Property Tax Assessments Could Sabotage Virginia’s Solar Industry

Outlook murky.

A quirk in the way the state treats the value of solar energy projects for tax purposes could throttle Virginia’s solar industry in its infancy, according to an analysis prepared by SolUnesco, a Reston-based developer of solar energy projects.

In theory, a major investment in solar energy should benefit the jurisdiction where the project is located by generating significant new property tax revenues. But under current practice, any gain in revenue for a locality would be more than offset by cuts in state support for public schools. If local governments calculate that solar projects will cost them revenue rather than boost their tax base, they will have a strong incentive to deny necessary permits rather than approve them.

“Bureaucratic bookkeeping might grind solar development to a halt,” states a SolUnesco white paper, “The Composite Index and How It Relates to Solar Development in Virginia.”

SolUnesco has proposed building an 11-megawatt solar facility in Albemarle County, but the county zoning code prohibits solar farms. The Board of Supervisors has asked the county planning commission to study the issue. A repeal of the restriction might encounter opposition from NIMBYs intent upon protecting the rural character of the county, as I blogged here. Albemarle’s decision could well hinge on its calculus of whether the project will benefit or hurt the county fiscally.

Under state law, solar energy projects are assessed for property tax purposes as “certified pollution control equipment.” That qualifies solar farms for an 80% reduction in property taxes. That exemption improves the economics of solar projects but it reduces the tax benefits to local governments.

By contrast, the state Department of Taxation counts the full market value of solar farms when calculating the Composite Index (CI), which is used to measure local governments’ relative fiscal health and ability to support public K-12 education. The state distributes state support for education on a sliding scale that gives a higher share to localities with a low CI (a smaller real estate tax base per capita) and a smaller share to wealthier jurisdictions. As SolUnesco summarizes: “Increased taxable property increases the Composite Index, which reduces the share paid by the state.”

So, how does that work out in practice? SolUnesco provides the hypothetical example of a solar project that creates taxable value of $100 million. Here’s how the numbers work out for a “representative county.” The county generates $80,000 in new tax revenue on $20 million of assessed value. But the county would lose $147,597 in state funding for schools based on the full $100 million added to the Composite Index. The net loss: $67,597.

If the Department of Taxation used the same value as the local government in calculating the Composite Index, our hypothetical county would experience a $52,083 revenue gain.

“Counties that have permitted utility-scale projects may regret their decision if they believe these projects will result in a net revenue loss,” states the white paper “Many projects have received their county [conditional use] permit, but many have yet to file for their building, electrical and other construction permits.”

“The state is aware of this inconsistency in their treatment of tax exemptions,” says SolUnesco. The Department of Taxation, Department of Education, and the State Corporation Commission “are all working together on a resolution.”

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10 responses to “Property Tax Assessments Could Sabotage Virginia’s Solar Industry

  1. Conservation easements have had a similar impact on many rural counties; lowering property tax revenue while not increasing school funding via the composite index. But most counties have continued to support conservation easements. Since solar farms would likely bring more money into their community I imagine counties will also support them.

    Whether NIMBY’s oppose solar farms will probably have more of an impact on counties approving them.

  2. not only Conservations easements, but land-use taxation as well as real estate tax exemptions and deferrals for elderly, handicapped and veterans.

    seems like a stretch to target but one of several tax programs.. and my bet is that there are far, far more of the others than the few solar we’d see.

    Albemarle’s “reasons” are clearly for denying solar installations is a flimsy excuse that actually harms property owners rights. You have pipelines, powerlines, ski slopes, cell towers, you name it … that criss-cross the landscape.. and they’re going to pick one use to treat differently?

  3. The pollution control equipment exemption was intended to cover …. pollution control equipment. Say a blast and coat facility is required to install a dust collection system by EPA regs. The additional equipment doesn’t actually contribute to the manufacturing process, but installation is mandatory and serves a larger public purpose, so it is exempt from various property taxes. To be exempt is has to be certified by the state DEQ. As many times as I’ve heard the pollution control exemption discussed, this particular wrinkle has not come up.

    Very, very easy fix to the Code to align things and state that if an item is exempt as pollution control it should not go into the tax base used to calculate the composite index. I suspect the reason that hasn’t been done is nobody really wants to tackle the 352 other big issues around the composite index. A true fiscal Pandora’s Box.

  4. State aid for schools is intended to recognize that many rural localities don’t have a sufficient real estate tax base to support good public schools. So now with changes in technology, some rural localities are getting expensive solar farms that generate local real estate tax dollars. Isn’t that what every rural board of supervisors wants?

