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Borough talks tax exemption options following request from solar power producer

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Courtesy of Renewable IPP
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Can the Kenai Peninsula Borough grant property tax exemptions to private businesses?

It can, according to borough code, if those companies can show they are contributing to the economic development of the borough. The Kenai Peninsula Borough Finance Committee discussed its tax exemption options this week following a request from a company that wants to build Alaska’s largest solar farm to-date on the Kenai Peninsula.

The borough isn't making any decisions on a potential exemption yet. But assembly member Lane Chesley said he wanted to get the conversation started so the borough assembly knows what options it has when a business comes in with requests.

"I think as a finance committee, I’d like to see us continue to keep this on our agenda and keep working through this and struggling with some of these questions of what we might want to do or if we’re happy with what we have," he said.

The solar farm plan comes from Renewable Independent Power Producers, an Anchorage-based company that wants to build a 60,000-solar panel farm on the Kenai Peninsula.

That project would be nearly 20 times larger than the company's current farm in Willow and would cost around $30 million, said Renewable IPP CEO Jen Miller at a presentation last October. Homer Electric Association has said it would buy power from the company if it can provide the lowest rates.

But before it breaks ground, Renewable IPP is asking the borough for a property tax exemption.

Public utilities like Homer Electric Association are already tax exempt. But Renewable IPP, a private company with backing from private investors, is not.

Still, there are options. Companies that add to the economic development of the area are eligible for exemptions of up to 50 percent for no more than five years, said Borough Assessing Director Adeena Wilcox.

She said economic development is defined in borough code. 

“It means the private sector expansion that creates permanent jobs, adds to the borough’s long-term tax base and results in enhanced economic activity and quality of life for borough residents," she said.

Wilcox said the last time an entity applied for the exemption was in 2009. Businesses apply through the assessing department and are approved by the assembly.

Miller said the tax exemption is important to keep costs low for Homer Electric and its members.

But she said a 50 percent exemption might not be enough.

“It does help the economics, but we are requesting a higher percentage, just to give the project a higher chance of success," she said.

Miller's company has asked for an 80 percent exemption. And since the state’s guidelines are already more flexible, she said the borough could technically adjust its own policy. The borough said it’s limited since property tax contributes to school district funding.

There are other options available for projects under a separate set of guidelines, created by the borough in the late 1990s to encourage business development on the Kenai Peninsula. If a project qualifies under those guidelines, it could qualify for tax credits or land.

But those criteria for what constitutes economic development are stricter. For example, a project must add $10 million to the borough’s property tax base or at least 25 full-time jobs. It also cannot “take market share from existing businesses within the borough.”

Proposals for that program are reviewed by a screening team, the borough mayor and the assembly.

It’s not clear whether Renewable IPP would satisfy any of the outlined conditions. Miller said Renewable IPP is continuing to work with the borough on its options.

Separately, a committee tasked with reviewing Renewable IPP's proposal recommended to the borough that it provide tax exemptions to any independent power producer that sells energy to utilities.

The borough commissioned a study last fall from the Resilience and Securities Advisory Commission, the group that brainstorms ways to make the Kenai Peninsula Borough more sustainable. The commission said in a memo that the borough should extend the property tax exemption it has for utilities like Homer Electric to the independent power producers from which they buy electricity. 

The commission said renewable power projects can be cost competitive with Hilcorp natural gas, now responsible for about 86 percent of Homer Electric’s energy. 

But those projects are usually limited by the costs of construction, it said, and high borough property taxes are a deterrent.

"If this exemption is enacted, we anticipate that the independent power producer model could play a significant role in the future of electricity on the Kenai Peninsula, diversifying the grid and stabilizing prices through a variety of different energy technologies," the commission wrote.

The memo also notes that oversight from the Regulatory Commission of Alaska will ensure independent power producers don’t rip off ratepayers when they sign deals with the utilities.

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