Wind farm tax clawback would bankrupt schools in Michigan’s ‘Thumb’
Wind turbines are often sold to rural local governments as a means of bolstering their budgets and allowing them to offer additional services for their residents or offset other taxes. However, this relationship can turn ugly.
This is the situation in Tuscola County, Michigan, where Consumers Energy is attempting to claw back tax revenues paid to the Unionville-Sebewing Area Schools. According to Michigan Live:
The rural district of about 680 students in Tuscola County is facing down a financial abyss thanks to the state’s largest energy provider, which is attempting to claw back nearly $1.2 million in disputed tax revenues levied on wind power turbines.
Officials say the case threatens to wipe out district fund balances and toss them into deficit status with the state. Jobs and programming would be cut.
“It’s essentially like bankrupting a business,” said Josh Hahn, superintendent of Unionville-Sebewing schools. “It would devastate our district.”
The clawback would affect more than just schools. It would also affect townships, libraries, the sheriff’s office, and other county programs that fund veterans services and meals for senior citizens.
The discrepancy over how much tax revenue the wind turbines generate stems back to a formula established in 2007 that set the tax liability of each turbine based on 100 percent of its value in the first year of operation, with the turbine depreciating to 30 percent by year 15.
However, a 2011 change in tax policy by the State Tax Commission reduced the initial tax liability for each wind turbine to only 80 percent in the first year and accelerated the depreciation, so the turbines reached 30 percent after six years.
Some local governments, not realizing the tax terms for the wind turbines had been changed retroactively, assessed turbines using the original calculation, leading to higher tax revenues for the government that Consumers Energy now wants to claw back.
Local governments in Minnesota should keep this experience in the back of their minds when approached by wind turbine companies, either by holding more of the revenue in escrow in case Minnesota companies attempt the same type of claw back or by speaking with their attorneys about the possibility of ensuring terms of contracts cannot be altered after the fact.