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First in a two-day series

Last year, a Polk County middle manager signed a nondescript sheet of paper, attesting to heating and cooling work the Waldinger Corp. performed in 2012 on the county-owned Iowa Events Center.

That paper wiped $1.1 million off the Des Moines-based mechanical contractor’s federal income tax liability.

What did taxpayers get in return? Nothing they hadn't already paid for.

The tax break didn’t encourage Waldinger to work harder or faster or to install more cost-efficient equipment.

It didn’t yield more energy savings at the convention center complex than it would have realized anyway, and it provided nothing in the way of construction savings or rebates on the $4.9 million project.

The Events Center example is hardly unique. The Des Moines Register examined 70 Iowa projects in which the tax break was sought and documented 37 cases where governments gained little or nothing for authorizing the deduction on taxpayer-funded construction.

That's just a tiny sample of more than 10,000 cases nationally in all 50 states — including at least 300 in Iowa — in which government officials have handed out tax breaks to private companies through an obscure giveaway known as the Energy Efficient Commercial Buildings Tax Deduction.

The goal of the tax break, shepherded into law in 2005 by Iowa Sen. Chuck Grassley, is to encourage building owners to incorporate energy efficient systems into their construction projects that might cost more up front but that save energy and money over time.

But a yearlong investigation by the Register found that those tax breaks are handed out with scant oversight and little evidence of public benefit.

“It’s kind of like the Wild West out there," said Jon Duchac, an accounting professor at Wake Forest University in North Carolina who is researching the tax deduction. "The regulations were written very poorly, and there's not any real oversight."

The tax break, commonly known as 179D for its chapter in U.S. tax law, is available to private commercial building owners who invest in energy efficient upgrades.

But it can also be applied to publicly owned projects, a provision proponents say encourages green building, saves governments on long-run utility costs and provides relief to the construction industry.

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"The 179D deduction is a vital tool," said David Rosen, spokesman for Alliantgroup, a consulting firm that has aggressively pursued the tax break on projects around the country.

The Register reviewed thousands of documents involving the 70 projects in which 179D deductions were sought, making multiple record requests and conducting follow-up interviews to unravel whether the deductions were awarded or claimed.

The Register's investigation identified a host of problems with the 179D program that raise serious questions about whether it delivers on its promises:

The work qualifying for the deduction often is already required by state building codes.

Applications for the tax break frequently come after the work is finished, with no negotiation beforehand to ensure taxpayers are receiving a benefit.

Oversight of the deduction itself is lax, if it exists at all. No governing body must approve the tax breaks. The Register found examples where lower-level managers were authorizing the deductions without the knowledge of city managers or elected officials.

There is no national tracking of the tax deductions, meaning no one knows how much has been given away.

Doubts raised about the tax deduction's worth come at a critical juncture.

The nearly 12-year-old 179D deduction expired last year and — as in previous years — Alliantgroup and other organizations that represent construction and building design firms are working feverishly to persuade Congress to renew it and make it retroactive to cover this year's crop of building projects.

But even Grassley now questions whether the deduction deserves to be renewed. Told of the Register's findings, Grassley said it may be time to end the program.

“It may be that the energy efficient buildings provision has outlived its usefulness and isn’t working as intended, so it could be a candidate for reform or termination,” Grassley said in an interview.

"Energy efficiency standards are always improving, and it’s not clear the tax code can keep up.”

Millions of dollars in tax breaks

The 179D tax break can be lucrative for contractors who know how to take advantage of the law.

Congress' Joint Committee on Taxation estimates the credit has cost the federal government at least $300 million a year in lost tax revenue on private and government construction since it was put in place in 2005.

The Register’s investigation confirmed at least $3.8 million in tax deductions awarded over the past four years alone for 20 public projects completed by cities, school districts and county government entities in Polk County, plus at least one state prison project.

Few, if any, resulted in the government entity receiving a tangible benefit for handing over the tax break to a private company.

And none was approved by a public body such as a school board or city council.

In Waldinger’s case, the corporation did not have to pay federal taxes on more than $1.1 million of earnings for its work on the Iowa Events Center.

Waldinger wouldn't disclose how much it saved on its tax bill. But in a 35 percent tax bracket, it would have saved the company nearly $400,000.

Guy Gast, president of Waldinger’s Des Moines division, contends that taxpayers are benefiting from the efficient design, resulting in savings in ongoing operating expenses.

He also said the deduction helps businesses, encouraging them to reinvest, which spurs the economy.

"As for the taxpayer, that question will always be out there: 'Does the taxpayer benefit or not?'" Gast said. “I think the federal government looked at it as … 'We're willing to do that in exchange for getting more energy efficient buildings.'"

City employees sound alarm

Still, questions continue to dog the tax deduction, including concerns about whether those who get it really deserve it.

In recent years, requests to Des Moines city officials regarding 179D tax breaks have repeatedly raised red flags.

In a 2014 email exchange, Des Moines City Architect Jill Tenney notified Alliantgroup that she believed its client, Rochon Corp., was not the designer of record for a Franklin Avenue Library project and therefore wasn't eligible for the tax break.

The law bars the deduction for an entity "that merely installs, repairs or maintains the property."

Alliantgroup continued to pursue the deduction anyway. In 2016, Alliantgroup sought to obtain the deduction for Halvorson Trane, a Clive heating and cooling contractor that Tenney also said wasn't eligible.

On another project last year, a Des Moines city employee at least three times rejected an effort from Alliantgroup to secure deductions worth almost $6.5 million at a water reclamation building for Premier Electrical Corp., a Minnesota-based company.

Premier Electrical was a subcontractor on the project, not the designer of record, and the city did not install heating and cooling systems at the facility that reduced the building’s total energy and power cost, said James Beck, an engineer at the Des Moines Metropolitan Wastewater Reclamation Authority.

