The Ramifications of this IgCC Enactment are of National Import

Mo Co IgCC

On September 28, 2016, the County Executive of Montgomery County, Maryland submitted Executive Regulation 21-15, which adopts the International Green Construction Code 2012, to the County Council. If the Council does not approve or disapprove the proposed IgCC within 60 days after receiving it, the green code is automatically approved.

What is proposed is the boldest adoption of the IgCC anywhere.

The IgCC as modified by Montgomery County will cover all privately owned and public new building and additions of 5,000 square feet and larger. Single family detached and townhomes are not proposed to be included.

And despite that Montgomery County has long had a mandatory green building law, the IgCC is a great expansion over the prior law that requires newly constructed building or “extensively modified” that has or will have at least 10,000 square feet “must achieve a Certified level in the appropriate LEED rating system.” The County also offers a real property tax credit in varying amount (10-75%) and term (3-5 years) based on the type project and the rating it achieves LEED Silver or better.

The City of Gaithersburg, within Montgomery County, has adopted amendments to that building code that require increased energy and water efficiency requirements that drive building to LEED Gold and better. As a practical matter, throughout the County the market now requires Class A office building be LEED Gold if not Platinum.

But all of that is being repealed and the existing LEED building mandate being abolished, including it is expected Gaithersburg will revise its law migrating to the IgCC.

However, while the existing law captured only extensive renovations, the new Regulation exempts renovation of existing buildings completely when the enactment deletes Chapter 10 of the IgCC.

Note, that Montgomery County is not adopting the current 2015 version of the IgCC.  While the IgCC 2015 was approved 2 years ago, that version is not approved for use by the Maryland Department of Housing and Community Development which requires each jurisdiction in Maryland use the same edition of the same building codes.

It is significant that since July 1, 2015 all building in Montgomery County must comply with the International Energy Conservation Code 2015, with its energy consumption reduction requirements and many of those now existing requirements ameliorate the impacts of the proposed (4 year out of date) IgCC 2012. But the County amended the IgCC to use a zEPI scale score of 50 (the baseline from the more efficient IgCC 2015) for energy efficiency but still approximately 5% below ASHRAE 90.1-2013.

After more than 2 years of seeking public comment, County staff made few if any changes from their first draft and is still proposing a modest number of amendments to the form IgCC. Most are being positively received and if there is a criticism, it is that they do not go far enough when elements of the code are being moved to Appendix A and made electives. Building of less than 10,000 square feet must include a minimum of 2 Appendix A electives, up to 20,000 square feet 3 electives and greater than 20,000 square feet 4 electives.

It is also suggested that requiring diversion of 50% of demolition debris and diversion of 75% on construction debris is below what the marketplace does today.

Other point out the Regulation is internally inconsistent when it deletes all provisions requiring rooftop urban heat island effect mitigation, but leaves in place ‘non roof’ hardscape heat island mitigation (which has been criticized as junk science). To their credit the County attempts to correct some of the industry bias in the form IgCC when, in pursuit of that non roof heat island effect mitigation, when it reduces the IgCC mandated heat island mitigation “for not less than 50% of site hardscape” to “less than 40%”. The State of Maryland which approved the IgCC for use on Maryland capital budget funded projects (that includes Montgomery County public schools) reduced that percentage to 30% and Baltimore City addressed the flaw by permitting the use of “porous asphalt pavement” in addition to pervious concrete.

As bold as this is, some have suggested that Code officials have not gone far enough with the proposed amendments. As amended this enactment of the IgCC is much more restrictive and has higher first costs for most building types when compared to LEED v 2009, but such is likely not the case when compared to LEED v4.

As progressive as this Regulation appears, Montgomery County is one of a very limited number of jurisdictions in this country mandating construction of both private and public buildings must be green. The City of Rockville, within Montgomery County, adopted mandatory use of the IgCC effective July 1, 2015, however, also allows as an alternative ASHRAE 189.1. Montgomery County will be the only jurisdiction in the nation requiring all building comply with the IgCC without alternatives. While Baltimore and DC have similar mandatory IgCC laws, they additionally permit alternative compliance paths, like LEED Silver certification, compliance with ICC 700, and Enterprise Green Communities verification. Recognizing that today Montgomery County requires use of LEED, but under the proposal will in the near future only allow use of the IgCC, this Regulation is controversial.

