Wind farm explosion causes rural tax windfalls

Private investment in wind energy is benefiting many US local governments by driving tax base growth and generating new tax revenues, particularly in rural areas, according to Moody’s Investors Service.

While 46 percent of the country’s installed wind power capacity is located in Texas, Iowa, Oklahoma and California, wind farms are becoming more prevalent and 41 states had wind farms as of January 2018.

Despite the potential impact from changing state and federal policies, demand for wind energy will likely remain strong and continue to benefit local governments nationwide, according to Moody’s.

As a growing number of coal and nuclear plants have closed their doors in recent years, wind farms have expanded throughout the country and brought financial benefits to many local governments, particularly in rural areas. Benefits include new tax revenue and a lower tax burden for existing taxpayers, with the level of benefits varying by state. As of January 1, over 400 counties in 41 states had wind farms, more than double the number of counties with wind farms 10 years ago.

Iowa, Texas, Minnesota and California are among the most active wind farm states and illustrate how local government benefits vary by state. Counties reaping the largest and most reliable benefits are allowed to apply their locally determined property tax rate to the valuation of wind turbines, as is the case in Iowa. Other counties, such as those in Minnesota, charge a tax on annual kilowatt hours of wind energy produced.

California and Texas local governments can charge locally determined property tax rates on the value of wind turbines, but their benefits are reduced due to contravening factors. Texas school districts, for example, utilize local property tax incentives that reduce a majority of their operating benefits. Despite being home to some of the largest wind farms in the country, California counties are much less affected due to the sheer size of their tax base.

Moody’s reports the following:

·      Wind farms propel tax base growth and generate new tax revenue for local governments, particularly in rural areas. Growth in the number of wind farms is a credit positive trend that has benefited over 400 counties in 41 states as of January 2018, more than double the number of counties with wind farms 10 years ago. Rural counties and school districts will continue to profit the most as wind farms tend to be located outside cities. Among Moody’s-rated local governments, some of the largest beneficiaries are Adair County, Iowa where construction of 10 new wind farms has caused the tax base to grow nearly 30 percent, Webb Consolidated Independent School District, Texas where wind farms are paying over 40 percent of the district’s debt service and Jackson County, Minnesota where a wind production tax generates nearly 20 percent of annual operating revenues.

·      Wind generation is becoming more prevalent throughout the country, especially in states with tax incentives and clean energy requirements. Texas, Iowa, Oklahoma and California maintain a large portion of the nation’s installed capacity, but states such as Kansas and Minnesota are experiencing robust growth. An abundance of wind is the primary factor in determining where wind farms are built, which is why none exist in the humid and calm Southeast, but tax incentives and clean energy requirements can drive developers to choose one windy state over another.

·      Despite looming policy changes, demand for wind energy will likely remain strong given falling prices and advances in technology. Declining capital costs, expanding state renewable portfolio standards and a growing number of corporate power purchase agreements will support demand for wind energy. The wind energy sector, however, is exposed to a number of changes in state and federal policies including a phase-out of the federal production tax credit; tariffs on imported steel, a key material used to construct wind turbines; and reduced political support for state tax incentives offered to wind energy.

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