The Greening of New Markets Tax Credits

4 min read

“I’ve been doing NMTCs since they were first offered in 2001,” says Andrea Daskalakis, Chief Investment Officer of the Massachusetts Housing Investment Corporation. “In those early days, concerns about being green or about energy issues never seemed to exist. Things kept chugging slowly until about five years ago, when people began to talk about LEED certification. Now LEED certification is just expected.  It’s almost as though you must be green to even be considered for NMTC funding.”

LEED, the US Green Building Council’s (USGBC) Leadership in Energy and Environmental Design (LEED) system, ranks commercial buildings in a system running from the “LEED certified” to the LEED Silver, Gold and Platinum.  While these ratings have challengers and critics—who argue that LEED standards often fail to provide the energy-savings promised—LEED certification dominates “green” conversations in the U.S.

So influential is LEEDS—and the agenda of construction-related variables it identifies—that a recent study points out how Community Development Entities  and others emphasize that projects not LEED-certified nonetheless have LEED-emphasized features “such as energy-saving glass, energy-efficient climate control systems, low-energy lighting, and low-flow toilets.”

The principal reason for this greening, Daskalakis says, is competition: The vast preponderance of projects seeking  NMTC funding do not receive it, and projects are “greened” to make them more attractive. The Community Development Financial Institutions (CDFI) Fund documents the odds: For 2014 allocations, $19.9 billion in total applications were made for an available $5 billion;  $25.8 billion in applications were made for an available $3.5 billion in 2013; and $21.9 billion seeking $3.6 billion in 2012.

Roots for such greening of NMTC can be found in IRS guidelines, issued in 2010, which state, “investments are expected to result in the creation of jobs and material improvement in the lives of residents of low-income communities.“  No definition is given for “material improvement,” but possible connections to energy are clear.  Likewise, the U.S.Treasury’s CDFI Fund, which allocates NMTCs, emphasizes job creation, and then lists “energy” along with variables such as “housing,” “health,” and “education” as aspects of life NMTCs are intended to improve. No elaboration about “energy” is given.

Thus, even as “green” becomes expected, it’s meaning remains defuse. To increase “green” in the context of buildings can be done by, among other things, weatherizing; increasing energy efficiency; retrofitting; using renewable fuels; or becoming more environmentally friendly.

Vagueness is also common. A 2013 Urban Institute study on NMTC reports on what it calls “green components,” but never defines them.

LEEDS itself has been evolving, sparked in part by criticism from urban planners Jeff Speck, who wrote in Walkable City (2010) that “to think about LEED certification without factoring in the neighborhood can be to construct a project that does far more harm than good.”

Such criticism helped foster LEED for Neighborhood Development (LEED ND) in 2013, a new ranking based upon variables, such as whether people have a “grocery store within walking distance,” “green space,” and bicycle-friendly streets.  LEED ND status is available for a “neighborhood-scale project” in any phase of planning and design and up to 75 percent completed. “We designed this offering,” say LEED administrators,  “to help you or your developers market and fund your project among prospective tenants, financiers, public officials, etc. by affirming your intended sustainability strategies.”  A LEED ND “project” certification is available for “neighborhood-scale projects that are near completion, or were completed within the last three years.”

Likewise, NMTCs helped in the conversion of a coal-fired power plant near Bakersfield, California into a biomass-fired power plant.  NMTCs have been used  to help bring solar power to schools and other public buildings in Denver and Salt Lake City.  Another “green” use of NMTC funding  is the nearly $6 million in credits that helped several Habitat for Humanity affiliates provide Energy Star-certified homes for 31 families in neighborhoods of Connecticut with high unemployment rates.

It seems likely and logical that NMTC allocations will be done according to values and priorities society sets, and ‘green’ is becoming strong in just about every aspect of our lives.