I am publishing a series of posts on the Destiny USA Debacle — the federally sponsored Green Bonds project that has failed to incorporate promised green building features. To read all of the posts, you can select the Destiny USA tag to review all of the published posts on this topic. Or check back later in the week for an e-book that includes all of the posts, plus bonus coverage.
The Destiny USA dispute hinges on whether a developer complied with green building and renewable energy promises he made in order to obtain federal Green Bonds funding. But what is the Green Bonds program and how did it come about?
In 2004, the United States Congress passed the American Jobs Creation Act of 2004, which is essentially a huge tax bill. Section 701 of the legislation included a seemingly-innocuous provision titled the “Brownfields Demonstration Program for Qualified Green Building and Sustainable Design Projects.”
According to Investopedia, this Section led to the United States Treasury issuing $2 billion in Green Bonds to support green building construction:
Green bonds in the United States got a major boost from an amendment to the America Jobs Creation Act of 2004. The amendment is officially titled the Brownfields Demonstration Program for Qualified Green Building and Sustainable Design Projects, but for those who prefer to have a little oxygen left at the end of their sentences, this has been shortened to "Green Bonds". It was designed to provide funding – in the form of $2 billion worth of AAA-rated bonds issued by the United States Treasury – to finance environmentally friendly development. The objective is to reclaim contaminated industrial and commercial land (brown fields), and encourage energy conservation and the use of renewable energy sources.
The Syracuse Industrial Development Agency was the bond issuer and sold $238 million of these Green Bonds in late February 2007. Investors — corporations and individuals who purchased the bonds — received two benefits: interest paid over the lifetime of the bonds, and tax-free status on the interest paid. Because of the tax-free interest, Investors were willing to accept lower interest rates on the bonds. The proceeds from the sale of these tax-free bonds were then provided by the Agency to the developer of Destiny USA in the form of a tax-free loan.
The taxpayer is also an important player in this scenario. By waiving the normal tax obligation, the taxpayer is essentially investing in the developer’s project as well. In exchange, the taxpayer is supposed to receive a public benefit in the form of a green building development on a brownfield site. Who represents the taxpayer in this scenario? The word “tax” should have tipped you off — the Internal Revenue Service.
They IRS is probably the most important party in the entire Destiny USA dispute.
Photo credit: mjar81