NJEDA Tax Credits Encourage Green Building and Energy EfficiencyMay 5, 2022
Project financing gaps are one of the most significant deterrents to implementing green building and energy-efficiency measures. The New Jersey Economic Development Authority (NJEDA) developed tax credit programs that encourage developers to pursue green building certifications or increase energy efficiency. The recently created Aspire and Emerge programs help developers finance projects with green building certifications or energy efficiency measures. The programs established under the Economic Recovery Act of 2020 allow for significant variation in the types of eligible projects. The NJEDA is now accepting applications for the Aspire and Emerge programs.
Identify Project Type
Complying with either a green building program or an energy efficiency standard is mandatory for any project to participate in either of the tax credit programs. According to the scope of work, developers must specify the project as either Type 1 or Type 2 before submitting a program application.
A project qualifies as Type 1 if the construction consists of 50% or more of the building’s value and/or square footage. Type 1 includes new construction and reconstruction, commonly referred to as gut rehabilitation.
A project qualifies as Type 2 if the construction consists of 50% or less of the building’s value and/or square footage, including restorative renovation and alteration of the interior space. The applicable standards according to project type are listed below.
|Commercial||American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) 90.1-2016 or 189.1-2014|
|Commercial||NJ Board of Public Utilities’ NJ Clean Energy Program (NJCEP) Pay for Performance (P4P)|
|Commercial||International Green Construction Code (IGCC)|
|Commercial / Residential||U.S. Green Building Council (USGBC) Leadership in Energy and Environmental Design (LEED) Silver for all rating systems|
|Commercial / Residential||International Living Future Institute|
|Commercial / Residential||Passive House Institute US|
|Residential / Mixed-Use||Home Energy Rating System (HERS) Index 75|
|Residential / Mixed-Use||EPA ENERGY STAR Homes, Multifamily New Construction, or Benchmarking Score of 75|
|Residential / Mixed-Use||National Green Building Standard (NGBS)|
|Residential / Mixed-Use||NJ Housing and Mortgage Finance Authority (NJHMFA) and NJ Department of Community Affairs (NJDCA)|
|Energy Efficiency – Lighting and Mechanical Equipment||American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) 90.1-2016|
|Energy Efficiency – Appliances||EPA ENERGY STAR|
|Water Efficiency – Fixtures||Applicable gallons per flush / per minute|
|Low Emitting Materials – Paints, Adhesives/Sealants, and Carpets||Applicable VOC content requirements|
|Entire Project||LEED for Commercial Interiors (CI) Silver|
How to Comply
The project’s specifications largely dictate the standard a project should use to comply. For Type 1 projects, often the easiest way to comply with a standard is to demonstrate energy efficiency with energy modeling based on either ASHRAE Standard 90.1-2016 or the HERS Index. Using energy modeling, developers can avoid the requirements of various certification program standards (e.g., ENERGY STAR, LEED, etc.). For large multifamily and commercial buildings, energy modeling can also be used to qualify for rebates from the NJBPU Pay for Performance (P4P) program (see details below).
Instead, developers may pursue green building certification for a Type 1 project, particularly for marketing or discounted financing. In that case, various options require less energy efficiency measures than ASHRAE, HERS, or P4P standards but involve many other green building requirements and documentation.
- For Type 1 residential projects, NGBS is the easiest and least expensive certification standard.
- For Type 2 commercial projects, LEED Silver is the easiest and least costly certification standard.
Type 2 project standards are based on the scope of renovations. The standards are not mutually exclusive. Projects can be updating multiple aspects such as plumbing fixtures, appliances, lighting, and finishes. The design team should be aware of the applicable requirements to ensure that all compliant specifications are included in construction documents and budgets. An alternative to using the piecemeal standards based on the scope of renovations is to use LEED for Commercial Interiors (CI) as a comprehensive standard for the entire project. However, that should only be considered if the scope of the renovations is broad enough to consider meeting LEED requirements to streamline the process – or if there is a benefit to earning the certification itself.
NJEDA reviews green building compliance at two stages: Pre-Development and Post-Construction.
- Pre-Development: After the initial tax credit application is approved, NJEDA requires a specific green building plan submitted within six months. The plan must include a selection of applicable standards and supporting documentation. The EDA will evaluate the project’s green building plan for compliance according to the specific project type during the Pre-Development Review. After the review is complete, NJEDA will send an approved Pre-Development Review letter, allowing the project team to finalize the design documents.
- Post-Construction: After construction is complete, the applicant must submit proof of compliance with the approved green building plan to NJEDA for the Post-Construction Review for Final Certification.
Overlap with NJBPU Programs
The New Jersey Board of Public Utilities (NJBPU) has many rebate programs for energy efficiency in all types of building projects. Developers can leverage compliance with the requirements of the NJDEA tax credit programs to qualify for rebates from NJBPU. For more information, visit the NJ Clean Energy Program website.
For example, developers can utilize compliance with NJBPU’s Pay for Performance (P4P) rebate program to satisfy NJEDA requirements for Type 1 projects. Alternatively, for any residential Type 1 projects, achieving ENERGY STAR for NJEDA compliance would also qualify the project for rebates from NJBPU’s Residential New Construction (RNC) program. Type 2 projects can qualify for rebates from local utility company programs for installing lighting and mechanical equipment that meets NJEDA standards.
Overlap with Other Incentives
There is significant overlap for residential projects with NJEDA standards and the green building standards for Low Income Housing Tax Credits administered by NJ Housing and Mortgage Finance Authority (NJHMFA) and for programs such as the National Housing Trust Fund administered by the NJ Department of Community Affairs (NJDCA). Compliance with the standards of such programs is, in turn, acceptable compliance standards for NJEDA.
Residential projects can also qualify for discounted loan financing by achieving any of the certification program standards accepted by NJEDA.
NJ enacted a Commercial Property-Assessed Clean Energy (CPACE) program last year, for which NJEDA is currently developing the regulations and guidelines. It is reasonable to assume considerable overlap with the green building requirements of Aspire and Emerge tax credits and the forthcoming CPACE program.
Benefits of NJEDA Programs
The NJEDA created the Aspire and Emerge programs to incentivize real estate development with tax credits. With high construction costs and increasingly demanding state energy codes, developers can utilize these programs to ease the financial strain of making environmentally conscious building decisions.
ReVireo can help guide developers through this process, perform all related services, and provide the necessary documentation for NJEDA approvals. See below for projects that achieved NJEDA tax credits.