It is worthy of note that very few jurisdictions have adopted the IgCC with only a handful of IgCC new construction projects having been completed. Not a single IgCC building has yet to be constructed in the City of Rockville, nor under the State of Maryland or Baltimore City IgCC regulatory schemes (i.e., instead each of those two regulations allow alternative compliance paths and most, if not nearly all new construction is opting for LEED). Some are suggesting with this use of the IgCC Montgomery County will increase first costs with little or no improved environmental efficacy.

While on its face strikingly bold, this rehashing of the 2012 IgCC (which was drafted in 2010) fails in terms of outdated technology, doesn’t respond to the market in suburban Maryland that demands Class A building be LEED Platinum, and will not please Mother Nature when it does not in meaningful ways address the pressing environmental matters of the day from health and wellness within buildings to potable water.

Many hundreds of LEED projects have been registered in Montgomery County, putting the county near the very top of the list for green construction in the U.S. by county and within the County, Bethesda and Rockville top of the LEED list for municipalities of less than 100,000 people across the country.

The ramifications of this IgCC enactment are of national import. Montgomery County is not only the most populous county in Maryland, it is one of the most environmentally progressive jurisdictions in the nation. It has also been ranked by Forbes as the 10th richest in the United States and accordingly first construction costs do not have major economic implications. Politically, the County is heavily Democrat with a term limited County Executive. Observers are noting, if this anti-LEED sentiment can manifest it itself here it can happen anywhere.

Organic on the FTC Agenda

organic event

The word “organic” as it relates to non-agricultural products is the topic of the October 20, 2016, roundtable sponsored by the Federal Trade Commission and the U.S. Department of Agriculture.

This is a big deal. The roundtable will explore interpretations of organic claims for products that fall outside the scope of the USDA’s National Organic Program (which potentially includes everything from cannabis to shampoo and building materials to dry cleaning, all of which are outside of USDA’s voluntary Program).

If a business makes environmental claims in its ads or on its products or in its building, the Federal government offers guidance through the FTC’s Green Guides. The Guides have the force of law and articulate how the FTC perceives truth-in-advertising principles as they apply to green marketing and highlights terms often used in environmental ads.

However, the current Green Guides do not include guidance on the term “organic.”

The FTC has said it wanted to avoid proposing advice duplicative of, or inconsistent with, the USDA’s National Organic Program. But, the USDA’s Program does not apply to non-agricultural products.

Interestingly, in response to comments on the regulatory gap, the FTC responded that it “lacked consumer perception evidence relating to claims for these [non-agricultural] products.”

Of course, the Green Guides’ general principles apply to all environmental claims. However, there is a legitimate concern in the marketplace that the FTC perceives all of this too narrowly when it takes the position that a business “must have substantiation for any environmental benefit claims they make, including implied claims,” apparently going far beyond accurately stating that a product is organic.

Earlier this year, the FTC staff conducted a study of more than 8,000 consumers to examine how consumers perceive organic claims. The study focused solely on organic claims for shampoos, mattresses, and dry cleaning services that fall outside of the USDA Program. But the study only investigated whether an organic claim accurately describes a product containing a small percentage of non-organic material. That is, the FTC asked consumers about a product that contained a small, but varying, percentage (i.e., less than 1%; 1% to 5%; and 5% to 10%) of materials “made by a man-made, chemical process.” For all three percentage categories, a significant minority of consumers disagreed that the organic claims accurately describe the product. But none of this really has anything to do with the larger issues of being able to claim a product is organic, when it is and, at best, considered the small space of deceptive organic claims. Despite that, the study concluded that “the organic claims results merit further consideration” thus, the FTC and USDA are holding the public roundtable on October 20.

There are “organic” building materials and products and with increased concern over human health and well being within buildings including improving indoor air quality, reducing volatile organic compounds may be among the fastest growing issues in green building; not to mention the increased emphasis in LEED on materials disclosures in EPDs and HPDs.

And most recently, with the explosive growth of the legal cannabis industry, where the USDA governs what is an “organic” agricultural, federal policy does not permit cannabis, a federally banned substance, to be labeled as organic. In point of fact this law firm has been working with a cannabis industry group to create a ‘pesticide free, fertilizer free and fungicide free’ Green Check third party certification for “organic equivalent” cannabis.

