

The HBIC amendment does not change the fiscal impact.

According to Taxation and Revenue Department (TRD), the fiscal impact would start out as a

$450 thousand reduction in general fund revenues in FY08 and increase to over $3.3 million by

FY13. This assumes an increasing amounts of eligible square footage over time (see table 2) and

50 percent of the credits actually being claimed, due to transferability. The average credit per

square foot was assumed to be $250.

House Bill 534/aHBIC – Page

4

Table 2: Assumed Total Eligible Square Footage: (Thousands of square feet)

Calendar year:

Commercial buildings:

Residential buildings:

2007

250

100

2008

375

150

2009

563

225

2010

844

338

2011

1,266

506

2012

1,898

759

2013

2,847

1,139

Source: TRD

SIGNIFICANT ISSUES

Transferability is an important feature of this bill and makes it a more effective credit by

allowing start-ups and other entities that may not have sufficient tax liability to get immediate

funds by trading or selling the credit. This is often how carbon or pollution taxes work. For

example, if a small contractor commits to building sustainable buildings, it can claim the credit

and sell it to a larger contractor who wants to offset its tax liability. There is no clear mechanism

in HB534 to establish a clear and open market for these credits, such as an exchange similar to

the Chicago Climate exchange.

It is important to note that the credit is not applicable to renovations of existing houses. The US

Green Building Council, which established the LEED rating system, established the rating

system to apply to new homes. However, as indicated in the bolded portion of the citation

below, renovations may become part of the rating.

“LEED for Homes was designed to assess and label newly constructed homes. It cannot be

used to assess or label a portion of a home. Only a substantial or “gut" rehab project may be

included in LEED for Homes at this time. Partially renovated homes cannot be rated under

LEED for Homes." (bolding added) - LEED for Homes Program Pilot Rating System,

USGBC Jan 2007

EMNRD:

HB 534 directly influences the impact of climate change and the reduction of greenhouse gas

emissions through reduced fossil fuel consumption. By reducing the overall energy

consumption in a building the cost-effectiveness of using onsite renewable energy increases.

Most significantly, New Mexico lags behind other states in developing a robust supplier base

for green building products, making it expensive to construct green buildings. This is a

largely untapped opportunity for economic development.

The potential for economic benefit for New Mexico is great. New technology, product

manufacturing and energy related specialty consulting businesses will be drawn to the state

when a vibrant green building industry emerges.

The 2030ºChallenge, an initiative that includes the American Institute of Architects, reports data

“from the U.S. Energy Information Administration illustrates that buildings are responsible for

almost half (48%) of all greenhouse gas (GHG) emissions annually; globally the percentage is

even greater. Seventy-six percent of all electricity generated in U.S. power plants goes to supply

the ‘Building Sector’. Immediate action in the Building Sector is essential if we are to avoid

hazardous climate change."

House Bill 534/aHBIC – Page

5

ADMINISTRATIVE IMPLICATIONS

EMNRD reports that there will be an administrative impact to establish eligibility and provide

and monitor certificates.

TRD indicates they will require ¼ of an FTE to administer the program due to the new record-

keeping and processing requirements.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

SB 543 is a duplicate bill.

OTHER SUBSTANTIVE ISSUES

Other States with similar credits:

NEW YORK STATE: New York enacted a green building credit in 2001 and they are

estimating it to cost almost $1 million in 2005.

Effective Date: Effective for costs incurred on or after June 1, 1999 and certified by the

Department of Environmental Conservation prior to 2004. The credit is allowable for tax

years 2001 through 2009.

Description: Taxpayers may claim a credit for the purchase of recyclable building

materials and other environmentally preferable tangible personal property. Credits may

also be claimed for the purchase of fuel cells, photovoltaic modules, and environmentally

sensitive non-ozone depleting refrigerants.

Estimates: 2002: $0.3 million - 2005: $0.9 million

Data Source: Personal Income Tax Clearing House data file

OREGON: Oregon has a Business Energy Tax Credit that is estimated to have cost $22 million

in 2003 but saved $26 million in energy costs to businesses. EcoNorthwest, an economic

consulting firm, prepared a report of the economic impact of Oregon’s credits:

http://www.oregon.gov/ENERGY/CONS/docs/EcoNW_Study.pdf

ALTERNATIVES

The bill now excludes residential renovations from the credit not by language but by the current

definition of the LEED for Homes. The US GBC may change this definition in the future and it

would automatically be included in eligible projects. Including renovations would likely

increase the fiscal impact significantly and so if the intent is to exclude renovations, a clearer

definition is necessary.

Attachment

NF/csd