Move to cut 'green' tax breaks has many seeing red

A move by Nevada lawmakers to patch a leaky budget by curtailing some of the most aggressive tax incentives in the nation for "green," earth-friendly construction has environmentalists and businesses alike seeing red.

The maneuver by the Legislature to suspend the tax breaks approved in 2005 came after state revenue forecasts failed to meet expectations and lawmakers went looking for sources to make up a budget gap that could be made even worse by the incentives.

The 2005 law promised companies that built according to energy and water efficiency standards a break on sales taxes for construction materials and a property tax break of up to 50 percent for up to 10 years.

By all accounts, the program was more successful than most imagined it ever would be.

Several dozen companies, some with multibillion-dollar projects, saw the economic benefits and started the process of qualifying for the tax breaks. One, MGM Mirage Inc., has papers in hand that guarantee it an $80 million exemption in sales taxes alone.

Environmentalists hope the recent moves won't derail the momentum toward building "green" in Nevada, which they say has given the state a rare national profile and provided the industry a huge boost at a time when acceptance of a global warming problem is at an all-time high.

Buildings represent 39 percent of energy consumption in the nation and account for 40 percent of carbon dioxide emissions, the primary culprit in global warming.

Kyle Davis at the Nevada Conservation League said the current tax incentive "may be a little too big," but it's still critically important for the state to encourage energy and water efficiency.

"There are four coal-fired power plants on the drawing board right now in Nevada. That's going to make global warming worse and Las Vegas even less habitable. There are already many days in Las Vegas in the summer where it's 115 degrees. It becomes a question of how hot can it get there before people don't even want to go there," Davis said.

Energy and water are inextricably connected in Nevada and other Southwest states that rely on water from the Colorado River, Davis said. The river is experiencing a long-term drought which some believe is related to global warming.

Companies that have applied for or received tax breaks have been low-key during the political firestorm in the capital. Quietly, though, they have let lawmakers and the governor know they are watching closely.

Gov. Jim Gibbons has asked the state attorney general to review whether the state could be sued if the tax incentives are suspended.

MGM Mirage representatives say decisions and investments were made on its $7.4 billion CityCenter project in Las Vegas based on the 2005 law.

"We find ourselves in a situation where we as company are making decisions based on the rule of law only to find that the law might change. That makes working in such a competitive industry that much more difficult," said Gordon Absher, vice president of public affairs for Las Vegas-based MGM Mirage.

The CityCenter project bills itself as the largest privately funded development ever built in the U.S., and by default the largest private "green" development in the country.

"In our case, this incentives program worked," Absher said, adding that the program opened the company's eyes to other changes it could make. The world's second-largest casino company recently replaced 10,000 light bulbs in its garages to more energy-efficient models, a move that will save millions of dollars in electricity bills.

"As most people who begin to learn a little bit about sustainability realize, it is the long view that is most important," Absher said.

Boyd Gaming Corp.'s $4.4 billion Echelon project on the Las Vegas Strip also is planning on going green, prompted by the incentives.

"We operate in a capital-intensive business, and long-term regulatory and financial stability is crucial when you are planning to invest billions of dollars in a community. It becomes very difficult when programs that we rely on during our planning are possibly repealed in the face of short-term challenges," spokesman Rob Stillwell said.

Both companies expressed confidence in the lawmakers' ability to find a solution.

Such moves can create credibility problems for any government entity, says Stephen Miller, Economic Department chairman at the University of Nevada, Las Vegas.

"How do you prevent a short-term crises from altering your long-term policy?" Miller said. "One solution to the problem is what Nevada does with (its prohibition on) income taxes: put it in the Constitution. It sort of ties your hands, makes it difficult to go back on your long-term commitment."

"But using the constitution to cement your policy may not be the best approach in all circumstances," said Miller, an expert on monetary policy.

Nevada is one of only a few states to offer a property tax break for green building. Maryland gives counties discretion on how much of a tax break to grant. Oregon offers a credit equal to 35 percent of extra construction costs. Chicago offers no tax incentives, but developers who propose green buildings are bumped to the top of permit lists.

To date, 11 federal agencies, 17 states, including Nevada, and 53 municipalities require buildings to meet either local green standards or those set by the U.S. Green Building Council, a Washington, D.C.-based nonprofit.

Those government policies have contributed to the growth of the green building industry, which has expanded to a multibillion dollar industry in just seven years, according to the council.

Michelle Moore, the council's vice president, says building green works out economically even without incentives.

The group's statistics on 850 buildings certified worldwide show it takes only 1.5 percent more to build green, and those costs are recouped in the first year alone by lower utility bills.

Moore says other than energy and water savings, the economic benefits of the program are harder to quantify but are still substantial. Developers are encouraged to build near public transportation, create healthier indoor air quality and recycle materials. Those translate to fewer cars on the road, improved worker productivity and less burden on municipal landfills.

Before Nevada's incentives took effect, there were 17 projects in the state registered with the building council. Now, there are 85, totaling 42 million square feet.

"Incentives can help the private sector make a transformation much faster. You can see how the case proved out in Nevada. You went from zero to 60 in 10 seconds. It puts it on people's radar screens," Moore says.

"The move Nevada took had an incredibly positive effect on accelerating the green movement and that's something we hope wouldn't be lost," Moore said.