There is no rational basis in the FTC attempting to restrain the use of the term organic when it actually identifies an organic product or material. If it is true, a business should be able to say so.

While there is little hope the FTC will offer positive guidance on organic building materials or cannabis allowing an organic product to claim it is organic, because it is, if you can’t make it to DC on October 20th, watch several panels via webcast. The FTC will post a link on their event page just before the roundtable begins.

The Future was on Display at Greenbuild

Greenbuild 2016

Nearly 20,000 people attended the U.S. Green Building Council’s Greenbuild 2016 convention in Los Angeles last week with more than 600 exhibiters from the green building industrial complex showcasing innovations and new products on the expo floor.

Regular readers of this blog will know that I blogged  from Greenbuild last week, including Top 10 Products from the Greenbuild Expo and Junk Science And Heat Island Effect Revealed at Greenbuild. But for those of you who were not in LA I thought a broader recap of the world’s largest event dedicated to sustainable building might be in order.

Among the highlights, that will positively impact the built environment and create business opportunities are:

The biggest announcement at the convention was the formation of a new USGBC technology organization, arc, led by Scot Horst, incoming chief executive office of arc and outgoing chief product officer of USGBC. Arc will be an online platform that will allow every building to participate and, in one place, immediately start measuring performance in any of a host of rating systems and standards, make improvements and benchmark against the industry.

Scot and soon to be CEO of USGBC, Mahesh Ramanujam, used the International Summit to introduce LEED for Cities, a new initiative “scaling the vision.” Mahesh promised more details by year end teasing, what had once only applied to a single structure can now be applied to a neighborhood, a city, a state, a country, a continent “and, in time, the world.”

GBCI and the U. S. Zero Waste Business Council announced they are joining forces to advance zero waste business practices. Businesses, organizations and communities that divert more than 90 percent of waste from landfills, incinerators and the environment are considered to be successful in achieving zero waste. USZWBC will be integrated into GBCI with GBCI assuming responsibility for the ongoing management and evolution of the Zero Waste Facility Certification and Zero Waste Business Associate programs created by USZWBC. The zero waste principles will be aligned with GBCI’s certifications and arc.

GBCI also announced it will begin working together with the Environmental Defense Fund to develop, deliver and promote the Investor Confidence Project as the premier global underwriting standard for energy efficiency projects. ICP will also join GBCI’s portfolio of credentials and certifications, and the organizations will work together to accelerate investment in energy efficiency.

Scot also said in more than one session that details would be released before year end describing major changes to the requirements for LEED for Buildings Operations and Maintenance allowing many more existing building to participate in LEED O+M.

Similarly and also significantly, those at the convention were told that dramatic changes were imminent to the LEED Homes Multifamily Lowrise and Multifamily Midrise rating systems to broaden the market share of LEED multifamily.

Despite the LEED centric nature of Greenbuild, there may have been more discussion of the WELL Building Standard than of LEED? WELL, administered by GBCI certifying the performance of building features that impact health and well being.

And while possibly a bit of inside baseball, but important to this law firm that gives legal opinions on green transactions, including on green bonds and other financing, updates were announced to the GRESB Green Bond Guidelines for the Real Estate Sector, which adds specific guidance for issuers and investors in green bonds.

With all of that exciting change it is clear that USGBC is fast moving beyond the post Fedrezzi era speeding into a bright green future in which LEED will thrive. For those of us who believe that green building can save the planet, Greenbuild 2016 reinforced that the future of green building is bright and most of that green building will be LEED.

Greenbuild may epitomize the opportunities for making a profit saving the planet. I recommend you join us in pursuing those business opportunities at Greenbuild next year in Boston.

Top 10 Products from the Greenbuild Expo


Regular readers of this blog will know that the Greenbuild Conference and Expo is the world’s largest event dedicated to sustainable building. And I believe the real action is on the Expo floor, .. although there was a lot of chatter this year about changing personnel at USGBC.

This week there are more than 500 exhibitors spread across the 150,000 square feet Expo floor in Los Angeles. And while the Expo is “the” target rich environment for green people this year, the latest innovative products and tech services are also on display at the Expo, including nearly 100 first time Greenbuild exhibitors.

