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I don't know if we've done anything funny enough for the beginning of the podcast.

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I mean, I don't think talking about Idaho is going to get so me any point.

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OK, so I got to know why Tito Day wasn't funny.

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No, not really.

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Welcome to County Connection, the official podcast of the Washington

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State Association of Counties, where we dive into the legislative issues

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shaping the future of our communities from budgets to public safety,

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infrastructure to elections will break down what's happening in Olympia

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and how it impacts counties from across the Evergreen State.

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Stay informed, stay engaged and join us as we amplify

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the voice of Washington's 39 counties.

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Welcome, everybody, to episode four of the County Connection podcast.

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I'm Paul Jewell, the government relations director

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with the Washington State Association of Counties.

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And we're here in Olympia to give you a rundown of what's happening

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during the legislative session. Travis, it's good to see you.

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You're our first guest on episode four.

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It's been a while since you've been on the podcast.

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How have how things been going so far?

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I mean, I'm taller than I was last time I was here.

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You look a little tall. That feels nice.

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Is it because you're standing straighter?

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Did you put lifts in your shoes?

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I don't know. I've been eating a lot of like proteins.

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So you think you grew? Yeah, I think I got I think I grew.

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That's rare at your age.

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I know, at least in an upward direction

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and sideways directions, not as rare, not so rare.

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Yeah. But yeah, it's been

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a very fast paced session. It has been. Yeah.

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Being a long session, it feels like things are moving

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at a breakneck dizzying speed.

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And a lot has happened since the last time I was here.

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Yeah, we're in the things I'm working on.

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But we're in week six.

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And you came to talk about a new bill that just dropped,

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I think, last week, if I'm not mistaken.

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And it's based on a project that you've been working a long time at. Right.

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Yeah. Why don't you give us a rundown of that? Yeah.

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So House Bill one nine six zero was dropped last week.

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It is a bill from Representative Alex Rammel.

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And it is intended to address a or address an issue

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that we've been working on for a couple of years around the shift

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of property tax burden from clean energy projects to residents.

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And that's a project that we've worked on quite a bit.

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And it's in response to the work that we've been doing

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related to clean energy and property taxes.

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The bills in response to that. Yes.

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So you kind of threw out a big concept there.

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You said it's about the shift that happens or takes place

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from clean energy projects to residents.

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I assume you mean, you know, other private property taxpayers within an area.

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You're going to you're going to have to explain that.

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That sounds like a pretty big, you know, kind of concept.

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What's the basis of that?

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How did you discover that that was the case?

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What's causing it? You know, all these I have a million questions.

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So you might as well just launch and we'll kind of go from there.

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Yeah. Well, I'll start with I discovered it

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because you told me it was a problem and that I should work on this report.

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So I was not part of the discovery team.

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However, we did work really hard on identifying the cause.

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Just to be just just to be clear, there's no like

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there was no expedition Indiana Jones style or anything like that. Right.

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We just heard from some of our members

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that they were seeing major tax increases in their counties.

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They were starting to get complaints for some of their residents.

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And it just happened to be counties that had clean energy projects

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developed in them, some of them, you know, two or three,

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but some even say four or five.

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And so we started looking into it. Right. Yeah.

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And that's how this whole thing sort of developed.

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So what did you find when you started looking into it?

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Well, we discovered was that when a clean energy project is developed,

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it adds value to a county or a taxing district, just like any new construction.

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And what's what is a clean energy project?

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A clean energy project for our purposes would be wind commercial

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or large scale wind energy projects or solar projects. OK.

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So like a big field of solar panels that's generating electricity or maybe

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I think they call them wind farms, right, where you see the big towers

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and the spinning blades and all of that.

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There's some in eastern Washington.

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There's some along the Columbia River. Yeah. Et cetera.

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So these are the types of facilities you're talking about. Yeah.

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And these are large.

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This isn't somebody's backyard solar panel or roof solar panel or

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I haven't seen any backyard wind turbines, but maybe those exist.

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But these are large commercial scale projects that are very easy

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to see from the highway. OK.

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So you you you were saying that these projects themselves,

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they're causing some sort of tax impact. Yeah.

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So that a little bit further. Yeah.

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So anytime something new is built in a county that increases

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the amount of value that the county and taxing districts

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can apply property taxes to.

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If I were to come to Paul County and build my wind farm,

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that's going to add value to the property tax rolls.

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No, you're right. That's what it's going to do.

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Yeah. It's going to add value to your property tax rolls.

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In the case of these clean energy projects, though, a lot of the value

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of my wind farm that I'm building in Paul County is tied up

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in what's known as personal property.

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So this is interesting.

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And I think we're probably going to need to explain a little bit about this.

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So you're so it sounds like this problem has to do with property taxes themselves.

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So what you're saying is project gets built into gets built in

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you know, X, Y, Z County. You call it Paul County.

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OK, we could call it Paul County, but X, Y, Z County is what I would prefer.

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And it just adds value, which adds to the overall tax base.

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You know, I think that's the term that we use when we think about

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the total property value in a particular area in a county in a taxing district.

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We call that tax base. Right.

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And so what you're saying is the value, though, is added as personal property.

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Now, I assume the next thing you were going to say was not real property,

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because there's two types of property taxes in Washington state.

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Right. Real property taxes and personal property taxes.

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Why don't you explain what the two what the two are

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and why that's an important piece of this discussion?

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I think the best example that I've been using is if you build a large

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residential development in X, Y, Z County, the value for that is tied to what's known as real property.

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So that's the actual land and the permanent structures that are built on that land,

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things that are not intended to be removed or right.

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Most people, I think most people know that right, because they get if you own a house,

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you get a property tax bill and your real property, which is your land and your house and your garage.

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All those things are taxed under that kind of real property tax. Right.

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So that's what most people are familiar with.

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And as folks that have experienced, like you just talked about,

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that the amount of property taxes you pay because it's real property

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and it tends to gain value over time, it increases over time.

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Right. Because your land, your house is getting more valuable as we move through the years.

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But what's different in clean energy projects that's different from the housing development

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that we talked about is most of that value is not tied up in the real property, the land or structures.

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It's tied up in what's called personal property.

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This is one of the things that I really struggled wrapping my head around was

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the definition of personal property are things that tend to be highly turned over.

