You Win Some, You Lose Some: HB 1118 Passes; SB 516 Fails

The 88th Session of the Arkansas General Legislature is through the short rows, and at this point the fate of the slate of proposed sustainalaws seems clear.

 

HB 1118 – The Arkansas Central Business Improvement District Rehabilitation and Development Investment Tax Credit Act. PASSED, and sent to Governor Beebe for signature. This Act is designed to encourage economic development within the central business districts of Arkansas cities by providing tax incentives for the rehabilitation and development of structures in those districts.

 

Unfortunately, the HB 1118 that passed is not the same HB 1118 that this sustainablawger wrote about back in February. As originally conceived, HB 1118 provided for a tax credit equivalent to 20% of the first $1 million in qualified expenditures on a project. The tax credit program would have existed for 5 years, and there was no cap on the total amount of credits that could be issued. The tax credits could also be bought and sold one time – a problematic limitation.

 

The pertinent differences between HB 1118 as proposed and HB 1118 as passed are:

• The value of the available tax credits is limited to $1 million per fiscal year, and the credits are issued on a “first come, first serve” basis.
• The value of the individual credits has been reduced to 25% of either the first $500,000 of qualified expenditures for income-producing property or the first $200,000 of qualified expenditures for non-income producing property.
• Once effective, the program will last for two years, not five.
• The tax credits can still be bought and sold, but still only one time.

Assuming Governor Beebe signs HB 1118 into law, and the expectation is that he will, an additional – and significant – hurdle remains. One of the last minute amendments to the bill requires the Chief Fiscal Officer of Arkansas to certify that there sufficient funding for the tax credits are available in the General Improvement Fund. When that will happen is anyone’s guess.

 

I had previously questioned whether a credit of 20% of $1 million would be sufficient incentive to foster the type of development and investment required to make real changes to the downtowns of Arkansas, and to do so using sustainable business practices. Evidently, it was too much to pass legislative muster. Regardless, some incentive is better than no incentive, and certainly some central business districts – Little Rock immediately comes to mind – are poised to benefit from HB 1118 once it becomes effective.

 

SB 516 – The Property Assessed Clean Energy Act. DID NOT PASS. SB 516 would have enabled counties to create “Property Assessed Clean Energy” (or PACE) districts. PACE districts would have been able provide bond-financed loans to property owners to make energy efficiency improvements, and for other clean renewable energy projects. This bill was two years in the making and did not pass by a close vote of 48-44. The jury is still out on why SB 516 failed, but the initial indications are that a misperception that SB 516 required the creation of PACE districts and the issuance of bonds led to its downfall.

 

Here are the thoughts of one of the primary proponents of SB 516, Mark Robertson:

 

I am encouraged through all your efforts we were able to make a dramatic change in the position of SB516 in less than 24 hours. Yesterday this bill had a rough day and we were solidly in a minority position after the vote due to a lack of understanding the bill. Through great leadership from many legislators and through your efforts the bill was brought back to the floor today in the waning hours of the session and won a close and bi-partisan majority vote of 48-44. However, we were 3 votes shy of the 51 needed to help make a real difference in the many communities of Arkansas. We came very close and further than I think many thought possible in such a short time. Good policy should not fail for lack of effort and I know we gave it every effort and used every option available to try and have a successful income.

 

You all should be commended and pat yourself and your network of friends on the back for such a valiant effort. This shows me when we unite we can make a significant difference in our State and our communities. It does not matter if it is energy, environment, social justice, economic development, poverty, education, health or just the well being of our communities, we can collectively continue to move Arkansas forward to becoming the community we all envision when we act together.

Worthy sentiments. Assuming that sustainability is a result, it is a result that can only be accomplished by giving the stakeholders in the Arkansas sustainasphere the wherewithal to adopt sustainable building practices and to take a chance with renewable, clean energy projects. SB 516 would have enabled counties to move toward providing private, small-scale financing for these projects, and would have filled an important gap between legislation such as HB 1118, which is clearly focused on large scale urban investment and development, and the private stakeholder. Let’s hope the substance of SB 516 finds new life in the 89th General Assembly.

 

Arkansas Legislative Update: February Recap

Those charting the march of sustainability through Arkansas Legislature noted two significant developments in February: the introduction of SB 516, which would enable the creation of property assessed energy improvement districts, and the radical amendment of HB 1027 which has been transformed from the "Sustainable Energy-Efficient Home Program" to the "Property Assessed Energy-Efficient Home Improvement District Act."  

Otherwise, unfortunately, not much happened at all.  Here's a summary of the inaction: 

HB1027 was revamped from the "Sustainable Energy-Efficient Home Program" to the "Property Assessed Energy-Efficient Home Improvement District Act," but still awaiting action from the Joint Committee on Energy, as is HB1050, The Energy Efficiency and Conservation Financing Act.

HB 1036 and 1037, which provide for tax credits and exemptions for the purchase of renewable resource equipment, and HB 1118, the Arkansas Central Business Improvement District Rehabilitation and Development Investment Tax Credit Act, are still awaiting action from the House Committee on Revenue and Taxation.