Among the most exciting new product of this year is the d-Rain Joint Rainwater Filter Drain. Stormwater running off hardscape is both a real issue and a major first cost for real estate development. The d-Rain Joint Rainwater Filter Drain installs and looks like a standard expansion joint used in hardscape, yet it provides a gap slightly smaller than 1″ wide that allows water to flow through to the subsurface. Available in aluminum or gray polypropylene, it comes in 8′ lengths and can be installed in concrete or asphalt driveways, sidewalks, and other applications. The d-Rain allows drainage at 2 gallons per minute per linear foot, up to a maximum of 5 gpm/linear foot.

Possibly the most innovative product is Aquion’s aqueous hybrid ion “saltwater” battery. If onsite renewable energy is going to go mainstream and be more than an aesthetic feature, the issue of the storage of power will have to be much better addressed. Tesla’s Powerwall was a big hit at last year’s Expo. Aquion has an arguably environmentally safer and much faster charging battery. Whether it is really is ready for prime time and installation in your building may be a question, but this product may be just what is needed to fundamentally change how we address energy in the built environment.

Each year the good folks at BuildingGreen recognize green building products that significantly improve upon standard “business-as-usual” practices. Rather than attempt to repeat their efforts at searching out products helping to transform the green building industry, here is a link to their article, Top 10 Products for 2017.

If the Expo is a good barometer of the state of green building green building is thriving.

Junk Science And Heat Island Effect Revealed at Greenbuild


Among the most interesting exhibitors at the Greenbuild International Conference and Expo this week in Los Angeles (.. and okay, the virtual reality experience from the View glass people is pretty wild) may be the Asphalt Pavement Alliance challenging what we thought we knew about urban heat island effect with peer reviewed research from Arizona State University.

The term “heat island” describes urban areas that are hotter than nearby rural areas. The research from ASU calls into question many common assumptions about the ability of reflective pavements to mitigate urban heat island effect.

Reflective surfaces redirect solar energy and for this reason high albedo, reflective, or “cool” roofs have been suggested as an important tool for urban heat island effect mitigation. However, efforts to apply the same principle to non roof hardscapes, including pavements, overlook the complexities of urban geography and how ground level reflections interact with pedestrians, vehicles, and the built environment.

The report, “Unintended Consequences: A Research Synthesis Examining the Use of Reflective Pavements to Mitigate the Urban Heat Island Effect,” authored by Jiachuan Yang, Zhihua Wang, Ph.D., and Kamil E. Kaloush, Ph.D., P.E., of the ASU National Center of Excellence for SMART Innovations, pulls together research from around the world, including previously unpublished data from the team’s field research, that demonstrates the limits and side effects of relying upon reflectivity to reduce urban heat island effect.

Specific issues that may challenge what you think you know include increased cooling loads (and energy costs) for buildings subjected to solar reflections, increased light pollution from illumination at nighttime, increased wintertime snow and ice buildup even with additional deicing salts, and even human health concerns from UV radiation to visual glare.

“Unfortunately, efforts to promote reflective pavements have moved more quickly than the scientific and engineering research. As this report indicates, reflective pavements may cool a pavement’s surface but there can also be negative environmental and social impacts on the areas adjacent to the pavement,” said Heather Dylla, Ph.D., Director of Sustainable Engineering for the National Asphalt Association.

Two respected research teams are currently performing separate pavement albedo research projects that are expected to be published within the next year. The first, a study funded by the California Department of Transportation at Lawrence Berkeley National Laboratory, in conjunction with the University of California, Davis, is looking at the impact of pavement albedo as a UHI mitigation strategy. And the second, the National Center for Asphalt Technology at Auburn University, in conjunction with Iowa State University National Concrete Pavement Technology Center, is conducting a pavement albedo aging study funded by the Federal Highway Administration.

In its adoption process for the upcoming version of Green Globes, the GBC Consensus Committee is proposing removing the urban heat island requirements for other than roof hardscape.

Given the growing body of evidence of unintended consequences associated with reflective pavements and the potential negative impact they may have on energy usage, it is time the drafters of other green building standards, rating systems and codes reevaluate the science and be prepared to eliminate provisions, including credits for urban heat island effect mitigation based solely upon a pavement’s reflectivity.

Read the report yourself at

Less than 20% of Green Building Contracts Properly Drafted

green building contarct

In a recent review of contracts involving green building construction projects, less than 20% had properly drafted provisions addressing green building matters.

