CARSON CITY — Gov. Jim Gibbons on Monday vetoed a bill that would have suspended tax breaks for energy-efficient building projects, but he gave the Legislature an opportunity to revise the array of benefits for green construction by issuing an executive order that accomplishes the same objective.
The order, suspending the sales and property tax breaks for all but four projects already approved for the tax benefits, expires June 4, the last day of the session.
Gibbons said the order will give the Legislature three weeks to have hearings on the tax breaks and how they could affect future sales and property tax revenues for schools and local governments.
The Legislature earlier this month swiftly approved Senate Bill 567 to suspend the tax breaks because of concerns that the loss of revenues would hurt school districts and local governments over the next several years. Any loss of school revenues must be made up by the state general fund, thereby affecting the state budget as well.
But Gibbons, fearful that the bill could hurt some companies already approved for the benefits who could then sue the state, said he might have to veto the bill. He did so on Monday, his first veto as governor.
Projects exempted from Gibbons’ executive order include the $7.4 billion CityCenter project on the Strip, which will be exempted from $100 million in local and schools sales tax exemptions over three years; the Fontainebleau project in Las Vegas with nearly $38 million in sales tax exemptions; and The Palazzo, being built by the Las Vegas Sands Corp., with about $24 million in sales and use taxes.
A fourth project is in Reno, a service center for the Patagonia company.
With property tax exemptions of up to 50 percent that can last for as long as 10 years, the potential loss of local government and schools tax revenue for the many projects already approved and in the pipeline is in the “hundreds of millions” of dollars, Gibbons said.
Other than these four projects, all others are on hold while the ramifications of Assembly Bill 3 of the 22nd special session in 2005 is re-examined by the Legislature between now and the end of session.
AB3 provided companies engaged in construction projects with the tax breaks if they followed what known as Leadership in Energy and Environmental Design, or LEED, standards.
“I think putting the executive order out allows for the state to suspend those actions while the Legislature takes the time to have hearings and to decide what course of action should be taken,” Gibbons said.
The bill was passed in both the Senate and Assembly with more than enough votes to override the veto if lawmakers choose to do so.
Assembly Speaker Barbara Buckley, D-Las Vegas, said Monday evening that lawmakers were pleased that Gibbons suspended the regulations.
“Our lawyers will be examining it to see if it is sufficient to stop the breaks as we re-examine the whole framework to ensure that we’re balancing appropriately the state’s resources and good environmental policy,” she said.
Buckley said lawmakers are planning to come up with a new policy and a draft was being prepared Monday.
She said legislators are “re-examining everything, from how the applications work to should the schools be held harmless, to the correct level of the incentives,” she said. “All of that is going to be examined, hearings held, debates held. And hopefully a good new proposal emerges.”
Buckley also said it appears that some of the regulations adopted by state agencies to implement the law went beyond legislative intent. “They expanded the law, I think improperly,” she said.
Senate Majority Leader Bill Raggio, R-Reno, said he too is awaiting word from the legislature’s legal counsel as to whether the suspension of the regulations by executive order has the same effect as the statute that suspended the tax breaks.
In his veto message to Raggio, Gibbons said: “Providing tax incentives to encourage environmentally friendly construction is basically sound policy.”
But the financial effects of the tax breaks and their effect on the public schools should be considered by the Legislature, Gibbons said.
Original testimony suggested the loss to schools and local governments would be only about $250,000, Gibbons said.
“What I’m concerned about is that AB3 of the 22nd Legislative special session was created, you know, without the opportunity for the Legislature to fully understand what the financial impact on the state of Nevada was,” Gibbons said.
The executive order, because of its June 4 sunset clause, will “hold their feet to the fire for the next three weeks,” he said.
Those companies now in the midst of the process of trying to obtain the tax breaks will now have to come and testify to the Legislature about what they have done so far, he said. If the Legislature changes the exemptions, some of these projects may be grandfathered in, but others may not, Gibbons said.
Some of those other projects in the process include five that have opinion letters from the Department of Taxation on how the exemption will be implemented. Those include the Molasky Corporate Center Project, Echelon Place Project, Panorama Towers Project, W Las Vegas Hotel project and Venetian/Lido expansion project.
One of those, the W Las Vegas mixed-use project slated for almost 50 acres along Harmon Avenue, was canceled Friday, however.
“That’s what the process is all about,” Gibbons said. “Having these official hearings so we can have a legal record of what these companies have done before we yank the rug out and just assume we have no liability here.
“And so by doing this, I think we have taken a prudent course and acted in a very positive fashion,” he said.
Gibbons said he has not been told definitively there could be lawsuits against the state by companies that may have relied on the 2005 legislation. But some of the company representatives engaged in such projects did discuss their concerns with him about SB567, he said.
The executive order does place additional pressure on the Legislature to finish its work on time, Gibbons said.
“I’m willing to work with them,” he said. “But this was something that was critical that should have been undertaken earlier on in the legislative session, like months ago.”
Kenneth Smith, principal of Las Vegas-based development firm Glen, Smith & Glen, said it was “huge” that Nevada created the bill in the first place and took the lead nationwide in the green building initiative. There are now 25 states with some sort of incentives, he said.
“I think having the incentives is a good thing. What some other states have done is put a cap on incentives to limit their exposure,” he said.
Glen, Smith & Glen is using green building in its development of The Park at Spanish Ridge commercial project and Sullivan Square mixed-use project in the southwest valley.
Smith said the bill wouldn’t save his company much in incentives because most of their buildings are sold. Any property tax reduction in the next seven to 10 years would be passed on to buyers.
MGM Mirage’s $7.4 billion CityCenter hopes to be the largest LEED-certified project in the country with 18 million square feet of building space.
Alan Feldman, MGM Mirage’s senior vice president of public affairs, said the company is prepared to discuss the issue with lawmakers and other state officials in Carson City and is open to public hearings.
“We’re completely open to having discussions about what we’ve done and the investment decisions we’ve made based on the passage of green-building legislation last session,” he said.
CityCenter is eligible for an exemption on the local and schools portion of the sales tax on $1.74 billion worth of materials over three fiscal years, starting with 2007-08, according to letter from the Department of Taxation requested by Gibbons. Feldman said MGM Mirage is already scheduled to save $90 million in 2007.
Review-Journal writers Hubble Smith and Arnold M. Knightly contributed to this report.2007 Nevada Legislature