August 6, 2016
Texas

As the wind blows, Texas subsidizes school districts on tax agreements

By Asher Price - American-Statesman Staff | Austin American-Statesman | Aug. 5, 2016 | www.mystatesman.com

Beneath sprawling skies over juniper-studded hills, Kelly Yarbro, hard hat on head and pickup at hand, presides over a fleet of brand-new wind turbines tilting more than 260 feet in the air.

Logan’s Gap wind farm, about 150 miles northwest of Austin, is meant to meet a demand for clean power: The 87 Siemens turbines spread over more than 20,000 acres will produce enough electricity for 50,000 homes, according to Pattern Energy, the company that owns the farm.

“Our job is to take care of the turbines, make sure guys are working safely … and to keep the turbines up and running and produce as much as we can,” says Yarbro.

But even as it provides a boost to the tax base in Comanche County, the project comes at a cost to all Texans.

The Comanche school district agreed to give the company developing the wind project millions of dollars’ worth of tax breaks; under a 15-year-old state law meant to make Texas more competitive in recruiting such projects, the lost tax revenue will be reimbursed from state coffers.

The program, designed to attract new business to rural areas of the state, initially lured manufacturing facilities and oil export terminals. The Legislature passed the Texas Economic Development Act in 2001 because, according to the law’s advocates, the state’s heavy reliance on property taxes was making it difficult to attract large industrial projects, for which property taxes are a major expense.

But over the last decade, the focus of the program has shifted to renewable energy companies, most of them wind projects.

An American-Statesman review of such school district tax abatement deals, known as “313 agreements” for the chapter of the tax code covering them, found:

• The state is subsidizing 176 renewable energy projects, removing $7 billion from local school tax rolls, according to the Texas comptroller’s office, which oversees the program.

• Through 2013, according to the latest data available, the estimated tax benefits to renewable energy companies from the 313 agreements ran to $340 million, nearly all for wind projects. Over the lifetime of the active projects, each of which typically lasts 10 years, the tax benefit comes to $1.45 billion, according to a 2015 study by the comptroller’s office – money that the state will have to pay the school districts that awarded the tax breaks.

• Overall, solar and wind companies have pledged to create more than 1,000 jobs. But there is little real oversight of the job creation claims related to the projects – and the jobs that are created come at a far higher price than those by other economic development subsidy programs.

Texas officials say the program has been a success, creating jobs in strapped regions of the state; others call it corporate welfare, saying the relatively small number of jobs created aren’t worth the taxpayer expense.

Local officials in rural counties like Comanche, struggling for years to hold onto jobs to keep people from moving away, hail the program, even as some residents complain the gargantuan wind turbines are unsightly and noisy.

Comanche County is a pretty, empty-feeling kind of place. The population is slowly falling – its 2015 estimated population is 13,430, and the median age is about a decade older than the state average. Household income is $38,280, about $15,000 below the state average.

The relationship between Comanche and Logan’s Gap illuminates how the tax abatement program works.

When Robert Howard moved from the Midland area to become superintendent of the Comanche school district, he was eager to find ways to drum up money for the district.

“Having come from an oil patch school district to this one with very little natural resources I was struck by how limited we were by residential and agricultural use,” he said. “Those values don’t change much from year to year, and your capacity for generating new income is very limited.”

Several potential wind projects had already fallen through when Austin-based Pioneer Green Energy proposed a project and lined up landowners. Wal-Mart, which has said it would expand its clean power portfolio, signed on as a buyer of the power.

State law requires that companies qualifying for the property tax break show that they could locate elsewhere: And so at the outset of negotiations with the school district for economic incentives, Pioneer, which eventually sold the project to publicly traded, San Francisco-based Pattern Energy, observed that wind farms are being developed in at least a half-dozen states and more than 20 counties in Texas.

“The project could be sited in other states or other counties in Texas that would give the project the opportunity to maximize its return on capital investments. Securing this … agreement with Comanche ISD will help further the project’s economic viability,” the company said in a filing.

Based on preliminary figures, the state could be sending as much as $1.5 million annually to the school district as part of the agreement.

Over the first five years of operation, Pattern will contribute $100,000 to benefit the Comanche County Agency on Aging, the Salvation Army and the Comanche Youth Council, among others.

The company also agreed to cut a $130,000 check annually for the 10-year life of the program to help pay for such items as new school buses.

But even as that sounds like a goodwill gesture, Dick Lavine, who studies the school district tax breaks for the liberal Center for Public Policy Priorities, casts a leery eye.

“The companies have essentially paid school districts to give them the tax breaks,” he said.

Greg Buis, who heads Pioneer Green Energy, says the wind farm requires few county or city services, and yet “brings in permanent jobs in a cutting edge industry.”

Under state law governing the 313 agreements, each company receiving a tax break is supposed to create at least 10 jobs in rural areas. But the vast majority of renewable energy projects, which require far fewer people to operate than a manufacturing facility, have won waivers from school districts that allow them to sidestep that state requirement.

Of the 70 wind and solar school district tax agreements inked since 2014, 68 of them have won job waivers.

Logan’s Gap is one of them: It committed to creating four full-time jobs, each with an annual salary of about $40,000.

