MSU Solar Array Project Seeks Tax Exemption; Council Split

Monday, June 20, 2016, 9:52 am
By: 
Casandra Eriksen

 

Above: an artist’s rendering of a solar array project from the application for the tax exemption

A Michigan-based company wants to install a large solar array at MSU, and its request for a related tax exemption from the City of East Lansing is causing debate at City Council.

Council member Erik Altman told ELi that the idea for the potential solar panels started when MSU bid out a renewable energy contract. Inovateus Solar ended up winning the contract. Tj Kanczuzewski, President and CEO of Inovateus Solar, approached MSU about doing a project. Ruth Beier, also a member of Council, explained to ELi, that Kanczuzewski “was looking at different campuses [and] he approached MSU and said, ‘Here is a good place to do a project.’"

The project would involve putting solar panels on top of carports in five different parking lots: Lot 83, located on Service road between Farm Lane and Harrison Road; lot 89, located at the northwest corner of the Mount Hope highway and Farm Lane intersection; lot 91, located at the northwest corner of the Hagadorn and Service Roads intersection; lot 92, located near the northwest corner of the Service Road and Bogue Street intersection; and lot 100, located near the southwest corner of the Hagadorn and Service Roads intersection.

MSU, having a goal of transferring to 100% renewable energy, initially supported the idea of the project. But concerns arose about whether the project would be feasible if the developer had to pay the taxes ordinarily required by the City of East Lansing.

Ordinarily, the developer would have to pay “personal property taxes” on the material goods constructed in conjunction with this business in East Lansing. MSU is exempt from the tax, but private businesses operating on MSU land are not.

Beier told ELi, "So the University came to us and said, ‘Can these people please not pay taxes?’ And I said, ‘No! These people have to pay taxes, like I have to pay taxes, you have to pay taxes, everyone else has to pay taxes.’" Beier says the money would be useful to have because, among other things, East Lansing needs to pay to repair its crumbling infrastructure, estimated to be a $100 million problem.

Altman says no one had explained why Inovateus Solar didn’t factor in the taxes when they were estimating the cost of the project. Altman told ELi, “Someone didn’t do their homework.”

Altman also said, “I am focused on the cost of this project going forward.” Altman said every single developer comes before Council with the same story: that they cannot afford to pay taxes. His view is that if Council refuses to give a tax abatement, another developer who can afford the taxes will approach MSU in the future.

Beier told ELi, "With no tax break, the city would receive $222,244 in tax revenue in the first year." That amount falls over the years. The second year would bring in $189,781, and the third $167,307. By the tenth year, the tax would bring in $89,896 to the City.

However, not all of Council is against the idea of a partial tax abatement for this project. Council member Shanna Draheim told ELi, “I view this project as the definition of a win-win. MSU owns the property and pays no real property tax to any local authority. But when they put commercial and industrial equipment on their properties that are owned or leased by a 3rd party (think the restaurants in the [MSU] Union) the equipment is subject to personal property tax (PPT). Michigan used to exempt renewable energy from PPT until a few years ago and there is still considerable confusion about how to treat renewable energy under our property tax system.”

Beier notes that, "The Inovateus proposal is to pay only 20% of the taxes,” but Draheim, an expert in “green” technology, says Inovateus is asking for the large tax exemption “because the margins for making solar projects are still so slim. They project about an 8% internal rate of return over many years. East Lansing has NEVER (nor will we ever except with a project like this) received any tax revenue from these parking lots because they are MSU property.” Under this project, East Lansing will get some taxes, and a large “green” project will be accomplished.

Draheim told ELi, “Some Council or community members have suggested we just provide a small exemption. But in looking through all of the project financial pro formas and talking with several people in the solar industry, it is clear that the very tight margins on a solar project like this will require what the company has requested or something fairly close to it. Otherwise the project will not proceed.”

Draheim thinks the benefits far outweigh the costs: “So, in short, if we approve this proposed exemption our community gets 13 MW of clean renewable energy (the equivalent of 2,000 homes worth of solar) at absolutely no upfront or ongoing maintenance costs, and the City of East Lansing, our public schools and other local governments could receive a total of more than $1 million in new tax revenue over 25 years.”

Draheim added, “This project is part of a larger effort by MSU to stop using coal at the Simon Power Plant (which is a contributor to climate change as well as local health impacts such as asthma). Projects like this, and our proposed community solar at Burcham Park, help our community do our part to address climate change. They are an important part of being leaders on renewable energy in this state and help to attract business and talent to our community.”

Draheim concluded, “That is why I am supporting an abatement of the PPT that will enable this project to move forward.”

However, Beier remains skeptical that Inovateus should get a tax abatement: "Tj says he won't build the solar if we don't give him a large tax break. We hear this from every developer, and it's hard to tell if it is true or not."

When asked if she had anything else to add, Beier said, "It's an interesting political question...'cause we have a lot of residents—they're vocal [and] they say, ‘Stop giving money away to people, we have to pay our taxes.’ And then we have a lot of residents, some of them vocal, who want to be as environmentally friendly as possible. And you know, if MSU could get rid of their coal, that's huge."

The issue will come before Council again tomorrow night. The public may comment during the “public comment” portion of the agenda and may also write to Council at council@cityofeastlansing.com.