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Think of the cars that you keep on your car lot.

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Yeah, that's a really good example. Right.

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So if I was a car dealer, my land, like my parking area, my display area, all that would be considered real property.

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My garage, my showroom, that would be all real property.

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But the vehicles that I'm selling, the inventory that I have, that's considered personal property.

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Yeah. The vehicles, your big inflatable dancing guy.

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I think that would also be personal property.

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If I were a car dealer, I'd have a few of those, obviously.

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Obviously.

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And that would definitely be considered personal property.

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But yeah, I mean, those things are I think the gist of it is, is those things turn over.

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Like you were saying, they turn over a lot, but they're also temporary.

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Right. They're not permanent.

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You could argue that a structure isn't necessarily permanent.

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You know, the useful life of a house is, say, 50 years.

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But under real property laws, it is kind of considered permanent and it is tax.

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But in this particular case, the personal property is considered impermanent.

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So how does that relate to these, say, solar farms or wind farms?

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The main difference between personal property and real property, where we talked about real property,

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your house gets more valuable, those taxes go up over time.

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Personal property is allowed to depreciate, which means you at your car lot are allowed to reduce

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the value of your inflatable dancing man or your cars.

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Cars wouldn't be a good example.

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I don't know that they're...

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The inflatable dancing man is very valuable.

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Well, it doesn't depreciate as much as the other things might because of their high value.

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All right, I'll agree to that.

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But your personal property is allowed to depreciate, which means its value goes down every year,

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which means you would pay less property taxes or less personal property taxes on that year over year

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versus a house that goes up.

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So if I'm a wind farm or I'm a solar farm, what pieces of that are considered personal property versus real property?

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This is the thing that took me the longest, maybe not the longest.

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This is the thing that took me a while to wrap my head around.

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The wind turbines, the towers, the blades, all of the parts.

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So like the big structure that actually produces the electricity, that whole thing is considered...

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... would be considered personal property.

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It's considered temporary because it's designed to be replaced at a fixed schedule.

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Interesting, okay.

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So something that is...

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And so the same thing would be true with solar panels and too.

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Same thing would be true for solar panels.

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Okay, and so this is kind of fascinating.

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If I'm thinking about how a wind farm develops, right, it could be a wheat field, it could be a forest,

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it could be grazing land, and you just kind of place these turbines.

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I assume there's a method to it based on wind currents and not interfering with each other

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and maximizing the potential for development or for electricity generation.

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The same thing for solar panels.

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But that's really...

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I mean, if you think about it, that's kind of almost the whole thing.

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It's most of it.

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In a lot of cases, this is leased land.

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So they don't even own the land.

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They literally just own the personal property that's well affixed to the ground,

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but is considered personal property because it's considered temporary,

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because it's intended to be replaced with new wind turbines or new solar panels that are better performing.

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So when you say that's the majority of the value of the project is in personal property,

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you actually mean really the vast majority of the project.

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Yeah, I don't have a specific number, and I know it varies from project to project

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because some projects own their land, some projects put buildings,

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I think the one in your county, in your actual county, in Kittitas County is a good example,

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where I think Puget Sound Energy owns that land and they own the building and the facility.

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I don't think they own it. I think they lease it.

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But they do have a service building and then they also have a visitor center too there,

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which I imagine that's not considered personal property.

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I imagine that's probably considered real property.

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But still, I mean, the wind farm is huge and I have to imagine the vast majority of the values

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and the turbines and all the appurtenances that go with that and the substation they had to build and etc. etc.

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Okay, so if they're adding this to the tax rolls as personal property,

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you mentioned you can depreciate personal property.

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So the value of that actually goes down year over year over year.

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I would assume the amount they pay in taxes then based on that value also goes down.

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Correct. Yeah, and it goes down pretty quickly.

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Their depreciation schedule takes 20 years.

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So they depreciate the value of that personal property over 20 years.

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Okay, so are these communities then, do they get this bump in taxes

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and then that actual bump in taxes that they, that new revenue they see,

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does that actually then go down year over year over year?

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So initially, it adds in some cases a considerable amount of value

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or property tax, new property tax revenue for a county, right?

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So in some cases, once a clean energy project came online and started paying property taxes,

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they almost doubled the property tax revenue that was coming in to the county and the taxing district.

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Well, that's a huge impact.

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It's a huge impact.

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And at first, that's a really great boon because of some really interesting features around property taxes,

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including new construction.

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And so that allows a taxing district to increase their taxing budgets more than the 1% limit

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because new construction has taken place.

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Something is new, has been built in your community, adding that value.

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So you're allowed to make those adjustments.

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So it's initially a big boon to the districts and the counties.

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OK.

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So I feel like we have to explain property taxes even a little bit more

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because you mentioned some key points there that are really specific to Washington state

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that if you're not up on property taxes or you haven't maybe been a longtime resident of Washington,

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you might not understand what you just said.

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Or if you don't subscribe to Property Tax Monthly magazine like I do.

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Yeah.

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That's a hot item right now.

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00:12:35,360 --> 00:12:37,560
I just want you to know, I get it for the articles.

235
00:12:37,560 --> 00:12:38,960
So I'm just saying.

236
00:12:38,960 --> 00:12:40,360
I get it for the perfume samples.

237
00:12:40,360 --> 00:12:41,560
I'm just saying.

238
00:12:41,560 --> 00:12:47,760
I really like the articles.

239
00:12:47,760 --> 00:12:50,680
So talking about property taxes, you mentioned the 1% limit.

240
00:12:50,680 --> 00:12:55,960
So just for everybody's information out there, several years ago,

241
00:12:55,960 --> 00:13:02,480
I can't even remember how many years ago, a 1% property tax growth limit was implemented in Washington state.

242
00:13:02,480 --> 00:13:13,280
What that means is that from year to year, taxing districts can only increase the revenue that they receive from year A to year B by 1%.

243
00:13:13,280 --> 00:13:17,520
Well, with a couple of exceptions, the main one being new construction.

244
00:13:17,520 --> 00:13:24,880
So new construction, say, you know, the housing development that you mentioned earlier gets built during the year.

245
00:13:24,880 --> 00:13:28,880
The next year, they can add that value onto their tax rolls.

246
00:13:28,880 --> 00:13:34,520
And what it does is it increases the overall size of the tax base.

