Arkansas Law Review

Carl Circo, Professor of Law at the University of Arkansas

           By Professor Carl J. Circo          

          A green building is environmentally sustainable.  That is, it meets the needs of the project’s owners and occupants in a way that minimizes adverse impacts on the environment.  A green building is more sustainable than a conventional building because it conserves more energy, consumes fewer resources, emits lower levels of contaminants, and generates less waste during construction as well as over its entire life cycle.  

          The green building movement exemplifies the recurring phenomenon in which law and legal practice evolve to adapt to developments in technology and social policy.  As legal attention to the green building movement continues to grow, the movement is beginning to raise many interesting and important legal issues.  

          There are, for example, broad policy questions about the role that government should play in support of sustainability.  Should the government provide incentives and impose mandates to increase the number of private projects that meet green building standards?  Should local zoning ordinances, building codes, and other land use laws encourage or even require green buildings in the private sector?  To what extent is it appropriate and wise for land use regulations and building codes to incorporate green building standards promulgated by industry organizations?  How should government pay for green building programs? 

          In addition to presenting these policy and theoretical issues, the movement also beckons lawyers in several practical ways.  For example, many lawyers have qualified as LEED Accredited Professionals or LEED Green Associates under the certification processes of the Green Building Certification Institute, which is in turn recognized by the U.S. Green Building Council.  In the transactional context, attorneys for landlords and tenants have been developing green leases, and attorneys for design professionals, developers, and building contractors have started to add new provisions to construction and design contracts to allocate the special risks associated with green building objectives.  From a litigation perspective, lawyers are now evaluating potential liability risks involving green building issues ranging from professional malpractice claims for designs that fail to deliver intended energy efficiency, to construction delay and defect claims that seek damages when a building owner loses anticipated tax credits for a sustainable project. 

          An article that appeared a few months ago in the Construction Lawyer raises an especially interesting question for sustainability advocates: Is the commercial appeal of sustainable construction tempting too many professionals, including lawyers, to put green marketing ahead of either sustainability or the specific interests of their clients?  Ujjval Vyas and Edward Gentilcore write of their concern that “the green building movement has begun to believe its own press releases.”  (Growing Demand for Green Construction Requires Legal Evolution, 30 CONSTRUCTION LAW., Summer 2010, at 10.)  The authors primarily address a series of technical legal considerations that the green building movement presents for construction lawyers, such as its potential to alter the standard of care for design professionals and the demand it creates for a more precise allocation of legal responsibility for a project’s green objectives.  But running in the background of the piece is the overarching theme that lawyers should approach the legal aspects of green building projects with the same level of critical analysis that they routinely bring to other aspects of the practice of law. 

          Green building literature often uses such pejorative phrases as “greenwashing,” “green marketing,” and “the sustainability bandwagon” to suggest that not everyone who promotes sustainable construction does so with entirely pure motives.  How common is it, and how objectionable, for professionals, including lawyers, to claim special expertise to garner more business as much as to advance sustainability?  For that matter, even a law professor might elect to write on green buildings in part because it is relatively easy to get a good law review placement for a green building article. 

          The point here is simply that lawyers representing clients involved with green building projects should ask hard questions.  How relevant to the client are the specific green credentials touted by a project participant?  To what extent is an industry or trade group using the green building movement to promote its own economic interests?  What objective standards are available to measure and test proposed energy efficiency or other sustainable objectives?  Where is the data to support claims that certain green building features enhance worker productivity or promote occupant health?  Does a proposed public mandate or incentive for sustainable construction pass a rigorous cost-benefit analysis?  Who should make meaningful representations about a building’s green features or accept liability when a project does not achieve the promised green status or meet its sustainability goals?  To what extent are the social policy objectives of the sustainability movement aligned with the client’s own interests?  As green building fever continues to spread throughout the construction industry, clients will benefit from a dose of legal skepticism.

