The House Ways and Means Committee took additional testimony Wednesday regarding HB 464, which would exempt qualifying wind and solar energy facilities from property taxation for up to 20 years and to require payments in lieu of taxes on the basis of each megawatt if production capacity of such facilities.
Members heard a mix of proponent and interested party testimony, both oral and written.
Speaking as an interested party, Alan R. Rosenfield of the League of Women Voters of Ohio said the group supports both education funding and alternative energy, the latter creating a somewhat unique situation for entities dependent on local revenue.
“The loss of school property taxes from typical abatements, such as for office buildings, can be offset by income taxes generated by the employees in that building,” he said. “Renewable energy facilities apparently do not provide sufficient city income tax revenues to make up for the lost property taxes.”
Rosenfield said it could also be the case that “abatements resulting from HB464 would be used to erode the concept of making the schools whole.”
He noted, however, that as shown in White County, Indiana, wind and solar facilities can be used for educational enrichment of nearby schools.
“We believe both arguments have merit,” Rosenfield said. “Because of the potential educational benefits of renewable energy, some reduction in the estimated $40,000 unabated property tax seems reasonable.”
He said the league urged the adoption of an amendment setting an abatement level that would yield a lower reduction in school property taxes while supporting the development of wind energy in Ohio.
Dayna Baird presented proponent testimony on behalf of the American Wind Energy Association (AWEA). She said the bill mirrors the efforts of “nearly every other state” – 28, to be exact – to address wind energy taxation following passage of renewable energy standards, and that to meet the 2025 target under 127-SB221, “renewable energy developers will need to acquire project financing in the most efficient manner.”
Baird said Ohio was ranked 20th of all states in March for “good wind,” in addition to serviceable transmission lines, strong manufacturing, and a centralized licensing process through the Ohio Power Siting Board.
“However, one significant obstacle still remains for wind development,” she said. “By definition, in the Ohio Revised Code, wind projects are ‘public utilities’ despite the fact that we look very little like the traditional public utilities contemplated by the tax code when originally enacted.”
Because statute currently places most of the tax burden on capital costs rather than fuel – a major part of traditional utilities’ costs – wind energy facilities are disproportionately affected, said Baird.
“Additionally, the production capacity of traditional utilities is three times that of wind projects, providing further basis for a different renewable energy tax structure,” she said. “Simply, Ohio’s tax structure did not contemplate the ‘new world’ of renewable energy resources.”
Baird said tax attorneys retained by AWEA found the projected tax burden in Ohio to be $40,000 per megawatt, compared to $10,000 in Illinois – currently considered the highest in the region – to $4,500 in Pennsylvania, considered the lowest.
“That puts the tax burden for wind energy projects in Ohio anywhere between three and 10 times our neighboring states.”
She said although Ohio will become the first state to require tax abated-wind projects to meet specific job creation targets, developers are “confident” of their projections.
“JEDI modeling for the six projects currently pending at the Power Siting Board translates to over 700 construction and operations and management jobs, and thousands more induced and indirect jobs.”
On a final note, Baird asked the committee to reconsider the deadlines imposed by HB464, including final certification by the Ohio Power Siting Board as of Dec. 31, 2010.
“Many years of work and tens of thousands of dollars in engineering and environmental studies precede OPSB application,” she said, indicating many projects would not meet the year-end date. She instead proposed that the siting board accept applications through Dec. 31, 2010 and issue certifications through Dec. 31, 2011, for a one-year extension.
Chairman Letson asked how many of the wind farm projects before the Ohio Power Siting Board had been approved; she said three out of a total of six.
He asked how much of the projected workforce development would be temporary construction jobs or permanent operations. She pointed to an attached chart showing 637 direct jobs in the construction phase and 71 direct jobs in the operations and maintenance stage. Indirect and “induced” jobs for each stage were 574 and 291 positions, respectively.
Rep. Winburn, one of the bill’s primary sponsors, asked about Baird’s use of the word “definitive” in describing the statutory standard for employment targets.
“Wouldn’t the model give you an approximate number of jobs?” he asked rhetorically. She responded that the numbers provided are AWEA’s best effort to meet the statutory requirement for what could only be understood as a projection.
Baird was followed in proponent testimony by Peter Endres, director of project development for juwi, based in Worrstadt, Germany, which is the parent company of JW Great Lakes Wind LLC, based in Cleveland. He said its 50 megawatt project on 3,400 acres in Hardin County is expected to create 270 jobs through all stages of construction and 14 full-time, permanent jobs, generating strong support locally.
“We believe the per-megawatt fee proposed in HB464 will not only allow us to determine our tax liability, but will provide that same transparency and consistency to our local governments and schools.”
