HomeMy WebLinkAbout 10/12/2011 ECONOMIC DEVELOPMENT & RENEWABLE ENERGY STRATEGIES Committee MeetingMINUTES
ECONOMIC DEVELOPMENT & RENEWABLE ENERGY STATEGIES COMMITTEE
October 12, 2011
A meeting of the Economic Development & Renewable Energy Strategies
Committee of the Council of the County of Kauai, State of Hawaii, was called to
order by Councilmember Dickie Chang, Chair, at the Council Chambers, 4396 Rice
Street, Suite 201, Lihu`e, Kauai, on Wednesday, October 12, .2011, at 10:45 a.m.,
after which the following members answered the call of the roll:
Honorable Tim Bynum
Honorable KipuKai Kuali`i
Honorable Nadine K. Nakamura
Honorable JoAnn A. Yukimura
Honorable Dickie Chang
Honorable Jay Furfaro, Ex-Officio Member
Honorable Mel Rapozo, Ex-Officio Member
The Committee proceeded on its agenda items, as shown in the following
Committee Reports which are incorporated herein ~by reference:
CR-EDR 2011-06: on EDR 2011-03
Communication (9/9/2011) from Council
Chair Furfaro, requesting the
Administration's presence to discuss Bill No.
2415, relating to Real Property Tax
Exemptions for Commercial Alternative
Energy Facilities.
[Received for the record.]
CR-EDR 2011-07: on Bill No. 2414
A BILL FOR AN ORDINANCE TO AMEND
ORDINANCE NO. B-2011-732, AS
AMENDED, RELATING TO THE
OPERATING BUDGET OF THE COUNTY
OF KAUAI, STATE OF HAWAII FOR THE
FISCAL YEAR JULY 1, 2011
THROUGH JUNE 20, 2012 BY
REVISING THE SURPLUS AND
APPROPRIATIONS ESTIMATED IN THE
GENERAL FUND ($5,600.00 -Office of the
County Clerk)
[Received for the record.]
Bill No. 2415 A BILL FOR AN ORDINANCE AMENDING CHAPTER 5A,
KAUAI COUNTY CODE 1987, AS AMENDED, RELATING TO
EXEMPTIONS FOR COMMERCIAL ALTERNATIVE ENERGY
FACILITIES
[This item was deferred.]
Committee Meeting 2 October 12, 2011
There being no objections the rules were suspended.
Chair Furfaro: Excuse Jody I know the Chairman called you
up but let me ask the Committee Chairman a question first. Is it your intention to
allow the Administration an opportunity to make a PowerPoint which they
distributed to us but the attendees have not seen? Or are you going to take public
testimony first and then.
Mr. Chang:
preference?
Well I would, George do you have any
GEORGE COSTA, DIRECTOR OF ECONOMIC DEVELOPMENT: No.
Mr. Chang: Go ahead, we'll get to his PowerPoint after if
that's fine.
Chair Furfaro: My apologies for interrupting you, I just
wanted to get some clarity from the Committee Chairman.
Mr. Chang: No problem.
JODY ALLIONE, PROJECT DEVELOPMENT DIRECTOR, PO'IPTJ SOLAR
LLC: Good Morning Councilmembers, this has
been a very interesting morning, very exciting with all the cultural
acknowledgments. Igave testimony last week October 5.
Mr. Chang: Excuse me Jody, you do have to state your
name for the record.
Ms. Allione: I did give testimony on October 4 so I won't
repeat that testimony but I would like to add a few things, clarifying and add to it if
that might be allowed.
One of the suggestions I made in that testimony was that one of the
considerations would be to consider Net Present Value of the lease rate over
twenty (20) to twenty-five (25) years. There are some issues related to that such as
confidentiality with the landlord and whatnot. So I'm just suggesting an approach if
one wanted to consider that option. That would be to, when the project was ready to
go through its appraisal process or whatever it did for considering how to set the tax
rates, that a confidentiality agreement would be executed with the Finance
Department and adequate documentation would be provided to show what the lease
payments were over the twenty (20) year term. This would allow the department to
provide a tax payment structure for the project's term of the lease. If the lessee was
unable or unwilling to provide the documentation then it could alternatively default
Committee Meeting 3 October 12, 2011
to a base rate that under no condition would be less than what it was currently.
paying under its current land designation. I'd also suggest that we have a clause
that would never allow the base rate in any case to be less than what is currently
being paid on the land that the project is located on. So that's a point of
clarification. I'd also like to bring up the fact that we keep hearing that we're asking
for tax breaks. We are not asking for a tax break on this project. We have a tax bill
that we have been currently looking at paying. Any option that this County is
looking at increases the amount of taxes that we pay and I understand that and
we're not protesting some modest increase in taxes. There are some properties on
some kinds of renewable projects that are on industrial land. This proposal suggests
that they would get a fifty percent (50%) tax break from the industrial land
designation. While that's good they're getting a tax break, but it does start to
appear to us since we are going to be appraised at that .high industrial land
designation instead of Ag that we're being asked to subsidize companies that would
be on industrial land getting a fifty percent (50%) tax break. That's of concern, I just
wanted to put that out there. The third issue I'd like to raise is that we have been
requested to provide incredible amounts of financial information so that the Finance
Department could structure their version of a proforma to try and come up with
what they think would be our profit scenario based on whatever information we
could give them. All I can say is that's a .rather flawed approach. I don't think it's
really fair, for us to use land and then have our profit structure be utilized to set a
tax rate. That's like buying a house and then having the tax department say,
"What's your income this year we're going to set your property tax that way." It's
not appropriate for government to be trying to functionally structure our profit
scenario. It's not related to property taxes. So that's just of a concern. Most
companies will not reveal their proformas just because they're highly confidential
for a lot of reasons. Bottom line is, if this particular resolution passes all we're
asking for is a cap on a long term assessment for the projects. So if we do go to the
proposal as worded it is really important for us to be able to go forward and know
that we'll be capped at a certain amount. So that's my testimony, thank you.
Mr. Chang: Thank you Ms. Allione. Any questions? Vice
Chair Yukimura.
Ms. Yukimura: Hi, thank you Jody. You said, and I
appreciate the suggestion that the problem of confidentiality could be addressed
either with a confidentiality agreement with the Real Property Tax Division of the
County or if a land owner/project owner does not want to waive the confidentiality
there was a default position you suggested?
Ms. Allione: Whatever the base tax rate would be what I
think is on the Ag rate if it's a little higher than that or if you come up with a
renewable Ag designation and charge that. I'm not really suggesting one or the
Committee Meeting 4 October 12, 2011
other but if you did set an Ag rate, a renewable Ag rate, that would be a good base
for the projects, and if you wanted to add to it an analysis of the lease.
Ms. Yukimura: Well in order to do that though we would
have to know, we'd have to learn a lot more about different types of Ag renewable
projects. It appears that we're moving toward, in fact I think it's in a Bill that's
before us or soon to come up, to the idea of using use as the standard for
assessment, the nature of use. Even if there's a vacation rental on Ag land, which is
a whole issue in itself, but if you can find a legal vacation rental on Ag land, then
it's taxed not according to Ag use but according to vacation rental use. As I
understand the rationale of the real property tax people, we're looking at a utility
use of the land, so what is the value of that?
Ms. Allione: On Oahu and I'm not exactly clear of the
wording but I know that solar is an exempted energy use. There's different
designations for energy, and solar is in the passive energy designation, so it's not
considered industrial use.
Ms. Yukimura: Well we could choose another category, not
Ag because anyway I don't see it as an Ag use. It's not growing something from the
soil which is my concept of Ag use, so it would be another use, but- how we craft
what that use is has to be based on our knowledge. We have so little knowledge of
the functioning of different energy renewable projects. Is a growing of biomass crop
going to be assessed at the .same value of a photovoltaic, as the same value as a
hydro all on Ag land? Do you see what I mean? If we go by use and we define an
energy use category, how do we develop that parameter? It's such a new parameter.
Ms. Allione: I think Oahu did a reasonable job and there
is an energy support, the kind of land where you can put substations on and
anything where it's really a passive use. I think that might be an area where you
could look into, a passive, solar is passive, hydro run of the river is passive, wind is
passive. Some of the biomass projects, and I've worked on a lot of them so I
understand what that is, but there's a substantial active use on a biomass project or
on a waste to energy or things like that we're you're using the roads and services of
the County. Much higher use than a passive use. Substation is (inaudible)
Ms. Yukimura: Okay highest and best use is the standard of
our real property assessment but it's not amount of activity, it's usually the value of
the activity. I don't know all the factors that go into the value although I'm guessing
that's the appraisal process and it may, and I'm going to ask a question of the real
property tax division about whether income at some level is part of the assessment
for resorts for example. Otherwise for residential land it's how much you can value
in terms of how much a willing buyer would pay to a willing seller. I'm probably as
confused as you look right now in terms of how you assess value.
Committee Meeting 5 October 12, 2011
Ms. Allione: That's why I proposed the lease value
because what we're willing to pay on that land, that particular land with all of its
issues and problems is what we're paying for twenty (20) years?
Ms. Yukimura: Yes and that has some sense to it to me, but
we would have to ask the, it has to fit into the whole assessment and process. That's
why I'm not sure the base tax rate for Ag would work.
Ms. Allione: No, it's higher. It would definitely come out
higher than the base use for Ag. There's no question, and we're willing to pay that. I
was not willing to pay much more because I had to look at all the parameters and
understand what the taxes were, what the issues were, what the land was made of,
what the radiation was, etc. We arrived at a tax rate and that I think is a fair value
for twenty (20) years.
Ms. Yukimura: And I think that's what we're all grappling
with -what is a fair value? And how do you determine it, and does income have no
bearing?
Ms. Allione: No.
Ms. Yukimura: I don't know if, I mean I think it might. Do
they use that in resort assessments, I don't know, or other commercial properties I
don't know either.
Ms. Allione: I don't know how they come up with taxes on
various parcels but income is a very difficult one to work with.
Ms. Yukimura: Highest in value and best use as I
understand it is how much a willing buyer is willing to spend and pay a willing
seller and income does play a role in that. We're all trying to figure this out.
Ms. Allione: Well that would be extremely problematic
and would probably put a serious stop on this project for us if we were to really open
up our books to the entire County. It's not going to happen.
Ms. Yukimura: I'm not suggesting that, I'm not suggesting
opening books I don't think that is the way either. But there may be other ways of
assessing income without opening books.
Ms. Allione: Yes. Yes. This is an issue we grapple with
across the board. One of the issues that you did bring up on the question of risk,
product production risk is a huge one for us. We're trying to figure what the solar
Committee Meeting 6 October 12, 2011
radiance is going to be for the next twenty (20) years. Global change, god knows, it
looks like it got cloudier to me. That is a concern.
Ms. Yukimura: I think I've heard the projections are more
sun and less trades.
Ms. Allione: I've actually put solar on my house and it's
gotten worse over the past two (2) years.
Ms. Yukimura: Okay, well anyway, thank you very much.
Ms. Allione: Okay thank you.
Mr. Chang: Hold on for just a second Ms. Allione,
Councilmember Bynum did you have a question.
Mr. Bynum: Yes I did.
Mr. Chang: Go ahead please. Excuse me Mr. Bynum,
first of all I just wanted to let everybody know in the viewing audience back there
we have a brand new system and the system of the mic is very very sensitive so
conversation in the back is actually being picked up. I just wanted to remind the
audience. Thank you, go ahead Mr.Bynum.
Mr. Bynum: Thanks for being here today. In your
testimony you said the County is asking for all kinds of financial information?
Ms. Allione: Yes.
Mr. Bynum: What kind of financial information?
Ms. Allione: Data about our costs, our revenues and
basically our operating costs as projected.
Mr. Bynum: So it looks to you like they're looking to know
your whole proforma?
Ms. Allione: To generate a pro orma to make sure that
we're not making excess profits at the expense of the property tax department or
property taxes.
Mr. Bynum: So just for myself and for the public,
proforma means your business plan, your projections of cost and return on
investment, that kind of thing correct?
Committee Meeting 7 October 12, 2011
Ms. Allione: Yes.
Mr. Bynum: And so you're saying, "hey if you want to
know a portion of what our lease payments are that's reasonable, but to ask for our
whole business plan is unreasonable."
Ms. Allione: Yes.
Mr. Bynum: As you went in to this did you go in with the
assumption that the underlined zoning would remain the same?
Ms. Allione: Yes, as it does in the rest of the State.
Mr. Bynum: As it is in the rest of the State?
Ms. Allione: Yes.
Mr. Bynum: I'm still trying to get clarity on that myself
about what happens in Oahu for instance who passed the legislation several years
ago correct?
Ms. Allione: Yes.
Mr. Bynum: I know that I've been interested in this
legislation for a while and my assumption too was that the underlying zoning would
remain the same. If I understand your concern, it's you expect by changing it to
Industrial even with a fifty percent (50%) exemption, that it's going to be higher
than your business plan, that it will be higher?
Ms. Allione: On my testimony on October 4 I attached a
sheet that showed the impacts in what we're paying now to what it would be under
various re-assessments.
Mr. Bynum: So is it possible if this were to pass in the
current form that your decision would be to not proceed with the project?