Dustin Buehler, Assistant Professor of Law at the University of Arkansas

By Prof. Dustin Buehler

          Early Sunday morning, November 7, 2010, Americans once again will “fall back” to standard time.  The switch to and from daylight saving time irritates a chronically sleep-deprived nation.  Most Americans see no reason to engage in this semiannual clock-changing madness.  Many wish the annoying ritual would end.

          And yet a cost-benefit analysis of daylight saving time shows that the best course of action is actually the opposite:  Congress should extend it, not end it.  Year-round daylight saving time has the potential to save hundreds of lives each year, decrease net energy consumption, and reduce criminal activity.  These benefits significantly outweigh the costs associated with winter daylight saving time.

 History of Daylight Saving Time

          Most Americans know very little about daylight saving time, and assume it “has something to do with farmers.”  In fact, daylight saving time has a storied history.  The cost-benefit analysis of changing clocks has been the subject of Benjamin Franklin’s satirical wit, Winston Churchill’s speeches in Parliament, and even a prime-time oval office address by Richard Nixon.  Tufts University lecturer Michael Downing notes that daylight saving time is “one of the most persistent political controversies of the last century.”

          With the advent of World War I, several nations – including the United States – implemented national daylight saving time, in order to save energy and improve military training conditions.  The United States also observed year-round daylight saving time during World War II.  The practice did not survive the end of either war, however – each time, agricultural interests successfully lobbied Congress to repeal these acts and return the nation to standard time.

          The end of national daylight saving time observance following World War II did not stop states and municipalities from shifting clocks, however.  As the New York Times observed in 1965, local action on this issue produced a “clock scramble chaotic enough to confound Father Time, himself.”  For example, travelers on a thirty-five minute bus ride from Steubenville, Ohio, to Moundsville, West Virginia had to change their watches seven times if they wanted to keep correct “local” time during their trip.  The U.S. Naval Observatory called the United States “the worst timekeeper in the world.”

          In response, Congress implemented the Uniform Time Act of 1966 (codified as amended at 15 U.S.C. §§ 260-63, 266-67 (2006)), which required all states to uniformly shift clocks forward on the last Sunday in April, and shift clocks back on the last Sunday in October.  The Act superseded all local laws on daylight saving time.  States are allowed to “opt out,” although currently only Hawaii and Arizona do not observe daylight saving time.

          In 1973 and 1974, during the oil embargo crisis, the United States briefly experimented with year-round daylight saving time as a way to save energy.  Congress passed the Emergency Daylight Saving Time Energy Conservation Act of 1973, Pub. L. No. 93-182, 87 Stat. 707.  The experiment was short-lived, however.  The next year, Congress passed legislation, returning the nation to standard time during the winter months.

          Most recently, Congress extended summer daylight saving time observance by four weeks, as part of the Energy Policy Act of 2005 (codified as amended at 15 U.S.C. § 260a (Supp. V 2007)).  Americans now “spring forward” on the second Sunday of March, and “fall back” on the first Sunday of November.  The goal of this extension was to save energy – the American Council for an Energy-Efficient Economy estimated at the time that expanded daylight saving time would save $4.4 billion and would reduce carbon emissions by 10.8 million metric tons by 2020.

 Cost-Benefit Analysis:  Extending Daylight Saving Time

          Congress should restore year-round daylight saving time.  Permanently shifting our clocks forward by one hour would give us an additional hour of afternoon sunlight during winter months, adding an additional hour of darkness during the morning.  Although we all would prefer a policy that accrues benefits without costs, there are only so many hours of sunlight each day.  Ultimately, the advantages of an additional hour of daylight in the evening outweigh the disadvantages of dark mornings, for several reasons.

 1.   Year-Round Daylight Saving Time Saves Lives

          Not surprisingly, darkness increases the risk of fatal motor-vehicle and pedestrian accidents.  During dark winter months, only one commute can be in daylight in most areas of the country.  Observing standard time during the winter usually means a morning commute in daylight, and an evening commute in darkness.  In contrast, observing daylight saving time during the winter would mean an evening commute in daylight, and a morning commute in darkness.  This begs the question:  How can we best spend our limited daylight hours during these months?