HB 1043, the Reusable Shopping Bag Act, is - you guessed it - still awaiting action from the House Committee on Public Health, Welfare, and Labor.

SB 516, the Property Assessed Clean Energy Act, is the newest addition to the bunch.  It is headed on to Senate Committee on Insurance and Commerce but it's on the deferred agenda.

The Arkansas SustainaBlawg will continue to track the progress of these bills. Stay tuned!

Arkansas Legislative Update: SB 516 and the “Property Assessed Clean Energy Act”

If the current trend holds, the primary contribution of the 88th General Assembly of the Arkansas Legislature to the sustainasphere will be summed up in two words: improvement district.  We already have HB 1118, which would establish the “Arkansas Central Business Improvement and Development Investment Tax Credit Act,” and the newly amended HB 1027, which would establish the “Property Assessed Energy-Efficient Home Improvement District Act.”

Last week saw an important addition to this slate of sustainalaws: SB 516, which would establish the “Property Assessed Clean Energy Act” (which folds up into the convenient acronym PACE).  PACE is the product of years of behind the scenes work by the dedicated denizens of the Arkansas sustainasphere.

SB 516 is a piece of enabling legislation: if passed, it would enable counties to create “property assessed energy improvement districts.”  These districts, in turn, are tasked with establishing “a property assessed clean energy program” to provide financing for energy efficiency improvements and clean renewable energy projects.  The loans would run with the improved property, and would be secured by a lien against the property.  The districts would be bond-financed, and the bonds would be tax-free and fully transferable on the open market.

Unlike HB 1027, which is limited to residential projects, SB 516 grants energy improvement districts the discretion to provide PACE financing to the full range of projects, whether residential, commercial, industrial, or mixed use.

Another advantage of SB 516 is that it provides for districts comprised of several counties.  Given the number of small, rural, sparsely populated counties in Arkansas, this is significant.  These are the very places most in need of sustainable innovation and development, and, if PACE becomes law, these counties will be able to band together and issue bonds that are fiscally sound and financially attractive to investors.

Indeed, if used to their fullest potential, PACE districts will add a powerful arrow to the quiver that Arkansas counties have for attracting business investment, particularly when it comes to attracting international venture capitalists looking to invest in renewable energy and resource projects.

SB 516 is headed for the Senate Committee on Insurance & Commerce, where it is on the regular agenda for the March 1, 2011, meeting.

Stay tuned! 

The Case for HB 1118

Last week, the Main Street Revitalization Committee of the Little Rock Downtown Partnership voted to endorse HB 1118, which, if passed, would establish an investment tax credit for the rehabilitation and development of central business districts.


I’ve discussed the key elements of HB 1118 in previous posts. In short, HB 1118 would create an investment tax credit equal to 20% of the first $1,000,000 of qualified rehabilitation or development expenditures incurred for a qualified project. Any unused tax credits could be carried over for seven consecutive taxable years, and the credit can be transferred, sold, or assigned one time.

 

A “white paper” distributed to the Main Street Revitalization Committee highlighted the benefits of HB 1118:

 

• The return ratio on the HB 1118 tax credit is 1 to 5. In other words, $1,000,000 in tax credits generates $5,000,000 of development or rehabilitation expenditures.
• Every $1.00 of income tax credits returns between $2.19 and $2.22 in income to Arkansans.
• The tax credit should spur economic development not only in central business improvement districts, but in the areas adjacent to the districts.
• Downtown revitalization is a key part of the push for higher paying jobs and a higher quality of life in Arkansas.
• By stimulating the rehabilitation of existing structures, the tax credit will help return non-productive downtown areas to income producing and tax generating areas. This, in turn, will stimulate the tax base through new sales and payroll taxes, as well as by increasing the tax base.
• The tax credit will help attract new businesses to their downtown business areas by creating a significant marketing and economic incentive for municipalities to include in their development packages.

 

As I’ve previously observed, HB 1118 could also be improved. For example, the provision that the tax credit can only be sold, transferred, or assigned limits the utility of the credit as an investment tool and effectively prevents the establishment of a secondary market.

 

HB 1118 is on the deferred agenda for the February 15, 2011, House Revenue and Taxation Committee meeting. I will be tracking the bill. Stay tuned.

 

Arkansas Legislative Update: HB 1118 and Tax Credits for Sustainable Developers (Part II)

HB 1118 does present some practical concerns.  I’m most troubled by the fact that it does not provide for judicial review of decisions denying qualified project status, and makes no provision at all for review of whether an expenditure qualifies as a  “rehabilitation or development expenditure.”  This is not just because I’m a lawyer and stand to profit from another chance to go to court, but because if improvement districts do not come up with consistent, credible criteria for evaluating proposed qualified projects and apply those criteria fairly, we have a system susceptible to abuse and manipulation.

