Risks of pursuing tax benefits broken down

Kevin Sullivan, who is working on the project for Boyd Gaming, said reducing the property tax benefit to protect schools as proposed in Assembly Bill 621 could cause the company to decide not to go forward with its efforts to win an energy efficiency rating under LEED, or Leadership in Energy and Environmental Design standards.

Under the legislation passed in 2005, developers can get sales tax waived for materials used in the construction of a LEED certifiable building, and they also can get 50 percent of their property taxes on that project abated for 10 years for any level of LEED certification.

AB621 would eliminate the sales tax breaks, would protect the school districts from any property tax losses and would reduce the size of the property tax breaks.

The property tax benefit would be 25 percent for 10 years for a silver-level LEED project, 30 percent for a gold project and 35 percent for a platinum project. The different designations signify different levels of environmentally friendly and energy efficient projects.

While developers still welcome the idea of a property tax benefit, AB621 lacks the immediate relief that the sales tax incentive provides. The property tax benefit is not available until a building wins LEED certification, so the money spent on trying to do what is necessary to win that certification is spent on the front end.

Sullivan told the Assembly Commerce and Labor Committee that it is risky to undertake the cost of paying for the energy efficiencies, estimated at about 5 percent to 6 percent of the cost of a project for a "silver" certification for a LEED building, with the proposed lower tax benefits.

"From our perspective, getting to silver is a very difficult project," he said. "We’re not quite sure we can get there. We’re going to be prospectively investing a lot of money on this.

"It’s a huge bet, and it’s a lot of money," Sullivan said. "You just don’t know if you are going to get it at the end of the day."

He said it is very tough to obtain LEED certification for a project of 10 million square feet. The nation’s only other project of that size seeking such a designation is the $7.4 billion CityCenter project by MGM Mirage on the Strip, Sullivan said.

Sullivan proposed making the tax break in AB621 more attractive by extending the property tax abatement to 20 years.

Assemblyman Marcus Conklin, D-Las Vegas, said the challenge for lawmakers is how much, if any, tax money should be given up for tax breaks for green energy projects when other needs, from roads to education, might then go without.

"What we’re trying to do here is balance," he said. "How would you suggest that we deal with that balance? We only have a limited amount of money."

Reports heard by lawmakers on Friday said under the 2005 legislation the cost to local government and the schools in Clark County could total nearly $1 billion in sales and property tax abatements through the next 15 years if all the projects that applied under current legislation are given the more generous tax breaks.

Lawmakers are still grappling with how to change the standards for the several projects that are seeking to qualify under the existing, more liberal, tax breaks. The commerce panel was to take up that discussion today.

The Echelon project is one of those that could be grandfathered in and thereby receive the full benefit of the 2005 legislation.

If it is, the projected sales tax exemptions are worth an estimated $81 million. Property tax breaks would total nearly $165 million through fiscal year 2020-2021 based on the 50 percent per year abatement.

Others testifying regarding AB621 said that even with the reductions in the tax benefits, Nevada would still be a leader in offering incentives for environmentally friendly, energy-saving construction.

Those familiar with the cost of meeting these different energy efficient levels said the tax breaks should be higher for the gold and platinum certified projects because of the higher costs to reach those standards.

The Senate Commerce and Labor Committee is also scheduled to hear testimony on AB621. Lawmakers want to resolve the issue before they adjourn by June 4.