          Studies show that year-round daylight saving time would result in significant net decreases in fatal motor-vehicle and pedestrian accidents.  Fatal accidents are much more likely during the evening commute, due to a variety of factors – drivers on their way home are tired, some have alcohol in their bloodstream, and the rush hour is longer and more irregular than the morning commute.  As a result, the number of lives that would be saved during an evening commute in daylight outweighs the number of lives that would be lost if the morning commute were in darkness.  This is confirmed by a recent study by Rutgers University professors Douglas Coate and Sara Markowitz, which found that winter daylight saving time would produce a thirteen-percent net decrease in pedestrian fatalities, and a three-percent net decrease in motor vehicle occupant fatalities – representing nearly 400 lives saved each year nationwide.

 2.   Year-Round Daylight Saving Time Saves Energy

          Daylight saving time’s energy saving effect is much more difficult to quantify than its effect on motor-vehicle and pedestrian fatalities.  That said, winter daylight saving time would likely accrue significant benefits in terms of energy savings.

          Daylight saving time saves energy by reducing evening peak electricity loads.  Two factors cause “peaks” in electricity usage.  First, a peak in demand occurs due to sunset and falling temperatures.  Second, a peak in demand occurs when individuals commute home from work – electricity use increases in homes as offices are still using energy to complete their operations.  By extending daylight into the evening, winter daylight saving time would allow the peak caused by individuals commuting home to precede the peak caused by sunset and falling temperatures, slightly reducing total energy usage on balance (because it would prevent an unnecessarily pronounced evening peak load, which strains energy sources).

          In 2001, a study by the California Energy Commission found that winter daylight saving time would produce a 3.4% net decrease in electricity usage during those months.  The Commission concluded that year-round daylight saving time would save Californians between $100 million and $350 million each year.

 3.   Year-Round Daylight Saving Time Has the Potential to Reduce Crime

          In addition to saving lives and energy costs, year-round daylight saving time has the potential to reduce total criminal activity as well, for two reasons.  First, several British and American studies show that improved lighting reduces crime.  A systematic analysis by researchers in Britain’s Home Office showed a twenty percent decrease in crime in areas with improved street lighting.

          Additionally, incident rates for several crimes are low during morning hours and spike during the late afternoon and evening – for these crimes, time of day appears to be one of the most significant factors.  For example, recent research by Marcus Felson and Erika Poulsen demonstrates that individuals are much more likely to be victims of robbery during the afternoon and evening, rather than during the morning.  Similar patterns exist for several other crimes, including assault, larceny, motor vehicle theft, and juvenile crime.

          Thus, during winter months, it makes sense to allocate sparse daylight hours to the late afternoon and evening.  Criminals apparently wake up late and stay up late.  Extending daylight saving time to winter months has the potential to reduce crime by shifting sunlight to the time of day when it is needed most.

 Conclusion

          Yes, Americans do not like waking up in the dark, and do not like commuting in the dark.  But this is a small price to pay for the benefits of year-round daylight saving time – the saving of lives, the conservation of energy, and the reduction of crime.  For these reasons, it’s time to permanently “spring forward” to daylight saving time.

 For more on the costs and benefits of daylight saving time, read Prof. Buehler’s article, “Time Well Spent: An Economic Analysis of Daylight Saving Time Legislation,” co-authored with University of Washington School of Law professor Steve Calandrillo, and published in 2008 in the Wake Forest Law Review.