Second, is a tax credit of 20% of up to the first million in qualified investment enough to encourage significant development?  Consider that the Clinton Presidential Library, which holds a LEED Platinum certification, cost in excess of $125 million.  I recognize that the Clinton Library is not representative of the types of projects that we are most likely to see in a central business improvement district, but the fact is that in this day and age a million-dollar development is relatively small scale – particularly when you are talking about providing Class-A office, retail, and residential space while meeting the demands of historical preservation and some form of sustainable certification. 

HB 1118 also provides that “a taxpayer who receives an investment tax credit under this section shall not claim any other state or local tax credit or deduction based on the qualified rehabilitation or development expenditures except for the deduction for normal depreciation of the eligible central business improvement district property.”  I can envision some problems enforcing and applying this provision.  What if a developer purchases HVAC equipment that would normally be tax-exempt as the purchase of renewable resource equipment (see HB 1036/1037)?  Must the developer insist on paying the sales and use tax to preserve the tax credit? 

Last, as an advocate of sustainability, I note that HB 1118 is not, per se, a sustainalaw, since it treats green projects and non-green protects the same.  Why not fashion a law that rewards sustainable development?  The easiest way would be to provide for expedited consideration and increased tax credits for sustainable projects.

  

HB 1118 is headed for the House Committee on Revenue & Taxation.  Stay tuned!

Arkansas Legislative Update

Here’s an update on the current slate of proposed sustainalaws before the 88th General Assembly of the Arkansas Legislature:

HB1027 – The Sustainable Energy-Efficient Home Program. Referred to the Joint Committee on Energy.

HB 1036/1037 – Tax Credits and Exemptions for the Purchase of Renewable Resource Equipment. Referred to the House Committee on Revenue and Taxation and on agenda for consideration on January 25, 2011.

HB 1043 – The Reusable Shopping Bag Act. Referred to the House Committee on Public Health, Welfare, and Labor and on agenda for consideration on January 25, 2011.

HB 1050 – The Energy Efficiency and Conservation Financing Act. Referred to the Joint Committee on Energy.

HB 1118 - The Arkansas Central Business Improvement District Rehabilitation and Development Investment Tax Credit Act.  Referred to House Committee on Revenue and Taxation and on agenda for consideration on January 25, 2011.

The Arkansas SustainaBlawg will continue to track the progress of these bills. Stay tuned!

Arkansas Legislative Update: HB 1118 and Tax Credits for Sustainable Developers (Part I)

HB 1118 goes by the too-long title “Arkansas Central Business Improvement District Rehabilitation and Development Investment Tax Credit Act.”  While it is not a sustainalaw per se (it treats all projects the same), it is nonetheless an important addition to the slate of proposed sustainalaws before the Arkansas Legislature.

The proposed Act builds on the Central Business Improvement District Act (found at Ark. Code Ann. § 14-184-101 et seq.), which was designed to assist Arkansas cities in rescuing their deteriorating downtowns by empowering municipalities with more than 500 residents to create central business improvement districts.  (For an idea of a central business improvement district, envision the Main Street corridor in Little Rock or Cherry Street in Helena.)

The idea behind HB 1118 is simple: anyone who incurs costs and expenses in connection with a “qualified project” in a previously established central business improvement district is eligible for an income tax credit equal to 20% of up to the first million dollars of “qualified rehabilitation or development expenditures” on the project.  The tax credit would be available for five years, from January 1, 2012, to December 31, 2017, and, significantly, the credit may be sold, transferred, or assigned one time.

Lets unpack this a bit.  To be a “qualified project,” the property to be rehabilitated or developed must be located in the improvement district, must meet all applicable zoning and building codes, must meet any design and planning guidelines applicable the improvement district, and must involve “qualified rehabilitation or development expenditures” of more than $50,000.  The board of commissioners of the improvement district will decide whether a project is a “qualified project”.  Adverse decisions the board can be appealed to the “governing body of the municipality.”  (If HB 1118 passes, this is one spot where a lawyer will come in handy.)

 “Qualified rehabilitation or development expenditures” are defined by what they are not – namely, they are not the cost of acquiring the development property, any associated realtor’s fees, taxes, insurance, costs of landscaping, or sales and marketing costs.  Otherwise, “qualified rehabilitation or development expenditures” are, essentially, whatever the improvement district will approve.

If it passes, HB 1118 will give some financial teeth to the Central Business Improvement District.  Since that Act's passage, municipalities have been able to offer developers some incentives and special treatment to get them to to downtown projects, but not a $200,000 income tax credit that can be bought and sold.   

This is very reason HB 1118 would be important to the Arkansas sustainasphere as an important incentive to green builders and developers.  As shown by the currently ongoing revitalization and anticipated LEED-certification of the building located at 315 Main in Little Rock, the aging downtowns of Arkansas cities are loaded with dark and architecturally interesting but neglected buildings that can and should be rescued, repurposed, and greened. This program would empower Arkansas cities to offer a significant financial incentive that will make projects that once looked good only as sketches of sustainability look good on the balance sheet as well.

HB 1118 is not all green skies, of course, and in Part II I will address some practical concerns about the proposed Act.

Stay tuned!