March 30, 2015

Amid Budget Shortfalls, Kansas Legislature Considers Slashing Tax Incentives for Green Energy

Renewable energy groups say two proposals in the Kansas Legislature would threaten the young industry's existence by shortening a lifetime property tax exemption for wind and solar farms and imposing a 4.33 percent excise tax on ethanol fuel and renewable electricity.

The bills emerged in hearings Monday and Wednesday after a proposal to freeze requirements for the share of renewable electricity for the grid.

Karin Brownlee, a lobbyist for NextEra Energy who testified Wednesday before the House Taxation Committee, said the accumulating legislation "all adds up to feeling like the industry has a target on it."

The excise tax could end up costing ethanol producers an extra five to 10 cents per gallon, said Chris Standlee, executive vice president for renewable energy firm Abengoa. That would create negative profit margins and force the company to close its Colwich plant, which employs 45 people outside Wichita, Standlee said.

Mike Chisam, CEO of Kansas Ethanol, said during testimony Wednesday that the tax would be a "death sentence to the ethanol industry in Kansas" and would have severe consequences for agriculture, as the ethanol plants make fuel out of local crops and agricultural residue that farmers in the state would often be unable to sell otherwise.

Wind and solar farms receive a number of tax incentives including a lifetime exemption from Kansas property taxes since 1999, which Republican Sen. Les Donovan of Wichita said amounts to favoritism toward those companies. He has proposed shortening the exemption to 10 years from the start of their projects.
"We're not going to do anything to destroy the wind energy folks. We're fine with them," Donovan said. "But we think they should pay a fair amount like they do in other states."

Renewable energy groups have argued that because the technology is new and expensive compared to power generation from fossil fuels, tax incentives are necessary to make projects profitable enough to attract investment. And, because the technology is cleaner and more sustainable, such investments are in the long-term interests of the state.

Many wind energy developers in Kansas have signed contracts giving a share of revenue to local governments in lieu of paying property taxes, and several county representatives testified in hearings that they fear the tax changes would threaten those agreements and decrease investment in rural counties.

But Steven Anderson, a researcher with the conservative think tank Kansas Policy Institute, said in written testimony that he believes offering incentives for investing in renewable electricity is unfair and causes fossil fuel prices to be higher. The only other testimony in favor of the tax increases came from Ellsworth County appraiser Carl Miller, who testified that the informal agreements signed with local wind developers did not produce enough revenue.

But, facing a state budget shortfall of nearly $600 million in the fiscal year beginning July 1, conservatives in the Legislature who have traditionally opposed tax increases have said renewable energy is one sector they don't mind turning to for revenue.

Republican Rep. Dennis Hedke from Wichita, who chairs the House Energy and Environment Committee, said he believes wind energy in the state is "quite mature and growing at a pretty heavy pace" so its incentives should be on the table.

The Kansas Division of the Budget estimates the excise tax would bring in about $27 million per year in revenue. Meanwhile, the bill shifting the term of the property tax exemption from lifetime to 10 years would raise $4,000 in 2016, with the amount increasing as more energy plants reach the end of their 10-year exempt period. By 2025, the property taxes would generate nearly $18 million per year, most of which would fund schools.

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