Obama Stimulus Bill Could Spark a “Green Rush”

April 23rd, 2009 | Posted by: Christopher DeGrezia 0| comments:

Green Building - Natural worldBy Joshua M. Kaplowitz, Esq. & Mahari Bailey, Esq

After just a few weeks, it is clear that the Obama Administration has ambitious plans for the green building industry.  The recently passed economic stimulus package, the American Recovery and Reinvestment Act of 2009 (“ARRA”), contains over $25 billion in funding for energy efficiency in federal buildings, schools and homes—a sizeable sum, though somewhat less than in earlier versions of the bill.  The President has also sent strong signals that the Federal Government intends to play an active role in raising efficiency standards and incentivizing green building in the private sector; in fact, even more green building legislation is already on the table.  This “Green Rush” could present enormous economic opportunities for developers, contractors and building owners.  Of course, with opportunity comes risk, including a number of legal hurdles and pitfalls that companies and industries must avoid as they jockey for position in the upcoming Green Rush.

Federal Regulation and Incentives For Green Building Before Obama

Up to now, the Federal Government has had a relatively minor influence on the green building industry, providing incentives mostly in the form of tax credits.  The Energy Policy Act of 2005 (“EPAct”) allows commercial property owners and leaseholders to earn a tax deduction of up to $1.80 per square foot for buildings achieving a 50% energy savings target.  Likewise, homeowners are eligible for a tax credit for the purchase and installation of energy-efficient windows, insulation, doors, roofs, HVAC and renewable energy systems such as solar panels.


The Federal Government has also begun to enhance the energy efficiency of its own building inventory.  The 2007 Energy Independence and Security Act (“EISA”) authorized the Department of Energy (“DOE”) to, inter alia, set standards for High Performance Green Buildings and issue private contracts to make efficiency improvements in 30% of federal facilities by 2015 (most or all of which have already been awarded).  For the most part, however, regulations and incentives have percolated from the state and particularly the municipal level.


The Stimulus Bill – What’s In It For Green Building?

That trend has changed dramatically with the passage of ARRA, a massive and unprecedented statute which, among other things, allocates substantial amounts of money toward retrofitting existing buildings to be more energy efficient.  This is intended to provide a boost to an industry which has seen a precipitous decline in new construction due to the economic downturn.  The final version of ARRA directly funds the following programs:

  • $6.3 billion in Energy Efficiency and Conservation Block Grants to state and local governments.  Of that total, $3.2 billion is allocated pursuant to EISA (42 U.S.C. § 17151 et seq.)—68% to local governments and 28% to states.  The remainder of this money funds the State Energy Program (42 U.S.C. § 6321) and may only go to states that agree to implement stricter building codes and reform their utility rate structures.
  • $5 billion for the Weatherization Assistance Program under the Energy Conservation and Production Act (42 U.S.C. 6861 et seq.).  This money will be disbursed in state grants based on low-income population and climatic conditions, to be spent on measures to improve building envelopes and HVAC system efficiency.
  • $5.5 billion for the Federal Buildings Fund operated by the General Services Administration (“GSA”), with $4.5 billion to be spent converting federal facilities to “High-Performance Green Buildings” using a standard to be determined by rulemaking.
  • $4 billion for the Public Housing Capital Fund administered by the Department of Housing and Urban Development (“HUD”), of which $3 billion will go directly to local public housing agencies, and does not appear to have a specific requirement of use for energy efficiency.  The remaining $1 billion will be allocated by private bidding for energy efficiency retrofitting projects.
  • $250 million for the Office of Affordable Housing Preservation of HUD to issue grants and loans for green retrofits of federally subsidized housing, to be disbursed through existing procedures.
  • $2.25 billion for the HOME Investment Partnerships Program administered by HUD, which gives grants to localities for green retrofits of public housing.
  • $510 million for rehabilitation of Native American housing through the DOE tribal energy activities program, 25 U.S.C. § 4111 et seq.  Half of this money is allocated through existing procedures and half through competitive grants.
  • $4.3 billion for the Department of Defense (“DOD”) Energy Conservation Investment Program to make its facilities more energy efficient.
  • $300 million in rebates for consumer purchase of Energy Star-certified appliances.

These outlays do not take into account $53.6 billion in state education grants, a percentage of which is expected to be used for green school renovations.  ARRA also expanded and extended several preexisting energy efficiency tax credits, which have the potential to further stimulate the market for efficiency projects.  For example, the tax credit for home efficiency projects was extended and raised to $1,500 per year, although ARRA also raised the bar for what constitutes a qualifying project.


Opportunities and Pitfalls

As is to be expected from such a massive piece of legislation, the passage of ARRA raises a host of new issues, including the disbursement of funds, standards of efficiency and a likely uptick in “green” litigation.