100 contracts involving green building construction projects were reviewed. The methodology was admittedly unscientific, if only in that the sample was too small given the large number of sustainable building being erected across the country. The contracts were each received by this law firm during 2016 from clients and prospective clients in matters involving a dispute at a green building construction project. In an effort to consider as representative a sample as possible, the last 50 contracts received where an owner was a party were selected and the last 50 contracts received where a design professional was a party, were selected.

89% of the contracts were for projects pursuing LEED. 7% were pursuing the NGBS. 1% were pursuing Green Globes. 1% were pursuing Energy Star alone. In 2% of the contracts it could not be determined what green building rating system was being pursued.

The projects were of a variety of building types (although no single family residential) including public schools, private office buildings, multi family residential, etc., and most were large dollar amount projects.

The projects were located in different jurisdictions and in most instances attorneys that this law firm has a relationship in those jurisdiction undertook the review. 21% of the projects were in Washington DC, 19% in Maryland, 18% in Illinois, 17% in New York, 9% in Texas, 9% in California, 3% in Florida, 2% in Virginia, 1% in Massachusetts, and 1% in Rhode Island.

Of note, this review was not looking for and did not compile missed signatures, not compiled change orders or other clerical errors. But rather, this review was an effort to identify substantive errors in contracts that could place a party or the transaction in jeopardy.

It is of interest that 61% of the contracts used at least a part of an AIA Contract Document form although most were older out of date versions and significantly only 8% used a correct AIA Sustainable Project Contract Document form. Only 1% used the ConsensusDOCS Green Building Addendum. And such may be among the biggest ‘takeaways’ from this review; had the parties utilized a correct and complete AIA Sustainable Project Contract Document or the ConsensusDOCS Green Building Addendum there would be no blog post and the green building matters would have been adequately addressed. But such was not the case, ..

The errors in the contract documents, most simply put, were all over the board. The single most common error can be characterized as a failure to articulate the obligations of the parties related to the green building standard being pursued (i.e., whose obligation is achieving a specific LEED credit?). Unbelievably, 28% of contracts failed to even mention that a green building standard was being pursued, although some of those did have green building requirement described within specifications in contract drawings. More than 60% of that subset was in jurisdictions with a mandatory green building law creating liability for the architect among others.

Statistically, the next most common failing, in more than 22% of contracts reviewed, was allocation of who was responsible for achieving a green building standard (e.g., which by default in most projects reviewed resulted in achieving a green building the obligation of the general contractor).

In another error, in nearly 20% of contracts reviewed, the design professional failed to articulate its role in a green building project. Shockingly, more than 50% of contracts reviewed between an owner and architect were silent, in all material ways, as to the need to achieve green building status, despite that the project was a green building project. In some of those instances, the parties used an AIA Contract Documents form (the wrong form) but not a Sustainable Project form.

While there has been relatively little litigation over green building, construction industry professionals should be cognizant of the Federal court judgment last year and associated multi Million dollar settlement of the disputes over the first LEED Platinum building involving specifying new or untried materials and products (that are often the keystone of green building). At its core this was a case arising from improperly specified material. The case instructs there is no more liability arising from green building versus other construction, but that the liability is different.

New or untried materials and products comes with unique risks; and in that case arose even before the current emerging era of expanding liability arising from environmental product declarations (EPDs) and their high risk cousin, health product declarations (HPDs).

Materialmen and supply contracts are among those most flawed because many of the documents incorporate prime contract documents within their terms, including overly broad liability fior failure to achieve a green building goal.

Surprisingly, less than 20% had properly drafted provisions addressing the disputed green building matter that was the issue resulting in a party to the contract seeking legal advice.

It is beyond dispute that the best way to mitigate risk in a sustainable project is a properly drafted contract. And while this law firm makes a business of drafting and revising contact documents, there are very good contracts available in the marketplace.

We will publish a detailed article about the green building contract deficiencies our study found in the coming days and in future blog posts. But it is time for you to review and consider revisions to your contract document forms.

You Must Register your LEED v2009 project by Halloween

LEED Rating System

Halloween activities often include carving pumpkins into jack o lanterns and trick or treating in costume, and this year on All Hallows’ Eve you should be registering your LEED project.

The end is near. October 31, 2016 is the last day to register a LEED version 2009 project.