247
00:13:34,520 --> 00:13:38,200
So say you had a $100 tax base, that'd be very low.

248
00:13:38,200 --> 00:13:44,040
But in a case where you built a really nice development, it doubled the tax base.

249
00:13:44,040 --> 00:13:46,240
Now you have a $200 tax base.

250
00:13:46,240 --> 00:13:49,440
And then you apply your tax rates to that tax base.

251
00:13:49,440 --> 00:13:50,640
And that's how you get your revenue.

252
00:13:50,640 --> 00:13:57,680
The new construction piece is kind of like how the tax revenue grows over time with population, essentially.

253
00:13:57,680 --> 00:13:59,760
That's kind of how you handle the population.

254
00:13:59,760 --> 00:14:04,960
But other than that, and some state utility valuations, you're limited to your 1%.

255
00:14:04,960 --> 00:14:17,560
Now, the ability for a county to realize a really big project like you're talking about, say, you mentioned in one particular instance, it's actually doubled their taxable value.

256
00:14:17,560 --> 00:14:23,280
Well, that's a huge change over a very short period of time.

257
00:14:23,280 --> 00:14:29,200
And so if you went from that $100 in taxable value to $200 in taxable value, in real dollars, that's not very much.

258
00:14:29,200 --> 00:14:32,480
But for our example, that's not a lot of people that want to live in Paul County, apparently.

259
00:14:32,480 --> 00:14:33,600
It's a pretty small county.

260
00:14:33,600 --> 00:14:34,920
Yeah, very small.

261
00:14:34,920 --> 00:14:36,000
A lot of public services.

262
00:14:36,000 --> 00:14:39,560
Little tiny people and just little services.

263
00:14:39,560 --> 00:14:42,320
Small, tiny little farms, little buses, things like that.

264
00:14:42,320 --> 00:14:43,160
It does take a lot.

265
00:14:43,160 --> 00:14:43,520
Yeah.

266
00:14:43,520 --> 00:14:44,000
Yeah.

267
00:14:44,000 --> 00:14:44,480
Yeah.

268
00:14:44,480 --> 00:14:48,280
You know you're thinking about it right now and you're going, wow, this is a place I think I'd like to be.

269
00:14:48,280 --> 00:14:50,840
I'm thinking, where does he get his water from for these tiny people?

270
00:14:50,840 --> 00:14:52,840
Well, you only need a drop at a time.

271
00:14:52,840 --> 00:14:53,960
I mean, think about it.

272
00:14:53,960 --> 00:14:56,400
You know, one beaker full is like a year supply.

273
00:14:56,400 --> 00:14:58,240
So do you have a sewage system?

274
00:14:58,240 --> 00:14:59,640
We don't talk about that.

275
00:14:59,640 --> 00:15:01,280
Yeah, we're not talking about that.

276
00:15:01,280 --> 00:15:03,280
Anyways, back to property taxes.

277
00:15:03,280 --> 00:15:13,600
So the idea that you could double your property tax base and get and apply your same rates to that is a huge increase in the amount of revenue that you're potentially collecting.

278
00:15:13,600 --> 00:15:25,000
So my question to you is, through the depreciation schedule, do I start out at a high level of revenue and then I just lose revenue as this project appreciates over the 20 year period?

279
00:15:25,000 --> 00:15:26,560
Is that how that actually works?

280
00:15:26,560 --> 00:15:29,200
Every year that personal property depreciates.

281
00:15:29,200 --> 00:15:39,120
Every year, let's say in Paul County, if that drops one dollar, that one dollar that the Clean Energy Project was paying the year before, but now it's depreciated.

282
00:15:39,120 --> 00:15:42,480
So let's say it's paying a dollar less in the Paul County case.

283
00:15:42,480 --> 00:15:49,200
The rest of the tiny people in Paul County have to make up for the dollar that that Clean Energy Project is no longer paying.

284
00:15:49,200 --> 00:15:57,400
So that one dollar is now spread across the rest of the people paying property taxes in that county in order to keep the district budgets whole.

285
00:15:57,400 --> 00:15:58,400
So this is interesting.

286
00:15:58,400 --> 00:16:05,800
So so what you're saying is the project is paying less, but the taxing districts themselves aren't collecting less.

287
00:16:05,800 --> 00:16:14,280
So it's not as if they start out at a high revenue and then over time, that revenue just kind of dwindles and maybe goes away or goes to a very low amount.

288
00:16:14,280 --> 00:16:16,640
What you're saying is they they still collect it.

289
00:16:16,640 --> 00:16:22,120
And and and that's got to be a function of the fact that they've added it now to their tax rolls.

290
00:16:22,120 --> 00:16:26,400
They've added that value. It's kind of like how, you know, if nothing had changed.

291
00:16:26,400 --> 00:16:30,240
And my my taxable value was one hundred dollars.

292
00:16:30,240 --> 00:16:38,600
And in, you know, X, Y, Z County, say your house burned down and so your taxable value went down to zero.

293
00:16:38,600 --> 00:16:41,600
Right. Or very low, comparatively speaking.

294
00:16:41,600 --> 00:16:47,120
But the neighbor next to you built a new house that made up for that value.

295
00:16:47,120 --> 00:16:52,440
What happens in that particular case is I'm still collecting the same amount of tax.

296
00:16:52,440 --> 00:16:54,920
But but the but the burden is actually shifting.

297
00:16:54,920 --> 00:16:57,040
You're going to pay less because your value went down.

298
00:16:57,040 --> 00:17:02,600
But the person who built the new house now has a new home at a higher value that I'll apply rates to.

299
00:17:02,600 --> 00:17:05,640
And they're going to pay higher than they would have before on an empty lot.

300
00:17:05,640 --> 00:17:11,480
So this the same as the case here is is what it sounds like is over time,

301
00:17:11,480 --> 00:17:18,520
the wind farm or the solar farm is depreciating the majority of the value of their facility

302
00:17:18,520 --> 00:17:25,360
because it's in personal property and they're allowed to do that because real property doesn't have a depreciation schedule.

303
00:17:25,360 --> 00:17:32,200
But the taxing districts themselves are allowed to still collect the revenue that they collected the year before.

304
00:17:32,200 --> 00:17:36,640
And so that tax burden is just shifting to other property taxpayers.

