Green Building Law Blog : Green Building Lawyer & Attorney : Shari Shapiro: Calliope Communications, LLC

In April 2010, the Department of Defense (“DOD”) issued a memorandum (“memo”) that altered the structure of the defense budgeting cycle, beginning with fiscal year (“FY”) 2012 budget. These changes were ostensibly made to offer more stability to the budgeting process, which prior to the memo involved a more complicated two-year budgeting process where major funding changes were supposed to be made in even-numbered years and smaller adjustments were supposed to occur in odd-numbered years. However, as then Deputy Secretary of Defense Willy Lynn stated, “everyone involved just ignored that second year.” 

The new rules replaced the two-year cycle with single-year budgets, which were intended to more accurately reflect current defense needs and budgeting realities caused by the economic slowdown. A second requirement of the memo, however, could have the unintended consequence of hindering DoD green building projects.

The memo requires that the Pentagon’s annual Program/Budget Reviews, or Future Years Defense Program (“FYDP”), to focus on a five-year period each cycle. Readers may recall my earlier post on the recently enacted National Defense Authorization Act (“NDAA”), which among other things, prohibits the DoD from using appropriated funds to achieve LEED platinum or gold certification unless the Secretary of Defense can certify that the LEED project in question will result in no additional costs to the DoD, or if a cost-benefit analysis reveals that the project will produce a financial payback.

A potential concern to proponents of DoD green construction projects could be the imposition of a five-year “horizon” to determine the financial benefits of energy improvements or sustainable design features. While the NDAA does not specify a time window to be used in conducting cost-benefit analyses, defense officials may be discouraged (under Congressional opposition to seeking LEED gold or platinum certification) from proposing green projects that will have a payback period beyond the five-year FYDP cycle.

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Many people, including me, have noted that the National Defense Authorization Act (“NDAA”), signed into law by President Obama on December 31, 2011, prohibits the Department of Defense (“DoD”) from using any appropriated funds to achieve the two highest levels of green building certification offered by the U.S. Green Building Council’s Leadership in Energy and Environmental Design (“LEED”) Program – platinum and gold.  The NDAA, however, does provide that the Secretary of Defense can certify a building under LEED gold or platinum standards if certification imposes no additional cost to the DoD, or if the DoD conducts a cost-benefit analysis of the project and there is a demonstrated payback for implementing energy improvements or sustainable design features.

More interesting, upon further reflection, is that the bill requires that by June 30, 2012 the Defense Secretary must provide Congress with a report on the energy efficiency standards the DoD uses for military construction and repair.  The report must include:

1. A cost-benefit analysis as well an examination of the return on investment and long-term payback of LEED, ASHRAE 189.1 and ASHRAE 90.1-2010; and,
2.  A new DoD policy on energy efficient construction based on the cost-benefit and ROI analysis.

 The methodology for assessing the "cost-benefit" and return on investment of the standards is not specified.  Given that life-cycle costing makes the ROI of energy efficiency and other green features much more attractive, the standard that is used will be significant.   

The proposed DoD "policy" could also be used by Congress as a model to impose on the other Federal agencies, which mostly use LEED-Silver as their building standard.

Look out for a debate in the middle of the year over whether LEED and ASHRAE 90.1-2010 should be scrapped from DoD (and potentially other agency) requirements because they fail the "cost-benefit" analysis. 

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