Under a 1990 amendment to real property law known as Section 487, solar and wind facilities and certain other renewable technologies are automatically exempt from property taxes for 15 years – with two major exceptions. The first is that any municipality can opt out of the 487 exemption. The second is that municipalities that don’t opt out can require a renewable energy developer to sign a PILOT agreement. The law doesn’t specify how much the developer must pay under a PILOT except that it can’t be more than it would pay in regular taxes.
Clay, N.Y. – Officials in the town of Clay learned a costly lesson during their initial go-round with solar power developers. They failed to seek payment-in-lieu-of-tax agreements with two large solar farms, forfeiting thousands of dollars in annual revenue.
Since then, other towns have extracted serious money from solar farms on behalf of taxpayers.
In the town of Tully, three planned solar farms will pay about $430,000 each over the next 15 years under a PILOT agreement negotiated this year by town officials.
In Camillus, two planned solar farms will pay a combined $1.76 million in PILOT payments over the next 25 years.
But two solar farms in Clay – both the same size as the developments in Tully and Camillus – will pay zero for the next 15 years.
If Clay had negotiated a deal like the other towns, each of the two solar farms would pay about $28,000 a year to be divided between the town, the county and local school districts. That would total more than $800,000 over 15 years.
Town officials did not take advantage of a state law that lets municipalities demand PILOT payments from solar farms that are otherwise tax-exempt.
Supervisor Damian Ulatowski said town leaders at the time were overwhelmed by an onslaught of proposed solar farms. Developers flocked to the town for its combination of available farmland and big transmission lines.
A few months after approving two 5-megawatt solar farms in November 2019 and January 2020, the town board slammed on the brakes by calling a moratorium on solar development. Adopted in July 2020 and recently extended until September 2021, the moratorium provides breathing space for the town to develop consistent guidelines for solar, including tax issues.
Ulatowski said it did not occur to town officials to negotiate PILOT deals with the two solar farms approved before the moratorium.
“To be honest with you, they were coming at us so fast and furious, you know, we just didn’t think about it,” he said.
New York state is poised for a boom in solar power development. State officials are racing to convert the electric supply to 70% renewable energy by 2030, up from 27% now. Solar farms will play a critical part.
As developers seek out sites to build, one of the key variables is how much the solar farms will pay in property taxes or PILOTs.
Shortly after Clay approved the solar farms on Ver Plank and Morgan roads, officials from the Onondaga County Industrial Development Agency offered to negotiate PILOTs for any future projects, town officials said. By then, the first two solar farms had already secured tax-free status for any solar improvements.
The solar farm on Ver Plank Road has been built. The tax-exempt solar panels added nearly $4.8 million to the property’s full market value of $5 million, but only the $234,000 value of the land remains taxable, according to the town’s tentative 2021 assessment roll. The Morgan Road site is still vacant land.
Municipal officials have choices to make over solar tax exemptions: They can opt out of the automatic exemption, leaving the facilities fully taxable. If they don’t opt out, they can demand PILOTs. Next year, New York’s property tax regulations for renewable energy will change again, bringing new wrinkles.
“It’s a complicated thing,’’ said Warren Wheeler, executive director of the New York State Assessors Association.
Meanwhile, Clay is not the only Central New York municipality to trip over the legal technicalities.
The Dryden school district in Cortland County last year lost a three-year court battle to collect taxes from a solar farm. The case, which turned on small details, illustrates how the system works.
Renewable energy is tax-exempt, unless …
Under a 1990 amendment to real property law known as Section 487, solar and wind facilities and certain other renewable technologies are automatically exempt from property taxes for 15 years – with two major exceptions.
The first is that any municipality can opt out of the 487 exemption.
The second is that municipalities that don’t opt out can require a renewable energy developer to sign a PILOT agreement. The law doesn’t specify how much the developer must pay under a PILOT except that it can’t be more than it would pay in regular taxes.
To opt out of the 487 exemption, a municipality must notify both the state tax department and the New York State Energy Research and Development Authority, or NYSERDA. That’s where Dryden made its first mistake.
The Dryden school board decided in 2014 to opt out. The district notified the tax department but not NYSERDA. Because of that oversight, after a three-year court battle, the school district was ordered to refund the $51,000-a-year in property tax it had collected since 2017 from the Laertes Solar farm in the town of Harford.
Here’s the other detail that doomed Dryden: To require a PILOT deal, the municipality must notify the solar developer within 60 days of receiving notice of the developer’s intent to build. By the time the school district asked for a PILOT, the 60 days had expired.
Laertes Solar, assessed at $2 million, is tax exempt for 15 years.
For now, opting out of the 487 exemption – and insisting on full taxation of solar farms – tends to inhibit solar development in those areas, according to NYSERDA. But that might change under new rules that will take effect in 2022, which are expected to yield lower assessments on solar farms.
Clay opted out in October 2020 for future renewable power developments. But the two farms approved before that will keep their tax-exempt status. Several other Onondaga County towns and school districts also have opted out, according to the state tax and finance department.
How much tax should solar pay?
There’s big money behind solar farms, many of which are financed by global energy companies, investment banks or other major firms. But each development involves a mix of state, federal and local incentives that complicate the effort to appraise them for tax purposes, said Wheeler, of the state assessors group.
Developers are often willing to pay hefty sums to lease property from landowners, especially for sites that are within shouting distance of high-voltage transmission lines.
The town of Camillus recently leased out an old landfill for $1,500 an acre per year for a solar farm. The rate was consistent with the prices developers are paying to local farmers, said Dirk Oudemool, Camillus town attorney.
That means a farmer who leases out a 35-acre field, the typical size for a 5-megawatt solar farm, can make $50,000 a year without lifting a finger. That’s well above the going rate for farmland, Oudemool said.
“I have farmland I rent, and I get spit for it,’’ he said.
The 487 tax exemption applies to the value added by the solar farm. Even with the exemption in place, the landowner remains responsible for taxes on the pre-existing assessment (in most cases, for the land.)
For municipalities that want to negotiate PILOTs with solar developers, NYSERDA, the state energy authority, provides suggested payment rates designed to balance the needs of solar farms and local governments. But NYSERDA’s recommendations range widely, leaving plenty of room for negotiation.
In Central New York, NYSERDA recommends payment rates of between $1,700 and $5,100 per megawatt of capacity. For a 5-megawatt solar farm, that would mean annual payments of anywhere from $8,500 to $25,500.
‘A chance to sit back and digest’
Most local governments leave it up to their county industrial development agency to negotiate PILOTs. The Onondaga County IDA has negotiated PILOTs for at least 10 solar farms since early 2020. Typically, those deals call for payments of $3,500 to $5,500 per megawatt for 20 years or more, with increases of 2% per year.
The town of Tully, which negotiated its own 15-year deal, will get $5,000 per megawatt the first year, escalating 2% per year to $6,597 per MW in 2036.
In calculating how much of a tax break to give solar developers, local officials rely on an estimate of what the facility would pay under full taxation. To determine the value of a solar farm, most assessors currently use the cost to replace it, minus depreciation based on the age of the facility, Wheeler said.
That’s about to change.
Under a law passed this year, the state is developing a new methodology for valuing solar farms that will go into effect in 2022 and is expected to produce lower property assessments.
The new law, passed during the state budget, requires assessors to use a “discounted cash flow’’ model to assess solar and wind facilities, beginning in 2022. State officials are devising the model, which will emphasize how much solar farms can earn based on wholesale energy prices.
The new model will likely yield lower appraisals than the method assessors had been using, said Scott Shedler, legislative liaison for the New York State Assessors Association. The association opposed the legislation but is working with state officials to help develop the new model.
Shedler said he expects the new assessment formula to lower the tax burden on renewable energy. It’s another way to encourage solar development, he said.
“This is a form of tax exemption,’’ Shedler said.
In Clay, Town Supervisor Ulatowski said a committee of town leaders and others is using the moratorium period to study all the implications of solar development, from land use to taxation.
He said town officials support the state’s move toward renewable energy but want to balance it against other priorities.
“We had a chance to sit back and digest all of the parameters that one of these solar projects would entail, including these kinds of tax incentives and PILOTs as well as … everything else that goes along with putting together a good design,’’ he said.
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