Ms. Allione: I could proceed with the project if we were
assured of a cap. So I'm hoping that we ended up with some reasonable assessment,
square-footage per square-footage. We were told this law went through if we were
told we would not be subjected to an annual re-assessment which puts the greatest
level of uncertainty on us, then if that were to happen, I'm not quite sure we could
go forward.
Committee Meeting 8 October 12, 2011
Mr. Bynum: I'm just kind of brainstorming here. My first
reaction to your proposal is I think we want to avoid giving the tax department
specific different types of assessment to require them to assess different land in
different ways. We have that now in a timeshare situation which may have caused
inequities over the year. But, I know I went into this with the same assumption
that the underlying zoning, so what I think is not at dispute is that any
improvements on the land would be exempt from taxation. The assessed value
would not include improvements.
Ms. Allione: Yes.
Mr. Bynum: That's your understanding as well?
Ms. Allione: Yes.
Mr. Bynum: It's really the underlying land and its
property tax that you're concerned about?
Ms. Allione: Absolutely.
Mr. Bynum: Okay. So if you had a biomass plant that was
going to produce electricity for biomass, it would have a relatively small footprint
but a very high development cost. So it might be a $60 million plant so in that
proforma the property tax would be a relatively small portion of the business plan
right?
Ms. Allione: See in Oahu for instance the solar is
specifically exempt. I'm not sure on any biomass projects whether or not the
facilities are exempt.
Mr. Bynum: And the reason I'm going there is I just want
to contrast that solar seems to me to be of large footprint but not that much plant.
Ms. Allione: Right.
Mr. Bynum: Not as expensive as doing a boiler and a
generator and all of that right?
Ms. Allione: But expensive enough.
Mr. Bynum: Right, expensive enough.
Ms. Allione: Solar is pretty expensive. Per acre it's not,
but overall the investment is very high if you're solar.
Committee Meeting 9 October 12, 2011
Mr. Bynum:
Ms. Allione:
Understood, but it takes a larger footprint?
Right.
Mr. Bynum: And so if that land is taxed higher that
makes it difficult to get a return on an investment and make the project pencil out.
Ms. Allione: Correct.
Mr. Bynum: I just want to make sure I understand your
testimony.
Ms. Allione: Yes, correct.
Mr. Bynum: The initial draft that we received of this did
not change the zoning so the one that got sent over did and I think that's going to be
the crux of the discussion today. What are the de facto impacts of that on a project
by project basis. My last question is, in your testimony you were saying - if an
investor chose to place their project on investor land they know-that going in, and so
if we exempt fifty percent (50%) of that it's going to be a big benefit to that
individual.
Ms. Allione: They would get a benefit. I might have
looked at industrial land had I realized that that was going to happen but I have
been chasing energy projects in the state for twenty (20) years and one of the big
deals that I consider is: what kind of land am I building on; is it appropriate for the
use; what are the long term underlying costs such as taxes. Some projects require
industrial land or special use permits to become industrial .land. Solar has always
been, look for class D & E Ag land.
Mr. Bynum: And then just my understanding of when the
County asks for financial information because we do have exemptions for property
taxes for low income individuals and (inaudible) petitioning the County to reduce
their taxes, and so providing their financial information provides them a benefit. So
I think, but I'm not aware that we had asked, I think that answers your question or
we can ask the tax people. We don't ask resorts what their profit margin is to
determine their property tax rate; we do it on assessment value times the rate that
is established by this County Council.
Ms. Allione: Right.
Mr. Bynum: Thank you for your testimony.
Committee Meeting 10 October 12, 2011
Ms. Allione: Thank you.
Mr. Chang: Councilmember Nakamura did you have a
question? I just wanted to let everybody know, we've circulated her testimony for
October 4 which she submitted, so if anybody needs to refer to some of her
statements from October 4, that is circulated. Councilmember Nakamura go ahead
please.
Ms. Nakamura: Hi Jody thank you for being here today and
for giving us your testimony and for clarifying your previous testimony. I appreciate
that it's in writing and that you have specific alternatives presented and I have sent
a communications to the Administration through the Chair to respond to your three
(3) suggestions. I'm not sure whether they'll be here, or prepared to do that today
but the communication has been sent.
Ms. Allione: Okay.
Mr. Chang: Thank you Councilmember Nakamura. Any
other questions? Council Chair.
Chair Furfaro: Thank you. Just to summarize this, I think
part of the dilemma that the County is working with is, as we explore this new
territory I guess what I'm hearing in your comment is you understand for us to get
re-investment money, we should at least at this point until we understand all the
other impacts at least remain revenue neutral; if land is Ag then we'd like to see the
project proceed under that tax category.
Ms. Allione: Yes.
Chair Furfaro: But there was something in your statement
when you said that and I want to revisit it because at some point energy will
compete with food, energy will compete with cattle, energy will, there will be
competition between energy and food production. But I heard you Jody say that if it
was on D & E land which are the least productive of our agricultural lands by the
grading and certainly those lands that are being identified as important Ag lands
are A & B classifications. Since across the State the land use commission grades all
Ag lands the same way your references to Oahu, are most of those solar projects on
D & E lands?
Ms. Allione: Yes. We are looking at other sites because
the State recently allowed Class B land. I prefer to build on D & E because I am
concerned about food production.
Committee Meeting
Chair Furfaro:
approach to or sustainability.
Ms. Allione:
Chair Furfaro:
that earlier in your testimony.
Ms. Allione:
Chair Furfaro:
Ms. Allione:
Chair Furfaro:
Mr. Chang:
Mr. Bynum.
11
October 12, 2011
But for me it is a very important overall
Yes.
I heard you say that, and I did hear you say
Yes.
D & E lands.
D & E lands are preferred for solar.
Okay, thank you Mr. Chair.
Any other questions please, go ahead
Mr. Bynum: Just a follow up, in the 205 the State, solar is
an outright allowed on D & E lands and the legislature recently included B & C in
that right? Did that make the permitting process easier that the State law outright
permit?
Ms. Allione: Yes it does, it makes it easier to proceed. I
have only focused on D & E so someone had a special interest in B and that's why it
got passed and I'm not quite sure where that came from. Quite honestly it kind of
caught a lot of us by surprise. It was a, I didn't, I thought it was just concerning.
Mr. Bynum: So your impression was that that change
happened to benefit one particular project?
Ms. Allione: I don't know where. There may have been
several projects that said -look, the best land for sun is on B land and we should be
able to use it. I honestly can't give the history because it caught it. It was one of the
few that sneaked by.
Mr. Bynum: And then the chart that you provided on
October 4, the current tax on the land that you're considering is about 5,000
revenue?
Ms. Allione: Roughly yes.
Committee Meeting 12 October 12, 2011
Mr. Bynum: And then on the table, I want to make sure I
understand it is saying if it were appraised at $4.00 per square foot, or 6 or 8
because you're not sure, at 4 being a low end assumption and 26 being the high end,
even if we took the low end assumption, even with the fifty percent (50%)
exemption, the taxes on the land would go from 5,000 to 12,000?
Ms. Allione: Yes.
Mr. Bynum: And you don't know what the assessed value
or what assumptions the tax department will make in terms o£.. So that's why
you've given us a range is that correct?
Ms. Allione: Yes, because if it was appraised at the
highest recently sold piece of industrial land we're out of it.
Mr. Bynum: Right so if it were mid-range and the taxes
were 24,000 that might be a deal killer?
Ms. Allione: We can live with that if we have a cap.
Mr. Bynum: Okay, thank you.
Ms. Allione: The cap is the underscore here.
Mr. Chang: Thank you Councilmember Bynum, go ahead
Councilmember Kuali`i to be followed by Councilmember Rapozo.
Mr. Kuali`i: Aloha and mahalo for being here Jody.
Actually you just said cap and that was what I wanted to ask about because you
said if this proposal were to be passed you would need a cap on the long term
assessment and that would be a fixed percentage. Did you have a percentage in
mind or a range of percents?
Ms. Allione:
is between two and three percent.
Pretty much everything we're working with
Mr. Kuali`i:
Mr. Chang:
Two and three percent, thank you.
Councilmember Rapozo.
Mr. Rapozo: That was the question that I had. Really was
about the cap and there's got to be a, we have to tie it to something I mean with the
cost of living, the CIP (sic) index would be something that you would. Obviously
that wouldn't be arbitrary.
Committee Meeting 13 October 12, 2011
Ms. Allione: Right, yes.
Mr. Rapozo: Those things will get difficult in legislation
when, how did you get two percent (2%) and how did you get 3, why not 4, why
not 1? And then there was a, and I think it just slipped me so it'll come back to me
when someone else is here. Thank you.
Mr. Chang: Any further questions for Ms. Allione, if not
thank you very much for your testimony. I believe the next registered speaker was
Teddy Kawahinehelelani Blake.
TED KAWAHINEHELELANI BLAKE, EXECUTIVE DIRECTOR, MALAMA
O KOLOA: Thank you Mr. Chair and members of the
Council, my name is Ted Blake from Koloa. Two things I know about having
photovoltaic projects on Ag land, the State allows approval of using Ag land for
photovoltaic projects - D & E land. Photovoltaic projects, they're tax County
services, no trash pick-up, no road maintenance, no road repairs, no traffic
congestion, etc. That being said, let's look at a situation that can very well happen.
We have a developer that has worked with the community without any arm
twisting by the community. They came forward and they said we'd like your opinion
on what we're doing, and your suggestions. This photovoltaic project shares 1,800
linear feet of a common border with Hapa Trail. We're finalizing plans with the
developer to plant indigenous Koloa plants that are drought and wind resistant to
the landscape between the buffer project and Hapa Trail. This is beyond the
project's scope and is being totally funded by the developer. We're also finalizing
plans to construct a dry stack wall around a 1,280 foot linear perimeter of a burial
cave. Funding for the burial treatment plan is by the developer with help from the
landowner of Knudsen Estate. We recently had 19.5 miles of County roadways that
loop around Koloa designated as a State byway, a first for Kauai. We're working on
a quarter management plan for submittal to enhance a 19.5 byway to pursue a
national designation to allow us to get eighty percent (80%) funding for
improvements and enhancements to this byway from the Federal Government. This
will be similar to the local economy and instill pride in our community and
showcase our history and our heritage. Hapa trail plays a big part in this plan. The
$500,000.00 Koloa-Po`ipu area circulation plan which you are familiar with was a
community driven plan and a community funded project to address pedestrian and
traffic safety and the tidal wave of development we were experiencing since 2005.
After being shelved for four (4) years we finally see that this will be incorporated or
we've been told this will be incorporated in the Koloa-Po`ipu-Kalaheo
re-development, I mean a development plan update. Hapa Trail is the focal point of
this plan. Po`ipu Solar is contributing to this vision at their expense, landscaping
14% of Hapa Trail with native plants, utilizing nurseries from the National Tropical
Botanical Garden and specialty nurseries, and have also adopted the position of
Committee Meeting 14 October 12, 2011
honoring our kupuna's burials. Taxing Po`ipu Solar without a fixed rate jeopardizes
their community driven plans. The rate paid for the electricity they generate to sell
to KIUC is fixed for twenty (20) years with no built-in step-ups or re-negotiation.
Worst case scenario is that their tax assessment could escalate every year because
their assessment is tied to the latest bill of industrial property. I see this bill as an
incentive for photovoltaic farming to someone who has got industrial land. For a
guy that's sitting on Ag land, I see this as not being an incentive. Normally you'll
hear about these type of situations after the law goes into effect but it's going to,
everything we've been working towards in Koloa by the community, with the
community, before the community comes to a roadblock when we see something like
this come about.
Mr. Chang: Mr. Blake, sorry to interrupt but that was,
you passed your first three (3) minutes but go ahead and continue please.
Mr. Blake: So, I see a tax advantage for those presently
zoned industrial lands, these industrial land owners should receive consideration
presently before there is even any incentive that encourage photovoltaic projects on
industrial land. However, those that are going about doing this on Ag land I see this
as not being an incentive. That's all I have to say. Thank you.
Mr. Chang: Thank you Mr. Blake. Vice Chair Yukimura
you have a question for Mr. Blake? Go ahead please.
Ms. Yukimura: So Teddy if we keep it at Ag rates how do we
assure that other renewable energy projects will actually give benefits to the
community?
Mr. Blake: I hope that what. Po`ipu Solar is doing sets a
higher standard for other developers. The arm didn't work in Koloa and the charm
sure didn't work in Koloa with developers and this one just came about and stepped
forward and did it on their own. I mean, it would be nice if you could do that
because we have a big problem with our archaeological insensitivity and to our
archaeological sites, our history, and our culture right now. You guys just talked
about how wonderful it was seeing these children `olelo in Hawaii, this is where it
starts.
Ms. Yukimura: Well you know I appreciate so much any help
that a landowner or developer will give to the community. I know how hard you've
worked on these projects. But to incorporate that into a tax, a real property tax
assessment process is difficult by the `fact that you're not sure all the other
developers will... It won't make the developer do that and maybe it's better just to
take a higher tax according to exact principles and then give grants directly to you
folks.
