NAIOP Arizona Blocks Energy Benchmarking Ordinance

Fall 2016

NAIOP’s Arizona chapter, asserting that “shaming” building owners is not productive, formed a coalition that helped pass legislation to preempt cities from requiring owners to report building energy consumption.

THE COMMERCIAL real estate industry in Arizona recognizes the demand for energy-efficient office and industrial space and is already taking important steps to reduce building energy consumption through voluntary and market-driven approaches. NAIOP Arizona (NAIOP-AZ) believes that 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 properties. They can be misleading because they do not take into consideration some fundamental realities of a building’s energy consumption that may lead to inaccurate representations.

Last year, the city of Phoenix considered a benchmarking ordinance that would have required owners of commercial buildings larger than 50,000 square feet to report their buildings’ energy usage on a government website or face a Class 1 misdemeanor and not less than a $500 fine for each violation. According to the city, the ordinance would have affected 1,398 buildings. It was similar to energy reporting requirements in Austin, Texas; Boston; Chicago; New York City; Philadelphia; San Francisco; Seattle; and Washington, D.C.

An energy reporting ordinance of this type can be difficult to comply with because it requires property owners to collect information from their tenants, many of whom view this type of information as private or proprietary. In addition, energy benchmarking requirements fail to take into consideration the energy-efficient technology incorporated into a building’s infrastructure or the fact that individual tenant energy consumption, unlike that in common areas, is outside the property owner’s control.

Interest groups could use the collected benchmarking information to unfairly “shame” building owners into undertaking expensive building retrofits that could impact building sales, deter potential tenants and have a chilling effect on economic development. NAIOP-AZ opposes efforts at every level of government that unfairly and mistakenly label a building as being wasteful because of its energy consumption.

In response to Phoenix’s draft benchmarking ordinance, NAIOP-AZ took the lead and formed a coalition with 10 other groups, including the Arizona Chamber of Commerce, National Federation of Independent Business and BOMA-AZ, to pass legislation at the state level to preempt cities from enacting this type of local energy reporting. The bill, SB 1241, was signed into law by Gov. Doug Ducey on April 13, 2015.

Following the bill’s passage, however, Tempe Councilwoman Lauren Kuby initiated a lawsuit that was advanced by the Arizona Center for Law in the Public Interest, challenging SB 1241 on the constitutional grounds that bills must be limited to a single subject. The lawsuit argued that SB 1241 violated the “single subject” clause of the state’s constitution because, in addition to energy consumption reporting, it also prohibited cities from banning the use of plastic bags by grocery stores.

Rather than wait for the courts to decide the case, our coalition came together again in 2016 to support a stand-alone bill that bars cities from adopting energy benchmarking mandates. The new bill, HB 2130, was passed by the Arizona State Legislature and signed into law by Gov. Ducey on March 14.

The successful advocacy by NAIOP-AZ 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 Kuby re-filed her lawsuit to focus solely on the state preemption of local ordinances banning plastic bags.

NAIOP Arizona continues to recognize the importance of energy-efficient commercial space and will work with state and local lawmakers to develop sound market-driven policies to improve energy efficiency, rather than mandates that could inaccurately label buildings and do not take into consideration the economic impacts or costs of reducing a structure’s energy use. This fight is not only important for Arizona. It is important to all NAIOP members facing similar legislative threats in their states and municipalities.