Registration will close on that date and thereafter GBCI will only accept applications for projects pursuing LEED v4.  GBCI will continue to accept submittals for certification of those projects registered by that date and pursuing v2009 rating systems until June 30, 2021.

As new versions of the LEED rating systems are introduced, earlier versions are phased out. October 31, 2016 should come as a surprise to no one. This is arguably the third extension of the date when projects must use the LEED v4. The date is an extension from the originally proposed close date of June 1, 2015, announced in summer 2012 when the vote on “LEED 2012” (now LEED v4) was initially delayed. There will likely not be a crush of registrations at the end of October because many projects registered by the April 8, 2016 date, as I wrote in USGBC Making Significant Change to LEED when new projects registering for LEED 2009 were required to satisfy increased minimum energy performance thresholds.

USGBC’s website postulates, “What happens when you upgrade the world’s premier benchmark for high-performance green buildings?” And then proposes “it’s bolder, more specialized, and designed for a better user experience.”

Without delving into whether or not LEED v4 is better than earlier versions, (.. USGBC boasts that LEED v4 has 80% fewer forms when compared to LEED 2009), it is the uncertainties associated with this dramatically changed rating system that make it exceedingly aggressive, if not irresponsible, to not register every contemplated project now for the tried and true v 2009. There are 31,944 LEED certified projects listed in the GBIG database, but only 7 certified LEED v4 BD+C New Construction projects, since that new rating system was launched on November 20, 2013.

Appreciate that this is not necessarily a matter of first costs alone because as I wrote in LEED v4 Costs Demystified, you can deliver a LEED v4 certified building at minimal additional cost. However, with increasing numbers of governments imposing mandatory green building tied to LEED and more and more government incentives pegged to LEED, the uncertainties of only 7 certifications of v4 new construction projects must be taken into account.

Note that October 31, 2016 will also be the last day to register new projects under LEED for Homes v2008 and LEED for Homes Midrise Pilot.

If you want to upgrade a project to LEED v4, such can be accomplished through GBCI’s support team. Learn more about upgrading to LEED v4.

A complete compilation of LEED registration and certification deadlines are available here.

Halloween is scary for young children, but the uncertainties associated LEED v4 should be frightening to the real estate industry. Register your project for LEED v 2009 before All Hallows’ Eve.

As a reader of this blog, if you email me before the Greenbuild Convention and Expo, I will buy you a drink or a cup of coffee at an LA watering hole. I made a similar offer last year and had a great time meeting a lot of very fun people for drinks in DC. I hope to see you in LA beginning on October 5.

Cannabis Cultivation has Growing Environmental Implications

Cannabis Environmental

Cannabis cultivation is not new, but beginning in the 1990s when states began to legalize medical marijuana and recently as state laws evolved, decriminalizing and legalizing recreational use of cannabis, the burgeoning industry has brought with it environmental implications, including of water and energy use.

Energy consumption for cannabis cultivation can be incredibly significant and vary widely between different methods of growing but any way you measure it, it is huge. Anecdotally, last year in Boulder County, Colorado during the second quarter of 2015, a modest 5,000 square foot indoor cannabis facility was consuming over 29,000 kWh of electricity each month. A single family home in Colorado might be consuming about 630 kWh.

Water is also dramatic in cannabis production, as it can with other agricultural uses. Water consumption data for cannabis is scarce, but at least one scientific study determined that a mature cannabis plant can consume up to 22.7 liters of water per day in a 150 day growing season. By comparison, a wine grape plant uses approximately 12.64 liters of water per day.

Moreover, most governments have not begun to consider matters of pesticide and fertilizer use in cultivation, not mention matters of fungicides used in post growing production and much more. Tobacco in cigarettes is highly regulated, but ‘not so much’ for cannabis. And what is regulated by most jurisdictions today are matters of security surrounding cannabis but not environmental concerns.

Boulder County, in one of the few regulatory efforts to address increased cannabis production, created a requirement for renewable energy and an Energy Impact Offset Fund. Cannabis cultivation operations must either directly offset 100% of electricity and any natural gas, liquid fuel, bio‐fuel or propane consumption through a subscription in a Community Solar Garden, renewable energy generated on site, or equivalent approved by the Building Official or pay a monthly fee of 2.16 cents per kWh into the Energy Impact Offset Fund.

