DATE: April 23, 2013
TO: Board of Supervisors
SUBJECT: TAKING ADVANTAGE OF FAVORABLE TAX DEDUCTIONS OR CREDITS AND OTHER INCENTIVE AND REBATE PROGRAMS ON COUNTY CAPITAL PROJECTS (DISTRICTS: ALL)
As the County continues to undertake capital projects it is important to consider and take advantage of tax deductions or credits and other incentive and rebate programs that benefit the County. Certain tax deductions or credits and other incentive and rebate programs exist in which public agencies like the County cannot directly participate, but the County may benefit by assigning those credits to the designer/developer of a County project. This creates a potential cost savings to the County, while creating a mutually beneficial relationship between local businesses and the County. Through the application of Internal Revenue Code Section 179D for example, the County was able to pass more than $700,000 in energy-efficient building tax deductions to Lowe Enterprises for the development of Phase 1A and 1B of the San Diego County Operations Center (COC) which will eventually result in more than $350,000 in credits back to the project based on a 50/50 sharing agreement. The County has also directly taken advantage of other incentive and rebate programs which have resulted in over $900,000 in revenue to the County for the COC project. A Board Policy does not currently exist that encourages or authorizes participation in these types of programs. With today’s action, the Chief Administrative Officer will draft a Board Policy that reinforces the County’s commitment to participating in tax deductions or credits and other incentive and rebate programs on County capital projects whenever it is financially beneficial for the County.
CHAIRMAN GREG COX AND DISTRICT ATTORNEY BONNIE DUMANIS
Direct the Chief Administrative Officer to draft a Board Policy that reinforces the Board’s commitment to working with private contractors to take advantage of favorable tax deductions or credits and other incentive and rebate programs on County capital projects, and return to the Board within 90 days for the Board’s consideration.
There is no fiscal impact associated with today’s action. However, there are potential undetermined cost savings to the County on capital projects through the use of tax deductions or credits and other incentive and rebate programs under the authority of a Board Policy.
Business Impact Statement
By creating a Board Policy that reinforces our Board’s commitment to working with private industry in taking advantage of tax deductions or credits and other incentive and rebate programs on County capital projects, private businesses will benefit from decreased taxes while the County benefits from potential cost savings on capital projects.
Advisory Board Statement
In order to sustain operational excellence and ensure sufficient resources for the Strategic Initiatives set forth by our 2013-2018 strategic plan, we must embody the following disciplines for excellence: fiscal stability, customer satisfaction, essential infrastructure and continuous improvement and innovation. We are committed to effectively managing the County’s public facilities, resources and natural environment. Therefore, we must act in a way that is innovative, environmentally friendly and fiscally responsible while simultaneously keeping our customers happy.
In the last three years the County has undertaken more than 60 capital improvement projects, requiring a significant investment of financial resources. There are ways to reduce the cost-burden of such projects, namely in the form of tax deductions or credits and other incentive and rebate programs that can and should be applied when undertaking projects.
The Energy-Efficient Commercial Buildings Tax Deduction is just one example of a significant financial incentive for contractors and designers to meet or exceed an agency’s energy reduction requirements for new and existing buildings. Originally enacted as part of the Energy Policy Act of 2005 and extended under the Emergency Economic Stabilization Act of 2008, the Internal Revenue Code Section 179D tax deduction applies to properties placed in service between January 1, 2006 and December 31, 2013.
Under Section 179D, building owners can take a deduction for the cost of installing eligible energy-efficient components including the building’s interior lighting system, heating, cooling, ventilation and hot water systems as well as the building envelope. The installation can be part of a new building or a retrofit of an existing building. However, in the case of a government-owned building, the 179D deduction may be allocated to the designer of the building. In this case the designer is defined as the person who creates the technical specification for installation of the energy efficient property and may include architects, engineers or contractors. The deduction would be assigned to the designer for the taxable year that includes the date on which the property is placed in service.
Over the last couple of years the County has completed nine capital projects using sustainable building and energy efficiency components. In 2011 and 2013, the Department of General Services assigned more than $700,000 worth of tax deductions to Lowe Enterprises for the re-development of Phase 1A and 1B of the County Operations Center (COC buildings 201, 202, 203 and 204) through the application of the 179D tax deduction program which will result in more than $350,000 in direct revenue to the County. This is the first time to date that the Section 179D tax deduction has been used on a San Diego County project.
Participating in tax deductions or credits and other incentive and rebate programs not only helps give us a healthier bottom line but it also helps our local businesses. Cooperating with contractors and designers in the instances where the County cannot directly participate creates mutually beneficial relationships among business and government. With today’s action, the Chief Administrative Officer will draft a board policy that reinforces the County’s commitment to participating in tax deductions or credits and other incentive and rebate programs on County capital projects whenever it is financially beneficial for the County.
Linkage to the County of San Diego Strategic Plan
This proposed action supports the Sustainable Environments Strategic Initiative in the County of San Diego’s 2013-2018 Strategic Plan by providing for development, planning, infrastructure and services that support the local economy and are fundamental to a strong, vibrant region. Furthermore, this action will aid in supporting the implementation of land use strategies that protect our natural resources making neighborhoods healthy places to live, work and play.
Chairman, First District
AGENDA ITEM INFORMATION SHEET
REQUIRES FOUR VOTES: [ ] Yes [X] No
WRITTEN DISCLOSURE PER COUNTY CHARTER SECTION 1000.1 REQUIRED
[ ] Yes [X] No
PREVIOUS RELEVANT BOARD ACTIONS: N/A
BOARD POLICIES APPLICABLE: N/A
BOARD POLICY STATEMENTS: N/A
MANDATORY COMPLIANCE: N/A
ORACLE AWARD NUMBER(S) AND CONTRACT AND/OR REQUISITION NUMBER(S): N/A
ORIGINATING DEPARTMENT: District 1, Board of Supervisors
OTHER CONCURRENCE(S): N/A
Gregory R. Murphy, (619) 531-5511, firstname.lastname@example.org