Endres offered one caveat. “We would, however, caution that adding real property taxes to the per-megawatt fee of $6,000–8,000 in HB464 may well approach that point at which Ohio remains uncompetitive with its surrounding states.”
Rep. Stautberg asked about the large number of acres required for each of the 21 wind turbines in Hardin County.
“Why do you need so many acres for a permit, and are they taken out of production if they are in a farming area?”
Endres responded that each permit corresponds to 50-80 acres, though only slightly more than 20 acres of agricultural land are taken out of production for each permit.
He acknowledged to Rep. Boose that, to date, most of the wind turbine development and manufacturing has emerged outside of the U.S., though many companies like juwi now have full operations in the states. He added that Ohio institutions of higher learning are now developing training programs for wind engineers and technicians.
Karl Gebhardt of Paul Werth Associates followed with supporting comments on behalf of EverPower Wind Holdings Inc., which he described as the first company to apply to the Ohio Power Siting Board for a utility-scale wind energy project. He said the Champaign County project had been approved only this month and will affect six townships and four school districts.
Gebhardt noted the governor had recognized the tax difficulties faced by Ohio wind farms in this year’s State of the State address.
He said EverPower currently has three sites planned for Ohio, of which the Champaign County project will benefit its communities with $300 million in capital investment and 150 construction jobs, with all revenues divided between local governments and schools.
“This does not take into account the jobs creation component in HB464 and the fact that projects built into Ohio mean manufacturers and supply chain firms will continue to look to Ohio to site new facilities and to expand existing facilities already in Ohio,” Gebhardt said.
Members had no questions for the witness.
Barb Shaner next offered interested party testimony for the Buckeye Association of School Administrators (BASA), Ohio Association of School Business Officials, Ohio School Boards Association, Ohio Education Association, and the Ohio Federation of Teachers.
She said these groups support many provisions in the bill and the larger goal of economic development at the state and local level, with a few qualifications.
“Because HB464 will have an impact on property tax revenues for local governments and schools, we want to make sure that the local tax dollars invested will result in a good return for Ohio and for the local communities affected,” she said, noting her organizations had asked consultants from the Education Tax Policy Institute (ETPI), Bill Driscoll and Howard Fleeter of Driscoll & Fleeter, to prepare an analysis of the bill’s fiscal impact.
Their conclusions show the proposed elimination of the Utility Personal Property Tax on a per-megawatt basis under HB464 would require $17,024 of Payments in Lieu of Taxes (PILOT) to rank Ohio third among surrounding states, Shaner said, with the amount of taxes exempted less-PILOT projected at $11,977,358.00, rather than the much more substantial $36,446,669 projected in energy overhaul SB221.
“The Power Siting Board application also includes projections about indirect or induced benefits, but the ETPI analysis points out that there is no way to tie those additional returns on the tax exemption investment to those communities where the wind farms are actually located,” she said.
As a consequence, Shaner said her organizations had concluded that the proposed maximum $8,000-per-megawatt PILOT for all local governments is too low, and should instead be raised to $15,000 divided among all impacted government units. She said the groups would agree to a ceiling on such payments to ensure they did not exceed actual taxes that would be owed in a particular year.
Interested party testimony concluded with Kerinia Cusick, Ohio region lead for The Solar Alliance and director of government affairs for SunEdison.
“The solar industry is willing to meet the 80 percent local job requirement for construction and maintenance phase, and supports the $7,000/megawatt PILOT,” she said. “However, from the solar industry’s perspective, there have been two barriers to industry growth and job creation: property taxes and contracts for solar renewable energy credits.”
Cusick said the bill is “silent” on the issue of solar credits, limiting the development of projects to the 10 percent that would purportedly not require commercial financing.
She also offered two observations on the tax implications of HB464. “By applying almost all of the same requirements to the solar industry as were defined for the wind industry, the legislation is precluding the solar industry from contributing as many jobs as it could; and long-term, this legislation will largely encourage solar development just where electricity rates are the most expensive, specifically a small portion of First Energy’s territory which we believe may be centered around Toledo.”
Cusick said the bill includes two deadlines that purportedly would preclude 95 percent of potential solar jobs. He asked that the project approval deadline of September 2010 and the groundbreaking deadline of Jan. 2011 be extended to mid-2011.
She also asked that many other requirements, including emergency responder equipment and road repairs, be limited to projects of at least 2 megawatts.
Finally, Cusick asked that the minimum permanent exemption be increased from 250 kilowatts.
“If the permanent exemption was increased to 1 megawatt, the industry would be able to build projects all over the state, even where rates are lower, and the entire state would be able to benefit from solar jobs.”
The committee also accepted written interested party testimony from Lincolnview Local Schools, Crestview Local School District, and Vantage Career Center, which echoed the concerns of BASA and its peers.