    But now, they want to keep the extra tax revenue but exclude it for the purpose of the LCI. That’s outrageous and blatantly unfair to the rest of the Commonwealth. If a solar farm’s tax revenues can be ignored for the LCI, why not data centers in Loudoun County? What’s the difference?

    And if you open the LCI, then it also needs to be adjusted to fully account for the differences in cost of living and the number of poor students who don’t speak English at home. This is simply outrageous.

  5. re: “outrageous” .. methinks you protest too much, TMT!

    you begrudge every little thing the rural folks can do to be able bootstrap themselves economically – and when they do that – they actually do reduce the tax burden on NoVa who is also paying for other things like MedicAid and Constitutional officers..

    Geeze guy.. are you folks up that way THAT greedy and THAT niggling, THAT petty?

    the purpose of the LCI is to insure every child gets equivalent access to an education. That concept is embodied in both the Va and the United States Constitution and essentially means the more economically prosperous areas will help out the areas less so.

    Would you rather not pay to educate those kids and instead pay welfare and MedicAid when they grow up?

    How ironic that you folks up in NoVa suck so mightily on the GOvt Teat and are so niggardly about sharing it!

    • Reduce the burden. That’s the idea behind economic development. Why do you think that when a locality adds real estate tax base such tax base should be ignored for LCI purposes? That’s your argument.

      Let’s take two rural counties side by side. Both have relatively low real estate tax bases and get big bucks under the LCI. County A gets several big solar farms and associated facilities that provide a noticeable boost to the tax base and real estate tax revenues. County B doesn’t get any solar farms. Based on your argument, County A gets both the added real estate tax revenue and the same state aid. County B doesn’t get the added real estate tax revenues, but keeps the same state aid. Is that fair? Is it fair to the residents of County B?

      The LCI has flaws, but it does change when a county or city’s real estate tax base changes measurably since the real estate tax base is a measure of ability to pay. But you seem to be arguing that if a county or city that is rural has a changed tax base and, thus, ability to pay, that factor should be ignored. That’s not fair to anyone.

      • TMT – The whole deal is a tempest over a teapot.. in terms of real impacts to the LCI … When I see a rural county hit the jackpot like Bath county did with the pumped-storage project, I’ll re-think.

        but you guys up in Nova are HYPER over this issue.. just the idea that one of those rural counties might be doing better economically sets you boys off.

        give them some time to try to get their local economies off of life support.. geeze..

        what we all need – is to get those kids the best education we can – so they can leave and go find jobs to support themselves and their families and not need welfare or MedicAid.

        we ought not be begrudging them that aid.. especially those of us who are ourselves benefitting from Govt spending also.

        Many of the rural counties in Va are in dire straights… these days and the best thing we can do is help those kids get out.

      • here’s the deal TMT:

        value of property adj gross income taxable retail sales
        Fairfax $245,519,523,863 $54,802,514,172 $14,418,135,608
        Alleghany $1,212,016,028 $ 306,357,619 $ $75,524,214
        CRAIG $ 502,981,841 $ 91,591,948 $ 13,017,480
        HIGHLAND $ 648,029,470 $ 47,187,863 $ 10,252,281

        Fairfax has 200-500 times the property value and income of these other
        counties.. and you’d begrudge them a few solar farms?

        geeze guy

        • Larry,

          Yes, the LCI formula needs to work. I don’t like it. It’s not fair to Fairfax County, but it’s the law. If a locality’s real estate tax base increases, that fact becomes reflected in the LCI.

          How do you answer my question about County A an County B? Is it fair to County B if County A gets both the solar farm taxes and an unadjusted state aid payment?

          And, sure, Fairfax County has a lot of taxable revenue. But it also has massive expenses – more than 181,000 students, with more than 25% on Free & Reduced Price Lunches. That’s more poor kids than most jurisdictions have students. And we are spending well more than $40 million annually from local money to reduce their class sizes.

          Until the law is changed, the LCI needs to be followed.

      • Well, they should fix it so it’s as fair as can be. Seems reasonable to me that State education aid should be progressive, inverse to local prosperity, however measured. But of course the formula shouldn’t penalize or favor just one industry. That said, I have little sympathy for any developer trying to locate solar projects in high-cost areas like Albemarle County. Why? What you need is cheap land and a transmission line to connect to. Albemarles’s land is not cheap and the transmission lines that exist are built up around. Try Amherst, or Buckingham, or . . . .

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