Committee Meeting 15 October 12, 2011
Mr. Blake: Let's look at -the other side of the coin on
this. The amount of money you've been making by assessing them a higher tax over
twenty (20) years is going to be far overshadowed by the economic stimulant that
it'll bring Hapa Trail and other things in our byway designation will bring to the
County. At some point in time you're going to have to look at it and say -you know,
did we make a mistake in this? And I'm not here to tell you how to run it, how to do
it, but this is something you should be considering. We have and you guys know
what we've gone through in Koloa and I would not wish this on any other
community in the State of Hawaii. Something coming about like this you have to go
back and look at it and say, "now we're going to stick it to Koloa one more time?"
Chair Furfaro: I'm a bit offended that you would imply this
Council.
Mr. Blake: I'm not trying to offend you. But this is a
perception that when you talk to people about Koloa they'll you the thing is you
know, and Po`ipu, over developed, too much development, etc., etc. We've been
working hard, we've been working hard to make lemonade out of this and I think
we're on the right track. But when something like this comes about and is set before
us not every citizen akamai about government. This is another frustration that adds
to that and I'm not offending you at all Mr. Chair, please believe me.
Chair Furfaro: Teddy I heard what I had to say, you heard
my response. You can talk about Koloa here but the agenda item is about energy. I
don't want to, as many of us here on the table that have come to participate in the
issues that are truly Koloa issues, but please I was offended about that comment
that directed specifically at Koloa.
Mr. Blake: I'm sorry for offending you.
Mr. Chang: Does anybody have .any questions for
Mr. Blake please? If not, Teddy thank you very much.
Mr. Blake: Thank you.
Mr. Chang: Do we have any other registered speakers
thereafter?
IHILANI LAURETA, SECRETARY, COUNCIL SUPPORT DIVISION: Our
next registered speaker is Jerry Ornellas followed by our last registered speaker
Kurt Bosshard.
Mr. Chang: Good afternoon Jerry.
Committee Meeting 16 October 12, 2011
JERRY ORNELLAS, KAUAI COUNTY FARM BUREAU: Good afternoon
Chair Furfaro and Committee Chair Chang and members of the Council, my name
is Jerry Ornellas. I am here representing the Kauai County Farm Bureau today
and in that capacity and I have to tell you that the Farm Bureau supports the
adoption of the amendments to Bill No. 2415. Having said that, we would much
prefer that industrial uses of land take place on land already zoned for that
purpose. However, we do realize that we probably do not have enough inventory of
industrially zoned lands to accommodate all of the projects that are in the pipeline.
However, this is happening if we look at the project that A & B is proposing for
Hanapepe, that solar project is taking place on industrially zoned land. I want to
put something to rest, it's a misnomer to call it a solar farm, it's not a farm. Voltaics
are an industrial process and they have to be recognized as such. Failing that what
we need to do, I think the County really needs to look at putting these projects as it
has been mentioned earlier putting these projects on lands that are marginal which
would include D & E lands. The reason we support this amendment to the Bill,
these amendments to the Bill is because it recognizes and it makes a distinction
between agricultural use of Ag land and industrial use of agricultural land. It does
this in two ways, it provides a use permit and it does it to check taxation and I
think that it's very important that we don't confuse these two (2) issues. We're very
concerned that this Bill No. 2415 will be watered down in some way and we want to
do our part to make this island energy self-sufficient. We realize that agricultural
lands are going to have to go into these types of activities and we really think that
a 50% exemption from real property tax is generous. But if you go to Section. 3,
item 3, this is very interesting: Future land assessments will be valued according to
the land's industrial market value. This issue came up earlier and I think these
people have a valid point. If you look at the contracts, there's a contract between the
supplier, between the provider and the distributor, these contracts are approved by
the Public Utilities Commission. As Chair Furfaro pointed out earlier, they're
locked in often times for twenty (20) years. If you're going to raise taxes within the
next twenty (20) years on these properties, these operators will not be able to raise
their rates because they're locked in. So I think this is going to be problematic going
forward, I don't know how you fix it but I'd be happy to answer any questions if you
have any.
Mr. Chang: Excuse me, thank you Mr. Ornellas, does
anyone have any questions for Mr. Ornellas. First Councilmember Bynum go ahead
followed by Vice Chair Yukimura.
Mr. Bynum: Thank you for being here. On D & E land, Ag
land designated D & E, alternative energy has been an outright approved use by the
State for a long time. When you heard the testimony basically saying that on D & E
lands they're currently paying around $5,000.00 in taxes but at the best case
Committee Meeting 17 October 12, 2011
scenario they think that they will go to 12,000. I guess just to ask an open ended
question, what's wrong with leaving them at five on D & E lands?
Mr. Ornellas: I think Council person Yukimura alluded to
this earlier. What are these properties generating in revenues? If a farmer has a
return of $10,000.00 on an acre of land and a photovoltaic operation has a return
of $50,000.00 why shouldn't they be taxed at a higher rate? We have to compete
with them, we are facing urbanization of our Ag lands, we're facing gentrification of
our Ag lands, now we're going to be facing industrialization of our Ag lands, what
next?
Mr. Bynum: Okay, thank you.
Mr. Ornellas: And I do believe that we can a accommodate
a reasonable amount of alternative energy projects on Kauai, I think we do have
the resources to do that, a reasonable amount.
Mr. Bynum: I think it was nice to hear from Mrs. Allione
that she even as a developer had a problem with looking at B & C land. That was
recent news to me that the Legislature changed that and I'm just kind of curious
why that would happen because there are a lot of lands zoned Ag that are really not
appropriate for return on investment Ag. You know this history, it kind of got
lumped in there so I think it's important to incentivize alternative energy to keep us
less dependent on oil, to keep our costs low and I thought our intention was to do
that incentive. Do you think in the long run Jerry that solar is a real threat to food
production and that the use of Ag lands for solar is a significant threat to Ag lands
being held for Ag purposes?
Mr. Ornellas: I think that we're going to top off pretty
quickly as far as solar projects go. It's not considered firm power right?
Mr. Bynum: Right.
Mr. Ornellas: Therefore only a certain percentage of the
electricity produced on Kauai can come from that kind of power because it doesn't
work at night unless you're doing solar collectors. They're going to top off pretty
quickly. I know on Oahu in any given electrical grid sector it's only fifteen percent
(15%). I don't know what KIUC's policies are going to be but already on Oahu we
have districts and areas that are already waxed out, the company will not take any
more solar.
Mr. Bynum: Okay, so my question was do you think the
development of solar on D & E lands is a significant threat to having farmable land
available for other purposes?
Committee Meeting 18 October 12, 2011
Mr. Ornellas: On our marginal lands I do not consider it a
significant threat, on marginal lands. But just like people who build homes or
developments, the easiest land to build on is land that is leveled and those tend to
be -our more valuable agricultural lands.
Mr. Bynum: Right, okay, thank you.
Mr. Chang: Thank you Councilmember Byum, Vice
Chair Yukimura.
Ms. Yukimura: Yes, so Jerry thank you for your testimony.
You said that the Farm Bureau prefers to see the projects on industrial land and
you acknowledged also that there may not be enough industrial land, so it seems
that from a land use standpoint it, would be something appropriate for the Planners
to look at increasing industrial zoned lands through the community plan process or
the General Plan process?
Mr. Ornellas: Not necessarily. This alluded to something
you said earlier when you talked about, and so did someone else, I think it was Tim,
talked about how much actual industrial area these different alternative energy
projects take up right? So a plant that is going to be used to create liquid bio-fuel
would take up a relatively small parcel of land. Something that is growing, say
you're growing sorghum, that's going to take up to thousands of acres or trees or
bio-mass types of projects. The land remains in agriculture. The only portion of the
land that goes into industrial is the footprint of the plant itself, the rest of the land
remains agriculture. So we're talking about two (2) different things when we talk
about photovoltaic and we talk about bio-fuels because they're not really that
compatible. Photovoltaics, it's an industrial endeavor, it doesn't have to do with
agriculture.
Ms. Yukimura: So there's a certain logic in taking D & E
lands and through a use permit process, a process which examines the
appropriateness and the surrounding uses and all of the context and then allowing
that process to make land available for, say photovoltaic projects. But that's
separate from how we would assess it and you've raised some of the questions of
assessment by Ag value. So for you I guess in supporting this bill you think
industrial as a category makes more sense for solar and photovoltaic projects?
Mr. Ornellas: Of course, yes.
Ms. Yukimura: Okay I understand.
Committee Meeting 19 October 12, 2011
Mr. Ornellas: As far as assessments go you would never
tax the hotels at the rates you tax them at if you didn't know what they were
making right?
Ms. Yukimura: So you're saying that income is a logical
input into the assessment process?
Mr. Ornellas: Otherwise the farmers are going to face an
uphill battle with neighbors that make ten times what they're making and there's
not much to keep this thing from spreading and saying okay well we're going to do
more and more and more.
Ms. Yukimura: That is the same issue with vacation rentals.
Mr. Ornellas: Yes, absolutely.
Ms. Yukimura: It puts the Ag land at a higher premium
than farmers could ever afford to farm. Okay, thank you.
Mr. Chang: Thank you Vice Chair, any further
questions?
Mr. Rapozo:
I'manon-councilmember (sic).
Mr. Chang: Okay hold on just a second, councilmember
Nakamura and then councilmember Rapozo.
Ms. Nakamura: Thank you for being here Jerry and
providing this insight. I wanted to ask you in your testimony, written testimony,
you mentioned you urged that they be sited on, for renewable energy projects take
place on Ag lands; we urge you that they be sited on D & E lands rather than prime
Ag A & B lands.
Mr. Ornellas: Yes.
Ms. Nakamura: In your verbal testimony I heard D & E
lands only.
Mr. Ornellas: I think we could accommodate some of these
projects on C lands.
Ms. Nakamura: Okay, C would be okay.
Mr. Ornellas: I'm sorry for that discretion.
Committee Meeting 20 October 12, 2011
Ms. Nakamura: No no, and I for members clarification I was
looking at the Chapter 205 regarding Ag lands and it sounds like that the solar
energy facilities are allowed on B, C, D, & E but for B & C lands it has to support an
Ag operation on that property, so that's the distinction.
Mr. Ornellas: In fact, in an ideal world, in my world, what
would really work is power production that is ancillary to a farming operation and
we sell off the twenty percent (20%) that we're not using because then we don't
qualify as an industrial operation. In the real world I think this would work really
well where it's ancillary and the farmers actually benefit from producing energy,
probably not likely to happen.
Ms. Nakamura: Thank you Jerry.
Mr. Chang: Before we move on to Councilmember Rapozo
can you just repeat your last statement what you just said, if it was an ideal world,
what did you say?
Mr.Ornellas: If it was an ideal world we would have
farmers producing energy rather than pure energy companies producing energy.
Farmers would then sell the excess energy. Farming operations often require a lot
of energy in their own right. You take the seed industry, they have a high powered
driers, in the case of vegetable farmers they have hydrocoolers, they run
refrigeration, so it'll make sense for them to generate power, sell the excess power
and that would help to supplement their income. Yes in an ideal world. I'm a farmer
so that's my opinion.
Mr. Chang: Councilmember Rapozo.
Mr. Rapozo: Thanks Jerry, thanks for being here. I know
what it is, you're here to testify on behalf of the Kauai Farm Bureau but you have
your personal...
Mr. Ornellas: That's correct, don't kill the messenger.
Mr. Rapozo: I guess Chapter 205 was set up to protect
and preserve ag and that's no secret. One of the differences between vacation
rentals and solar projects is that Chapter 205 doesn't have a provision that allows
vacation rentals, it now has solar projects. The other thing is, with the addition of B
lands, I think for whatever reason, whoever they're trying to help I mean I think
that was wrong. Let me just say that upfront because again we're removing
inventory from the farmers. When do you recall, Jerry, sitting here testifying on
Committee Meeting 21 October 12, 2011
behalf of the Farm Bureau regarding a County Council or Administration's efforts
to give the farmers a fifty percent (50%) tax credit? Has that ever occurred?
Mr. Ornellas: It's never occurred, although I must say that
the farm dedication program works quite well.
Mr. Rapozo: Correct, but I'm talking about tax...
Mr. Ornellas: That did occur to me that that very thought
occurred to me earlier listening.. to prior testimony that fifty percent (50%) is a
generous.. .
Mr. Rapozo: But it's pretty clear that what this State is
moving away from, although we would never admit it, is farming. It's sad and it's
scary. Having said that though, and I would agree I think C & D lands would be
appropriate I think because obviously farmers is very difficult to generate any kind
of revenue from those lands and why let it sit and not create any revenue? My
question I guess for the Farm Bureau is, because hearing you testify that the fifty
percent (50%) and the bill as it stands is you support it.
Mr. Ornellas: We can live with it let me put it that way.
Mr. Rapozo: And I know you're speaking for the Bureau.
Mr. Ornellas: Yes.
Mr. Rapozo: Now, the concern and I share that concern
with the developers is that without any kind of clear stability or expectation on
where it's going to go I guess I'm troubled that the County is asking -hey give me
your books so I can figure out what is the most I can charge you. That's what it kind
of sounds like, and we'll get property tax up here and find out why they do that.
Hearing their testimony that if we could give them some kind of assurance of a cap,
like we did with the residential cap, is that something that the Farm Bureau and if
you need to go back to them that's fine as well. But I think the cap basically is a
compromise but it also gives them some kind of assurances that next year their
taxes are not going to jump twenty percent (20%) or fifteen percent (15%) whether
it's tied to the CPI or it's tied to a fixed number that somebody can tell us what is
correct. I guess I'm curious to know what the Farm Bureau's position on that would
be.
