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Clinton's energy tax to hit older buildings.

President Clinton's proposed energy tax would raise energy costs in U.S. office buildings by an average of 3.34. percent, or $11,300 per year for a typical 185,000-square-foot office building, according to a Coopers & Lybrand study.

The study, prepared by Coopers & Lybrand's real estate advisory services group, compared energy expenditure patterns by city, region, and building age. Data drawn from the Building Owners & Managers Association (BOMA) and the U.S. Treasury Department were analyzed under Coopers & Lybrand's economic model.

"Because electricity accounts for almost 95 percent of office energy expenses, office buildings will be less severely affected by the tax than properties using oil and gas," notes Dr. Bjorn Hanson, Coopers & Lybrand real estate industry chairman. Drawing on U.S. Treasury Department data, Coopers & Lybrand estimates that at the end of a proposed three year phase-in period, energy costs will increase from 3.3 percent for electricity to 4.5 percent for coal, based on the energy's BTU content.

Hardest hit will be older office buildings which are less energy efficient than new offices and are more likely to rely on natural gas. On a square foot basis, buildings 20 years or older will pay 22 percent more for energy after the tax than newer buildings. That translates, in dollars, to $12, 390 in new energy taxes for a typical older building, compared to $9,950 for newer buildings.

Regional differences are less clear. Downtown office properties in the South and Midwest will experience slightly greater percentage increases in energy costs under the Clinton plan than either the Northeast or West. However, after-tax energy costs in the Northeast will remain significantly higher than in the other regions -- a full 63 percent higher per square foot than in the Midwest, the second highest region.

New York City leads the list in estimated after-tax energy costs per square foot, and is joined in the top five by Hartford, Philadelphia, and Baltimore in the Northeast, and Wichita, Kansas in the Midwest. Energy taxes in these top five cities will range from $12,800 for a typical 126,000-square-foot building in Wichita to almost $87,500 for an 840,000-square-foot New York City office building, based on energy use and building size.

At the other extreme in the 81 city study is South Bend, Indiana, where Downtown office properties, after a 3.3 percent increase in energy costs, will pay only 79 cents per square foot for energy, or $2,500 in BTU taxes for a typical 97,500 square foot facility.
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Title Annotation:expected to raise energy costs for office buildings
Publication:Real Estate Weekly
Date:May 19, 1993
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