OKLAHOMA CITY – In just two years, a controversial tax incentive designed to lure wind developers to Oklahoma has drained nearly $45 million from state coffers – well beyond what officials predicted.
Supporters and critics of the state’s zero-emissions tax credit agree its impact will only continue to grow as developers build wind farms to meet increasing demand for renewable energy.
Oklahoma Tax Commission paid wind companies $27.3 million in cash incentives for 2013, the most recent tax year for which data are available.
That was up nearly 50 percent from the $18.2 million claimed the year before. The commission isn’t expected to finish processing claims for 2014 until next month.
Those claims far overshot the commission’s own predictions two years ago that payments would swell to $19.1 million a year by 2018.
The commission admits it had no idea how fast the industry would grow.
“When an industry really grows, and demand really grows, it’s hard to factor that in,” said spokeswoman Paula Ross.
Rick Mosier, of Claremore, a member of the group Wind Waste, thinks critics of wind-energy incentives also misjudged how fast the industry would expand.
Two years ago, the group anticipated taxpayers would ultimately pay nearly $55 million a year. Now, he said, he expects $65 million in payments for 2014.
Wind Waste members focus on what they describe as “negative impacts” of wind energy development. For several years, they have focused on the zero-emission tax credit.
“It is, pun intended, growing like the wind,” Mosier said.
Lawmakers approved the credit in 2001 in a line tacked onto a bill releasing money for boating safety, he said. The credit was designed as an incentive to spur development of renewable energy.
Businesses that qualify receive credits based on the amount of energy produced by their facilities during the first 10 years of operation. Companies take advantage by lowering their tax payments to the state, then cashing in unused credits.
For example, if a company has a $100 tax credit but only owes $50 in taxes, it can sell back the remainder of its credit, or $50 worth, to the state for 85 cents on the dollar.
The reimbursement is paid from the state’s income tax fund.
Wind Waste wants lawmakers to wrangle the credit. Legislators could cap it, like New Mexico has done, or decide the wind industry is mature and doesn’t need the incentives it once did.
Mosier said wind is the only sector in Oklahoma that gets cash from state coffers. Everyone else is limited to using rebates to reduce income taxes.
“I think it went untouched because the proponents of wind convinced the Legislature that if we didn’t have some gratuity from the state taxpayers payable to them, that they’d go build their wind farms someplace else,” he said.
Mosier said he thinks legislators didn’t know what they were in for when they approved the credits.
Rep. Earl Sears, R-Bartlesville, who wasn’t in office when the 2001 deal was struck, said he knew full well the credits would grow to their current levels. He said he believes his colleagues in the Legislature knew it, as well.
“I sometimes don’t know if they fully grasp the magnitude,” he added.
Sears, chairman of the House Appropriations and Budget committee, is currently navigating the effects of a $900.8 million shortfall as he helps draft a new state budget.
Everything is on the table as lawmakers consider ways to cover that gap, he said, though he added he is reluctant to roll back tax credits – in any industry – for which businesses made plans when deciding to come to Oklahoma.
“I mean, how do you tell someone to come back to Oklahoma and we’ll do ‘X,’ and they get here and we say, ‘Guess what, we’re taking ‘X’ away from you?’” he said. “I just can’t be part of that.”
Still, Sears said the state could adjust future credits.
The Legislature did something like that last year, when it altered two other benefits for the wind industry. Lawmakers eliminated a five-year property tax exemption for new developments, starting in 2017, and they prohibited the industry from claiming investment or job-creation tax benefits.
Jeff Clark, executive director of The Wind Coalition, an industry group that encourages wind development in the region, said eliminating the zero-emission credit would go too far.
“Removing, or altering, this credit will have a devastating affect on those developers that not only offered up their ad valorem tax exemption last year, but more importantly, relied in good faith on our state’s laws encouraging them to choose Oklahoma over neighboring states,” he said in an email.
“In addition, it would further demonstrate that our neighboring states are ‘open for business’ while Oklahoma is not,” he said.
Clark said the incentives worked as intended and helped attract wind-energy investment as Oklahoma faced “fierce” competition from wind-producing neighbors Texas and Kansas.
“State tax incentives play a huge role in allowing Oklahoma to secure their development and continue to enjoy the long-term economic benefits brought by wind energy development,” he said.
New projects are added each year, and Oklahoma now ranks fourth in its capacity for wind energy, he said. Nearly 17 percent of the state’s electricity is now generated by wind.
In the meantime, he said, the industry pumps money into rural economies.
“Like the rest of the state’s business community, we are concerned about the state’s current fiscal situation,” he said. “But, we should remember that the state’s budget deficit is driven by slumping oil prices based on factors outside of the state, not business incentives that attract new economic activity, such as wind generation, to Oklahoma.”