OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 ¯ (860) 240-0200

http: //www. cga. ct. gov/ofa

sHB-5688

AN ACT CONCERNING ENERGY EFFICIENCY AND ELECTRIC DEREGULATION AND THE GROSS RECEIPTS TAX.

OFA Fiscal Note

State Impact:

Note: GF=General Fund; TF=Transportation Fund

Municipal Impact:

Explanation

The bill requires the Secretary of the Office of Policy and Management (OPM), in consultation with the Commissioners of the Department of Environmental Protection and Public Safety, to adopt building construction standards that are consistent with or exceed the standards as established by the United States Green Building Council (USGBC) The bill also allows OPM, in consultation with the Department of Public Works (DPW), to exempt any buildings from the new regulations when the cost of compliance significantly outweighs the benefits. Therefore, it is anticipated that these additional construction costs will only be incurred in cases where the operational savings exceed the cost, over the life of the building. It is anticipated that OPM will incur minimal costs from adopting regulations and performing cost/benefit analyses of new construction projects. The Department of Environmental Protection, the Department of Public Safety and the Department of Public Works will incur a minimal workload increase due to consultations, which are anticipated to be within existing resources.

The bill requires that buildings costing $5 million or more to construct or renovation projects costing $2 million or more for which state funds are used must comply with the building standards adopted by OPM. This is expected to result in net savings to the state in future years that are potentially significant. Increases in capital construction costs for new buildings would be offset by savings in the operating costs of these buildings over their lifetime. Based on DPW's experience with 4 projects undertaken in the past year, the anticipated cost differential of doing a major building project under USGBC standards is anticipated to increase total project costs by less than 1%. There will also be some additional costs for conducting the mandatory “building commissioning” at the end of construction, which are estimated to be between $100,000 and $200,000 for a major project. Since building construction is financed with bond funds, any increase in construction costs would result in an increase in General Fund and Transportation Fund debt service costs.

The additional construction costs could be offset by savings in the operations of the new buildings over their lifetime, especially in heating and ventilation costs. These savings are estimated by industry sources to be up to 30% of annual utility costs. Any General Fund operating budget savings would be achieved through the Department of Public Works, the Judicial Department, the University of Connecticut and any agency with care and control if its buildings. Any Transportation Fund operating budget savings would be achieved through the Department of Transportation and the Department of Motor Vehicles.

In the case of school construction projects, passage of this bill could substantially increase the state's costs for projects. Based on recent school construction trends costs could range between $7. 5 and $15 million per year. It should be noted that the operating cost savings for these buildings would accrue to the municipalities. Since school construction projects are financed with General Fund bond funds, any increase in construction costs would result in an increase in General Fund debt service costs. (The state normally provides between 20% and 80% of the construction cost for school building projects and magnet schools receive 95% reimbursement. )

The bill also requires equipment and appliances bought by the Department of Administrative Services and other agencies to comply with federal Energy Star standards. This provision will result in a minimal increase in new equipment costs but over the life-cycle of the product the state may realize a savings based on the energy efficiency of these products.

In addition the bill will result in a revenue loss to the General Fund from the Gross Earnings Tax of approximately $2. 6 million annually beginning in FY 08.

Municipal

The bill establishes the same requirements for all new construction of buildings when state funds are used. OPM, in consultation with DPW, would be able to exempt any buildings from these new standards when the cost of compliance significantly outweighs the benefits. Therefore, the increases in school construction costs for towns would be offset by potentially significant savings in the operating costs of these buildings over their lifetime. It is a State Mandate since it would increase capital construction costs.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.