Roundtable Testimony Urges Swift Senate Action to Spur Job-Creating Energy Retrofits
In Senate Energy Committee testimony yesterday, Roundtable President and CEO Jeff DeBoer outlined six policy actions that Congress could take immediately to help unleash financing for energy efficiency retrofits of commercial buildings — projects he said would “get Americans back to work, with jobs that will stay in the United States, save businesses billions of dollars a year in utility bills, and help secure our country’s energy future.” Specifically, DeBoer called on policymakers to:
Reform the existing Section 179D tax deduction for energy efficient commercial buildings, as called for under forthcoming legislation from Senate Energy Committee Chairman Jeff Bingaman (D-NM) and Sen. Olympia Snowe (R-ME). Among other things, The Roundtable supports “before-and-after” energy measurements of buildings undergoing energy retrofits (as opposed to making comparisons against energy usage in a hypothetical “reference” building”). Additionally, the tax incentive should be made more useable for a broad range of stakeholders and building types, including real estate investment trusts (REITs).
Authorize a Department of Energy (DOE) loan guarantee program in order to spur private-sector retrofit financing. DeBoer called for enactment of the credit support provisions in S. 1000, legislation co-sponsored by Senate Energy Committee member Jeanne Shaheen (D-NH) and Sen. Rob Portman (R-OH) that would specifically authorize DOE loan guarantees for less risky and less expensive building retrofits, with modest federal credit support projected to leverage far greater multiples of private sector funding.
Despite concern over failed loans to solar equipment manufacturer Solyndra this past year, The Roundtable maintains that federal backing for energy retrofits would facilitate job creation cost effectively and that a retrofit loan guarantee program could be developed with minimal risk to U.S. taxpayers.
Pass legislation to encourage real estate appraisals that value energy efficiency. Legislation proposed by Sens. Michael Bennet (D-COL and Johnny Isakson (R-GA) would, among other things, encourage better information sharing among real estate owners, lenders and appraisers so that energy performance is more consistently, accurately and fairly valued when appraising real estate.
Enact legislation authorizing voluntary programs and recognition platforms that encourage commercial tenants to cooperate with landlords in reducing their buildings’ energy use. Along these lines, Senator Bennet is developing a bill employing a market-driven, non-regulatory approach that would align building owners and lessees in cooperatively reducing demands on the energy grid. Such an approach would carry no budgetary impact, and would better reflect the choices tenants make in designing and using their leased spaces — choices that contribute greatly to a building’s “plug loads” and overall U.S. energy consumption.
Reduce barriers to foreign investment in U.S. real estate by reforming the Foreign Investment in Real Property Tax Act (FIRPTA), and by permanently authorizing the “EB-5” immigrant investor program — thereby making more equity capital available to finance energy upgrades in buildings. Along these lines, the Senate should pass S. 1616, the “Real Estate Investment and Jobs Act” introduced by Sens. Robert Menendez (D-N.J.) and Mike Enzi (R-WY), which has won the support of 25 co-sponsors.
Curtail the Government Services Administration’s (GSA) recent increased use of “holdover” tenancies in its commercial leasing practices, so that privately-owned commercial buildings may be re-positioned in the market when federal leases expire (thus, helping to attract new financing that can be used for capital improvement projects such as energy efficiency retrofits).
DeBoer emphasized that action must be taken to heal broader problems in commercial real estate credit markets before energy retrofit financing can begin to flow more normally. He noted the vast amount of commercial mortgages maturing between 2012 and beyond, and how eroded property values and lost equity have left many properties “underwater” and complicated borrower efforts to secure new financing.
“There is anxiety in the real estate and lending sectors as to where all of the debt financing and equity capital will come from to retire this maturing debt,” DeBoer continued, explaining that equity capital from abroad represents a tremendous — but “largely untapped” — source of new equity that could be used to stabilize and rebalance U.S. commercial real estate loans, encourage energy efficiency upgrades, and spur job creation.
“These funds must be brought into U.S. markets now, to staunch the threat of current loan defaults and then help sustain a more accelerated pace of economic growth….. Injecting greater foreign investment into U.S. real estate markets may be channeled to encourage retrofits, and help overcome the barrier of up-front capital costs that remains the biggest impediment to energy efficiency projects.”
As for the impact of current credit market constraints on property owners’ ability to undertake energy efficiency retrofits, DeBoer said, “The sustained financial pressure on property owners and lack of credit availability has led to deferral of maintenance and upgrades on existing properties.”
Senate Energy Committee member Jeanne Shaheen (D-NH) co-sponsored S.1000 with Sen. Rob Portman (R-OH)
DeBoer noted that Roundtable members “are at the vanguard of innovation in making our built environment more energy efficient,” highlighting the fact that 14 companies represented through The Roundtable are partners and allies in DOE’s Better Buildings Challenge. He also asserted that Roundtable members “routinely distinguish their buildings as ‘top of class’ performers” by receiving the ENERGY STAR label and EPA “Partner of the Year” awards.
Sen. Shaheen, who has been a guest at past Roundtable meetings, asked DeBoer to comment on the challenges of quantifying energy efficiency savings, and getting lenders to recognize the benefits of energy efficiency in their lending calculations [see video of hearing @ 77:56]. DeBoer focused his response on the difficulties of obtaining “whole-building” energy usage data — of getting a “holistic picture” of total energy usage in a building — as well as proposals to build on the ENERGY STAR labeling program by creating a program recognizing tenants with superior energy management within their own leased spaces [see Senate hearing video @ approx. 80:20].
In response to questioning from Energy Committee ranking Republican Lisa Murkowski (R-AK) about the kinds of incentives that would encourage comprehensive, whole-building retrofits [see video @ 93:25], DeBoer asserted there are “simple ways” to make the Section 179D tax deduction more workable and to “truly incentivize these kinds of deep retrofits.”
Jeff DeBoer after the hearing with Senate Energy Committee Chairman Jeff Bingaman (D-NM)
In follow-up questioning from Sen. Al Franken (D-MN) about the inability of some types of organizations and real estate ownership structures (such as REITs) to take advantage of Section 179D, DeBoer agreed that making the tax deduction transferrable to third parties (e.g., retrofit contractors) could be “very powerful” in spurring energy retrofits of existing buildings [exchange begins at approx. 100:30 on video].
Joining DeBoer on the witness panel were representatives of the Sonoma County (Calif.) Energy Independence Program [SCEIP]; Clean Energy Works Oregon (a private-non-profit that accelerates the delivery of home energy remodels); GoodCents, Atlanta, GA (which partners with utilities to reduce their energy footprints); the United Illuminating Company, Orange, CT (an investor-owned electric distribution company); and New York City Efficiency Corporation (whose mission is to help NYC achieve its energy and climate action goals by catalyzing energy efficiency retrofit financing markets for private building owners).
# # #