Creating State Incentives for Commercial Green Buildings: Did the Nevada Experience Set an Example or Alter the Approach of Other Jurisdictions?

Abstract

In 2005, the Nevada Legislature passed a property tax abatement and a sales tax reduction in an effort to spur developers to build green commercial structures in the state. However, the hastily written legislation in conjunction with little direction to state agencies and minimal financial analysis forced the next session of the legislature in 2007 to rethink the program because it created a financial crisis of epic proportions. In evaluating already existing incentive programs, New York, Oregon, and Maryland preceded Nevada but utilized their state income tax code as the primary tool to further green buildings. In an effort to avoid similar results to that of Nevada, many other jurisdictions created their own unique programs. Virginia followed the Nevada model by allowing property tax abatements at a local level, New Mexico used the income tax credit approach, and Hawaii tried a new method by requiring a green building to receive priority processing during governmental reviews for project approvals, which should not impact the state’s revenue stream at all. Because Nevada does not impose an income tax, a well-developed incentive program should try to offer non-financial incentives first, followed by abatements in taxes that do not create lasting effects to the state’s fragile revenue stream. Accordingly, the Nevada experience provides an example to other jurisdictions considering a green building program on how incentives may offer too generous a benefit to developers and others and may place a state in financial crisis despite the noble intentions.

Keywords: Green Buildings, Tax Incentive, Nevada, New York, Maryland, Oregon, Virginia, New Mexico, Hawaii

JEL Classification: K32, K34, K12, L74