Green Building Law Update
Destiny USA Reaches the Green Bonds Finish Line
I apologize for the recent hiatus here at Green Building Law Update. If you want to see what I have been up to, check out ClaimKit (www.claimkit.com).
Now, on to green building legal news.
You may recall that in 2011, I published many, many articles on the Destiny USA project. Here's a quick summary of the Destiny USA story:
In 2007, the developer of a large-scale mall project received $228 million from a federal Green Bonds program in exchange for installing green building and renewable energy technologies. The developer recently revealed the many of the green technologies will not be incorporated as promised.
As reported by Rick Moriarty, the Internal Revenue Service (IRS) notified the Syracuse Industrial Development Agency on March 17 (2011) that it would be auditing the Green Bonds issued by the Agency to the Destiny USA developer. . . .
If the IRS were to determine that non-compliance occurred, then the Destiny USA project could have lost hundreds of millions of dollars in estimated tax breaks.
One year later, the IRS has come out with a ruling on the Destiny USA's compliance with the Green Bonds program:
The IRS notified the Syracuse Industrial Development Agency Thursday that it has closed its audit of the bonds “with no change to the position that interest received by the beneficial owners of the bonds is excludible from gross income” under federal tax code.
In other words, income received on the bonds will continue to be exempt from federal income taxes.
The ruling also permits the release of $2.3 million that the developer had been required to hold in reserve. If the IRS had found the project out of compliance with the terms of the green bond program, it could have seized the $2.3 million as a penalty.
The IRS ruling fascinates me. By finding the Destiny USA project complied with the Green Bond requirements, the IRS essentially conceded that the Destiny USA project simply had to promise to deliver green technologies in exchange for the Green Bond financing. In a February 2011 letter to the IRS, the Destiny USA developer argued that the legislation simply required a promise to deliver the technology:
On February 21, 2010, Syracuse Post-Dispatch reporter Rick Moriarty published a story that disclosed the contents of a draft letter addressed to the IRS by the Syracuse Industrial Development Agency. In the letter, the Agency and developer first divulge that many of the green building and renewable energy features that were promised as part of the Green Bonds program will not be included in the completed project. The letter blames the economy for changes to the project.
The letter then moves to the crux of the compliance argument. The Agency and developer assert that actual installation of renewable energy systems was not required. Instead, the letter claims the developer was only required to make promises related to renewable energy and LEED certification in order to qualify for the bonds. They conclude that the financial benefits of the Green Bonds program and the forfeiture of the Reserve Account do not depend on actual achievement of the green building and renewable energy goals.
I think it's fair to say the Green Bonds legislation was fundamentally flawed. I can't imagine that the legislators would have been satisfied with a simple "promise" to deliver green technology in exchange for hundreds of millions of dollars in tax breaks.
And so ends the Destiny USA debacle.
Photo Credit: Ben Sheperd
Sustainability & Green Real Estate Attorneys
15 East Chesapeake Avenue
Baltimore, Maryland 21286-5306 USA