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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.
pg_0002
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.
pg_0003
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.
pg_0004
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."
pg_0005
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
pg_0006 pg_0007