Solar Real Property Tax Increase is Simple
Mr. Anderson says he does not trust “spreadsheet math”. Let me just hit the high point of the evidence on which we are basing our calculations. Note all figures are using 2019 tax rates.
The Mason County PVA office says Mason County has 150,712 acres taxed as agricultural, and that this land has an assessed value of $119,818,147. Thus the average value per acre is $795.01.
The KY Dept of Revenue tells us they use the income approach with a 7% capital rate to access the value of a utility-scale solar acre. The income approach is a real estate valuation method that uses the annual income the property generates to estimate fair value.
To determine the assessed value using the income approach one divides the net operating income by the capitalization rate. In solar’s case, the landowner’s income is the annual lease payment.
I am using $650 lease rate for my calculations as I have personally seen some solar options with that lease rate.
$650 / 0.07 = $9,285.71 assessed value per acre
Since I have heard options with lease rates that range anywhere from $500 to $1000 per acre per year solar land could be assessed anywhere
from $500 / .07 = $7,142.88
to $1000 / .07 = $14,285.71
When solar assessments replace agricultural assessments each local tax district will apply their tax rate to the new solar assessed value per acre of $9,285, not the current average agricultural value of $795.01. Stated another way in our $650 example each tax district will receive 11.7 times more real estate tax revenue from each acre that converts to solar. Depending on the actual lease rate the range would be from 9 to 18 times the tax revenue per acre of solar versus the same acre being taxed at the agricultural rate.
No matter if you do this math with a spreadsheet, a calculator, a slide rule, or with your fingers and toes, this math is not complicated. When the appraised value goes up the tax revenue goes up by the same percentage.
The simplicity claim can not be made for the revenue available on the tangible property the solar developer will install. To avoid this complexity, I have not mentioned that income stream. If our local officials are good negotiators, the tangible property tax will contribute even more local tax revenue than the real property tax will.
If Mason County installs 6,000 acres of solar, then over 30 years, local tax districts will receive $14 million extra dollars. $14 million seemed like enough reason to not even delve into explaining the complexity of the potential tangible property tax revenue available from solar.
So you see it really is not complicated. Solar raises the assessment of the real estate it is installed on and real property taxes are calculated based on the assessed value.
Some local school administrators discount the $8.3 million our school district will receive because they say it will be offset by a drop in KY SEEK funding. While that is largely true, the KY SEEK funding does not fall from the sky. Rather we KY taxpayers have to cover that expense. Will anyone say that adding $8.3 million, to the funds KY has available to educate our children, is a bad thing?