As cities look for strategies to meet their climate goals, a common incentive for developers is emerging in the Midwest as a tool to advance clean energy.
Tax increment financing, or TIF, freezes tax revenue from a designated area and redirects some of the surplus back into local projects, usually for 20 to 30 years. Cities have long used TIF to encourage certain types of development, and increasingly the deals are coming with clean energy strings attached.
Des Moines, Iowa, has done eight such deals with developers this year, in addition to a dozen last year. In exchange for city financing, developers must participate in a MidAmerican Energy efficiency program and build to a standard that is usually 10-20% more energy efficient than what’s required under the building code.
A few deals have gone beyond that. A couple of developers agreed to provide free transit passes to renters in an apartment building being planned. Rooftop solar panels were part of another trade.
City officials have incorporated sustainability requirements into TIF agreements on a case-by-case basis for years, but the approach ramped up in the wake of the city’s 2016 strategic plan and has recently become a standard expectation for the mayor and city council, which votes on each individual agreement.
“If you’re getting incentives from the city, you are going above and beyond on the energy-efficiency front,” said Josh Mandelbaum, a member of the city council. “It just seemed to make sense to make sure we were getting value out of dollars we were putting into projects.”
The efficiency-for-incentives expectation isn’t a formal policy, but Mandelbaum expects to bring an ordinance before the council eventually. Only a few TIF developer agreements in recent years have not included sustainability requirements, in one case, for example, because the building’s condition demanded an expedited process.
The use of TIF to advance climate and sustainability goals comes as Iowa’s state lawmakers have sought to limit the city’s authority on clean energy. Gov. Kim Reynolds recently signed into law a bill that prohibits cities and counties from banning natural gas hookups in construction.
“We [can’t] change our code to prohibit that,” Mandelbaum said, “but incentives are different. They’re not impeding someone’s ability to use natural gas. We want to follow the law that the legislature has written, but still … get the type of building we want.”
Jake Christensen is a Des Moines developer who agreed to upgrade the energy efficiency in three commercial projects in exchange for TIF.
“I think it’s fair that if [the city] is going to contribute to a project, that they can have their expectations met, within reason,” he said. “But they should do it on a case-by-case basis because all projects are not equal.”
All three of his projects are qualifying for historic tax credits. Without that, he said, “It would be a very different situation.”
A couple of Kansas communities are thinking along the same lines as Des Moines. The city of Mission, Kansas, made its first such deal with the developer of a 160-unit apartment complex that is to begin construction in the next few months. The developer agreed to provide proof that the project meets the standards of the LEED silver designation. LEED is a green building rating system devised and awarded by the U.S. Green Building Council.
Mission City Councilor Sollie Flora said transitioning from fossil fuels increasingly has been “front of mind” for the council as elections since 2017 have steadily boosted the number of clean energy supporters on the board.
The council’s current goal for developers seeking incentives, she said, “is to get to LEED silver. I think an expectation has been set that that is the new baseline. That could go up to LEED gold or platinum, depending on what the developer is asking for.”
The nearby suburb of Overland Park in 2019 inked its first clean-energy-for-tax-incentives deal for a multi-use project that will sprawl over more than 200 acres. When the developer inquired about tax benefits, the city consulted with the local chapter of the U.S. Green Building Council. The result: the developer would attain a LEED Zero rating, and the entire development would run on wind and solar power provided by the local electric utility, Evergy.
City Councilor Logan Heley sees an opportunity for a second such arrangement. Planning is underway to overhaul the former 207-acre campus of the telecommunications company Sprint. The developer intends to rehabilitate many existing structures and to put buildings on empty land. And in a sign that developer mindsets are moving in his direction, Heley said, designers already are working on incorporating sustainability features “almost without being asked.”