305
00:17:36,640 --> 00:17:38,160
Is that what you're telling me? Yes.

306
00:17:38,160 --> 00:17:45,000
Every year, because the personal property is depreciating, the clean energy projects pay less in property taxes.

307
00:17:45,000 --> 00:17:49,720
But because the districts are still going to collect all of that tax.

308
00:17:49,720 --> 00:17:51,360
Right. Plus plus more. Right.

309
00:17:51,360 --> 00:17:58,920
Plus one percent or any other new construction that's out there every year that the clean energy project pays less.

310
00:17:58,920 --> 00:18:02,440
That all just shifts over to the rest of the ratepayers in that district.

311
00:18:02,440 --> 00:18:06,360
So it could be 20 people. It could be a thousand people.

312
00:18:06,360 --> 00:18:14,120
But all of that value shifts over to the rest of the ratepayers to keep the district budgets to sustain the property tax budgets.

313
00:18:14,120 --> 00:18:17,080
So so what are we talking about here as far as depreciation?

314
00:18:17,080 --> 00:18:21,120
Are we saying so you mentioned I think you said 20 years is it is a 20 year?

315
00:18:21,120 --> 00:18:23,480
It's a 20 year depreciation schedule. OK.

316
00:18:23,480 --> 00:18:26,240
So what are we talking about as far as value goes?

317
00:18:26,240 --> 00:18:30,120
How much of the value of the project are they allowed to depreciate?

318
00:18:30,120 --> 00:18:32,920
Are we talking like 10 percent of the value?

319
00:18:32,920 --> 00:18:40,200
So it's two percent a year and nobody notices or are we talking, you know, 90 percent of the value over 20 years?

320
00:18:40,200 --> 00:18:44,200
And in that particular case, I imagine the impact could be pretty big.

321
00:18:44,200 --> 00:18:46,800
It's almost I mean, it's a majority of the value.

322
00:18:46,800 --> 00:18:50,080
I would need to look at the numbers in the paper to get an exact.

323
00:18:50,080 --> 00:18:53,240
OK, so it's not a situation schedule, but it's not like 20 percent.

324
00:18:53,240 --> 00:18:59,720
No, it's it's it's upwards of a majority of the personal property is depreciated over those 20 years.

325
00:18:59,720 --> 00:19:01,480
It's not all of it, but it's most of it.

326
00:19:01,480 --> 00:19:02,960
It's most of it. Almost all of it.

327
00:19:02,960 --> 00:19:10,760
So in the case of the county that you were talking about where their property values literally doubled because of a project

328
00:19:10,760 --> 00:19:16,160
and their revenue obviously increased significantly or, you know, maybe didn't.

329
00:19:16,160 --> 00:19:18,440
Well, it would depend on how they budgeted.

330
00:19:18,440 --> 00:19:25,160
It probably didn't increase significantly, but certainly the burden shifted dramatically between taxpayers.

331
00:19:25,160 --> 00:19:31,080
Right. Over time, almost all of that is going to if it's new revenue or if it was burdened,

332
00:19:31,080 --> 00:19:34,400
you know, if it was a sharing of the burden, it's going to shift back.

333
00:19:34,400 --> 00:19:41,320
And so property taxpayers in those areas must be pretty frustrated by this.

334
00:19:41,320 --> 00:19:44,400
I didn't interview many property taxpayers themselves.

335
00:19:44,400 --> 00:19:46,680
And in some cases, it happens incrementally.

336
00:19:46,680 --> 00:19:49,520
So it might not be something that everybody is noticing.

337
00:19:49,520 --> 00:19:51,960
Like we talked about, if it's spread out amongst a lot of people,

338
00:19:51,960 --> 00:19:56,880
it might not be something that people notice right away and slowly creeps up on them over 20 years.

339
00:19:56,880 --> 00:20:00,400
If the population, if there's fewer taxpayers in that district,

340
00:20:00,400 --> 00:20:06,880
they're likely to see larger jumps, larger increases and not necessarily be aware of why that is happening.

341
00:20:06,880 --> 00:20:11,360
Because, again, these property tax situations are complicated and elaborate.

342
00:20:11,360 --> 00:20:15,640
And not everybody's fully aware of what might be impacting their property taxes.

343
00:20:15,640 --> 00:20:18,200
So I was in some of these meetings with you, though, Travis,

344
00:20:18,200 --> 00:20:22,440
and I remember some analysis that was done by a couple of counties,

345
00:20:22,440 --> 00:20:28,200
and they were showing that in some cases, the year over year increases were, you know, hundreds of dollars

346
00:20:28,200 --> 00:20:33,200
just in property tax, just as a result of that project.

347
00:20:33,200 --> 00:20:34,560
Am I remembering that correctly?

348
00:20:34,560 --> 00:20:36,840
And in some cases that, yes, you remember correctly.

349
00:20:36,840 --> 00:20:40,880
And in some cases, that was just one of the taxing districts that they were impacted by.

350
00:20:40,880 --> 00:20:47,000
So that would be hundreds of dollars for, say, I don't want to call out a specific district if we shouldn't,

351
00:20:47,000 --> 00:20:52,160
but like, let's just say it's, you know, it's a hundred dollars so that the school district can retain their budget.

352
00:20:52,160 --> 00:20:56,400
But we're also talking about all of the other districts are going to have to adjust those as well.

353
00:20:56,400 --> 00:21:02,720
So we were seeing, you know, close to triple digit increases over the depreciation schedule on some of these properties.

354
00:21:02,720 --> 00:21:05,760
OK, so is it fair to say that no matter where you are,

355
00:21:05,760 --> 00:21:09,440
if you are in a community where a clean energy project develops,

356
00:21:09,440 --> 00:21:13,840
you are guaranteed under the current property tax laws in Washington state

357
00:21:13,840 --> 00:21:18,480
to see a significant property tax increase on your property as a direct result.

358
00:21:18,480 --> 00:21:19,360
Is that a fair statement?

359
00:21:19,360 --> 00:21:21,160
That's a fact. I would consider that a fact.

360
00:21:21,160 --> 00:21:22,000
That's a fact.

361
00:21:22,000 --> 00:21:22,760
That is a fact.

362
00:21:22,760 --> 00:21:26,920
Again, it varies based on how many people that tax burden is spread across.

363
00:21:26,920 --> 00:21:34,000
But it is a fact that your property taxes will go up if a clean energy project is cited in your county under the current structure.

364
00:21:34,000 --> 00:21:36,200
That seems remarkably unfair.

365
00:21:36,200 --> 00:21:36,760
Agreed.

366
00:21:36,760 --> 00:21:42,240
And that is what a lot of our members and a lot of the folks that we talk to throughout this project also felt.

367
00:21:42,240 --> 00:21:46,120
Do you think that's by design or do you think it's just an unintended consequence that, you know,

368
00:21:46,120 --> 00:21:52,920
people didn't necessarily foresee as they were trying to build taxing systems in Washington

369
00:21:52,920 --> 00:21:54,760
that would actually attract these projects, right?

370
00:21:54,760 --> 00:22:00,560
Because we have all kinds of policies in the state around clean energy transformation, around greenhouse gas reduction.

371
00:22:00,560 --> 00:22:09,880
Right. We just had 12 years of Governor Inslee, who really made it his kind of legacy project

372
00:22:09,880 --> 00:22:18,080
to build up our clean energy portfolio and try to make Washington a leader in climate change strategies

373
00:22:18,080 --> 00:22:25,080
and environmental mindedness from a climate change and ecosystem point of view.

374
00:22:25,080 --> 00:22:29,160
Do you think that this was by design or do you think it, like I said, was just, you know,

375
00:22:29,160 --> 00:22:32,440
something that just nobody really fully understood?

376
00:22:32,440 --> 00:22:41,120
Not knowing the intent of the original decision to charge clean energy projects as not being present

377
00:22:41,120 --> 00:22:47,720
or understanding the intent of defining wind turbines and solar panels as personal property.

378
00:22:47,720 --> 00:22:53,800
I don't know if the intent was to incentivize clean energy or if the intent was to develop an easy taxing model

379
00:22:53,800 --> 00:22:55,920
that would be straightforward.

380
00:22:55,920 --> 00:23:01,920
But my assumption is that it's maybe a mix, but my assumption is that it's largely an unintended consequence

381
00:23:01,920 --> 00:23:09,600
of trying to support clean energy, trying to assure property taxes and the values are going where they need to go.

382
00:23:09,600 --> 00:23:15,920
But I can't speak to the intent not being around when they decided that this was going to be personal property tax.

383
00:23:15,920 --> 00:23:21,560
OK. But no matter how you look at it, the result is pretty alarming.

384
00:23:21,560 --> 00:23:26,720
Yes. And I would also say that we heard from, you know, throughout this process, we talked to a lot of different states,

385
00:23:26,720 --> 00:23:33,160
as you know, Nebraska, New York, Iowa, Minnesota, Oregon, and I could just keep listing states.

386
00:23:33,160 --> 00:23:36,400
But this was not something that was solely unique to us.

387
00:23:36,400 --> 00:23:41,720
Other states had also realized that the impact of personal property taxes on clean energy projects

388
00:23:41,720 --> 00:23:46,000
were creating a shift as well and went about addressing it in different ways.

389
00:23:46,000 --> 00:23:49,280
So this is not something that is unique to Washington.

390
00:23:49,280 --> 00:23:50,600
But we just haven't dealt with it yet.

391
00:23:50,600 --> 00:23:52,640
We haven't dealt with it yet. OK. But we're going to.

392
00:23:52,640 --> 00:23:59,720
So, well, that's what kind of I want to transition to, because this was this is all encapsulated in the report that essentially you put together.

393
00:23:59,720 --> 00:24:08,400
Yes. And I know that as part of that, we also here at the association, we created a task force to dive deeper into the details,

394
00:24:08,400 --> 00:24:14,160
kind of unwrap all of these issues around property taxes and around clean energy projects.

395
00:24:14,160 --> 00:24:20,920
You know, do kind of look at the research that you did and talk directly to experts in the industry,

396
00:24:20,920 --> 00:24:26,240
environmentalists, legislators, you know, county folks, et cetera, bring them all together,

397
00:24:26,240 --> 00:24:30,880
evaluate some alternatives and come up with some ideas for solutions.

398
00:24:30,880 --> 00:24:34,880
And you completed that process right right at the end of the year, right?

399
00:24:34,880 --> 00:24:40,760
Yeah, we wrapped up in December and had brought a recommendation to the board in January.

400
00:24:40,760 --> 00:24:43,320
So we were right at the finish line of twenty twenty four.

401
00:24:43,320 --> 00:24:45,960
OK. And who participated in the process?

402
00:24:45,960 --> 00:24:49,320
We had we had really great participation in this process.

403
00:24:49,320 --> 00:24:53,160
We had elected county officials from 15 different counties,

404
00:24:53,160 --> 00:25:03,120
many of which were counties that currently host clean energy projects or have many clean energy projects planned or proposed in their county.

405
00:25:03,120 --> 00:25:09,280
This was a mix of county council members, county commissioners, county assessors, county treasurers.

406
00:25:09,280 --> 00:25:18,000
They all volunteered their time to participate in this task force, which met over seven or eight months in twenty twenty four.

407
00:25:18,000 --> 00:25:19,880
But we also had a big commitment. Yeah.

408
00:25:19,880 --> 00:25:24,280
I've added up the hours before that they've spent in meetings listening to all of this information,

409
00:25:24,280 --> 00:25:33,000
talking about solutions, really diving deep to make sure that we could confidently say what the problem was and confidently identify solutions that would work.

410
00:25:33,000 --> 00:25:34,840
They put in a lot of time. Yeah.

411
00:25:34,840 --> 00:25:37,360
And it wasn't easy for them to find that time.

412
00:25:37,360 --> 00:25:40,320
So kudos to them. Yeah. And thanks.

413
00:25:40,320 --> 00:25:45,600
You know, shout out to all those guys, men and women for their support in this process.

414
00:25:45,600 --> 00:25:49,960
We even had a member call in while they were flying an airplane over the state of Alaska,

415
00:25:49,960 --> 00:25:53,960
participated remotely from an airplane they were personally navigating.

416
00:25:53,960 --> 00:25:57,200
I can't speak to the safety of that, but it was still very cool. Is that safe?

417
00:25:57,200 --> 00:26:00,760
It was I think it was a hands free situation. Yeah.

418
00:26:00,760 --> 00:26:03,120
But it was still pretty it was a hands free airplane.

419
00:26:03,120 --> 00:26:09,280
Is that what you're saying? I don't know enough about airplanes to say if it was autopilot situation.

420
00:26:09,280 --> 00:26:16,800
I don't either. But but the other cool thing, we also had participation from a lot of folks outside of our membership and outside of county officials.

421
00:26:16,800 --> 00:26:19,880
We had state representatives and state senators participate.

422
00:26:19,880 --> 00:26:23,760
So we had state legislators participating. We had environmental groups participating.

423
00:26:23,760 --> 00:26:26,080
We had groups that represent industry.

424
00:26:26,080 --> 00:26:29,960
So clean energy, either developers or utilities participate in the process.

425
00:26:29,960 --> 00:26:33,880
And I would say that each of our meetings had well over 30 people participating.

426
00:26:33,880 --> 00:26:36,720
Sounds like a pretty diverse group. Yeah, it was very diverse.

427
00:26:36,720 --> 00:26:44,600
And it was a really great way for all of us to be able to understand the problem and the potential solutions from a lot of different perspectives.

428
00:26:44,600 --> 00:26:51,600
We also worked very closely with all of those outside stakeholders to build, say, like, what is our criteria for our final decision?

429
00:26:51,600 --> 00:26:53,880
Like, what do we want out of a final decision?

430
00:26:53,880 --> 00:27:04,560
And we I think we built really successful recommendations because we knew what our members needed, what our residents needed and what the other folks that were participating in this project needed.

431
00:27:04,560 --> 00:27:08,320
So what was the decision or recommendation of the group?

432
00:27:08,320 --> 00:27:13,840
Were you able to get them to come together to a decision? And what was that?

433
00:27:13,840 --> 00:27:20,200
We were one of the you know, the primary goal of this project was to address the property tax situation.

434
00:27:20,200 --> 00:27:28,240
OK, but we also set other criteria. And one of those was that we propose a stakeholder supported solution to the state legislature.

435
00:27:28,240 --> 00:27:37,720
And we were able to do that. And so our ultimate recommendation was to exempt clean energy projects from personal property taxes.

436
00:27:37,720 --> 00:27:47,960
So we eliminate the need for new construction and the depreciation that was causing this issue and instead apply a nameplate capacity tax to these projects.

437
00:27:47,960 --> 00:27:54,680
OK, so so that was the recommendation. So you wanted to exempt the projects from personal property taxes.

438
00:27:54,680 --> 00:28:00,640
What if what effect does that have? Is that is it so would that eliminate this?

439
00:28:00,640 --> 00:28:04,960
You wouldn't add it anymore to the tax rolls. Would that eliminate the shift possibility?

440
00:28:04,960 --> 00:28:11,240
So remember earlier we talked about that new construction that would increase that increases the taxable value of a district.

441
00:28:11,240 --> 00:28:16,240
Right. It eliminates that. It doesn't count as new construction, which means it never gets added to the tax rolls.

442
00:28:16,240 --> 00:28:20,040
OK, but they still pay, but they pay through a different mechanism.

443
00:28:20,040 --> 00:28:24,080
They pay through a different structure. And that's this nameplate capacity tax that you were talking about.

444
00:28:24,080 --> 00:28:28,480
All right. So explain explain that. What is what is nameplate capacity and how you tax it?

445
00:28:28,480 --> 00:28:39,320
Nameplate is the word that's given to the potential or the maximum amount of energy that a given clean energy project could generate if it's operating at an optimal level.

446
00:28:39,320 --> 00:28:46,200
OK, so if it were, say, running all the time at its most efficient, it could generate so much electricity.

447
00:28:46,200 --> 00:28:50,800
Yeah. Another way to put it is my nameplate bench press is a thousand pounds.

448
00:28:50,800 --> 00:28:54,480
I don't believe that I could. I could do a thousand pounds.

449
00:28:54,480 --> 00:29:00,120
I don't do anywhere near that. But my potential is a thousand if the if the wind were blowing just right.

450
00:29:00,120 --> 00:29:03,760
Exactly. And maybe somebody was also helping me out.

451
00:29:03,760 --> 00:29:06,040
And the sun was shining at exactly the right angle.

452
00:29:06,040 --> 00:29:11,040
Yeah. So the nameplate capacity is based on its maximum output under ideal situations.

453
00:29:11,040 --> 00:29:17,960
OK. So nameplate capacity, like you mentioned, is the maximum amount that the that the facility could potentially produce.

454
00:29:17,960 --> 00:29:27,400
So if I've got, say, a wind farm that's one hundred and fifty wind turbines, my nameplate capacity might be like five hundred megawatts.

455
00:29:27,400 --> 00:29:32,720
Now, I'm probably not going to produce that amount that amount on an annual, you know, year over year basis.

456
00:29:32,720 --> 00:29:36,760
But that's what my maximum could be. Why?

457
00:29:36,760 --> 00:29:41,600
So so why did you choose that and how does that work into this?

458
00:29:41,600 --> 00:29:45,080
You mentioned it's a tax. It's a new tax or an alternative tax.

459
00:29:45,080 --> 00:29:55,960
Yeah, we looked at a lot of different options. Nameplate capacity was one production tax is another one, which is similar in that it's based on a per megawatt.

460
00:29:55,960 --> 00:30:00,280
But the production tax is based on how much you actually produce.

461
00:30:00,280 --> 00:30:05,440
We looked at a lot of other models that we can talk about or are also in the report.

462
00:30:05,440 --> 00:30:13,360
And but ultimately, the nameplate capacity is the most consistent model of year over year payments.

463
00:30:13,360 --> 00:30:17,120
So there is not a lot of variation is if you're that wind product.

464
00:30:17,120 --> 00:30:18,520
Yeah, because the nameplate doesn't change.

465
00:30:18,520 --> 00:30:23,240
The nameplate doesn't change no matter how much you are producing or not producing.

466
00:30:23,240 --> 00:30:25,760
OK. So it's just an easier thing to base a tax on.

467
00:30:25,760 --> 00:30:39,240
So I assume if the nameplate capacity tax, like the rate you would charge, since it's just based on kind of this ideal situation and it's not going to happen most of the time, it's going to be a lower rate than, say, a production tax, which is based on what you actually produce.

468
00:30:39,240 --> 00:30:42,640
Right. OK. And and it's going to be steady. Right.

469
00:30:42,640 --> 00:30:49,760
It's going to be the same, like you said, year over year versus another type of tax that might actually vary from year to year or month to month or day to day.

470
00:30:49,760 --> 00:30:55,720
Yeah, the nameplate capacity will be consistent until significant changes are made to the project.

471
00:30:55,720 --> 00:31:06,160
Whereas, say, a production tax, you may have a really great year, a really great windy year that it blew at exactly the right speed and you were generating a lot of energy and you paid a good amount of taxes.

472
00:31:06,160 --> 00:31:08,200
But then you may have a really bad year the next year.

473
00:31:08,200 --> 00:31:14,840
That creates inconsistency in the taxing district's ability to budget or how much these wind projects are paying.

474
00:31:14,840 --> 00:31:18,480
So the nameplate capacity is the most consistent model that we looked at.

475
00:31:18,480 --> 00:31:22,680
OK, so what's the benefit of the nameplate capacity tax over the property tax?

476
00:31:22,680 --> 00:31:24,440
It eliminates the property tax shift.

477
00:31:24,440 --> 00:31:25,880
There's no more personal property.

478
00:31:25,880 --> 00:31:32,040
So there's no more depreciation, which means there is no more shift over to the residents or the other taxpayers in the district.

479
00:31:32,040 --> 00:31:42,080
But do the wind farms and clean energy projects, the solar farms, do they still pay like a reduced tax year over year over year or is it more of a steady kind of flat?

480
00:31:42,080 --> 00:31:46,440
The nameplate capacity tax year over year will remain the same.

481
00:31:46,440 --> 00:31:49,920
It may go up or it will go up annually based on inflation.

482
00:31:49,920 --> 00:31:58,120
But if I'm a district or a county, I can count on whatever I got last year, getting that again the next year, maybe a little bit more due to inflation.

483
00:31:58,120 --> 00:32:04,720
But it creates a scenario where the clean energy projects know what their property tax payments are going to be into moving into the future.

484
00:32:04,720 --> 00:32:10,320
And it creates a situation where the taxing districts can be confident that their revenue year over year will be the same as well.

485
00:32:10,320 --> 00:32:14,560
It may go up because of inflation, but ultimately our goal was to level out those payments.

486
00:32:14,560 --> 00:32:16,600
OK, but it eliminates the shift completely.

487
00:32:16,600 --> 00:32:17,520
It eliminates the shift.

488
00:32:17,520 --> 00:32:19,480
So that's good for the other taxpayers in the area.

489
00:32:19,480 --> 00:32:22,720
Great for the other taxpayers in the area from a property tax standpoint.

490
00:32:22,720 --> 00:32:27,440
OK, but what about the what about the taxing districts themselves, like the county, the schools, the fire districts?

491
00:32:27,440 --> 00:32:31,800
Do they get the same type of do they get the same amount of money that they would have otherwise?

492
00:32:31,800 --> 00:32:40,400
I mean, if you're starting out high and it kind of decreases over time because of depreciation, are you starting out high and it just stays high?

493
00:32:40,400 --> 00:32:45,880
Or are they kind of figuring this new taxes somewhere in the middle so that over time you get the same amount?

494
00:32:45,880 --> 00:32:47,480
Or how's that how's that work?

495
00:32:47,480 --> 00:32:52,520
There's a lot of details in the bill still to be worked out on exactly how this will work.

496
00:32:52,520 --> 00:33:00,640
But the model is intended to let's say over 20 years you pay in the in the old model over 20 years, you pay 10 million dollars as a clean energy project.

497
00:33:00,640 --> 00:33:03,720
Right. But you start out maybe high and you end up low.

498
00:33:03,720 --> 00:33:07,480
But over that whole time, 10 million dollars as an example.

499
00:33:07,480 --> 00:33:11,920
OK, under this new model, the goal is to figure out how much would you have paid over those 20 years?

500
00:33:11,920 --> 00:33:15,480
Ten million dollars. So now let's average that out over 20 years.

501
00:33:15,480 --> 00:33:17,760
So you're going to be paying the same thing every year.

502
00:33:17,760 --> 00:33:23,480
OK, so the new rate is intended to get to make sure that they pay a similar amount total.

503
00:33:23,480 --> 00:33:32,440
But it's just in a different instead of this high amount to a low amount, it's more of a consistent kind of predictable, flatter revenue stream.

504
00:33:32,440 --> 00:33:35,960
Yeah. And that was important to our stakeholders as well, because, like I said,

505
00:33:35,960 --> 00:33:40,800
we wanted to put forward something that we had consensus on with all of our stakeholders and our members.

506
00:33:40,800 --> 00:33:46,120
So making sure that they're not paying more or that counties are getting less, it was an important part of this.

507
00:33:46,120 --> 00:33:56,200
So this is a situation where clean energy projects aren't going to pay more in property tax or they're not going to pay more in nameplate capacity tax over the 20 years than they would have under the old model.

508
00:33:56,200 --> 00:34:03,000
OK. So that sounds like a win win for both the taxing districts and the projects themselves,

509
00:34:03,000 --> 00:34:10,720
but also a win for the taxpayer that kind of is in that area because they're no longer going to have this effect,

510
00:34:10,720 --> 00:34:15,680
this net effect of essentially more tax burden being forced upon them. So I guess it's a win win win.

511
00:34:15,680 --> 00:34:20,880
It's a win win win in that everybody is kept whole. Nobody's paying more.

512
00:34:20,880 --> 00:34:26,680
Nobody's getting less. And everybody involved is getting predictable, consistent payments.

513
00:34:26,680 --> 00:34:31,840
OK, so that was the recommendation that came out of the task force. You mentioned there's a bill.

514
00:34:31,840 --> 00:34:36,560
Does the bill do what the task force recommended? Mostly. OK.

515
00:34:36,560 --> 00:34:44,040
What the bill does is implements our recommendation to exempt clean energy projects from personal property taxes.

516
00:34:44,040 --> 00:34:46,640
OK, well, that sounds consistent. Right. It's a good start.

517
00:34:46,640 --> 00:34:50,840
Applies a nameplate capacity tax. Also consistent. Exactly what we wanted. Yeah.