Mr.Ornellas: You know we're farmers but we're also
businessmen and as I pointed out earlier, these guys are locked into contracts that
they cannot get out of, they cannot get an increase because it's (inaudible)
regulated. I understand their predicament and it's going to come 'down to tax
Committee Meeting 22 October 12, 2011
appeals, they're going to say you cannot, if you raise the taxes we're going to close
up, there's nothing we can do.
Mr. Rapozo: Is that something you could come back, I
don't expect this to pass and I cannot vote on this in the committee because I'm not
on the committee, but I'm assuming it will get deferred and if it does I guess I would
ask what the Farm Bureau's position would be on setting some kind of cap on the
tax bills. Not so much assessments because we really cannot control the
assessments, the market determines that.
Mr. Ornellas: Right.
Mr. Rapozo: I guess it's troubling because in a perfect
world you have a budget, you have operating expenses and you have your budget,
and then you set the taxes based on what you need to complete your budget. I don't
want this to be a free for all attempt by the County to go out and see how much
money we can squeeze from, regardless if it's farmers, solar project owners,
residential housing builders. Taxation is based on fair and equitable assessments, I
mean that's what it's supposed to be not how much can we get, and I think .that's
going down the wrong road and we'll get the property tax people up here to clarify
that. But that will be my only question is that if in fact the bill as it's written moves
forward, would the Farm Bureau be able to support a cap?
Mr. Ornellas: I believe so I'd have to check with our Board,
but I believe so. Like I pointed out earlier, these people cannot raise their revenues.
If you're doing regular industrial endeavor you can raise your prices. These guys are
going to be locked in, they cannot raise their prices. Correct me if I'm wrong but I
wouldn't assume to question the Administrative's motives, they may be looking for
this information so they don't overcharge these people.
Mr. Rapozo: That's true.
Mr. Ornellas: Rather than trying to..
Mr. Rapozo: That's a politically correct thing to say but I
just want to make sure that we're being fair and equitable. The other thing too is
that I'm sure I would assume based on your testimony that the Farm Bureau would
not support any type of incentives on A & B land.
Mr. Ornellas: No.
Mr. Rapozo: Your testimony as I read it basically says
fine, but if they're going to encroach on A & B then you don't support the fifty
percent (50%).
Committee Meeting 23 October 12, 2011
Mr. Ornellas:
Mr. Rapozo:
Mr. Ornellas:
Mr. Rapozo:
For PV, other endeavors might be different.
No, yes, we're only discussing the PV today.
Okay, yes, yes.
Okay thank you.
Mr. Chang: Thank you Mr. Rapozo, Mr. Ornellas thank
you very very much. Mr. Bynum if you have a very quick question.
Mr. Bynum: It will be very quick. I'm just getting a little
confused on the (inaudible) to B & C is that correct?
Mr. Ornellas: Correct.
Mr. Bynum: So, because some people are saying C, D, E,
so I'm thinking and I believe the Po`ipu Solar people said they're on D & E right?
Mr. Ornellas: Right.
Mr. Bynum: So if we make that distinction I just want to
know where that line should be.
Mr. Ornellas: A & B lands are the best lands we have.
Mr. Bynum: Right.
Mr. Ornellas: And provide the best return for the farmers
so those are the lands we really need to preserve.
Mr. Bynum: And I don't know this (inaudible) what's the
distinction between what's a C land is it...
Mr. Ornellas: It's a little confusing for everybody because
there's various classifications of agricultural land. ALISH which is agricultural
lands of importance to the State of Hawaii came up with that A, B, C designation
and Nadine can tell you that the University has the only classification system. But
we generally talk about A, B, C, D, and E lands and those we like to use that
designation because it does take slope into account and some of these other
designations don't take slope into account, only soils and so on.
Committee Meeting 24 October 12, 2011
Mr. Bynum:
that C, D, and E?
So when you use the term marginal lands, is
Mr. Ornellas: I farm on marginal lands so I know exactly
what (inaudible). All of our local farmers do because the best lands are always
taken by the plantations.
Mr. Bynum:
Right.
Mr. Ornellas: So now we have a chance to get on some of
these lands and you know we would hate to be denied.
Mr. Bynum: Okay so I'm just still looking for that
dividing line. Should it be...
Mr.Ornellas: I think A & B absolutely should be
untouchable. I would prefer D & E of course but I think in some cases C might be
appropriate.
Mr. Bynum: Okay thank you.
Mr. Chang: Thank Mr. Ornellas, committee members
and councilmembers it's time for us to take a lunch break so what we're going to do
is, there's a lot of people here, there's Administration -George, Mr. Costa, Mr. Sato
has a presentation, we have Steve Hunt here, so we have members of their
committee out there so we will reconvene back at 1:30pm after lunch break, this
meeting is in recess thank you very much, we'll see you at 1:30pm.
There being no objections, the meeting was recessed at 12:35 p.m.
The meeting reconvened at 1:45 p.m. and proceeded as follows:
There being no objections, the rules were suspended.
Mr. Chang: Good afternoon ladies and gentleman, we're
back from recess. If I recall correctly, Mr. Bosshard you were on the stand, thank
you very much. Kurt Bosshard, and the last discussion we were continuing to have
a discussion, does any members have any questions for Mr. Bosshard?
Mr. Bosshard: (Inaudible)
Mr. Chang: Okay go ahead.
Committee Meeting 25 October 12, 2011
Mr. Bosshard: I don't argue with the ranchers or farmers, I
respect Mr. Ornellas's testimony and thank him for his input. I think farming is
important..
Mr. Chang: You know, Mr. Bosshard, why don't you go
ahead and start again.
Mr. Bosshard: I'll repeat myself because I do want to say
this. Kurt Bosshard, Kapa`a Solar. I don't argue with the farmers and cowboys and I
respect what Mr. Ornellas had to say and I think that it's important to hear that
perspective.
I feel to some extent that solar people are getting lumped into the larger
operations, the biomass and the hydroelectric. You're not going to have enough solar
activity here to have any impact on land- -A, B, C, D, or E, agricultural lands. The
only place where you can put solar is next to a big power pole and you can't get too
far away. It's all going to be right there. As it turns out here now KIUC is going to
put in a big solar facility that's going to take up most of the solar activity on the
island. The reason, and I again I'm going to reiterate, please do not peg this to
industrial value. There aren't sufficient industrial lands here to have a reasonable
value for industrial land. I've given you the evidence of what the abuse will be of the
tax assessor's office. Four acres of C, D land, or what mine is on, Mr. Hunt had it
assessed at $400,000.00 per acre until I appealed. It was being taxed at $16,000.00
per acre. At the hearing he dropped it to $2 million for four acres, $250,000.00 per
acre for totally un-improved, unused land next to Olohena Road. He passionately
defended that opinion at the tax appeals board and they came up with roughly
$800,000.00, 800,000.00 with no use on County facilities at all, from $16,000.00 per
acre. If that's how it's going to be done, even if they reduce the value by -half, it's
still an endless fight over the assessed value. Now take into account we're at the
very low end of a horrible real estate market, so what would this have been five
years ago? Two million dollars for my facility? Two and a half million? Fine, you
guys will make the decision on how you want to approach this issue. Some may
seem confident that this is going to just take over the island that there's going to be
a lot of alternative energy projects. I don't happen to agree with that, I hope there
are, but that is speculative. The attitude of every other part of the County and the
State and the Federal is: We want to have these projects. When you run into the tax
office: We want to drill these projects, we want to shake them down. I would call
this the Alexander & Baldwin Tax Relief Act, this whole thing the way that it's
structured is for Kaua`i's big land owners. Where are they, they're not here because
A & B is going to get them a fifty percent (50%) reduction in their taxes on their
industrial land. Nobody else has industrial land that's right next to the road, that's
right next to a .power line. Where are the biomass people? I asked a question, are
they going be allowed to Ag dedicate 1,000 acres and pay no tax on that, or
relatively no tax? And their five acre warehouse will pay what I pay because I'm
Committee Meeting 26 October 12, 2011
four acres and I'm paying four acres industrial? Well, they're going to build a
hundred million dollar plant, or fifty million dollar plant and pay the same amount
of real property taxes as me, is that what this is set up for? I don't know. I can tell
you the reason they're not here is because the land value that I'm on is $16,000.00
now and the way it stands right now, that's the per acre value where it stands right
now has been jacked to $200,000.00 per acre. This audit of a person's, a business
person's tax returns and proformas and all that stuff, I'm not familiar with that. I
guess some of you may be in taxing real estate but this is a twenty year investment.
My return won't be known for twenty years. Apparently everybody thinks this is a
slam dunk and there's money that rolls off, that gross revenues mean something but
when you've got five million dollars into a project, gross revenues, you got your
operating expenses, the cost of the money, and all the other factors that are
involved in having a business investment. Let me tell you that somebody like me
doesn't just sit there and count the money, we go out and hustle every day just to
try to shave costs and to provide jobs and pay taxes. What other taxes are you going
to get out of this facility? Income taxes? Gross excise taxes? Those money may go to
the State, the Federal Government, but you guys get money back from those places.
I reserve the right to be wrong but I don't think you're going to get swamped with
these projects and all of a sudden there's not going to be any agricultural land and
the farmers are not going to have a place to farm. I wish there was more farming
activity, the reason there is isn't because people are, that these solar energy project
type things are going to take away from them. That would be a nice idea to keep the
taxes high, but if everybody had that kind of attitude that you're going to go for
industrial on this and try to max this out, that attitude makes investors worry.
Mr. Chang: Thank you Mr. Bosshard, Councilmember
Bynum.
Mr. Bynum: Your project is not on A & B land?
Mr. Bosshard: No, it's on C & D I think but I would like to,
the maps are very imperfect. So you're going to get into, if you make it contingent
on how the land is designated you're going to get into arguments because there may
be three (3) different soil types there. And you can argue over it because it's a big
map and you have to impose it over your place and you could have different
opinions about that.
Mr. Bynum: The metes and bounds are not that exact?
Mr. Bosshard: The metes and bounds are there but the soil
is very variable in any given place. You're going to have pockets, you'll have pockets
of soil within four acres.
Committee Meeting 27 October 12, 2011
Mr. Bynum: So I just want to understand what you said,
the assessed value under Ag was $16,000.00 per acre, and then you said some other
numbers: $400,000.00, $250,000.00. $450,000.00 was what it was re-assessed at?
Mr. Bosshard: Correct, industrial was $1.7 million, and
prior to that it would have been four times $16,000.00.
Mr. Bynum: And then during the appeals, the
department argued for $250,000.00?
Mr. Bosshard: They brought it down to $1 million because I
appealed and that was what they presented to the appeals board, that's for four
acres, so that would be $250,000.00 per acre.
Mr. Bynum: May I, I don't mean to interrupt but, so it
was assessed at $400,000.00 when you received it, and when you filed an appeal
they came in and said $1 million, or $250,000.00 per acre? And then the result of
your appeal was the appeals board said $200,000.00?
Mr. Bosshard: No, they said $800,000.00.
Mr. Bynum: No, $200,000.00 per acre.
Mr. Bosshard: That's right.
Mr. Bynum: So it went from $64,000.00, valued at
$64,000.00 as Ag to $800,000.00 as industrial after appeal?
Mr. Bosshard: $800,000.00 total, $200,000.00 per acre yes.
Mr. Bynum: Okay.
Mr. Bosshard: And that's with using comps from the tax
office, you want to know what the number one comp is? It will tie it all together;
Transaction from A & B to KIUC next to their power plant of a small property that I
assume was necessary for KIUC's oil burning facility from three or four years ago.
That's the comparable that I was dealing with and that just brings the picture right
into focus of where the tax office wants to go with this.
Mr. Bynum: Thank you.
Mr. Chang: Any further questions? Go ahead
Councilmember Yukimura.
Committee Meeting 28 October 12, 2011
Ms. Yukimura: So that meant that your taxes in raw value
or in dollar figures taxes went from what to what?
Mr. Bosshard: I don't know, I don't have that number in
front of me.
1VIs. Yukimura: But under the proposal it would go to about
$3,400.00?
Mr. Bosshard: I don't know the (inaudible) submitted a
proposal.
Ms. Yukimura: Pardon me?
Mr. Bosshard: I don't believe I've submitted a proposal that
would, my proposal was leave it at the $16,000.00.
Ms. Yukimura:
Mr. Bosshard:
Ms. Yukimura:
the magnitude of the...
Mr. Bosshard:
magnitude.
Ms. Yukimura:
Ag right?
Your proposal was what?
Leave it at the same rate that it was.
Yes I know, it just would help us understand
You're not losing anything, there's no
Yes of course if you assume that it stays at
Mr. Bosshard: Well, what it would be otherwise is a
gentleman's estate, there would be a CPR house on there. And maybe you'd make
money if that's what you want is to have an ag-condo house then you could make
money.
Ms. Yukimura: No no no. We're just trying to figure out how
to do a fair assessment by use and so that's what I'm trying to figure out. Okay,
thank you.
Mr. Chang: Any further questions?
Ms. Yukimura: Wait one more question please.
Mr. Chang: Go ahead please.