The company appears to have fulfilled that requirement: A neatly kept warehouse amid the wind farm is stocked with material to keep the turbines running around the clock, and technicians are out daily to service turbines as part of a preventive maintenance schedule. Yarbro, Pattern’s facility manager at Logan’s Gap, says a dozen people altogether are employed to keep the wind farm running.

But no one seems to be following up on the job claims. The company receiving the tax breaks is required to provide job figures to comptroller officials, who review whether those numbers meet the program’s requirements. There are penalties for failing to meet job requirements, but no one in state government is responsible for verifying the job data.

Wind power companies and local and state officials say a number of indirect jobs ripple out from the projects.

Yarbro said that during the intensive construction of the Logan’s Gap Wind Farm, which was up and running in under a year, 550 people were temporarily employed; Pattern hired local businesses where possible, for everything from John Deere equipment to office furniture.

Companies must be hired to build caliche roads across the ranches of participating landowners – who get a royalty for their cooperation.

Welders and truck drivers are employed, and even bankers benefit from the new wealth passing through the area.

But even as the program is hailed by environmentalists and pro-business groups, it has long been in the cross hairs of conservative Republicans.

A half-dozen years ago, then-Texas Comptroller Susan Combs argued the 313 agreements led the state to overpay to lure wind farms, with incentives coming to hundreds of thousands of dollars per job, by some estimates several dozen times what the state spends per job through other subsidy programs.

That argument came during a larger debate over subsidies for renewable energy – including a federal production tax credit – and how they stacked up against those for fossil fuels.

More recently, in the last legislative session, state Rep. Drew Springer, a conservative Republican who represents a rural expanse of North and West Texas that includes school districts benefiting from the program, drafted a measure that would have moved oversight of job creation from individual school districts to the Texas Economic Development and Tourism Office.

And guarding against what he said was the rapid depreciation of wind turbine values, Springer would have required school districts to recapture lost property taxes should the value of the property be less than 80 percent of its original value when the abatement ended.

As a result of the waivers, wind-based electricity generation accounts for the highest estimated gross tax benefit per committed job over the life of a project agreement, compared with other state tax incentive programs, according to one analysis by critics of the program.

And school districts have little disincentive to grant waivers to the job requirement component since they stand to get reimbursed by the state.

Springer’s bill would have made “Texas less competitive with other states, limiting our ability to attract certain types of investment,” Dale Craymer, president of the Texas Taxpayers and Research Association, told the Texas House Ways and Means Committee last year.

Jeffrey Clark, executive director of the Wind Coalition, said that for rural communities with little tax base, the wind farms are as transformational as the advent of railroads in the 19th century.

Appearing before the same Texas House committee as Craymer, Clark pointed to Oldham County, in the Panhandle, where, he says, so much of the land was under agricultural exemptions that “homeowners were left paying the bills for county government.” The launching of a wind farm, he said, nearly tripled the county’s tax base.

“It’s a tremendous economic development tool,” he said. “We want projects that pay off for districts and pay off for investors.”

In their applications to school districts, the companies routinely stress the importance of the tax breaks for their location decision.

“It’s a leap of faith,” said Kevin O’Hanlon, former general counsel for the Texas Education Agency who now negotiates for school districts. “You sit down there with a representative for a company, and he’s telling you he’s going to go to Louisiana if it doesn’t work out.”

“If they literally go to Louisiana, then I get nothing,” he said. But, he continued, if the company agrees to the tax break deal, the school district is still collecting more taxes than it would have otherwise.

Logan’s Gap will net Comanche County and local school districts about $80 million over the next quarter century, according to Pattern Energy.

O’Hanlon said that he didn’t know of an example of a proposed renewable energy project walking away and relocating to another state.

That’s because, say critics of the program, the renewable energy companies would have located in Texas anyway, even without the hefty tax breaks: Wind and solar maps show Texas as having among the most optimal conditions in the country; the state has already sunk $7 billion into transmission lines, guaranteeing highways for electrons to travel from remote areas where the wind blows to the big cities where the electricity is consumed; and the state has its own electric grid, shielding energy generating companies from competition beyond state lines.

Texas’ leads the nation in installed wind power capacity, and wind power made up about 12 percent of energy used in the state in 2015.

Lauren Willis, a spokeswoman for the comptroller’s office, said the 313 incentives are a factor but it’s hard to say what clinches a company’s decision to come to Texas.

Beyond the school district incentives, Comanche County, too, provided its own package to sweeten the pot.

Under the terms of that 10-year deal, the company agreed to create five to 10 jobs and got an 85 percent property tax abatement in exchange.

“We don’t want our residents to have to read by candlelight,” says County Judge James Arthur. “These are real clean sources of power. But of course there are a lot of people unhappy.”

Some residents of Comanche County remain roiled by the wind turbines, which they claim ruin views and property values. On the dusty county roads near the wind farms, some neighbors – ones without turbines on their property and thus not profiting from them – have posted signs complaining about the noise.

But these wind turbines have a life expectancy of at least 25 years – and after a decade the wind farm is scheduled to pay a full complement of taxes.

Stationed beneath one, Yarbro, the Logan’s Gap facilities manager, says the steady swish-swish-swish sounds to him like small waves lapping up against a shore.