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Turbines Generate Less Revenue by Mitch Lies Capital Press, December 1, 2006

Lower assessed value of wind farms hurts county coffers

Mike McArthur, executive director of Association of Oregon Counties and a former Sherman County judge, has heard virtually no complaints in several community meetings about wind farms.

That might change, he said recently, after the state Department of Revenue lowered the assessed value of the farms as much as 30 percent - a change that is taking a sizable chunk out of county tax coffers.

"If the projects don't pay some significant amount of community fees or property taxes, then people are not going to be as pleased to see the turbines dotting the skylines and flashing their lights at night," McArthur said.

The change in assessed value, reflected in the 2006 tax rolls, more accurately represents the earning power of the wind farms, said Grant Merrill, manager of the revenue department's utility unit. Merrill said the state changed the method it uses to valuate wind farms after fielding a complaint from a wind farm company.

Under the old method, the state based value largely on capital investment - a formula, he said, that did not prove to be accurate.

"Costs don't always equal value," Merrill said, "and in this case, it's true."

The state has put more emphasis on income, or revenue flow, and less on capital investment in the new formula, he said.

Putting an inflated value on a wind farm, he said, isn't good for the farms or the counties, which could be forced to repay taxes if a company successfully appealed a valuation. "I want to make sure we have a good value on them that we can defend so we don't put our counties in that position."

Still, Umatilla County tax assessor Paul Chalmers questioned why the state revamped the formula given that no appeal had been filed.

"It seems ironic these projects have been around this long and now comes this revelation of how to value them," he said.

Chalmers said at the very least, he wished the state had given him a heads-up that it was changing the valuation so he could have told taxing districts to expect a change in revenue.

"I think there could have been a better job of communicating what was going on instead of just giving us the end result," he said. "After the fact, there has been an aggressive effort to explain the change, but there should have been a better effort up front."

The drop in valuation dramatically lowered revenue in some districts, he said. The Helix Fire District, for example, saw its property tax revenue drop from $73,500 in 2005 to $62,600 in 2006. The Helix Cemetery District lost 15 percent of its revenue as it dropped from $28,700 in 2005 to $24,400 in 2006.

Countywide, Umatilla County lost $343,500 in tax revenue as the tax bills for the county's three wind farms dropped from $1.43 million to $1.1 million.

When asked if the county would ask the state to rethink its new assessments, Umatilla County Commissioner Bill Hansell said, "We very well could. It's something we need to look at."

The state assesses the value of energy operations and industrial plants worth more than $1 million. This arrangement at times puts counties in an awkward position, Hansell said.

"They do the assessment, and we're stuck with it," he said. "Sometimes we get input, and sometimes we don't."

The good news in Umatilla County is none of its wind farms are operating under an Enterprise Zone or a Strategic Investment Program, or SIP, tax break.

In Gilliam County, depreciation combined with the new formula to lower the assessed value of its two wind farms from $47 million to $32.8 million and cost the county $170,000 in tax revenue.

Wind farms, estimated to have a life of 20 years, lose value rapidly in their first three years, Chalmers said.

Condon II, the county's most recently constructed wind farm, didn't pay any taxes last year under the three-year tax exemption the county granted when it approved the company's Enterprise Zone application. Now that it is on the tax rolls, its value has greatly depreciated.

"I would be hesitant to offer an Enterprise Zone (tax break) given the value of these farms drops substantially after three years," Chalmers said. "This change in valuation certainly might impact how counties look at the Enterprise Zone option in the future."

Union County Commissioner John Lamoreau, on the other hand, has offered a wind farm a SIP tax break and said he wouldn't hesitate to offer an Enterprise Zone tax break if that's what the company requested.

"I'm not opposed to giving them tax breaks and substantial ones," he said. "Renewable energy is good for the country, good for the environment and good for local resources."

Horizon Wind Energy, which has applied for a SIP tax break, estimated the Union County wind farm would generate up to 200 short-term construction jobs and up to 15 permanent jobs.

"Fifteen family-wage jobs here is the equivalent of 500 family-wage jobs in Portland," Lamoreau said.

Under the SIP tax break, the county will give Horizon a 15-year tax break for assessments in excess of $25 million.

Horizon is a subsidiary of the investment company Goldman Sachs. The company expects to begin building the 65-tower wind farm, called Elkhorn Wind Farm, by the end of this year and have it operating by November of next year.

The farm's initial assessed value is close to $200 million, Lamoreau said.

Even if the farm fails to add one job and even with tax breaks, Lamoreau said, wind farms generate far more revenue for the county than the farm ground they are built on would otherwise.

And, he said, property owners leasing the ground to the wind farms are pleased as punch.

"They say 'bring 'em on.' That's an incredible benefit for the people who own the land," he said.