OUR VIEW: Wind projects may be good candidate for tax incentivesSouth Dakota lawmakers likely will consider whether to cut taxes on future large wind-energy projects built in the state.
By: Editorial board, The Daily Republic
South Dakota lawmakers likely will consider whether to cut taxes on future large wind-energy projects built in the state.
A survey of the state Legislature showed that 37 percent of our lawmakers support reducing the tax burden on projects with merit, while 12 percent are opposed. Fifty-one percent said they are still undecided.
The survey comes on the heels of an October recommendation by a legislative task force that said the state should reduce construction taxes on wind farms. However, the panel only made the recommendation and did not determine a process to make the cuts. It also did not suggest a way to recoup the income that will be lost to the state if taxes — such as contractor’s excise taxes and sales taxes — are reduced.
We suggest the Legislature take a hard look at following through with the committee’s suggestion. The knee-jerk reaction in these cases — and these economic times — is to stymie all proposals that will take money out of the state’s general fund. It’s also tempting to consider that because we have such a large wind resource, we might be able to hold out and force wind developers to come to us.
But it’s important to consider what large wind farms bring to the state.
The new farm at White Lake includes 108 turbines that produce enough electricity to power more than 50,000 homes. It provided numerous jobs during its construction phase, with a smaller full-time force left to run the completed project. These hungry, thirsty and sleepy workers created an economic boon, not only in White Lake, but in surrounding towns as well. The property taxes paid on the land under the turbines will continue to benefit local governments for years to come.
And at a cost of $363 million, the project undoubtedly created a large and positive ripple effect on the regional economy.
Meanwhile, states with which we compete for these projects offer much more competitive tax packages.
The legislative task force reported that under current law in South Dakota, a 200-megawatt project with a price tag of $300 million would be charged $12.9 million in contractor and sales tax. The tax total could jump to $22 million after an existing tax rebate program expires in 2012.
Taxes on the same project would be $2 million in North Dakota, $2.8 million in Minnesota and $3.4 million in Iowa.
It’s obvious South Dakota can’t compete on a long-term basis, and that’s bad for economic development in this state. Cutting taxes on these projects could cost South Dakota some $70 million a year, but we feel losing out the potential economic development could be worse.
A proper balance must be struck. South Dakota needs a formula that rewards investment and thus encourages development, but at the same time isn’t so generous that it unnecessarily takes tax dollars out of the treasury that could be used for other purposes.