Commercial Shaming Building Owners

Timothy Lawless
President, National Association of Industrial and Office Properties (NAIOP) – AZ

The commercial real estate industry in Arizona recognizes demand for energy-efficient office and industrial space. As a result, the industry is already taking important steps to reduce the energy consumption of buildings through voluntary and market driven approaches. These approaches should be supported by incentives, tax credits and grants, rather than energy consumption reporting mandates. These mandates, commonly referred to as energy benchmarking, require building owners to measure and report the overall energy consumption of their commercial and industrial properties. The mandates are misleading because they fail to consider the fundamental principles of a building’s energy consumption that may lead to an inaccurate representation of a commercial property.

In 2015, the City of Phoenix considered a benchmarking ordinance that would have required building owners of more than 50,000 square feet to report their energy usage on a government website – or face a Class 1 misdemeanor and a fine of a minimum of $500 for every violation. According to the City, the ordinance was similar to other metro city reporting including Austin, Boston, Chicago, Washington D.C., New York City, Philadelphia, San Francisco and Seattle – the ordinance would affect 1,398 buildings in Phoenix metro.

The proposed energy reporting ordinance is hard to comply with as it forces property owners to collect information for dozens of tenants who view the information as private or proprietary. In addition, the energy benchmarking requirements do not consider energy-efficient technology incorporated into the building’s infrastructures or individual tenant energy consumption – unlike the common areas, which is outside of the property owner’s control.

A concern is how the use of the collected benchmarking information can be used by interest groups to unfairly “shame” building owners into expensive retro-fit improvements for facilities. Benchmarking can also delay the sale of buildings, deter potential tenants and have a chilling effect on economic development. Efforts that unfairly and mistakenly label a building as being wasteful for its energy consumption should be opposed at every level of government.

In response to the Phoenix draft benchmarking ordinance, NAIOP-AZ took the lead and formed a coalition with ten other groups that included the Arizona Chamber of Commerce, National Federation of Independent Business and BOMA-AZ. The group’s initiative was to pass legislation at the state level preempting cities from enacting this type of local energy reporting. The Bill, SB 1241, was signed into law by Governor Doug Ducey on April 13, 2015.

Following the Bill’s passage, a lawsuit was initiated by Tempe Councilwoman Lauren Kuby and advanced by the Arizona Center for Law in the Public Interest. The lawsuit challenged SB 1241 on constitutional grounds that legislative Bills must be limited to a single subject. The argument was regarding how SB 1241 violated the “single subject” clause of the state’s constitution – it focused on two topics: energy consumption reporting and limiting cities from banning the use of plastic bags by grocery stores.

Rather than wait for the courts to decide the case, our coalition of ten trade associations band together again this year to support a stand-alone Bill barring cities from adopting energy benchmarking ordinances. The new Bill, HB 2130, passed the State Legislature and was signed into law by Governor Ducey on March 14th, 2016.

The successful advocacy by NAIOP and the coalition in the passage of HB 2130 is a victory for the commercial real estate industry throughout Arizona. The impact of our efforts was confirmed when Councilwoman Kuby re-filed her lawsuit to more narrowly focus on the state preemption of local ordinances banning plastic bags.

NAIOP Arizona continues to recognize the importance of energy efficient commercial and industrial space and will work with state and local lawmakers in developing sound market-driven policies today and in the future.

Tim Lawless has been the president of NAIOP-AZ for more than a decade and is a Board member of the Arizona Chamber of Commerce and the Arizona Tax Research Association (ATRA).