Friday, October 11, 2019

Electric co-ops lobby for tax-law change to keep outside aid (for disasters, broadband, etc.) from nixing tax exemptions

Rural electric cooperatives across the country have mounted a lobbying campaign to change a part of the recent tax reform that threatens their tax-exempt status, which helps keep their rates down.

"It's our number-one issue; all hands on deck. We're doing everything we can," Jim Matheson, CEO of the National Rural Electric Cooperative Association, told the Institute for Rural Journalism and Community Issues in an interview.

Federal law has long required co-ops to get 85 percent of their income from their customer-members. Assistance from governments and other nonprofits wasn't counted in the remaining 15%, but the 2017 tax law changed that, in an effort to "end federal tax-free treatment of state incentives," reports Lydia O'Neal of Bloomberg News.

That created a problem for co-ops that need outside help to recover from disasters, expand renewable energy sources or build broadband networks, a service many of them have been moving toward. The Gulf Coast Electric Cooperative in Florida got two-fifths of its revenue from assistance to recover from Hurricane Michael, Matheson said. In New York, Otsego Electric Cooperative CEO Tim Johnson told Bloomberg that he is slowing down a broadband project to remain tax-exempt.

Otsego is in line for "nearly $4.3 million in federal funds over the next decade to extend broadband to over a thousand rural homes and businesses," Bloomberg reports. The project slowdown has to be limited because of contractual obligations, Johnson said, so its managers have "turned to debt for project financing, and found themselves having trouble paying the resulting interest," O'Neal writes.

“We see it as an economic development issue, as an existential issue,” Johnson said. “Explaining to our members that we’re going to become taxable because of the tax law is going to be a tough conversation” if the law isn't changed by the end of the year.

The conversations in Congress are favorable, with more than half of House members and 37 of the 100 senators co-sponsoring the co-ops' legislation "in a totally bipartisan way," said Matheson, who was a Democratic House member from Utah in 2001-2015. "If we get held up, it's going to be by the partisan gridlock." He said the likeliest vehicle is a bill that would extend "a number of very popular tax credits," including subsidies for wind energy, past Dec. 31.

Matheson said prospects are good, but he and co-op executives know that nothing in Congress is certain. “We’re dealing with the federal government, which is always problematic,” said Robert Cornell, manager of the Washington Island Electric Cooperative in Wisconsin, which is over the 15% limit due to state help to recover from storms, floods and the loss of its main transmission line.

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