Committee Meeting 29 October 12, 2011
Ms. Yukimura: You say no use of County services but there
is a possibility that the lease of fire might be needed at some point right?
Mr. Bosshard: Afire?
Ms. Yukimura: Yes. I mean there's, we just had a terrible
fire.
Mr. Bosshard: We've had fires down there on at least two
occasions since I've been farming down there.
Ms. Yukimura: You have had fires?
Mr. Bosshard: We have fires. We have fires. Whether
there's a solar facility isn't going to lead to the fire, it's kids pulehuing up at Kapa`a
Middle School started a fire and it burned through there, and the Fire Department
came.
Ms. Yukimura: Yes that is the inherent nature of property
right? So there's possibility of needing Police and Fire services for that property, it's
not totally devoid of any potential County, and plus a road right? The maintenance
of the road, Olohena Road?
Mr. Bosshard: That existed the day before I started over
there and it exists now. There's nothing additional. Actually let me say this, I'm
maintaining the area in such a better way by shredding so that I don't have fire
damage, that I'm minimizing what the opportunity would be for a response. There
was a fire there in September 2010 and the Fire Department responded and that
was about a month before I started construction. Since that time there has not been
a fire.
Ms. Yukimura: _ Okay so I understand what you're saying.
You're saying there's no additional services over and above if that land had stayed
in agriculture?
Mr. Bosshard: Well you could argue that actually
agriculture would have had more impact, traditional agriculture would have had
more impact to the County than what I'm doing. You do have to bring in equipment
to plow the fields and if it's intensive agriculture you would have more workers
there and that type of thing. The facility that I have basically starts up in the
morning on its own and it shuts down at night.
Committee Meeting 30 October 12, 2011
Ms. Yukimura:
thank you.
Okay, so no more and maybe less? Okay,
Mr. Chang:
Bynum.
Mr. Bynum:
Mr. Chang:
Any other members? Councilmember
If there's no one else.
Go ahead please.
Mr. Bynum: I just want to say in fairness, I'm asking
questions, we haven't heard from the tax folks yet. One of the things I'm confused
about is we haven't passed this bill, but you got re-assessed, you got re-assessed as
industrial, without the bill?
Mr. Bosshard: Yes. The trigger point for the tax office was
the fact that I had to go to the Planning Department to get a permit that they're
calling a use permit. Now the irony of that is, my understanding was and I have a
use permit at my office, that it would use a (inaudible) type of property as
comparables. So if the use was minimal that they would tax it at a reduced level as
industrial such as unimproved industrial or something like that. However, as I
mentioned, the comparable that was used was a transaction several years ago at the
peak of the market from Alexander and Baldwin to KIUC next to their power plant.
Kind of a, I would say, unreasonable comparable because obviously KIUC would
have to buy that land from A & B if they needed extra land around their place. So
it's kind of a captive purchase, A & B got a very high amount of money for that.
Mr. Bynum:
Mr. Rapozo:
Mr. Chang:
Mr. Rapozo:
you have pursued down this road?
Okay, thank you.
I'm anon-committee member.
Go ahead please, Councilmember Rapozo.
If you knew then what you know now, would
Mr. Bosshard:
Mr. Rapozo:
Mr. Bosshard:
Mr. Rapozo:
Yes.
You still would've?
I would've.
Why?
Committee Meeting 31 October 12, 2011
Mr. Bosshard: I'll, win or lose we lose now. Whatever comes
of it it's fine, I'm giving my personal opinion. You take what I say with a grain of
salt. I was under the impression that the County was promoting this types of
projects. I do find it a little ironic that there's some kick back on this especially from
the tax office because the Administration has otherwise been so supportive and
helpful. I'm glad that I actually went through this process because I'm able to bring
you this specific example of how this has been twisted by the tax office. I want to
bring up the other point that there's a twenty percent (20%) cushion that the tax
office has to be wrong. In other words you lose your appeal, if you don't prove them
that the tax assessed you at twenty percent (20%) over market value, I think that's
very unfair also. I will explain to you why there are a few appeals, because even
though the assessment is supposed to be at fair market value they can be twenty
percent (20%) off and you lose your appeal if you can't prove that. So all of this I
think is, this discussion is helpful for the public to determine the merits of these
projects and whether they want them or not. I do believe that the only reason a
person would invest in something like this is if they felt all of the governing bodies
were very supportive or really committed to the idea that we really do need this
kind of thing. But me, no I'm not going to Monday morning quarterback, whatever
you guys do I'll pay the tax, I'll appeal every year, and then maybe someday I'll be
back again and I'll have to give you the data again and show you I think I got taken
advantage of here by this process.
Mr. Rapozo: I guess my bigger concern that I have is, do
you believe this process should it go forward, do you think it will deter future
projects? I'll be honest with you, I don't want to see any of these projects on A & B
land, you know it's not Alexander and Baldwin, it's A & B -class A, class B soils. I
don't want to see this on that land. I really think that Chapter 205 is there to
preserve and protect ag for ag, so I want to make that clear. But as you heard
farmer Jerry say - C, D, it's really marginal lands for ag. Until our IAL studies are
done, we got to deal with it. So I don't have a problem but my concern is that if it's
so cost prohibitive in fact, some people' cannot get financing then all the photo ops
this County took advantage of, of how we support solar and then now we come back
and say okay now you pay us? I have a problem with that as well. But I want to be
as fair as possible and that number you gave us, $16,000.00 to $200,000.00 per acre,
that's a substantial increase. That's substantial.
Mr. Bosshard: It's not as bad as $400,000.00 an acre, that's
what they started with.
Mr. Rapozo: Right, right.
Mr. Bosshard: Now I have to put my time in, I'm here, I
think the advantage I have is I don't have a corporation, I don't have to hire people
underneath me to represent me here. I'm local, I have a low overhead compared to a
Committee Meeting 32 October 12, 2011
corporation that has to put something like this together. I respect everybody's
opinion who's here, when I don't agree I point it out. The A and B land thing, the
only thing I'd say is that you might just have one speck on the corner of a property
that could kill a deal. This isn't to help me . in the future I'm just trying to get
(inaudible) for other people's projects, because I'm not competing with anybody or
looking at doing any more. I'm just adding to the debate. That kind of uncertainty
that you end up with a lawyer suing you saying this project shouldn't have been
approved because there was a speck of B land over in one little corner of the
property, I'd be worried about that. That just, any of that uncertainty really would
hurt.
Mr. Rapozo: I guess that's something we're going to have
to clear up. We'll let our legal department deal with that but I think the premise
was we don't want to set up a system where we're going to encourage people to move
into ag lands and take away ag lands from real farmers. I think that is my concern
and I agree that no matter what parcel you pick, you're going to have A, B, C, D, E
lands somewhere on that property even at four acres.
Mr. Bosshard: My worry is I would get tied into what the
hydro would be or the bio-fuels because you're dealing with thousands of acres of
agricultural land and sensitive areas mauka. If somehow you could, I mean this has
been pending for I think Mr. Bynum said this bill has been thought of or worked on
or whatever for a year. Time passes quickly and I'm hoping the solar aspects of it
will get passed out even if you get hung up on bio-fuels which is a much bigger issue
and more complex.
Mr. Rapozo: Okay thank you very much.
Mr. Chang: Any further questions? .You know I guess I
have a question, Councilmember Rapozo had asked if you had any regrets and what
I wrote down that you had said -you have the right to be wrong, I guess if I heard
you correctly. Was it about this time last year October that you had the place
broken ground or blessed or what have you?
Mr. Bosshard: That is correct.
Mr. Chang: And that you started to, it was complete and
you started to generate power in March?
Mr. Bosshard: Yes we were complete by, actually I would
say September is when we actually started but I would say that we finished by
December 31, but I had to wait for PUC approval which is another one of those risks
that you take about how that goes. But you can't sell power until you get PUC
approval and so I wasn't able to sell for the first couple of months.
Committee Meeting 33 October 12, 2011
Mr. Chang: So wasn't it an incentive that you got, you
fast tracked the project by the end of the year to get State or Federal rebates?
Mr. Bosshard: There was about three different fronts that I
can answer that. The first, it vested me so if there had been any changes, I would've
been secured with the Federal and State grants so if I went into the next year and
the amount that they wanted to contribute changed, I would've already vested my
rights and I would be assured to get those money. It also expedites by a year of
what you're getting back from the Federal and State contributions. Because of the
tax year situation I would've had to wait another year to get, I'd have to file my tax
return at the year that I finished so you have to wait until April 15 basically of the
following year. The third thing was it has to do with my personal tax return and
depreciation of the system. The depreciation of the system and that worked out for
me better to have it done in 2010 than 2011 so it was personal to me a need to have
it done that year for tax reasons. Which gets to the point of auditing people's books
to try and figure out what they're making. It's going to be different for everybody
because it all has to do with what their investment portfolio and you can't say how
much one group is going to make versus what I'm going to make. It's silly and what
I wanted to say was if I lose money are you going to give me my real property tax
back? When does that happen? I won't know until fifteen, twenty years from now.
Mr. Chang: Well you and I had a conversation and the
reason why I have asked a lot of these questions is I believe some of the
Councilmembers may have been able to make it to the blessing. I think if I'm not
mistaken the Mayor made it. But I explained to you as I had another conference
then at the Coconut Beach Hotel and I spoke to people that went to your blessing
from Honolulu and Maui in particular and they were praising the County and
Kauai like how were you able to work together and partner and pull this off in a
short time. We would never be able to do this on Oahu, we would never be able to
get this done on Maui. At that point it was awin-win situation that I thought that
we had. So I guess I need to ask as you were going through the process of what you
were planning to do, did you have discussion with the Administration or the tax
office? When did you, was it not clear as the process was going on that there might
be .red flags down the road?
Mr. Bosshard: I had no red flags. I emailed in February and
asked Mr. Hunt to be involved in whatever discussions were had about the issue
and to be included in it. At this point it's a "he said," "she said," type of thing. The
bottom line is he met with all the big landowners and never let me know there were
any meetings or that I would be invited to those to have input.
Mr. Chang: But that was February 2011 or February
2010?
Committee Meeting 34 October 12, 2011
Mr. Bosshard: Eleven.
Mr. Chang: Okay.
Mr. Bosshard: When I built the thing I didn't have this at
the top of my radar although it was, as soon as I got done I did make contact with
the tax office. He and I are obviously not going to agree. At this point in time
obviously the lines are drawn and I'm willing to go with my side of things here. I
think the proof is in the pudding. It's set up for the big landowners, it gives A & B a
fifty percent (50%) discount off their real property taxes next to the power plant
there. I don't have any problem with them being treated the same as me but their
taxes are coming down half, mine are going up whatever percentage that is and it's
not pretty. Which is, I understand that is the way the game is played, and I play
hard just like Mr. Furfaro, an old football player.
Chair Furfaro: Well I used to play third-base and then when
I got older they transferred me to first and you go to the third-base position right?
Mr. Bosshard: You were much better at both positions, but
you could only play one which is the thing.
Chair Furfaro:
Mr. Bosshard:
Mr. Chang:
Bosshard? I think we've...
Chair Furfaro:
Mr. Chang:
That was thirty years ago right?
Thirty-five almost.
Okay, any further
I have.
Go ahead Chair.
questions for Mr.
Chair Furfaro: As anon-committee member, I just want,
Kurt obviously you did a proforma for your financing for this package and. I think
you may have heard my comment earlier when I was dealing with questions related
to D & E graded lands. Was your proforma, did you do your proforma based on the
fact that I would think that coming out of the shute for us we would at least want to
be doing something that was revenue neutral. So was your proforma done based on
the fact that you made an assumption that your lands would be ag tax rate?
Mr. Bosshard: I did not. I didn't include that as part of my
calculation and that's why I'm saying that I would still consider this a project a
Committee Meeting 35 October 12, 2011
success without regard to what you do. I will slug it out with the tax office for the
rest of my life.
Chair Furfaro: Well I know you're quite capable of that
because I thought one of the comments you made was one of our old baseball
themes: win or lose we booze, is that what you said?
Mr. Bosshard: Booze.
Chair Furfaro: So that's how we have to do it in the dugout I
understand.
hard.
Mr. Bosshard:
I'm drinking water now but I play just as
Chair Furfaro: Okay, but your proforma, getting to your
proforma, your original capital investment you obviously had a line item that dealt
with your tax exposure and you did not submit to your financial group something
that equated to taxes will remain the same?
Mr. Bosshard: To be honest I am my financial group so I did
it all in my own way which wouldn't have been the same.
Chair Furfaro: Okay, thank you.
Mr. Chang: Vice Chair Yukimura.
Ms. Yukimura: You know your thought that this bill will be
for the large land owners, it doesn't say if you're a large land owner you get a tax
break. It basically says whoever does solar gets a tax break. Those who choose
industrial land, if they're buying initially I don't know if they're getting a tax break,
I mean if they buy to do the project.
Mr. Bosshard: Nobody will buy; the land would cost too
much. I couldn't do this project paying a million dollars for a piece of property. It
wouldn't even make the proforma, there wouldn't be a proforma. It would blow up.
