Solar Flare-Up: Putting Green Lipstick on a Property Tax Pig

Hold on, hippie Democrat tree-huggers. Stop assuming a Republican-ruled Tennessee General Assembly doesn't want to "promote North American energy independence and to conserve limited natural resources." Clearly you have not read their "findings," right there in the first paragraph of SB 1000/HB 62, a business property tax bill passed by the Legislature and signed into law by Republican Gov. Bill Haslam.

The enlightened language in the bill's introduction would make it seem that this red state wants to be green, at least when it comes to tax valuation of property that generates power from renewable sources—solar panels, for example. The great green Solons declare in the bill itself that without downward valuation for tax purposes, "investment in property to generate electricity from ‘green' sources will be unreasonably discouraged, denying the citizens of Tennessee the environmental benefits associated with the greater use of these domestic renewable energy sources for power generation."

With this apparent marriage of traditional Democrat concerns for the environment with Republican concerns for low taxes, it would seem that extraordinary statesmen have gotten us all to hold hands as Tennesseans walk down the shining path of a bold new green economy.

Except that this bill, devised by Republican leaders in the state comptroller's office, just raised taxes 2,500 percent on property that generates electricity from solar, and 6,000 percent on wind sources.

Meanwhile, oil, gas, and coal-related enterprises that own certified "pollution control" property will continue to enjoy the negligible property taxation afforded by that certification, a subsidy that will no longer apply to green energy property, thanks to the above legislation.

In 2010, immersed in federal clean energy dollars from the American Recovery and Reinvestment Act, then-Gov. Phil Bredesen got religion for the economic development possibilities of renewable energy, particularly solar. One of the key green items ticked off of Bredesen's legislative agenda in that last year of his term was to include green energy property in the same low valuation/low tax category that had existed for pollution control equipment since 1985.

Although a formal 1986 attorney general opinion had questioned the constitutionality of that original law, that opinion was functionally ignored. Ever since, per the 1985 law, all manner of Tennessee industries that create air and water discharges have had the Dept. of Environment and Conservation certify their various and pricey smokestack scrubbers and water treatment equipment, in order to have their value capped at no more than .05 percent of their salvage value, for tax assessment purposes.

So in 2010, the Democratic governor invited the renewable energy industry to the pollution control tax break party, since for the previous 25 years nobody had called the cops to break it up. Then last year, holding the governor's mansion and majorities in both legislative chambers, Republicans decided to disinvite the greens.

Extraordinary statesmen were not to be found in the optics. It may have seemed to certain well-placed partisans that certain Dems had too much ill-gotten green at this party. Almost immediately after leaving the governor's mansion, Democrat Bredesen ventured into the utility-scale solar business. Speculation was perhaps unavoidable that certain Republicans, now in administrative position to engineer a clawback, may have begrudged Bredesen tailoring a parachute for a soft tax landing in his shiny new Silicon Ranch.

The next chapter was written in State Comptroller Justin Wilson's office. David Hawk in the House and Randy McNally in the Senate were dispatched to co-sponsor the 2012 bill that would do away with the .05 percent salvage value assessment for renewable energy property, replacing it with 33.33 percent of installed cost of the property. Alarm bells were sounded across the state by the Tennessee Solar Energy Industries Association (TenneSEIA), who managed to contain the fire by getting the bill sent to "summer study," giving both sides time to regroup.

The noisy and sustained blowback was an indication of how relevant the solar industry has become in the Tennessee economy, with no small aid from an array of state and federal incentives. According to GTM Research and the Tennessee Solar Institute, the state has gone from less than 1 kilowatt of installed solar photovoltaic capacity in 2008 to about 29 megawatts in 2012. There was a 60 percent increase in Tennessee's installed solar from 2011 to 2012, moving the state's rank from 22 to 16 in that category, with over 6,000 jobs in sales, supply, manufacturing, and installation.

Perceiving the bill as a serious jobs killer in an already anemic economy, a fair number of not-necessarily-Democratic solar business leaders were now up in arms, perhaps blindsiding the administration. The Office of the Comptroller appeared to run for cover behind State Attorney General Robert Cooper, who was asked to revisit the question of the constitutionality of the pollution control valuation cap. Predictably, the A.G. reaffirmed the law's sketchiness last fall. The comptroller's chief of staff, Jason Mumpower, insisted that his office was only trying to help the green energy industry by "correcting a technical matter in the tax code" while preserving some incentives for renewables.

Mr. Mumpower has been mum on whether he wants to give that same kind of help to fossil fuel-based industries with pollution control equipment. He apparently doesn't mind that dirty energy will continue to enjoy the same unconstitutional tax break that he says he worries about clean energy having. Because it's unconstitutional.

For all of the seeming injustice of getting kicked out of the pollution control party, a tax break of questionable constitutionality does reek of market risk, especially now that a spotlight is shining upon it. But along with renewed skepticism of the pollution control tax cap, Attorney General Cooper's opinion also offered a "constitutionally defensible" alternative: Since wind and solar energy property can only intermittently generate electricity, i.e. when the wind is blowing and the sun is shining, it can be rationally seen to have an intrinsically lower value than other electricity-generating property, such as a coal-fired power plant, which can operate 24/7/365.

Rather than get in a prolonged dogfight, in the end TenneSEIA decided the bottom line was the bottom line, which was already eroding due to waning investor confidence in the market, partially a result of the political uncertainty about state government attitudes and actions toward clean energy, legislative rhetoric notwithstanding.

With the output of a solar system generally estimated at 12.5 percent of its maximum generating capacity (i.e. if it could generate electricity 24/7/365), TenneSEIA negotiated a property valuation cap of 12.5 percent of installed cost. Wind remains calculated at 33.33 percent.

The solar folks bravely took their medicine and hopefully repaired to a less turbulent market, or at least one where there is less chance that "investment in property to generate electricity from ‘green' sources will be unreasonably discouraged" by reckless partisans.

Rick Held is cofounder of KEAP Green Jobs and writes for TNergyBlog (tnergyblog.blogspot.com).


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