Sharon Foster, Associate Professor of Law at the University of Arkansas

By Professor Sharon Foster

          On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173).  This legislation, in response to the financial crisis of 2008, is intended to do many things; however, what it does not do is eliminate the systemic financial service institutions that were the core cause of the financial crisis.  Generally speaking, a systemic financial service institution is a combination commercial bank and investment bank that is deemed to create domestic and possibly international economic instability in the event of its failure (too-big-to-fail.)  Prior to the financial crisis of 2008, financial institutions with a combination of assets, leverage and interconnectedness in excess of 18.97% of combined United States gross domestic product (“GDP”) and United States banking assets were deemed too big to fail.  This was the case with Continental Illinois in 1984.  During the financial crisis of 2008, some of the financial service institutions deemed too big to fail exceeded one hundred percent of the combined GDP and United States banking assets.

          According to a preliminary staff report recently submitted to the Financial Crisis Inquiry Commission (FICI),  entitled Governmental Rescues of “Too-Big-to-Fail” Financial Institutions (dated August 31, 2010) the Federal Deposit Corporation Insurance Improvement Act of 1991 (“FDICIA”) originally enacted to limit the scope and effect of previous too-big-to-fail bail-outs, in particular barring the FDIC from approving a transaction that protected uninsured depositors or other uninsured creditors, included a “systemic risk” exception.  This “systemic risk” exception allows the FDIC to protect uninsured depositors and creditors of a failing bank in order to avoid “serious adverse effects on economic conditions or financial stability.” (See 12 USC 1823(c)(4)(G)(i).)  While prior to the financial crisis of 2008 experts debated whether this codification of too-big-to-fail would reduce or increase bail-outs, the FICI staff report makes it clear that after its enactment, financial service institutions that were believed by the market to be too-big-to-fail enjoyed enhanced competitive advantages.  Specifically, bond investors reacted less to a negative credit ratings change for a financial service institution believed to be too-big-to-fail.  Additionally, financial service institutions believed to be too-big-to-fail were given a ratings bonus in terms of ratings upgrades by the rating agencies.  This ratings bonus amounted to a substantial subsidy to these institutions in terms of reduced funding costs because of lower rates paid on bonds and other rating sensitive products.  Further, some experts argued that too-big-to-fail financial service institutions have a competitive advantage because they were allowed to operate with lower equity rations and could pay lower interest rates on their domestic deposit accounts.  Finally, the report references a study that indicates that in a merger context, acquiring banks were willing to pay a significant bonus to target bank shareholders when the acquisition would result in a too-big-to-fail financial service institution.

          So what does the Dodd-Frank Wall Street Reform and Consumer Protection Act do to address the problem of too-big to-fail?  It manages systemic financial service institutions through possible enhanced capital requirements and reduced leverage rations, although the legislation leaves the requirements open to regulations.  For example, Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act allows the Board of Governors of the Federal Reserve to establish “risk-based capital requirements and leverage limits.”  Further, there is a three to five year transition period for most of the enhanced supervision under this section.

          Theoretically, enhanced capital and reduced leverage should go a long way to reduce the possibility of the failure of a systemic financial service institution or, at least, reduce the cost if one does fail.  But we have learned from the not too distant past that much of this will depend upon the ultimate regulations promulgated, real and effective regulatory oversight, and the elimination of the all too frequent hubris that we have mastered the market and no longer need to be diligent with regulatory oversight.  Interestingly, the Dodd-Frank Wall Street Reform and Consumer Protection Act seems to anticipate future hubris.

          The two main banking law provisions relied upon by the government to bail-out systemic financial service institutions, 12 USC 1823(c)(4)(G)(i) and 12 USC 343, remain the law with little to no revision.  The Dodd-Frank Wall Street Reform and Consumer Protection Act leaves intact the systemic risk exception in 12 USC 1823(c)(4)(G)(i).  As for 12 USC 343, this is the provision relied on by the Federal Reserve to provide liquidity for failing systemic financial service institutions during the 2008 financial crisis.  Prior to the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act the pertinent language read:

          In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 357 of this title, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual or a partnership or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.