Even so, Alliantgroup twice more submitted documents seeking Beck’s signature on Premier applications, email records show.

"Can you believe this crap?" Beck said in an email to his boss forwarding one of the requests.

Premier president Colin Olson continues to maintain his company deserves the deduction because he says the system it installed, which converts sewage gas to electricity, could save the city tens of thousands of dollars a month on its electric bill.

The Register identified other instances in which contractors not explicitly identified as the designers of energy efficient systems nonetheless received 179D signoffs.

Madrid School District Superintendent Brian Horn in 2015 signed a form that allowed Halvorson Trane to claim an $88,916 deduction, even though Halvorson was a subcontractor, not the designer of record.

Likewise, on the Iowa Events Center project, the designer of the qualifying work was KJWW Engineering, not Waldinger, which claimed the deduction, according to public records and statements made by designers involved in the project.

Taking a harder look at contracts

Des Moines city government employees have signed over at least nine 179D deductions on taxpayer-owned projects since 2015, potentially lowering the tax liabilities for private companies by some $1.1 million.

In August 2015, Kirk Robinson, Des Moines’ building maintenance manager, signed seven of the nine 179D forms to allow deductions to be transferred to private companies, documents show.

Carl Metzger, the deputy city manager, and Tenney, the city architect, said they were unaware Robinson had signed the documents until the Register brought them to their attention.

The city received no financial benefit from authorizing any of the 179D deductions.

In light of the Register's reporting, Metzger said future deductions must go through Tenney and will require notification of the City Council for discussion about possible rebates.

“We’d have to begin to take a harder look at what we’re really talking about in terms of value of the deduction and share with the council the background information we are now aware of,” Metzger said.

Who deserves the tax breaks?

Government officials and companies that deal with 179D tax breaks disagree about what participating governments are entitled to in return for agreeing to sign off on the tax break.

Alliantgroup’s approach to obtaining 179D allocations, based on dozens of documents reviewed by The Des Moines Register, typically involves contacting a government entity on behalf of a client shortly before or after a project is completed and requesting a signed allocation letter.

RELATED: Ex-Grassley aide helps his firm reap profits from tax deduction he shepherded in Congress

The government agency gets nothing back in exchange for authorizing the tax break.

But records and interviews show other tax consultants as well as architectural and engineering firms take very different approaches, frequently offering some kind of financial benefit to the governments approving the deductions.

Some firms have negotiated with governments at the outset of a project, agreeing to a lower bid price with the understanding that they’ll receive a 179D authorization when the work is complete.

For example, in 2011, officials from Miami-Dade County in Florida initiated a policy approved through its county attorney’s office that mandates the county receive 179D benefits.

The policy specifies that designers must discount their contract price or provide a cash rebate after the credit is claimed. It was adopted after Miami-Dade officials discovered authorization for a deduction on at least one project without any benefit to the county.

Since then, Miami-Dade has collected more than $2.5 million on its 179D deduction awards, which has been used to help defray project costs or invest in other energy efficient projects, said Patricia Gomez, a program manager for the county.

“This is an opportunity for any government,” Gomez said.

In other cases, firms have paid the government a portion of the value of the tax deduction as a “rebate.”

Records obtained by the Register show the Cedar Rapids School District worked out rebates with the Shive-Hattery architecture and engineering firm, sometimes receiving a payment worth 50 percent of the value of the deduction.

For Des Moines schools, Shive-Hattery donated $21,500 for its 2011 work at Brody and Merrill middle schools.

“Since we can’t do it without you assigning it to us and you can’t get any benefit without working with a designer, we basically give them what we call a rebate,” said Jake Young, the director of finance for Shive-Hattery. “We split the benefit."

The University of Texas at Austin has received nearly $1.4 million in return for agreements to assign the deductions to project designers.

And The Port Authority of New York and New Jersey last year announced nearly $400,000 in savings at One World Trade Center through 179D agreements.

However, Alliantgroup and national organizations like the American Institute of Architects and the American Council of Engineering Companies have sharply criticized such arrangements, saying they amount to unethical kickbacks.

That point of view is disputed by key lawmakers and independent tax policy watchdogs.

Florida TaxWatch, a nonpartisan research group, has issued briefings advising governments to take part in the savings.

“By definition, kickbacks are illegal," said Bob Nave, the group’s president of research. "This is a legal process available to public entities to recover a portion of their investments to make their buildings more energy efficient."

About this project

This project began in fall 2016, after a source raised questions about whether taxpayers were benefiting from the 179D tax break, intended to promote long-term savings by designing more energy efficiency into government buildings.

Register reporters Jason Clayworth and Jason Noble found there is no federal database tracking how much has been claimed in 179D tax deductions.

The IRS denied the Register's records request about use of the 179D deduction, saying the information is part of private tax records.



So Clayworth and Noble started their examination locally, using Iowa's open records law.

Their requests to some of Iowa's largest city and county governments yielded incomplete records. Some government officials said that after they signed off on the tax breaks, building designers never returned documents showing whether the deduction was claimed.

The Register cited a provision in 179D law specifying that recipients of the deduction must provide building owners with documentation that the deduction had been claimed. Most government officials then turned over the records. One exception was the city of Des Moines, which did not provide documentation of claimed deductions.

Jason Clayworth is an investigative reporter at The Des Moines Register who focuses on law enforcement, governmentspending and open records issues. He is an Iowa native and a graduate of Drake University

Jason Noble is the Register’s chief politics reporter, covering statewide politics and government and the Iowa caucuses. He’s a graduate of Iowa State University, with a master's degree from the University of Missouri-Columbia.