New Presidential Memo on Energy Savings Performance Contracts (ESPC)

This past month, December 2nd, 2011, the President issued follow-up guidance and support for Executive Order 13514 in the form of a memo for Energy Savings Performance Contracts (ESPC). The concept is industry-proven and has been around for a while – just check out this 2002 EPA presentation on the benefits of ESPC.An ESPC is based upon the authorization activated in 1992 and 2005 by the Energy Policy Act (EPAct) that allows Agencies to use private sector financing mechanisms for energy conservation projects. This authority was supported and enhanced with the issuance later EPAct versions, as well as the issuance of the Energy Independence and Security Act (EISA) of 2007. The recent Presidential Memorandum directs Agencies in three main areas that include the following: 1. Implement and Prioritize Energy Conservation Measures (ECM). Agencies' capital investment plans should integrate ECMs that have a payback period of less than 10 years. Potential projects are to be prioritized return on investment. ESPC will be a major vehicle for funding these projects, however direct appropriations should also be considered. There is a mandated goal of $2 billion in ESPCs by January 2014.

2. Complete Required Energy and Water Evaluations. Section 432 of EISA2007 establishes a framework for tracking, reporting, and benchmarking energy initiatives. Agencies use Department of Energy's Compliance Tracking System (CTS) to reporting on completed ESPC projects and perform regular assessments of facilities to ensure compliance and capture performance metrics.

3. Maintain Transparency and Accountability. This section of the memo directs Agencies to automate data collection and reporting, thus reducing the level of effort and increasing efficiencies. Agencies are encouraged to “connect meters and advanced metering devices to enterprise energy management systems to streamline and optimize measurement, management, and reporting of facility energy use”. These mandates are designed to help the US Government realize cost savings while collecting data for business intelligence efforts for continuous improvement and better portfolio management. As time passes, these directives will drive down the amount the USG energy bills, benefit the taxpayer, and stimulate an important part of our innovation economy.

REPRINT: Adoption of International Green Construction Code gaining traction

September 5, 2011—Facilities teams working in buildings throughout Florida, North Carolina, Oregon, Scottsdale, Arizona and other parts of the United States may notice their buildings are even more sustainable and energy efficient as a result of their communities focusing on safe and sustainable construction as determined by The International Code Council's International Green Construction Code (IgCC), a regulatory tool created to increase energy efficiency and complement voluntary green building rating systems. Florida has adopted the IgCC as an option for the retrofitting and new construction of all state-owned facilities. Previously, Florida law did not recognize any kind of green construction code, only voluntary rating systems. The legislation specifically allows the IgCC to be used by the Department of Management Services and encourages state agencies to adopt the IgCC as a model green building code that will apply to buildings financed by the state, including county, municipal, school districts, water management districts, state universities, community colleges and state court buildings.

The North Carolina Building Code Council adopted the Rainwater Collection and Distribution Systems section of the International Green Construction Code Public Version 1.0 with amendments, which is expected to enhance the North Carolina Plumbing Code Appendix on Rainwater. The state's plumbing code is based on the International Plumbing Code with North Carolina amendments and is already in use throughout the state.

The 2011 Oregon Commercial Reach Code features energy-related provisions of the IgCC Version 2.0 with amendments. The IgCC was flexible enough to adapt to Oregon's needs and integrate with the existing I-Codes that the state currently uses. The State of Oregon Building Codes Division developed the optional "reach code" that includes construction methods and technology to increase energy efficiency. Builders across the state can now use this optional code to develop high-performance new construction projects as well as retrofits.

In Scottsdale, Arizona, the IgCC will replace and update the city's voluntary commercial green-building program in an effort to encourage developers of commercial and multifamily buildings to pursue green development projects.

- Source: Facility Management News

What is Tax Increment Financing (TIF)?

We often hear of terms in real estate that get thrown around with little to no explanation. I would like to take a few minutes to shine a light on the TIF concept and use. Tax Increment Financing (TIF) is a tool for financing economic development. While conceptually similar, individual TIF programs and legislation are uniquely designed and applied in each state that has authorized the use of this financing mechanism. The low-interest debt that is issued to developers on behalf of the government is backed by future gains in tax revenues. Typically these tax revenues originate from increased property values, but alternative tax bases, such as increases in sales tax volume can also be considered as collateral. Some quick notes about TIF include the following:

• Not a tax credit program, unlike historical tax credits, new market tax credits, energy tax credits, etc.
• Rule of Thumb ratios of private to public funding (TIF is a portion of the public financing mix) range from 8:1 to 12:1. However the public funding is typically front-loaded on the project schedule to account for heavy investment in public infrastructure.
• Due to budget constraints, has become the primary (in some cases, the only) tool that municipalities use to finance improvements related to the public benefit.
• Freezes collection of tax increases in designated TIF districts in order to fund debt offerings. In some cases the freeze is 20+ years.
• Can set-aside portions of debt to fund social programs such as workforce development, job retention, libraries, schools, daycares, etc. This will help alleviate community concerns of lost tax revenues.
• Reserved for blight, brownfields, or targeted industry growth; but in most states, greenfield development is accomplished under the umbrella of “economic development”
• TIFs do not directly affect tax rates in the community, but may raise overall tax collections due to increased property values and sales volume.
• TIF needs are assessed using at least one of the following three categories:
  1. TIF District Designations (Blight, Economic Development, etc.)
  2. “But For” test
  3. Cost/benefit analysis
• Typically administered through the local redevelopment agency.

I hope this article helps the reader better understand what TIF is, and how it can be administered. If you have additional questions, please drop me a note.