Haner: Tax Break Powers Opposition To Huge Solar Farm

By Stephen Haner

If the East Coast’s largest solar generation facility, proposed for Spotsylvania County, is rejected by its Board of Supervisors this week, one of the reasons will be the major tax advantages sought by that industry and granted by the General Assembly.

The tax exemption is at the heart of the final argument put forward by one of the opponents in Sunday’s Fredericksburg Free Lance-Star:

“Put plainly: Future tax revenues are going down, not up, if the project goes forward. A current estimate is that this $600 million project will only generate some $8 million over its lifetime and, as shown below, our current incremental expenses greatly exceed that,” wrote Alfred King, who lives in a neighboring subdivision but carefully avoids any not-in-my-backyard rhetoric.

Major Utah-based solar developer sPower has proposed three installations which total 6,350 acres, 3,500 acres of which will contain the 1.8 million panels.  The panels will cover an area one-quarter the size of Manhattan.

The county Zoning Commission supported the special use permit for only one of the smaller sections, covering 245 acres.  The entire project, if built, will produce 650 megawatts of power at peak production, and purchase agreements from Microsoft, Apple, and the University of Richmond are financing it.

If Virginia is to achieve the level of solar dependence many desire, it won’t be the only such mega-project needed. 

Opposition is fierce and got a national airing February 15 by conservative radio icon Sean Hannity, branding it as Governor Ralph Northam’s own Green New Deal. Virginia conservative activists are taking up the theme.  The fact this is a private land owner putting land to the use of their choice, normally a sacred right to conservatives, hasn’t cooled their ardor.

The company has paid for a poll that found county-wide support and hired Richmond economist Fletcher Mangum to make the economic case.  It shows more economic benefit than opponents will admit, and substantially more than leaving the land as the source of occasional timber cuts. But the impact of the special tax treatment is plain.

Mangum puts his estimate of the direct county revenue over 40 years at $18 million (current dollars), and then adjusts it for another issue important in these discussions, the impact of all the new property value on the county’s standing in the state’s school funding formula.  Using the present values and formulas, Mangum shows a potential $5 million in lost county school revenue from that.

That wrinkle has also come up before here on Bacon’s Rebellion.  The issue of the property tax exemption and the school funding composite index are linked.  The problem described by Bacon two years ago seems to have been fixed and the property value used by Mangum to judge impact on the funding formula is the same discounted value used to calculate property taxes.

Now to that. This project qualifies for an 80 percent discount on its local property tax. The land is taxed at full value, but not the equipment, which a few years ago was lumped into a state statute that originally exempted pollution control equipment for manufacturers.  Mangum assumes a taxable value of $553 million for the facility, which then immediately gets discounted to $86 million by the exemption and and other State Corporation Commission rules.

That’s another point many don’t grasp. The assessment value for solar generation equipment is set by the SCC, not the locality.  That is the case with all utilities and public service corporations, who find it highly beneficial to escape the jungle of local variations and assessors they otherwise would face.  The SCC uses a depreciation schedule that will reduce that $86 million taxable value down to less than $10 million well before the end of the facility’s useful life.

Even with the $5 million potential impact on state school allotments, the county appears to come out $13 million ahead under Mangum’s figures. There is some spinoff from the 20 long-term jobs, which will pay very well.  That is higher than the number opponents are throwing around, but over 40 years that is at best a revenue trickle for the local government.

Working backwards from Mangum’s figures, absent the exemption the county might collect $40-50 million more over the decades.  Tax it the same as manufacturing equipment, often with no depreciation, and it might be even more. And any taxes the county collects will ultimately be paid by the energy users.  The sun would shine as brightly somewhere else and the project would go there instead.

The state-mandated exemption sunsets for projects not under construction by 2024.   A 2019 bill seeking to bring that forward to 2020 was defeated. As I read it, more recent projects above 150 megawatts of power production do not get an automatic 80 percent exemption, but those below 20 megawatts get 100 percent exemption.  It’s a source of irritation to many rural local governments.

Localities also pushed this session for tighter financial protection on the back end, with bonding up front to ensure proper retirement of the plants and restoration of the property when the time comes. They got legislation laying some groundwork for that, now on the Governor’s desk, but it is far weaker than this failed version seeking a bond of $10,000 per acre. Translated to a project comparable to sPower’s, that’s $35 million or more in bonding, a serious cost.

The push back from local governments is probably just starting,

“Solar developers know this clock is ticking and are rushing to act accordingly,” a supervisor in another county told me in an email unrelated to this project.  “Local Boards of Supervisors are faced with thousands of acres of farm and forestland now transformed into a use we see as quasi-industrial with no meaningful revenue attached.”

A bit more from that email from the county supervisor, who was unclear on my using this, so no name:  “I have never had ONE constituent ask me to approve a solar project. I have had many ask me to keep the county from being covered in them.  It’s a philosophical/political mindset that an increasingly blue Commonwealth fails to grasp. Many of my constituents are perfectly content with dependable, affordable power generated by nuclear, coal, and natural gas.

“The incongruity and irony that thousands of acres of trees will be lost to solar panels isn’t lost on them.  The fact that an environmentalist will chain themselves to a tree to keep it out of a sawmill but smile joyfully while great swaths are denuded – much of it in the Bay watershed to boot – to pave the way for panels is more than a little hypocritical.”

Reprinted with permission. Stephen D. Haner is Senior Fellow for State and Local Tax Policy with the Thomas Jefferson Institute for Public Policy, and a contributor at Bacon’s Rebellion.