Monday, March 29, 2010

Pioneer Construction Legislative Update: Sustainable/LEED Related MI Legislation

In order to provide exceptional construction solutions, Pioneer Construction strives to stay abreast of political issues affecting construction and development via active involvement with the Associated Builders & Contractors and continuous involvement in the legislative arena.

Given several recent developments regarding sustainable construction/LEED related legislation in both the Michigan House (Bill 4575) and the Michigan Senate (Bills 1111-1114), we would like to provide our clients with an update as to potential impact. The House Bill could impose sustainable building requirements on any construction project in the State of Michigan. The Senate Bill(s) could allow for significant tax incentives for construction projects in the State of Michigan (in a city, village, or township with a population of 20,000 or higher) that obtain LEED Certification.

Let's first address Michigan House Bill 4575. The bill was introduced 3/12/2009 and has been referred to the Committee on Regulatory Reform. Please click here to download the Michigan House Bill 4575 in its entirety. Please click here to download a summary from the House Fiscal Agency.

"The Bill would amend the Stille-DeRossett-Hale Single State Construction Code Act (MCL 125.1501 et. al.) to allow certain local units of government to adopt their own construction code consisting of the National Green Building Standard, ICC-700, published by the International Code Council, or the current version of the Leadership in Energy and Environmental Design (LEED) Green Building Rating System at a specified level. The local units would have to adopt the code through the enactment of a local ordinance...Local units that may adopt the green building codes include any city, township, village, or county..."

*House Fiscal Agency.

Long story short, if this legislation is passed, jurisdictional government authorities of construction code would be allowed to adopt construction code (from a variety of recognized industry code standards) through passage of a local ordinance. If the legislation passes, it will be important to monitor the jurisdictional government authority(ies) of construction code in the area(s) where you consider a construction project to determine the cost and/or schedule impact of new code requirements and to determine the most effective solutions to comply with any new requirements.

Next, we will address Senate Bills 1111-1113 collectively. The bills were introduced 02/04/2010 and have been referred to the Committee on Commerce and Tourism. Please click here to download Michigan Senate Bills 1111-1113 in their entirety. Please click here to download a summary from the Senate Fiscal Agency.

The legislation would encourage developers, builders, and manufacturers to obtain increasingly higher levels of LEED Certification by providing escalating tax incentives to both new and rehabilitation construction projects in a city, village, or township (with population over 20,000) in the State of Michigan.

The bills would amend the Commercial Redevelopment Act, PA 255 of 1978 to allow for provision of property tax abatement. The abatement would be a 100% property tax abatement for a period of up to 12 years (minimum of one-year) based on the following formula:

-20% LEED Certified
-30% LEED Silver Certified
-40% LEED Gold Certified
-50% LEED Platinum Certified

The abatement would apply only to any increase in taxable value. Municipalities would have discretion to award the property tax abatement, but there would be no 'opt-out' for any of the taxing jurisdictions.

*Warner Norcross & Judd - "What's this LEED Legislation All About?" (John Byl & Troy M. Cummings), 2010.

There are still several unanswered questions relating to the 'discretion' of municipalities and the period of the abatement. However, if passed, this legislation could provide considerable incentive for developers and owners to pursue LEED Certification. Detailed financial analysis comparing the incremental additional costs of increasing 'metallic' levels of LEED Certification will need to be analyzed against potential tax incentives in addition to Life Cycle Cost Return on Investment analysis.

Lastly, we will address Senate Bill 1114. The bill was introduced 02/04/2010 along with Bills 1111-1113 and has also been referred to the Committee on Commerce and Tourism. Please click here to download the Michigan Senate Bill 1114 in its entirety. Please click here to download the summary from the Senate Fiscal Agency.

This bill would apply only to 'Brownfield' sites otherwise eligible for the Tax Increment Financing (TIF) program that receive LEED Certification. (Brownfield sites include those that are contaminated, functionally obsolete buildings, or sites with blighted conditions.)

The bill would expand the definition of "eligible activities" to include certain improvements if they are used "to achieve a credit for a certification level under the LEED green building rating system developed by the United States Green Building Council (USGBC) and if that certification level actually were achieved. The improvements that would qualify include one or more of the following renewable-energy systems:

-Photovoltaic, fuel cell, wind, hydro, wave, or biofuel-based electrical production and storage systems deployed on-site.

-Geothermal energy systems that produce electric power or provide thermal energy for use on-site.

-Active solar thermal systems that employ collection panels; heat transfer mechanical components, including pumps and fans, a defined heat storage system, including hot water tanks; and thermo-siphon solar and storage tank batch heaters.

The improvements that would also qualify include underground parking and one or both of the following building systems:

-Geothermal exchange systems for heating, air conditioning, and hot water.

-Storm-water management systems implemented according to low-impact design strategies that do not otherwise qualify as eligible activities."

*Summary provided by the Senate Fiscal Agency.

In summary, it appears that green building and/or implementation of LEED Certification may likely be incentivized and/or required in the State of Michigan in the near future. To learn more about how these incentives and/or requirements will impact your planned construction project, please contact us today at 616.247.6966 or via e-mail (