December 5, 2011
Michigan

Area to lose major tax revenue from wind developments in 2012

By Kate Hessling, Tribune Staff Writer, Huron Daily Tribune, www.michigansthumb.com 4 December 2011

BAD AXE – County officials learned this week that the State Tax Commission lowered the amount of personal property taxes developers pay for wind developments – resulting in the area losing more than a quarter of a million dollars next year.

Huron County Board of Commissioners Chairman Ron Wruble said the news is “pretty disturbing” as local taxing units will collectively receive $267,077 less in tax revenue from the area’s two existing wind developments.

Under the old way turbines were taxed, the area would have received $913,585 from the Michigan Wind I development near Ubly and the Harvest Wind Farm near Elkton and Pigeon. Under the new system, the area will receive a grand total of $646,508 from the two existing developments.

A number of taxing units will be impacted by the decreases. (For a complete breakdown, refer to the breakout box ON PAGE 2A.)

The board of commissioners held a special meeting of the whole Friday to discuss the changes with other county officials and wind developers.

The State Tax Commission made the changes during its October meeting. However, local officials – and developers at Friday’s meeting – only learned of the changes this week.

Carl Osentoski, Huron County Economic Development Corporation (EDC) executive director, said the county inadvertently learned of the changes. He explained the county has a working agreement with Sanilac County to provide some economic development services on a part-time basis. He said the county was doing research for assessors in Sanilac County, where the Michigan Wind II wind farm currently is being developed. During that research, officials learned there was a new tax form that will impact current and new wind projects.

Wind energy systems (i.e. turbines) are classified as industrial personal property. Unlike real property, industrial personal property values are determined by their market value.

The State Tax Commission previously established a schedule where turbines were taxed at 100 percent of their value the first year of operation and then the taxable value depreciates by 5 percent each year until year 15, when they are taxed at 30 percent. After year 15, the schedule remains at 30 percent.

For example, a $4.8 million wind turbine would have had a taxable value of $2.4 million for the first year. If 20 mills were levied, the total tax revenue from the turbine for the first year would be $48,000. Each year, until year 15, the tax revenue from the turbine would decrease by 5 percent, resulting in revenue being $14,400 at year 15 and every following year.

The new depreciation schedule taxes wind turbines at 80 percent of their value the first year of operation and then bottoms out to 30 percent within five years, Osentoski said. That means if 20 mills were levied, that same $4.8 million wind turbine cited above would bring in $38,400 for the first year. Each year, the tax revenue from the turbine would decrease until it reaches $14,400 at year 5. Then, it will remain at $14,400 in year 6 and beyond.

Mike Krause, member of both the Huron County EDC Board and Thumb Regional Renewable Energy Collaborative (TRREC), crunched some numbers and found that if there were 700 turbines in Huron County, the area would lose $70 million over a 15-year time frame, because of the schedule changes.

Commissioner David Peruski, who chairs the Finance Committee, said local taxing entities will see about an average drop of about 27 percent in revenue over a wind project’s life time because of the changes.

There were multiple concerns that the changes were made without the knowledge of any local officials. Also, local officials want to know why the changes were made. Another unanswered question is who wanted the changes. It wouldn’t behoove county officials to lobby for a cut in local revenue, and wind developers at Friday’s meeting were adamant that they were not behind the changes.

Brad Lila, of RES Americas, said it only makes it harder for developers to build projects if there’s uncertainty about how much local taxing units will benefit from the project – or if they benefit less than originally anticipated. While it would save a little money, it’s not worth it because it’s such a hindrance in creating a development and having a good relationship with local communities.

Krause said the State Tax Commission can only act by fact, and he wants to see the research the commission reviewed when it made the changes. He proposed getting with other counties in Michigan that are seeing wind development activity, hire a consultant who can look at the numbers and understand the system, and then meet with the tax commission to work out a solution.

As far as overturning the tax commission’s ruling, officials said there is an avenue for appeal, but it may not correct things for 2012.

Wruble said the changes could be overturned through legislative action by the Legislature.

While those options are being explored, the majority at Friday’s meeting felt the first step that needs to be taken is determining how the changes came about.

Huron Intermediate School District Superintendent Joe Murphy said he contacted the State Tax Commission and was told the commission’s chairman received independent reports to make the changes. He said he was told the changes weren’t politically-motivated.

Murphy was the third superintendent to contact the tax commission on that particularly day regarding the changes, he said.

In terms of hiring a consultant, there’s enough people and entities affected by wind turbine tax revenue that he’s sure they would all be willing to pay to have someone keep an eye on this situation, Murphy said. Officials agreed these changes will continue to crop up in the future, and it’s important to have someone who knows how the system works and can monitor things as new changes are proposed down the road.

Commissioner John Bodis, who heads the Legislative Committee, said he spoke with 84th District State Rep. Kurt Damrow, a Huron County Republican, on Thursday night about the issue.

In an e-mail Friday, Damrow told the Tribune he learned the tax commission changed the schedule for taxing wind turbines during a meeting with representatives from the Michigan Association of Counties (MAC) and Michigan Township Association (MTA) on Thursday.

After contacting Huron County Equalization Director Walt Schlichting, Damrow made a few more calls and spent a substantial amount of time late Thursday afternoon on the phone with State Tax Commission Chairman Doug Roberts, Damrow stated.

“Mr. Roberts and I had a very thorough conversation on this subject, and I feel the legislation I have submitted, and we are currently upgrading, will be a substantial improvement and a safeguard from any thought of future loss of commercial wind turbine tax revenue,” Damrow stated. “Next week, I will meet with (Roberts), as well as several other state agencies, to review my proposal and ensure the wording meets all legal requirements. This proposal will be very beneficial to the townships that host the wind farms, county and all school students within a school district that has commercial wind, solar or biomass projects. I feel we can have the final draft submitted by the end of next week. After it is complete, I’ll meet with MAC, MTA and MML (Michigan Municipal League), as well as the governor’s office, for their input.”

Damrow stated he hoped to have this legislation completed sooner, “but it’s not always easy getting all the people you need to the table in a timely manner.”

“The positive that came out of this change is that it looks like everyone I need to speak to on the revision will be available next week to assist in the final draft,” he added.

31st District State Sen. Mike Green, a Mayville Republican, is aware of the commission’s changes and is very concerned about the ramifications it will have on residents living near wind developments, said Ryan Mitchell, Green’s communications director.

Mitchell said Green has been in discussion with local officials about the changes, and he has meetings set up next week where that will be the focus of discussion. He said the senator wasn’t made aware of the tax commission’s reasons or justification for changing the way turbines are taxed, but he will find out why the change was made.

Green, who represents Huron, Tuscola, Sanilac, Arenac and Bay counties, introduced a bill earlier this year to change the designation of wind turbines from personal property to real property. The move came after there were proposals from lawmakers in Lansing to eliminate the personal property tax. While Green opposes the personal property tax, he believes there still has to be a mechanism in place to tax wind turbines, he previously told the Tribune.

Ryan said Green introduced the bill to classify wind turbines as real property because he believes wind developments, like any other business, should be contributing to the local community.

The following taxing units/millages will lose the following revenue from wind developments in 2012, per the State Tax Commission’s changes: