WIND REVENUES BLOW INTO TAX LOOPHOLE

Texas schools get millions from wind farm deals
Danny Robbins, April 3, 2009 (AP via Houston Chronicle)

SUMMARY
Like some 65 West Texas communities newly rich in wind energy industry revenues, Sterling City has cut a deal with wind producers to protect money for its school district.

Texas has had, since 1993, a "Robin Hood" school finance plan that requires more affluent school districts to share property tax revenues with poorer school districts.

To beat the finance plan, localities (counties, communities, school districts) give wind producers big tax breaks and instead get payments, ostensibly as "finder's fees" for locating the turbines or other such "services." The deals are called payments-in-lieu-of-taxes (PILOT) agreements.

According to the AP, 44 school districts have such agreements, a transfer of ~$248 million over the coming 10 years, a cut of $700+ million in tax breaks granted wind installation operators. 21 more school districts are thought to have similar but not yet calculated deals.

Local officials want their small and often heretofore poor districts to reap the rewards of their communities’ new found wealth. Watchdog groups and those charged with enforcing the law think that just as money once flowed into disadvantaged rural school districts, it must now flow outward.

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PILOT deals are not scams. They came out of the 2001 Texas Economic Development Act allowing school districts to offer tax breaks like those offered by local governments. Under a PILOT deal's terms, full value taxes are applied for 2 two years and then reduced for the next 8 years, with a negotiated portion of the reduction going to the school district.

The deals were originally made with little scrutiny but have suddenly raised questions because the state comptroller's data, which reveals how much money is involved, was published in January.

State legislators have introduced laws to curtail PILOT deals for wind developers and have said they are “SHOCKED, ABSOLUTELY SHOCKED, to discover there is gambling at Rick’s, er, businessmen are messing with tax loopholes…”

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COMMENTARY
Texas is the U.S.’ biggest wind energy producer but the practice of using PILOT plans is widespread and the benefits that wind revenues provide for school districts has helped generate enthusiasm for wind projects in many communities.

Wind industry officials, defending the PILOT practices, say the tax breaks are what lure developers. Opponents say the West Texas winds lure the developers whereas the PILOT deals are simply “kickbacks” by any other name and cost the state billions in revenues.

Communities often use PILOT agreements when they offer tax breaks to encourage business and (especially) manufacturing development. The object is to bring jobs to the communities. The wrinkles in this case are 2: (1) There is a question of whether such agreements should apply to wind installations and (2) there is a question as to whether they should be used to skirt the “Robin Hood” school financing provision.

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Of 90 deals reviewed by the Texas comptroller, 61 related to wind projects and 23 were for manufacturing plants. The wind projects expect to create 476 jobs. The manufacturing projects expect to create 4,328 jobs.

Case study: Sterling County. 4 wind projects online, a 5th in planning. The first 4 will earn the Sterling City school district at least $47 million over 10 years. In return, the wind developers got $100+ million in tax breaks.

The district has long been rich in oil and gas, has long suffered the brunt of the "Robin Hood" plan and its superintendent, Ronnie Krejci, sees the PILOT deals as a way to finally beat “Robin Hood” for the good of his kids.

With its “wind boom” driving growth and increasing property values, the Sterling district passed an $11.2 million bond for new elementary and middle schools, a new gym and other facility improvements. If the PILOT deal money comes through, the district will up teacher salaries, upgrade technology and fund college scholarships.

It’s hard to think of anything more admirable than a parent or a teacher fighting to provide for kids. But sometimes things get a little out of control. Texas famously saw a mother kill so her daughter could make the cheerleading squad. Obviously, hat’s taking the fight too far.

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It’s time for some folks to get a little perspective before this goes any farther. OK, you found a loophole in the tax laws and made a quick buck for a good cause. But the legislature is going to close the loophole. You’re doing a good thing by building wind and you’re going to get rich for it. There’s a reason Robin Hood’s fame and glory came from robbing from the rich and giving to the poor.

It’s the same reason the hair on the back of your neck stands up when you hear the phrase “Wall Street bankers.” The last thing you need is for other folks’ hair to bristle when they hear the phrase “West Texas wind farmers.”

QUOTES
- Clint Carpenter, former school superintendent/ present professor of education, Texas Tech: "Some of these districts ... they're twice as rich as anybody else…"
- Greg Wortham, executive director, West Texas Wind Energy Consortium: "(Energy companies) don't have to be here…They're going to be anywhere the wind blows, and that covers a million square miles…[The PILOT agreement] seems like a totally reasonable thing to me…"

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- Dick Lavine, senior fiscal analyst, Public Policy Priorities: "It's the school districts giving away the state's money, and the state has nothing to say about it…"
- Greg Leroy, executive director, Good Jobs First (a federal business development monitor): "The fact that the school board gets to treat it like it's off the books and take it out of the equalization formula, we think that's a recipe for mischief…"
Robert Wood, director of local government assistance and economic development, comptroller's office: "Many, many people, including many legislators, did not know that these arrangements were commonplace…"
- State Representative Lois Kolkhorst (R-Brenham), former economic development official and author of legislation to cut off PILOT deals: "When I worked in economic development, the incentive was to get jobs, which would then fuel the economy, not some kind of off-balance sheet accounting…"
- State Representative Rene Oliveira (D-Brownsville), Chair, State House Ways and Means committee: "I didn't know I was creating a Frankenstein."
- Ronnie Krejci, superintendent, Steling City school district: "My argument, on behalf of Sterling City ISD, is we have paid our dues with `Robin Hood'…We sacrificed a beautiful landscape for wind turbines to be built…because we could see what they could do financially for this school district."