IRS Solicits Applications for Qualified Green Building and Sustainable Design Project Bonds

Client Advisory

July 27, 2005

The American Jobs Creation Act of 2004 authorized up to $2 billion of tax-exempt “private activity” bonds to be issued by state or local governments to finance the construction of large, environmentally efficient development projects on brownfield sites. “Private activity” bonds are bonds issued by a state or local authority that benefit a private party. Congress intended the tax-exempt financing to produce a variety of public benefits, including fostering the redevelopment of brownfields; creating significant jobs; and demonstrating the effectiveness of, and expanding the market for, alternative energy sources and environmentally efficient design measures. The IRS has now issued a notice soliciting applications for projects to be financed by the bonds, and explaining the requirements for such applications.

Developers wishing to receive the benefit of the tax-exempt bonds must cooperate with a state or local government to be nominated for the federal program. The state or local government must agree to assist in the project in the form of tax abatements, contributions in kind, and similar measures worth at least $5 million. (Although it is not entirely clear, it does not appear likely that legislative programs such as New York’s brownfields cleanup program[1] would be specific enough to constitute state support for these purposes, since that program offers a tax credit to any taxpayer engaging in brownfields remediation activities, rather than targeting particular projects.) The sponsoring government must submit a completed application to the IRS by November 2, 2005. At that point the IRS, in consultation with the EPA, will review the applications and select projects for designation. The IRS is required to ensure that in the aggregate the projects selected will reduce electric consumption by more than 150 megawatts annually as compared to conventional generation, reduce daily sulfur dioxide emissions by at least 10 tons compared to coal generation power, expand by 75 percent the domestic solar photovoltaic market in the United States as compared to the expansion of that market from 2001 to 2002, and use at least 25 megawatts of fuel cell energy generation. No two projects may be located within the same state.[2]

In order to give the IRS sufficient information to make its calculation, each application must provide a detailed description of the project. Among other things, the description must explain the energy efficiency, renewable energy, and sustainable design features of the project. The new notice from the IRS goes into considerable detail regarding the requirements for each application, and will have to be carefully reviewed in light of the specific features of each potential development.

In outline, the requirements of the application are as follows:

  1. LEED certification
    Each project must demonstrate that at least 75% of the square footage of commercial buildings that are part of the project are registered for the United States Green Building Council’s Leadership in Energy and Environmental Design (“LEED”) certification, and the applicant must reasonably expect to receive such certification. The application must include detailed information regarding the project’s LEED plans.

  2. Brownfield redevelopment
    The application must demonstrate that the project includes a brownfield site as defined by section 101(39) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”). Generally, a brownfields site is real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.

  3. State and local support
    The application must include detailed information about the support to be received from state or local government sources.

  4. Size
    The application must demonstrate that the project will meet either or both of the following requirements: (a) it includes at least 1 million square feet of buildings, or (b) it includes the redevelopment of at least 20 acres of land. The project does not need to lie on contiguous parcels of land.

  5. Net benefit of the tax-exempt financing
    Each applicant must demonstrate that the proceeds of the tax-exempt bonds dedicated to the project will not exceed the amount required (a) to purchase, construct and integrate energy efficient technologies, (b) to ensure compliance with LEED certification standards, and (c) to purchase, remediate, and prepare the brownfields site for construction.

  6. Prohibited facilities
    Each applicant must certify that the project will not include a stadium or arena for professional sports exhibitions or games or a facility the principal business of which is the sale of food or alcoholic beverages for consumption on the premises.

  7. Employment
    Each application must demonstrate that it can be expected, based on reasonable projections provided by an independent analyst, to provide significant employment. Each project must provide the equivalent of 1,500 full time permanent jobs upon completion, and the equivalent of at least 1,000 full time construction jobs during the construction of the project.[3]

  8. Conservation and innovation
    Each application must describe the amount of electric consumption (in megawatt hours) reduced by the project as compared to conventional construction and conventional generation, the amount of daily sulfur dioxide emissions reduced by the project as compared to coal generation, the gross installed capacity of the project’s solar photovoltaic capacity, and the amount of the project’s fuel cell energy generation capacity.

  9. Financing plan
    Each application must contain a detailed description of the plan of financing for the project, including the expected issuer of the bonds, the anticipated date of issuance, the sources of security and repayment for the bonds, and the aggregate face amount of bonds expected to be issued for the project.

Because all applications must be received by the IRS by November 2, 2005, it is critical that any developers wishing to take advantage of this financing begin planning their applications as soon as possible.

The above discussion was prepared by the Tax Department and Environmental Practice Group at Carter Ledyard & Milburn LLP. If you have any questions or comments, please contact Clifford P. Case III (212-238-8798,, Dan Pittman (212-238-8854,, or Christopher Rizzo (212-238-8677,


[1] Described in our November 2004 client advisory “New York’s Brownfield Law Opens Up New Development Opportunities,” available at /publication.cfm/ID/82

[2] The IRS is required to select at least one project in a rural state, and at least one project located within 10 miles of an area designated as an "empowerment zone" under I.R.C. §1391 because of its pervasive poverty, unemployment, and general distress.

[3] In rural states, those requirements are reduced to 150 and 100 jobs, respectively.

Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2020 Carter Ledyard & Milburn LLP.
© Copyright 2005

Related practice areas:

© Copyright 2020 Carter Ledyard & Milburn LLP