The project, it's not going to happen. Alexander and Baldwin isn't using that
property or can't sell it and it is a business enterprise, it makes sense for them to do
this solar which is great for the island. That's the only solar project I believe that's
going to be on industrial land, not because of the tax rate but because there's so
little industrial land that it carries this ridiculous premium. Otherwise my
assessment would not have been $1.7 million.
Committee Meeting 36 October 12, 2011
Ms. Yukimura: So that means that either we're not
addressing the need, I mean it's so ironic we're supposed to be providing lands in
the categories we need through our zoning process or it means that there is an
inherent preference for ag land just based on the circumstances that industrial land
is too expensive.
Mr. Chang: Hold on for one fast second. Do you have a
specific question you want to ask him because I'd like to call the Administration to
do their, because there might be some questions that will be stimulated from their
presentation and the appearance of our tax office. Thank you very much
Mr. Bosshard. Mr. Taylor please.
KEN TAYLOR: Chair, members of the Council my name is
Ken Taylor. As I said at the last meeting on this item is, I don't think that you
should be changing the tax structure on these ag lands based on solar projects. I
have no problem with giving them deductions if they're on D & E class soils. If they
want to build on class A soils there should be no deductions period, no deductions.
But as the previous speaker said there's not going to be very many projects come
down the pipe because the system won't take them. You can only put a certain
amount of interruptible energy projects onto our grid system. It's not that high,
maybe fifteen, twenty percent, maybe at the most. When you look at the existing
project that's there the project that's being considered for the Po`ipu-Koloa area, A
& B's project and the project that KIUC is now talking about, there will be very
little room for any additional projects. The other part of this whole equation is that
we know that the military base out on the west side will be going off grid probably,
well the mandate says 2020 but I've heard them talk that they'd like to be off
by 2015. They're the second biggest user on the grid so what are we going to do, why
would we need more electricity? These things all have to be calculated into this
situation. In my mind there's no reason to be concerned about we're going to gobble
up a bunch of ag land. When I hear his ag land was assessed at $16,000.00 an acre,
I'll tell you one thing, there's very few farming operations that could justify buying
land at $16,000.00 an acre. Ten to twelve and sixteen is really pushing it so I think
we have to really look at, why can't farmers go out and buy land: because it's too
expensive. We're making all these other uses that drive the prices up. I think we all
want solar, I think as much as we can possibly put into the grid system but it's just
not going to be much. It's not like being on the mainland where you're tied into a
grid that feeds the whole western United States and what you don't use you can
send out to other areas. I think this whole discussion is really unfortunate and time
consuming for nothing. So I just hope that you leave things where they're at and
let's move on, thank you.
Mr. Chang: Excuse me, thank you Mr. Taylor, any
questions for Mr. Taylor? If not, again thank you so much, Mr. Mickens.
Committee Meeting 37 October 12, 2011
GLENN MICKENS: Thank you Dickie, for the record Glenn
Mickens. I wasn't going to testify and I don't have a written testimony, I'm sorry
Dickie. I wanted to put my "two-cents" in on this thing. I agree with Kurt and
Jody 100% as long as most of us are pushing to get off of fossil fuel. Be it solar,
hydro, hydrogen, wind-tied or whatever, we should incentivize those who are willing
to invest in these ventures no matter what type of property is being used for these
operations. That land should have every tax break available, if that's our purpose. If
getting off of fossil fuel is in-fact a top priority over ag or any other use, then give
that land every tax break on the book. Prioritization is the key and that's going to
be up to you folks or the people to decide. I believe that Jerry has given some very
good suggestions regarding the ag lands so I do support some of the things Jerry
has talked about. I firmly believe that the users of this newly generated energy
must have their rates lowered to people. There is no way we should be paying
$0.42/kWh, the highest in the nation. As PMRF prepares to go off the grid, hotels
are finding it more cost effective to co-generate their electricity, those left on the
grid will be paying rates that no one can afford. It'll be unbelievable. KIUC has a
gigantic problem, they have this huge debt with RUS and when they bought our
utility from citizens utility they predicated their rates, never lowered on using the
same electricity or more. With the present progression of use this will never happen,
alternates and co-generation. So anyway, I think it's a problem. Kurt as he pointed
out he's going to push ahead with this anyway because hey he believes it is the right
thing to do. But again I think we have to figure out what our priorities are here. I
know ag land is a big purpose. But, is solar a bigger purpose or whatever we can do
to get off of fossil fuel. I've heard nothing from everybody saying the same thing:
let's get off of fossil fuel. Gasoline for us is the highest in the nation, we should be
talking about that. Why are we paying these (inaudible) rates for gasoline, it's
ridiculous. So anyway, that's my "two-cents" thank you Dickie.
Mr. Chang: Thank you so much Mr. Mickens, any
questions for Mr. Mickens? No questions for Mr. Mickens, thank you very much.
Any other members of the audience would like to testify on this agenda item? If not,
the rules are still suspended, Mr. Costa would you like to do your presentation?
Mr. Chair did you have a comment or question?
Chair Furfaro: (inaudible) Mr. Costa from the office of
Economic Development. I'd like to know what we can expect in the presentation
here from a standpoint of the economic benefit versus the position that is probably
related to the tax base. Obviously I think these are two very separate approaches. I
think we've heard testimony dealing with the fact that solar provides us alternative
energy, but at the same time it provided us with a situation that we can only take
on so much because it's not necessarily available to us unless we have storage
capacity with it. It's not available to us during peak demand periods. So that will
dictate to us from Economic Development how much solar we can actually take
versus the question on the revenue side, not only from us trying to stay revenue
Committee Meeting 38 October 12, 2011
neutral for taxes, but also from a standpoint of the purchase power agreements that
are with the utility company. As they expand alternative energy is there an
opportunity for these people to then be able to negotiate a different return rate on
their investment. I just want to know, is the presentation going to cover the tax
portion as well as the strategic business thinking?
GEORGE COSTA, DIRECTOR ECONOMIC DEVELOPMENT:
Basically the tax portion. It'll be both myself and Steven Hunt presenting the
tax portion.
Chair Furfaro: Okay.
Mr. Costa: Basically I'm just following up on my original
presentation last month on the introduction of the bill.
Chair Furfaro:
Mr. Costa:
call Steve up.
Chair Furfaro:
you for the clarification.
Thank you.
Then some of the salient point and then I'll
Okay so we'll hear from the tax office, thank
Mr. Chang: I' just wanted to say thank you because I
think I understand where you're coming from which is why maybe perhaps I should
have had George start off first and then we could have asked the questions. I
understood it at that point, so we're going to let him do the presentation, we'll call
up Mr. Hunt, I'm sure we can get a lot of clarification and then we'll open up the
floor again for any other discussion. Please go ahead Mr. Costa.
Mr. Costa: Aloha Council Chair Furfaro and
Councilmembers, George Costa, Director for the Office of Economic Development.
I'm here as I mentioned to basically follow-up and provide additional information on
the initial bill that was introduced -Bill 2415, which provides, proposes real
property tax exemptions for commercial alternative energy facilities.
First of all, currently as was mentioned several times throughout the
discussion today, Hawaii Revised Statutes HRS 205, allows for solar on ag land but
we want to emphasize: Does not set the basis for taxing purposes. Also, the County
Planning Department deems energy as a utility and as such requires use permits.
There also presently is the, through the Public Utilities Commission, public utility
companies pay in lieu of property taxes a fee of 1.885 of gross revenues generated.
So these are what current utility companies are paying. Also, this proposed bill
again we want to emphasize that only the portion of land used for energy
Committee Meeting 39 October 12, 2011
production is classified as industrial and non-production land remains unaffected.
Most of us here know the background of this bill, I think this will help some of the
viewing audience to help understand what we're discussing here today. The
industrial tax rate again is set by the County Council each tax year and land
currently in ag dedication and used for the production may be removed without any
penalty (inaudible) taxes.
Improvements for the alternative energy production again will be 100%
exempt and the land used would be fifty percent (50%) exempt on industrial
classification. Now, concerns that will arise and you've heard quite a few of them
today: the potential loss of prime ag lands. Again what is fair and equitable tax
treatment for all alternative energy projects regardless of the zoning? Also, right
now and you've heard bits and pieces of it, the limited information regarding the
project's proprietary and confidential agreements. I know I've heard Mr. Bosshard's
concern about, and also concerns from Jody about providing this information and
what is that information going to be used for. I know in our discussions with Steven
Hunt and the Real Property Tax Office, it's hard to determine that if you don't have,
not maybe all of the financial information but the pertinent types of information you
need to draw fair conclusions. Again, we heard the term subsidy being used so will
this be fair to all taxpayers? That's just my introduction at this point. I'd like to call
Steven up to provide background on some of -the research he did with other
municipalities on comparing what the Kauai County is proposing as opposed to
what is currently being used in other municipalities. Then we have several
examples of scenarios in taking these examples and seeing what the tax benefit is
and hopefully we'll provide more answers than questions. So if I could just call
Steve up.
STEVEN HUNT, REAL PROPERTY OFFICER, REAL PROPERTY
ASSESSMENT DIVISION: For the record Steve Hunt, Real Property
Assessment, I'm the Real Property Officer. In looking at a fair and equitable tax
plan for alternative energies, we really wanted to start first with seeing what other
Hawaii Counties were doing. Honolulu recently passed in 2009 new legislation
dealing with commercial alternative energy. In that past, and we have also, Kauai
and other counties have residential type treatment for exempting out solar water
heaters, personally used voltaic systems, things of that nature. On a commercial
basis we never had that concern-and I think at the time there was a limitation that
you could not sell more than twenty-five percent (25%) of your energy produced
back to the grid, back to the utility. Honolulu came out with a plan in 2009 that
dealt specifically with the improvements. The improvements were given 100%
exemption for a period of twenty-five years, but .the land treatment was not exempt
from taxation. As I confirmed with both Keith Yamashita who is a Property
Technical Officer for City and County of Honolulu, as well as Steve Takara who is
also with the PTO Department, they do treat the land as industrial when it's a large
scale project and use permits are required. They have one wind farm that is being
Committee Meeting 40 October 12, 2011
assessed that way at the moment and I believe there have been recently come on
some solar projects. The Big Island currently assesses land as zoned, but they have
no exemption on the improvements. The improvements are assessed at 100% value,
the same is true for Maui. Maui assesses 100% of the improvements, they are in a
tax court appeal on wind and the towers that support the wind generation as being
personal property or equipment, but that has not been resolved.
Going outside of Hawaii, I recently returned from the International
Assessors Conference in Phoenix and had the pleasure of speaking with a
gentleman that was the head of the Public Utilities for Tennessee for their
assessments. He says they do tax both real property and personal property in
Tennessee and that the alternative energies including solar are taxed at their
market value with no exemptions.
California at the State level, the improvements are exempt, at the County
level the land is assessed at market value and is typically, although it's County to
County based, typically is assessed as either industrial or utility. It's not by zoning.
In cases where grazing land have been .converted, it is re-assessed as either
industrial or utility.
In Clarke County, Nevada, they assess the same as a private utility on land,
and improvements are based on the lease rents and comparable sales. It's hard to
derive, it's a different market what those land rents would be and what the value of
those improvements are and whether there are sales of an alternative energy
facility. It's hard to compare that to Kauai but that is their policy.
In Falmouth, Massachusetts, land and improvements are assessed using the
income approach to value and they are assessed at I00%.
The town of Denis, Massachusetts, I picked some of these locations because I
was able to find out that they have operational alternative energy facilities which is
sort of the large swath of the U.S. but these are where they actually have built
facilities are being taxed. The town of Denis, Massachusetts has an existing bright
field solar project and the improvements are exempt but the land is taxed as
industrial. This was actually built on a brownfield site that was industrial, it was a
dump that was capped. They may be receiving some additional benefits for the
brownfield use of lands but it's still being treated as industrial.
Pennsylvania, improvements are exempt, and they use the capitalization
approach to value which using their income.
There are projects that are taxed based on the production of megawatts.
Ohio, Idaho, South Dakota, Nebraska all have such policy.
Committee Meeting 41 October 12, 2011
I prepared a potential scenario of how a three megawatt plant on a 10 acre
piece of 100 acre larger parcel might be assessed to determine how their taxes
would be calculated. The 10 acres if you look at it as a portion of a ag lot may have a
value of $20,000.00 an acre depending on its location and a tax in its ag as a portion
of a larger piece of about $1,380.00. Question?
Ms. Yukimura: (Inaudible)
Mr. Hunt: $200,000.00 for the entire, that would be the
assessment for that 10 acre piece. So $20,000.00 an acre times the 10 acre piece.
As a subdivided ag lot, so no longer a portion of the 100 acres but a 10 acre
standalone, it may have a market value of $650,000.00, like the highest and best
use either as development for residential use or depending on where it sits if it
didn't come out of the. 100 acres. It may have additional density and can be CPR'd
further for residential development. That's how we're valuing ag lands at its highest
and best use likely would have something in the neighborhood about $650,000.00 or
about $4,485.00 for that 10 acre piece in annual taxes. As limited in industrial lot it
may have a value of $22 million and a tax of about $15,180.00. Now I say limited
industrial because these facilities have use permits that severely limit what they
can do on the property. Part of the reason for asking for some of this financial
information is to determine how much the use permit is affected relative to an
unencumbered benchmark as full industrial. So when we're establishing the
amount of discount like we do at the airport, the airport is an ag zoned property
that is assessed as industrial and there are limitations. Some of the sites that are
leased can only be used for parking, some are hangars, and some are ticketing
agents and full blown retail, there's a wide variation as to what you can do on those
particular pieces. So in determining what kind of discount we apply to the airport
we look at what the use restrictions are and that's what we're trying to establish
here in terms of the income and the financials that are involved is how much
discount from our unencumbered benchmark should we be giving to these projects?
