The Dollars and Cents of Green Accounting

EXECUTIVE SUMMARY

WHEN PLANNING CONSTRUCTION PROJECTS, consider the tax implications, rebate offers and soft benefits associated with environmentally friendly construction. Construction companies may not be eligible for these on buildings they construct for others, but building owners and any subcontractors used on the projects are. IT’S MOST COST-EFFECTIVE TO CONSIDER green elements before beginning construction, but some elements such as solar panels can be added to existing buildings. FIRMS AND COMPANIES CAN BE environmentally friendly and also save or earn money in seven ways: Tax rebates; LEED incentives; recycling the core and shell of existing buildings; using energy-efficient devices; maximizing natural energy sources; building on HAZMAT and Superfund sites; and calculating the intangible benefits of green construction. WHILE CPAs MAY FIND IT DIFFICULT to quantify the soft benefits, studies show that environmentally friendly buildings raise employee retention and productivity rates, improve the retail customer experience and generate higher average revenues, and bring apartment building owners higher-wealth clients willing to pay more in rent.

ANDREW MEYERSON, CPA, is controller of Axis Construction, Hauppauge, New York. He also is secretary of the Long Island Chapter of the Institute of Management Accountants and president of the LI Chapter of the Construction Financial Management Association. He can be reached at ameyerson@theaxisgroup.com .

y company has gone green—and as its controller, I’ve helped its management and customers recognize that the tax benefits, rebates and lower utility costs of being environmentally friendly add up to a real bottom-line reward for doing the right thing.

We’ve used many “green” elements in building three Stop & Shop supermarkets, and come to understand that green construction can be a smart business decision as well as a socially conscious one. In addition to the hard cost savings, studies show that natural light and fresh air improve employee productivity and retention, allow apartment-building owners to charge higher rents, and increase retail revenues by encouraging customers to stay in stores longer and spend more. In this article I’ll share what I’ve learned to help my fellow CPAs suggest incorporating green concepts when their firms undertake construction projects or clients plan to build commercial or residential properties.

This year is a particularly good time for small and midsize firms and companies to consider construction projects, to take advantage of a two-year extension and upgrade to the U.S. Small Business Administration’s 504 loan program. Loans can be used for the purchase of equipment, construction, renovation or acquisition of land by small businesses, and carry low fixed interest rates. For 2005 and 2006, the maximum for loans to general businesses has been raised to $1.5 million; minority- and women-owned businesses can borrow up to $2 million and manufacturers can borrow up to $4 million.

GOING GREEN FOR STOP & SHOP
Like many good ideas, the environmental approach we took actually was suggested by our client; Stop & Shop management already had the design in mind when it hired us to manage its construction project. Its vision was to earn tax incentives and rebates—as well as to improve the customer experience and maximize sales—by recycling the concrete from the demolition portion of the construction project and using high-efficiency heating, ventilation and air-conditioning (HVAC), energy management and hot water reclamation.

That translated into lots of skylights that allowed natural light into the stores, and a system that automatically dims or brightens the overhead fixtures depending on the amount of sunlight. Stop & Shop also installed a hot water reclamation system that draws off the heat being generated by the refrigeration units in the stores and uses it to preheat the water that runs into the hot water heaters.

Our interest in green construction began long before Stop & Shop hired us, though. If it’s done right, green construction doesn’t add cost, and its long-term return on investment (ROI) is real. It increases the value of the building and reduces operating costs every year. And the benefits to the environment and to employee health and retention are priceless.

As the construction managers on green projects, we ourselves don’t get any tax benefits. But our clients and subcontractors do. And our local utility company, like many across the country, offers rebates to customers who lower their use of electricity and to the contractors who perform the work that makes it possible.

SEVEN STEPS TO GREENER BUILDINGS
The best approach to green construction is to consider it before you start a new project, so you can build the elements into the project plan up front. Installing high-efficiency windows, for example, doesn’t add much cost and can generate a quick ROI if it’s done as the structure is being built. It’s much more costly if the old windows have to be removed. But some elements—solar panels, for example—can be added at any time.

Before we start a construction project, we consider the following seven elements:

Tax rebates. Virtually every state offers tax reductions for environmentally friendly construction (see “ States With Tax Incentives for Green Construction ,” below).

Recycling the core and shell. When we are building on a property that has an existing structure, we save on costs by reusing as much of the existing concrete, core and shell as possible. That saves on material costs and also on carting away the rubbish.

LEED incentives through the U.S. Green Building Council ( www.usgbc.org ). Owners of buildings that use green construction concepts can apply for a Leadership in Energy and Environmental Design (LEED) rating that entitles them to certain incentives and tax reductions. There is some up-front time and expense involved; we estimate the process adds about 2% to the cost, though it yields a full ROI.

Energy-efficient devices. Using efficient, modern HVAC devices saves operating costs and also may entitle owners and subcontractors to rebates offered by local energy companies. Since a significant portion of the value of a property is determined by its annual operating costs, decreasing them also increases the overall value of the building when it comes time to sell.

Natural energy sources. Designing facilities that make their own energy through natural ventilation and daylight also reduces energy requirements and operating costs. Fresh air and light already are hot commodities in the New York apartment market, drawing health-conscious, high-net-worth customers. The increased demand can result in higher rental income and purchase prices.

HAZMAT and Superfund sites. While cleaning up deeply contaminated sites is better left to experts in this field, we do consider sites that are slightly contaminated. Companies can buy them at reduced cost, and then use grants and funds from various environmental sources, such as the Environmental Protection Agency and HAZMAT Superfunds, to improve the facility in part at the government’s expense. One site we’re considering, for example, is a gas station where spilled oil has contaminated the soil, but not the water table beneath it.

Intangible benefits. Studies show that employee satisfaction, comfort, productivity and retention all improve when the workplace offers fresh air and natural light. Since more than 50% of the overhead of most nonmanufacturing businesses is employee-related, we know there’s real value to them, even if they are hard to quantify.

We and our children live in a fragile, interconnected world. When we put the theories of green construction to work in our buildings, we’re doing the right thing for Planet Earth as well as for our bottom line and that of our clients.

State	Income Tax	Corporate Tax	Property Tax	Sales Tax
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Florida
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Maryland
Massachusetts
Minnesota
Missouri
Montana
Nevada
New Hampshire
New Jersey
New York
North Carolina
North Dakota
Ohio
Oregon
Rhode Island
South Dakota
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin

Source: Office of Energy Efficiency and Renewable Energy, U. S. Department of Energy, www.eere.energy.gov .