          As amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 USC 343 reads as follows:

(3)(a) In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 357 of this title, to discount for any participant in any program or facility with broad-based eligibility, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal reserve bank: Provided, That before discounting any such note, draft, or bill of exchange the Federal reserve bank shall obtain evidence that such participant in any program or facility with broad-based eligibility is unable to secure adequate credit accommodations from other banking institutions. All such discounts for any participant in any program or facility with broad-based eligibility shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.

(B)(i) As soon as is practicable after the date of enactment of this subparagraph, the Board shall establish, by regulation, in consultation with the Secretary of the Treasury, the policies and procedures governing emergency lending under this paragraph. Such policies and procedures shall be designed to ensure that any emergency lending program or facility is for the purpose of providing liquidity to the financial system, and not to aid a failing financial company, and that the security for emergency loans is sufficient to protect taxpayers from losses and that any such program is terminated in a timely and orderly fashion. The policies and procedures established by the Board shall require that a Federal reserve bank assign, consistent with sound risk management practices and to ensure protection for the taxpayer, a lendable value to all collateral for a loan executed by a Federal reserve bank under this paragraph in determining whether the loan is secured satisfactorily for purposes of this paragraph.

(ii) The Board shall establish procedures to prohibit borrowing from programs and facilities by borrowers that are insolvent. Such procedures may include a certification from the chief executive officer (or other authorized officer) of the borrower, at the time the borrower initially borrows under the program or facility (with a duty by the borrower to update the certification if the information in the certification materially changes), that the borrower is not insolvent. A borrower shall be considered insolvent for purposes of this subparagraph, if the borrower is in bankruptcy, resolution under title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any other Federal or State insolvency proceeding.

(iii) A program or facility that is structured to remove assets from the balance sheet of a single and specific company, or that is established for the purpose of assisting a single and specific company avoid bankruptcy, resolution under title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any other Federal or State insolvency proceeding, shall not be considered a program or facility with broad-based eligibility.

(iv) The Board may not establish any program or facility under this paragraph without the prior approval of the Secretary of the Treasury.

(C) The Board shall provide to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives–

(i) not later than 7 days after the Board authorizes any loan or other financial assistance under this paragraph, a report that includes–

(I) the justification for the exercise of authority to provide such assistance;

(II) the identity of the recipients of such assistance;

(III) the date and amount of the assistance, and form in which the assistance was provided; and

(IV) the material terms of the assistance, including–

(aa) duration;

(bb) collateral pledged and the value thereof;

(cc) all interest, fees, and other revenue or items of value to be received in exchange for the assistance;

(dd) any requirements imposed on the recipient with respect to employee compensation, distribution of dividends, or any other corporate decision in exchange for the assistance; and

(ee) the expected costs to the taxpayers of such assistance; and

(ii) once every 30 days, with respect to any outstanding loan or other financial assistance under this paragraph, written updates on–

(I) the value of collateral;

(II) the amount of interest, fees, and other revenue or items of value received in exchange for the assistance; and

(III) the expected or final cost to the taxpayers of such assistance.

(D) The information required to be submitted to Congress under subparagraph (C) related to–

(i) the identity of the participants in an emergency lending program or facility commenced under this paragraph;

(ii) the amounts borrowed by each participant in any such program or facility;

(iii) identifying details concerning the assets or collateral held by, under, or in connection with such a program or facility, shall be kept confidential, upon the written request of the Chairman of the Board, in which case such information shall be made available only to the Chairpersons or Ranking Members of the Committees described in subparagraph (C).

(E) If an entity to which a Federal reserve bank has provided a loan under this paragraph becomes a covered financial company, as defined in section 201 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, at any time while such loan is outstanding, and the Federal reserve bank incurs a realized net loss on the loan, then the Federal reserve bank shall have a claim equal to the amount of the net realized loss against the covered entity, with the same priority as an obligation to the Secretary of the Treasury under section 210(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

          These new provisions to 12 USC 343 in essence codify practices implemented during the financial crisis of 2008.  They may enhance transparency, they may ensure prudent practices, but they leave open the distinct possibility of future bail-outs.