Then under our proposed ordinance, that assessment would go to $1.1 million and
have a corresponding tax of about $7,590.00.
(?) (Inaudible)
Mr. Hunt: Sure.
(?) (Inaudible)
Mr. Hunt: For the 10 acre parcel that portion, that's
correct.
(?) (inaudible)
Committee Meeting 42 October 12, 2011
Mr. Hunt:
it's not in the slide show, sorry.
Do you have additional? I have additional,
(discussion inaudible)
Mr. Hunt: Thank you Scott. Okay using the, what I
believe to be an appropriate development of cost here improvements to build a 3
megawatt facility would likely be about $4.25 per watt which equates to about
$12,750,000.00 in capital upfront to be invested. Currently I have two scenarios
under ag and under industrial. Improvements are assessed at $4.25 per thousand
assessed, industrial at $7.90 per thousand assessed. So based on that the calculated
taxes, annual taxes for-the improvements under ag would be $54,188.00 and under
industrial $100,725.00. We've been talking a lot about land and land assessment,
what we're not talking about this is a major give back, it is not cut-and-dry that the
improvements are personal property or equipment. We're not going to make that
argument, we're willing to acknowledge that it's part of the project and this is the
major exemption that we're giving up. So it's 100% exempt, so anywhere from
$54,000.00 to $100,000.00 that we're essentially subsidizing.
Next one is a comparison, again it's a 10 acre renewable energy facility, a 3
megawatt facility. Under the current ordinance the Kauai County would consider
this a public utility and at 1.885% of gross revenue with a projected annual revenue
of about $275,000.00 per megawatt, the property taxes would be approximately
$15,551.00. As industrially assessed, we're showing taxes again at $2.2 million
before the exemptions applied and the taxes would roughly be at about $15,180.00
just on the land use. Then the combined land and building exemptions roughly
equates to about $115,905.00. Under our proposed bill, the Kauai industrial land
would receive an exemption, that would drop the taxes to $7,590.00 based on a $1.1
million net assessable.
Comparing that $7,590.00 to other jurisdictions, these are ones that actually
do have in lieu of assessments by per megawatt or other means. Ohio does it at a
range of $7,000.00-$9,000.00 per megawatt. It's typically $7,000.00 but it allows
individual counties, because it's at the State level, but it allows individual assessing
counties to go as high as $9,000.00 per megawatt provided that it's over 5
megawatts for the $9,000.00. But smaller facilities under 5 megawatts are assessed
at $ 7, 000.00.
In Idaho it's 3% of the revenue that is generated as paid as an in lieu of tax,
would be roughly $24, 750.00.
South Dakota is a two part system: Part 1 is $3,000.00 per megawatt; Part 2
is 2% of the gross revenue. That would be roughly $25,500.00 in taxes.
Committee Meeting 43 October 12, 2011
Nebraska pays a fee that is combined, it's hard to determine what the real
property tax component is. Part 1 is $3,518.00 per megawatt, and part 2 is 100% of
the fair market value of the real property exclusive of the personal property. They
deem some of the equipment and fixtures to be personal, but some of the
foundation, sheds, outbuildings as real property along with the land at real
property.
California, the improvements are exempt but land is fully taxable and
reassessed annually not as zoned but as use. The Board of Equalization stated that
it is a utility or industrial depending on the local jurisdiction.
In conclusion based on the information we feel this proposal is fair and
equitable to all taxpayers including the developers. I'll field questions at this time.
Mr. Chang: Thank you Mr. Hunt for the presentation.
Any Councilmembers with any questions at this point? I'm sorry Councilmember
Yukimura did you have a question?
Ms. Yukimura: Yes, but I can wait, go ahead.
Mr. Chang: Out of curiosity you have this comparison
with other jurisdictions and you have Ohio, Idaho, South Dakota, Nebraska, and
California. Were there any reasons you picked those states?
Mr. Hunt: No. I looked for states that had policy
regarding commercial energy. A lot of them deal with residential use, or ancillary
use, these are ones that had policy regarding commercial energy. The ones that
were chosen had a per megawatt basis which was easy to calculate what it would be
in tax revenue. A lot of them are assessment based and it's hard to say, obviously
Hawaii values are higher than Nebraska values if you're looking at the value of the
land. But the value of the improvements would likely be close to the same, our labor
may cost a little higher here, and shipping costs and other things. As far as the land
values there may be a significant difference in value so I tried to find ones that were
basically in lieu of fees saying it's based on production and you pay "x" number of
dollars per megawatt, as an in lieu of property tax fee.
Mr. Chang: I was just curious because you have Ohio,
Idaho, South Dakota, Nebraska, and California, I mean what would happen if it
was Florida, New York, Illinois, Alaska, and Colorado?
Mr. Hunt: I did not, or could not find anything that
dealt with them commercially. Because it's such a new industry, a lot of them have
not set policies to be honest.
Committee Meeting 44 October 12, 2011
Mr. Chang:
Chair Yukimura.
Okay and I understand, thank you. Vice
Ms. Yukimura: Whatever we compare with I guess you
would say nobody has as urgent an energy need as we do because they're not as
isolated as we are. They. can wheel in, I think that's the proper term right, wheel in
energy from thousands of miles away whereas we don't have that option. So to a
certain extent we have a greater urgency or priority wouldn't we? And I'm not
saying we shouldn't look at those comparables, but just kind of weight it a little bit.
Mr. Hunt: No, and again the taxes we're comparing to
that we are so much lower and I want to be the lowest. That's the point I'm really
driving home. It's a major exemption because some do tax the improvements, we're
saying not going to tax the improvements. How do we fairly assess the land? That
becomes an issue not only between projects because you have others that generate
more megawatts on less land area, and solar seems to be the one particular
industry that seems to be more troublesome than other in terms of setting a fair
policy. Maybe the discount off the industrial value has to be a little higher for solar
projects than it does for biomass or for hydro. That's part of the reason is trying to
get information about the financials and economics of the projects, and I'm not
asking for individual or corporate tax returns, I'm just asking for proforma stuff to
say where does this benchmark, what does it do, how does it produce on a monetary
basis, how does it generate revenue?
Ms. Yukimura: Right, we really are breaking new ground in
trying to learn how to do this best based on learning about the individual
characteristics, and the various parameters of the different types of energy.
Mr. Hunt: It's really hard to have a one size fits all
policy, and that's what I'm finding here. To go back to some of the concerns that
were raised about some sort of cap level and consistency and equity, I mean if we
did go back to just what the public utilities pay, 1.885% those that are generating
more megawatts and revenue will be accordingly when there is downturn in either
production or increase in production then their revenue and taxes will reflect that.
Ms. Yukimura: Right. So on page 9 or slide 9 you have this
potential scenario and you took out this category called limited industrial.
Mr. Hunt: Correct.
Ms. Yukimura: Is this where you would take into account
capped income or the power purchase agreement that is capped? Is that correct?
Committee Meeting 45 October 12, 2011
Mr. Hunt: As much as possible I try not to individually
value properties because again we're doing it a mass level. There could be
differences between two projects in terms of what .they negotiated, either on their
land lease or on their purchase power agreement. So I'm trying to find out again
sort of generically where things are established. I don't know that everyone has the
locked 20 years seems to be where the projects are headed and certainly that
preserves some certainty on the developer's standpoint is we know what the
revenue will be likely for the next 20 years. So it kind of actually takes some of the
risk out.
Ms. Yukimura: Yes it does.
Mr. Hunt: But it doesn't allow for inflationary issues or
tax increases.
Ms. Yukimura: Or a big drop in oil prices either.
Mr. Hunt: Right.
Ms. Yukimura: My last question is, what are the
consequences to say Mr. Bosshard's parcel if this bill goes into effect?
Mr. Hunt: Based on his 4 acre use permit and again
just to explain a little bit about the assessment I know Mr. Bosshard came up and
was siting a per acre assessment on $16,000.00 an acre. That is the incremental
difference again he's on a 100 acre model and your density from just a normal
valuation excluding what we're doing with the utility assessment at this point but
just the dynamics of a 100 acre parcel having additional land doesn't always
contribute the same amount of value because at some point you're capped as to
what your density is based on what you can subdivide and build on ag. If it were
rezoned or redistricted then maybe the additional acreage could come into play and
there may be additional density but as ag there's a fine number of units that are
going to be allowed and whether those units are now going from 2 acre size to 5 acre
size, they're still units but it has an increase in density. So his particular situation
on his property, that $16,000.00 reflects just that 4 acres of incremental value not
part of the base, the base is still carried by the first 100 acres and that should really
be blended into the total project if you're going to look at it on a incremental basis
on a per acre basis. It would be a little bit higher but again not as high as we
reassessed this as industrial.
Similarly if you took that same 4 acres and created a individual ag lot, that 4
acre lot, I believe our benchmark is 200,000 for an acre with a 25% overage model so
it'd roughly be about 350,000 value as a subdivided ag lot that you could build a
residence on. The taxes if it stayed in ag as an ag lot would be $2,415.00 based on
Committee Meeting 46 October 12, 2011
the ag land rate of 690 with that 350,000 assessment. Now to take it to the next
step the $1 million assessment for that 4 acres is really, considers the limited use on
that property. Again it's the last sale that was at I believe in the end of 2009, not
quite peak market but on the downturn that one equated to a little over $10.00 per
square foot for I believe it was a 2.1 acre site.
Ms. Yukimura: Are you talking about industrial now?
Mr. Hunt: I'm talking about industrial, how we came up
with this value. His Iot is not being assessed at $10.00 per square foot, it would be
much higher. So this $1 million assessment is taking into consideration some
discounting for the limited use permit. As I'm getting more into understanding the
financials of how these solar work, maybe the discount applied was not enough to
come up with a value. Regardless the taxes as it sits today with no ordinance in
place regarding alternative energy would be $6,900.00 for that, annually for that 4
acre portion. Under the proposed ordinance assuming that the $1 million was still
the assessment with the 50% exemption that brings it down to a net assessable of
$500,000.00 or an annual tax of $3,450.00.
Ms. Yukimura: For the total of the 4 acres?
Mr. Hunt: For that 4 acres right. I believe he was
paying, if you look at the 16,000 number he proposed I believe that that number
somewhere around $469.00 a year or something like that.
Ms. Yukimura: Okay. So the 2,400 was for 4 acres, at ag it
was the 6,900 was if it were industrial present day but under the bill that's being
proposed in front of us with a 50% exemption then it would come down to 3,450.
Mr. Hunt: Based on the projected revenue from the 1.2
megawatt facility at the $0.20 and I don't know what the total terms of his contract
are, but roughly equates using the public utility 1.885%, I believe that $6,220.00 in
taxes that would be the in lieu of if we put it under the public utilities.
Ms. Yukimura: Income based public utility.
Mr. Hunt: Income based correct.
Ms. Yukimura: Okay thank you.
Mr. Chang: Thank you Council Vice Chair, any other
questions? Councilmember Bynum go ahead please.
Committee Meeting 47 October 12, 2011
Mr. Bynum: So when you say it's 6,900 (inaudible) that's
based on the 200,000 assessed value?
Mr. Hunt: Yes. The actual benchmark that was used for
this particular one was 400,000 for the first acre and 200,000 for each additional
acre. But that equates to, because it's 4 acres it's a million.
Mr. Bynum: (inaudible)
Mr. Hunt: He's taking the assessment and dividing it
by the acreage but we have models that put a lot of weight in the first increment,
-and then as you get larger you start declining.
Mr. Bynum: I'm not done but I need to think, anybody
else have questions?
Mr. Chang: It's funny because you were ready when your
mic was off and when your mic was on you weren't. We're going to slide over to
Councilmember Rapozo, and then you'll probably recall your questions, go ahead.
Mr. Rapozo: Steve, the comparisons that you used -Ohio,
Idaho, I'm assuming those are municipalities within those states?
Mr. Hunt: Those were State ordinances, and then the
municipalities are the ones that are giving the "in lieu" of, so some of them are
dictated at the State level.
Mr. Rapozo: Okay.
Mr. Hunt: Which is similar to California, they basically
say regardless of what county you're in that the improvements are exempt, you're
not allowed to tax the improvements at the County level but you can treat your land
how you want to treat your land at the County level.
Mr. Rapozo: I guess the comparisons I'm looking for are
municipalities that like ours control the real property tax then we're comparing
apples to apples and that is what I'm interested in. If you have those, if you could
provide them if not I guess we can check with WIR and they can help us find some
comps in the area of municipalities that actually control their general excise, I
mean property taxes. That's really all I have thank you.
Mr. Bynum: I'll try again.
Mr. Chang: Go ahead.
Committee Meeting 48 October 12, 2011
Mr. Bynum:
Mr. Hunt:
Mr. Bynum:
You know what year Oahu passed their bill?
2009.
So couple years ago.
Mr. Hunt: Yes.