The first question is how the money going to be disbursed.  And more to the point, how can someone in the green building industry be “stimulated?”  Some of the ARRA funds being spent on contracts that have already been awarded and projects already underway.  For example, the DOE awarded 16 contracts in late 2008 for retrofitting federal buildings, contracts which will likely be funded by a portion of the ARRA money.


Going forward, the Obama Administration has promised “absolute transparency” in the further allocation of funds authorized by ARRA, so as to avoid the waste that has frequently marred government spending over the past few decades.  Indeed, much of the law is devoted to accountability measures, including the establishment of a watchdog agency called the Accountability and Transparency Board.  The administration has built a web site, www.recovery.gov, which allows the public to track the stimulus money and is intended to serve as “one-stop shopping” for bidding on government contracts.  The DOE, which has historically faced criticism that its disbursements of federal funds are (ironically) inefficient, has itself created a web site to monitor the disbursement of ARRA funds for green building, http://www.energy.gov/recovery/.


Note that most of the green building money is being funneled into preexisting federal programs or allocated in block grants to states and localities.  As such, it will be important to understand the bidding and procurement processes already in place and monitor activity on the state, county and municipal level.



Even once the money is disbursed, it is not entirely clear what standards of efficiency will be required for green retrofits funded by ARRA.  The need to spend ARRA money quickly may conflict with the glacial pace of administrative rulemaking.  For example, the DOE has been working since late 2007 to figure out what certification system will apply to energy-efficient retrofits of federal buildings, and announced it will be issuing a notice of rulemaking in early 2009.  The passage of ARRA may accelerate this and other green regulations.


The picture is also murky for state block grants.  Much of the money can only be spent in states which agree to implement more stringent building codes (or encourage municipalities to adopt codes) within eight years.  Thus, state standards may also be in flux while ARRA money is being spread around.  Additionally, a number of cities and counties now require new publicly-funded buildings to be certified by the Leadership in Energy and Environmental Design (“LEED”) program, a nationally-recognized set of green building standards operated by the U.S. Green Building Council.  It is unknown whether building retrofits funded by ARRA will be subject to these new code provisions, but any green builders hoping to take advantage of the stimulus should familiarize themselves with LEED and any other local requirements.


Risk of Litigation

Infusing large amounts of capital into a sector of the economy as young as the green building industry will undoubtedly lead to increased risk of litigation.  There is a question as to whether there are presently too few professionals with expertise in certain aspects of green retrofit projects to keep pace with the sheer number of projects and the pressure to get them done quickly.  ARRA does contain $500 million for workforce training, some of which may be used for green jobs.  However, it is possible that, given the urgency with which much of this money must be spent, individuals and businesses will be entering the green building retrofit market without the proper preparation or experience.


Due to the potential influx of inexperienced individuals and businesses, it is imperative that green building owners, developers and government agencies (a) do their due diligence in hiring contractors, and (b) properly allocate the risk that a project may fail to achieve anticipated gains in energy efficiency or green certification.  Careful drafting of agreements and “green” terms and conditions will be essential to the successful completion of projects and mitigation of risks.  Failure to do so could result in disputes and increased litigation.  In fact, at least one lawsuit has already arisen from a project’s failure to attain a specified level of “green-ness.”  In Maryland last year, Shaw Development sued its contractor, Southern Builders, because a luxury condo project did not achieve LEED-Silver certification and allegedly lost out on over $635,000 in tax credits.  Lawsuits of this nature were already expected to multiply as more builders seek LEED or other green certifications.  The flood of ARRA funds may hasten this trend.


After the stimulus: what next?

If the stimulus bill is any indication, we can expect the Federal Government to be a major player in the green building industry for at least the next four years.  ARRA is likely just the start of an effort to improve efficiency in federal buildings, and President Obama has a stated goal of weatherizing 1,000,000 homes annually.  More money will also flow into green jobs training.  And, a bill recently passed the House which would authorize up to $6.4 billion in Department of Education grants to fund modernization and energy efficiency in public school buildings.


However, expect much of the action to take the form of laws and regulations designed to incentivize green building in the private sector.  As in ARRA, federal block grants will continue to be linked to states’ adoption of green building codes.  Moreover, the DOE will almost certainly be setting more stringent appliance efficiency standards.  Most importantly, it is generally believed that sweeping climate change legislation will be enacted by the end of 2010.  Whether it takes the form of a carbon tax or cap-and-trade system, such a law will have the effect of increasing the cost of energy, thereby expanding the market for energy-efficient building.  These actions, coupled with the administration’s commitment to the development of renewable energy sources, will keep the “Green Rush” going strong for at least the next four years.


ARRA presents tremendous financial opportunities on the federal, state and local level for green builders and businesses looking to enter the arena.  However, anyone hoping to benefit from the stimulus package will need to exercise caution, as the market and government institutions may not presently be equipped to absorb such a dramatic injection of resources.

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