In Washington State, Mason County Public Utility District made the decision to have an electricity rate classification specifically for emergent legal cannabis producers and processors. The rate producers and processors pay falls between the small commercial and large commercial energy rates.

In Oregon the Cannabis Environmental Best Practices Task Force has approved recommendations expected to be presented to the legislature later this month. The draft report recommends:

(1) Support access to education and technical assistance related to best cultivation practices;

(2) Support the creation of voluntary third party certification programs;

(3) Encourage research into cannabis issues, including environmental best practices, health, and other aspects of the cannabis sector; and

(4) Investigate water regulations for small‐scale producers.

Should the legislature tackle these issues, Oregon may be the national model for environmentally friendly cannabis production, at this time when little regard has been given to environmental issues in the rapid expansion of legal cannabis.

PACE Bill Due in Baltimore City

PACE Photo e final

A public hearing is scheduled tomorrow on a Property Assessed Clean Energy (PACE) loan program ordinance in Baltimore City.

I have been quoted saying that PACE “could be bigger than anything in U.S. real estate since the invention of the glass window.”

PACE loan programs, where payments for energy efficiency, water conservation and renewable energy improvements to real estate are made through a building owner’s property tax bill are gaining acceptance nationally including being implemented across Maryland.

PACE state enabling statutes generally authorize local governments to engage private sector lenders to provide upfront low interest financing to property owners for qualified projects (e.g., HVAC system upgrades, photovoltaic systems, cool roofs, etc.), and to collect the repayment through annual assessments on the property’s real estate tax bill.  The term of PACE loans can be extended up to 20 years or more, often resulting in utility and other cost savings that exceed the amount of the assessment payment.

The concept is not new, but nationally including in Maryland, “residential” PACE programs were put on hold as a result of a directive in 2011 that Fannie Mae and Freddie Mac refrain from purchasing mortgage loans secured by properties with outstanding PACE obligations. However, as I wrote in this blog on July 24, 2016, HUD Jumpstarted Financing For Homes, reversing their previous position and now widely allowing residential PACE loans on top of FHA and VA loans (but still not on top of Fannie Mae and Freddie Mac loans).

The Department of Energy says that there are active commercial (as opposed to residential) PACE programs in at least 9 states and DC and enabling laws enacted or programs in development in another 23 states.

PACE offers a host of benefits as proposed in Baltimore, including: removing the barrier of a large upfront cash outlay by the property owner; allowing 100% financing of improvements in amounts over loan value ratios available in the marketplace, including without disturbing existing mortgage financing; underwriting tied to the property and improvements and not individual creditworthiness; repayment over a long period of time (up to 20 years); low interest rates resulting from high security of repayment; reduced utility bills that can offset the payments; the obligation to repay runs with the property and not the owner; the improved properties have an increased value, benefiting both the owner and the property taxing authority; the owner may be eligible to take advantage of federal, state and local tax incentives; under most commercial leases the PACE payment (on a property tax bill) can be passed along to the tenant avoiding the ‘split incentive’ problem; local government can facilitate the program with no direct debt obligation; and more.

Baltimore is proposing to allow the PACE financing of any equipment, device or material intended to improve energy efficiency, including in new construction (e.g., providing opportunities to separately finance the top 20% of a construction project or ..), from automated energy control systems and HVAC replacement to insulation of any wall or roof and replacement roofing or measure reducing water usage as well as any other installation or modification that is a utility cost saving measure.

In the event of a default, the amount in default (but not the entire principal of the PACE loan) is a liability that is a property tax lien collected by the local government with the priority associated with other real property tax liens, so existing mortgage holder consent to a PACE loan is required.

Commercial PACE programs are still very new. Despite enabling laws in 32 states (including forgone early residential programs) local enactments are also required and then the program must be created, including enticing lenders. Early programs were financed with a pooled revenue bond or for large projects a standalone bond, but today private lenders have entered the open market. While Sonoma County was an early innovator, Connecticut has a widely admired statewide green bank program that is up and running and it is the model for Maryland.

Maryland is typical. Its original PACE law enacted in 2009 was put on hold after the 2011 guidance from the federal government. Today, with SB 186, the current state enabling law passed in 2014, as tweaked by SB 173 earlier this year, the first commercial PACE program is now up and running in Montgomery County. Local laws are also on the books in Anne Arundel County, Howard County, Queen Anne’s County, and Garrett County where programs are being created. And legislation is scheduled for a vote in Frederick County on September 20 and in Baltimore County on October 3.