518
00:34:50,840 --> 00:34:59,000
So it does. It addresses the shift and it addresses the primary concern that we had and what the task force was assigned to address.

519
00:34:59,000 --> 00:35:04,240
OK, there are some things that were not part of our recommendation that the bill does as well.

520
00:35:04,240 --> 00:35:12,000
We hope to continue working on a couple of those things include what types of projects this new model applies to.

521
00:35:12,000 --> 00:35:17,720
So, for example, when I talk about what type of project, I talk about existing projects or new projects.

522
00:35:17,720 --> 00:35:24,280
OK, so you're not talking about solar versus wind versus something else or big versus little or medium or whatever.

523
00:35:24,280 --> 00:35:32,440
You're talking old projects, new projects, meaning an old meaning ones that are already built and operating versus new projects that maybe haven't been constructed yet.

524
00:35:32,440 --> 00:35:37,480
Is that what you mean? Yes. OK, so there's sounds like there's a timing issue there. There's a timing issue.

525
00:35:37,480 --> 00:35:40,520
OK, so the bill is a little different than what we had recommended initially.

526
00:35:40,520 --> 00:35:48,000
Our recommendation was to apply this model to any new projects that are built any time between now and the future.

527
00:35:48,000 --> 00:35:52,440
Yeah, that's a big that's a big time period. It's not even a time period. It's just the future.

528
00:35:52,440 --> 00:36:00,320
I mean, I hope it is. I mean, we don't know. Let's hope our proposal was to apply this new model to any new projects after a certain date.

529
00:36:00,320 --> 00:36:04,400
Right. So it would just prevent that problem from even starting in the first place.

530
00:36:04,400 --> 00:36:06,840
OK, that makes sense problem in the first place. Yeah.

531
00:36:06,840 --> 00:36:10,880
The other piece that we recommended was that it applied to repowered projects.

532
00:36:10,880 --> 00:36:18,920
So what that means is if you're if you need to replace your wind turbines with more efficient ones or you need to replace your solar panels with higher performing ones,

533
00:36:18,920 --> 00:36:24,200
that's called repowering and it adds value or sort of resets a project's value.

534
00:36:24,200 --> 00:36:33,400
OK, and so our recommendation was new projects and then existing projects at the point that they refurbish them or repower them or upgrade them.

535
00:36:33,400 --> 00:36:39,440
So the existing projects would. So our recommendation was keep them under the current situation so they didn't change anything.

536
00:36:39,440 --> 00:36:48,080
But when they repowered, which which would trigger essentially a new calculation on their value, that's when they would transition to the new tax.

537
00:36:48,080 --> 00:36:52,320
But then for new projects, they would never be on the existing tax. It would only be on the new.

538
00:36:52,320 --> 00:36:55,800
So it sounds like this bill has the timing a little bit differently.

539
00:36:55,800 --> 00:37:03,000
Yeah, we ran into something that, again, was something completely new to me when we started this process around property taxes.

540
00:37:03,000 --> 00:37:07,080
And that is some constitutionality and what is known as the uniformity clause.

541
00:37:07,080 --> 00:37:14,040
And that is a limitation on or the requirement to treat similar projects the same under property tax.

542
00:37:14,040 --> 00:37:21,080
The bill applies this new model to new and existing projects, and that's created some concern for both our members,

543
00:37:21,080 --> 00:37:25,640
but also our stakeholders from the utilities or the development industry.

544
00:37:25,640 --> 00:37:28,880
It creates some significant funding challenges for them.

545
00:37:28,880 --> 00:37:33,080
But ultimately, it landed. It came from a place of it needs to be constitutional.

546
00:37:33,080 --> 00:37:36,520
The solution needs to be something that we can defend constitutionally.

547
00:37:36,520 --> 00:37:41,320
It feels like if we crack open the Constitution at this point, we're going to be here for another hour or so.

548
00:37:41,320 --> 00:37:43,360
Oh, yeah, at least.

549
00:37:43,360 --> 00:37:48,040
Yeah, that you know, when you start talking about taxes and when you start talking about property taxes and whatnot,

550
00:37:48,040 --> 00:37:53,240
you do run into some of these legal issues and some of them are embedded in the in the state constitution.

551
00:37:53,240 --> 00:37:56,000
And so you have to be really cognizant of that.

552
00:37:56,000 --> 00:37:58,600
You have to navigate through that process.

553
00:37:58,600 --> 00:38:04,760
And you don't want something that's going to violate the Constitution because then you're just back where you started.

554
00:38:04,760 --> 00:38:11,360
Well, it sounds like there's still some work to be done on this bill, even though we've got it in some ways exactly what we asked for.

555
00:38:11,360 --> 00:38:16,440
There are some things that maybe aren't exactly the way we'd want to see them.

556
00:38:16,440 --> 00:38:17,640
Has the bill had a hearing yet?

557
00:38:17,640 --> 00:38:22,880
It has not had a hearing yet. And I don't believe it has been as of the recording of this podcast.

558
00:38:22,880 --> 00:38:25,560
It has not been scheduled for a hearing either.

559
00:38:25,560 --> 00:38:30,880
But there has been a there has been a significant amount of stakeholder and engagement with legislators.

560
00:38:30,880 --> 00:38:36,560
I mean, you and I, some of our commissioners have basically run around the Capitol trying to talk to folks and keep working.

561
00:38:36,560 --> 00:38:38,960
We've definitely already been working on it for sure. Yeah. Yeah.

562
00:38:38,960 --> 00:38:40,520
OK. Well, that's good to know.

563
00:38:40,520 --> 00:38:43,720
So it sounds like there's still a long way to go on this bill and a lot of work to be done.

564
00:38:43,720 --> 00:38:47,800
So hopefully you'll bring us some you'll come back and bring us some good news at some point.

565
00:38:47,800 --> 00:38:50,720
I'm looking forward and hoping that I'll have good news in the very near future.

566
00:38:50,720 --> 00:38:54,840
All right. Take care, Travis. Thanks, Paul.

567
00:38:54,840 --> 00:38:56,920
Thanks for tuning in to County Connection.

568
00:38:56,920 --> 00:39:03,720
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569
00:39:03,720 --> 00:39:09,720
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570
00:39:09,720 --> 00:39:12,520
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