Today what is authorized in Maryland and elsewhere are only commercial programs and, generally, new state enabling laws are required to authorize residential PACE programs before they can be implemented by local governments.

A public hearing on Baltimore City Council Bill 16-0692 is scheduled for September 13. With 15 of the 17 City Council members as co-sponsors the bill is likely to be enacted despite the initial negative comments from the City Department of Finance.

The Baltimore bill was introduced at the request of CBJ Energy, a lender whose principals have strong PACE industry cred. There are at least half a dozen other lenders eager to provide the upfront capital for PACE loans in Maryland. The average building owner is desirous of reducing its utility bills. What is wanting in Maryland and in many places across the country are the property tax authority programs that authorize PACE lending.

PACE programs are great for the planet and awesome for business. It is clear that in 2016 there will be more of them across Maryland including hopefully in Baltimore and ideally across America.

New Federal Floodplain Regulations Rewrite 100 Year Floodplain

Floodplain 0e

The Federal Emergency Management Agency (FEMA) is proposing to rewrite the longstanding 100 year floodplain standard for federally funded projects such that most building would now have to be 2 feet freeboard.

In the name of resilience, reliability and green this proposed regulation will result in significant additional first costs for affected building.

FEMA is specifically proposing to amend 44 CFR part 9 “Floodplain Management and Protection of Wetlands” and issue a supplementary policy to implement the Federal Flood Risk Management Standard that was established by Executive Order 13690.

The nomenclature is important. It is a common misunderstanding that a 100 year flood is likely to occur only once in 100 years. A 100 year flood is a flood event that has a 1% probability of occurring in any given year. (In fact, there is approximately a 63.4% chance of one or more 100 year floods occurring in any 100 year period.)

Freeboard is a factor usually expressed in feet above a flood level for purposes of building above a floodplain. Today, building codes in many jurisdictions require construction be 1 foot freeboard.

And while there is much contained in the 37 page proposed rule as published in the Federal Register on April 22, 2016, that goes far beyond the 1973 National Flood Insurance Program purposes of protecting people and property from flood damage, now elevating the floodplain to a natural resource worthy of protection, there are 4 options proposed for federally funded building projects:

  1. construct 2 feet freeboard (above the 100 year floodplain); or 3 feet freeboard for “critical actions” (e.g., chemical storage facilities, hospitals, housing for the elderly, data centers, etc.); or
  2. construct above the 2% annual chance flood approach (also known as the 500 year flood); or
  3. construct “utilizing the best available, actionable hydrologic and hydraulic data and methods that integrate current and future changes in flooding based on climate science;” or
  4. construct above “the elevation and flood hazard area that result from using any other method identified” by FEMA.

Each of the options is described in great detail in the proposed rule.

FEMA makes the cost benefit analysis argument,

The up-front costs are generally only about 0.25 to 1.5 percent of the total construction costs for each foot of freeboard.

For example, adding 2 feet of freeboard to a new home might add $20 a month to the mortgage payment, or $240 per year. The resulting flood insurance savings could be more than $1,000 a year for a building in Zone AE (for instance, in a riverine flood zone not affected by wave action) and $2,000 a year in Zone VE.

Arguably the accelerating rise in sea levels exacerbated by those portions of the U.S. coast that are sinking (including the Chesapeake Bay region) imperil continued habitation along the coastline and while this proposal to construct higher is no doubt less expensive than pumps and raising sea walls, what is the efficacy for the rest of the nation that does not live on a coast?

There is no single entity that controls building in a floodplain. In 2012, in the name of resilience then Maryland Governor Martin O’Malley signed the “Climate Change and Coast Smart Construction” Executive Order directing all state funded building be 2 foot freeboard.

Be clear, this proposed rule is not only “An Inconvenient Truth” scaring people by showing Florida disappearing under rising seas, but also will increase the cost of construction in many projects across the country. Issued in response to an Executive Order without Congressional authority, the rule reads more like something written by a cultural anthropologist than a scientist. In point of fact, the House of Representatives passed an appropriations bill in May (House Amendment 197 to H.R. 2028) that may defund the underlying Executive Order including this proposed rule as Executive branch overreach.

Comments on the proposed rule must be received no later than October 21, 2016.