Mr. Bynum: We've had this discussion before, I was
interested in this bill right after they passed theirs because I wanted it to be
proactive.
Mr. Hunt:
Correct.
Mr. Bynum: So we would set the policy and developers
could say okay I got the policy and they can do their proforma. Unfortunately that
didn't happen and now we're filtering this proposal through the eyes of the existing
and proposed projects which has complicated the discussion. Would you agree with
that?
Mr. Hunt: Yes.
Mr. Bynum: So because, and I'm just going to talk bluntly
I mean what I'm hearing in the community is - hey A & B meaning Alexander &
Baldwin was moving ahead with this project and then all of a sudden this proposal
comes out and they're going to benefit 50%. So the perception is this was a'proposal
for that landowner, do you want to comment about that?
Mr. Hunt: Well first that's not the case. Secondly the
intent was to, knowing that the existing solar facility in Kapa`a had been built and
not having policy to deal with it right now we treat it the same. You get a use
permit, your value is based on the use permit. When you do it you pull a use permit
in your residence and you want to build an office for... you can have a commercial
real estate office in your garage or something, you can get a use permit to do it; it's
allowed to do; that portion is assessed based on commercial. We're doing that now.
So in dealing with the ramifications of the appeal I just went, through we wanted to
have a policy knowing that we were going to be raising the ag properties that are
getting these use permits; we didn't want to have an uneven playing field saying -
well this is full industrial with all the rights and benefits but they're going to .use it
for something maybe less or generates less. At the same time we have these other
ones that we've now brought up and we just wanted to make a level playing field so
that we didn't have a tax policy that was dictating Planning policy. That we were
actually forcing developers to look for ag sites because the taxes were cheaper.
Committee Meeting 49 October 12, 2011
Mr. Bynum: And I appreciate that answer because earlier
testimony people said this was the (inaudible) you know kind of like accusations, I
want to give you an opportunity to respond to... Here's where I'm confused when I
read the Oahu bill, it doesn't say anything about zoning or assessing at industrial.
Mr. Hunt: That's right.
Mr. Bynum: But yet I've heard from you that that's what
they are doing.
Mr. Hunt: Yes, it's silent it doesn't say they're exempt
or do anything with the land and my conversations as early as a few hours ago
confirming because at the time I initially asked they had zero solar projects on
Oahu which was over a year ago. Now they have I believe one or two have come up
and are applying for the exemption or have applied for the exemption and they did
have a wind facility that had already gone through this. The big difference that
they've made in terms of qualifying whether it's a commercial use or a residential or
a sustenance use has become the dictating policy internally is how they treat those.
When it's a larger scale production, and this is coming direct from Keith Yamashita
and from Steve Takara today, when it is a larger scale facility they do reassess
based on the use permit as industrial. They're considered a public utility and they
reassess as industrial.
Mr. Bynum: And they do that even though the exemption
law doesn't...
Mr. Hunt: Exemptions of the improvements are
exempt, it's silent on the land. So once the use permit is pulled they treat it haw
they treat all the other use permits and that would be the other concern I guess
from a uniformity standpoint. If we ignore use permits for this one particular group
of properties how effective can we enforce use permits on the rest of our
assessments?
Mr. Bynum: So in your mind then our bill is a bigger
incentive than Oahu because we're doing the same thing in essence but assessing
it, giving it a 50% reduction?
Mr. Hunt: Correct.
Mr. Bynum: So you would see that as superior in terms of
an incentive?
Mr. Hunt: I do.
Committee Meeting 50 October 12, 2011
Mr. Bynum: Okay. I still am trying to get that clarity
from other sources even though I trust you. But that raises the question of why...
Mr. Hunt: Wally just recommended that I remind you
that they do have a policy on Maui and the Big Island and the policy has been a no
change policy. They do assess the improvements.
Mr. Bynum: Right, I'm aware of that. I wouldn't be
surprised if that there's legislation here to do it. But I fully understand that and so,
but it raises the question for me is -why do we need to put that in our bill
specifically that we're going to do this when you in essence were doing that already?
Mr. Hunt: Doing?
Mr. Bynum: Assessing the land value based on use
permits. In essence I assume Mr. Bosshard's assessment went up because you said
- hey it now has an industrial use and so even though it's on ag we don't have a bill
yet, our policy, similar to Oahu, is going to be to assess based on that use.
Mr. Hunt: That is correct. That's why we wanted to be
real clear in the bill that it is industrial and we want to just reassert that, because
it is. When we do highest and best use analysis, use permits are a part of that
equation, as part of what you can do based on what entitlements you've now been
given through the use permit process.
Mr. Bynum: In terms of the dollars, in terms .of County
revenue it's really kind of minor right?
Mr. Hunt: You mean about $3,400.00 versus $469.00? I
mean it's $3,000.00 a year annually for this particular project.
Mr. Bynum: Difference?
Mr. Hunt: Yes.
Mr. Bynum: $3,000.00 a year in the overall County
scheme of revenue is not a large amount is what I'm saying.
Mr. Hunt: That's correct.
Mr. Bynum: So if we wanted to even further incentivize
this and say -you know what you're on C, D, & E ag, you keep your ag basis, the
revenue loss wouldn't be that great.
Committee Meeting 51 October 12, 2011
Mr. Hunt: For this particular project, but if we're giving
exemptions to those that are on industrial like A & B then there is that loss in
revenue on that particular piece. And then we also have the issue of the level
playing field on how do we, they're doing the same probably the same production in
terms of price per megawatt that they're charging and all that but their land cost
are higher than someone else who we're giving preferential treatment to.
Mr. Bynum: We're changing the playing field because
we're saying if this is for alternative energy, you're not going to be taxing
(inaudible). We all agree that's the huge savings.
Mr. Hunt: That's the huge savings, right there. We're
not taxing (inaudible) dealing with the land issue now at this point.
Mr. Bynum: Right, but if I built a clothes pin factory I
would pay those.
Mr. Hunt: Right, but even in the case of the Kapa`a
Solar when that 4 acre site, which may be a part of a 7 acre site on their planned
development when that actually gets subdivided, it's different than when it's 4 acres
out of a160 acres, it's now 7 acres as it stands along with 4 acres being used as
utility. Like I say that may have a 350, 400, 500,000 value as a standalone
(inaudible) at some point. Again depending on the market and what's going on in
there.
Mr. Bynum: Well whether it had density or not would
impact the value as well right?
Mr. Hunt: Right.
Mr. Bynum: So if you had a 100 acre parcel at a certain
amount of density and carve out 4 acres for alternative, that 100 acres still keeps
that density?
Mr. Hunt: Right, but in this particular place there is a
master subdivision plan that exists within there and it happens to fall into one of
their subdivided lots. So his $16,000.00 an acre assessment, incremental now, may
change when that becomes a lot if and when that becomes a future lot. Maybe even
a CPR within that lot, I mean there's all these variables that may have different
assessment ramifications.
Mr. Bynum: So I mentioned earlier that the initial draft
that I saw on this bill didn't have this provision.
Committee Meeting 52 October 12, 2011
Mr. Hunt: The 50%?
Mr. Bynum: 50% or industrial. What was the reason for
that change?
Mr. Hunt: I don't think we've changed any position on
industrial; what draft did you see that didn't have industrial on there?
Mr. Bynum: It 'didn't say the land is going to be as
industrial, it just said the improvements are going to be exempt. I think the original
draft.
Mr. Hunt: Not that I recall, I think it's always been
industrial.
Mr. Bynum: Okay I could be wrong, I'd have to go back
and look at it.
Mr. Hunt: The 50% exemption became an issue when
we were dealing with this -how do we treat those that are going on industrial
versus those that are being in ag that are getting a limited. industrial. Essentially
you're taking a full potential industrial and downgrading it with its actual use,
should there be a discount or reward or incentive to do that? So we just wanted
again to create a leveled playing field between properties. Now once these facilities,
say 25 years from now or 30 years whatever the life expectancy is they remove them
and they're off, then they revert back. There's this reversion value that goes back to
whatever the underlying property is at that time. But it's while it's in use that we're
looking at the actual use of the property.
Mr. Bynum: So it has, to sum up this, it has been our
practice to reassess based on use, use permits?
Mr. Hunt: Yes.
Mr. Bynum: That is also O`ahu's practice?
Mr. Hunt: Yes.
Mr. Bynum: Okay thank you.
Mr. Chang: Thank you Councilmember Bynum,
Councilmember Vice Chair Yukimura.
Committee Meeting 53 October 12, 2011
Ms. Yukimura: You know there's been some thought about
capping the assessed industrial assessed value or maybe capping the taxes, I'm not
sure, but I'd like to understand the issues that would arise for the real property tax
department if a cap were proposed.
Mr. Hunt: Having gone through our permanent home
use cap on taxes I can tell you it's a very onerous problem to register and keep track
of taxes: when they got in, what their base is, what changes have been made. Some
of the problems I could foresee if you're taking a 10 acre portion of a 100 acre piece
but the remaining 90 acres is doing its thing and trying to only cap just that
portion, the 10 acres at a certain tax amount, it's hard to sort of bifurcate the two
and not have it cap the whole property. We've had challenges with that even
internally. Also I could see a phased project where maybe the economics change and
the values change in industrial where you've got a 10 acre piece but only 5 acres are
under use permit employed and 5 acres come on at a later date. Now we've got 2
caps going on within the same project under either one parcel or portions of a
parcel, so it could get really complicated in terms of how we implement something
like that.
Ms. Yukimura: Do you have an alternative to suggest or
maybe you did earlier.
Mr. Hunt: Well again the fallback position could be the
in lieu of fee that KIUC pays. They're exempt from their property taxes but they
pay an in lieu of fee of 1.885% of revenue. They also pay a 2.5% franchise fee but
that's for having the monopoly so this would just be a producer that would be
contributing. So I think it would be the 1.885% would provide some certainty on
what the tax level would be.
Ms. Yukimura: You had given me an alternative; you said
from Mr. Bosshard's property that was $3,450.00 under the proposed bill, under a
PUC 1.855 of percent of revenues. What was that?
Mr. Hunt: I believe...
Ms. Yukimura: And we're talking rough numbers.
Mr. Hunt: Rough numbers, I believe it's roughly about
at 1.2 megawatts it's about 330,000 plus or minus in gross revenue. So that would
be about $6,200.00 and change. Maybe $6,220.00 in taxes. So our bill is better than
what the current public utilities would pay.
Ms. Yukimura: And when an energy producer has a cap on
the per kilowatt hour payment or price then they're in a hard place if the assessed
Committee Meeting 54 October 12, 2011
value goes up but they're in a, but if the cost of oil goes down well that doesn't affect
them does it?
Mr. Hunt: Right. We're somewhat out of control of what
they negotiate with KIUC and I hate to say that is part of the problem is we're not
involved in that as a County. They're doing a lot of things locking in long term that
may be good for us as ratepayers in the future, but are putting some constraints on
developers in terms of being able to be flexible on what their payments can be. So if
we're looking to break the tie from what potentially could be increases and property
values going forward in the industrial sector, then the way to do that is to go back
to some sort of in lieu of and base it on production and what they're generating in
revenue.
Ms. Yukimura:
Mr. Chang:
Nakamura go ahead please.
Ms. Nakamura:
Mr. Hunt:
Okay thank you.
Thank you Vice Chair, Councilmember
Thanks for this presentation Steve.
You're welcome.
Ms. Nakamura: I'm looking at page 11, the comparison,
because I don't understand the in lieu, the 1.885% of gross revenue. So that is what
every public utility currently pays?
Mr. Hunt:
Ms. Nakamura:
Mr. Hunt:
Ms. Nakamura:
That is correct.
And the funds go to where?
To the Finance Department.
Okay.
WALLY REZENTES, JR., DIRECTOR OF FINANCE: The public service
company tax.
Mr. Chang: Mr. Rezentes just for the record, thank you.
Mr. Rezentes, Jr.: I'm sorry, Wally Rezentes, Jr. Director of
Finance. I just wanted to clarify. I think we talked about two different taxes that
come to the County. The public service company tax of 1.885% is taxes that the
utilities pay in lieu of real property taxes. So the County's General Fund is the
recipient of the public service company taxes. The utilities also pay a franchise tax
Committee Meeting 55 October 12, 2011
that equates to 2.5% of gross and that funds go into the Highway Fund of the
County for highway improvements, lighting, etc. Those are the two sources that
currently the utilities pay into the County.
Ms. Nakamura: Are you saying, so that's the first tax and all
of the providers of solar energy would currently pay these two taxes?
Mr. Rezentes: No they won't. The utilities pay them, the
utilities like KIUC, HawaiianTel on their gross income.
Ms. Nakamura: Okay but not an individual.
Mr. Rezentes: Not an individual entity provider.
Ms. Nakamura: Okay, so your suggestion, Steve, is that that
might be another, if you don't go with the real property route then this public utility
route is a possibility.
Mr. Rezentes: You know the 1.885% is supposed to be the
equality to try to get to equality with real property taxes. It's been set a long time
ago by State statute. So one possible scenario is using that same percentage of gross
as a means. You could even consider either/or versus a cap.
Ms. Nakamura:
Okay thanks for clarifying that point.
Mr. Chang: Mr. Rezentes hold on there might be
additional questions for you from other committee members.
Ms. Nakamura: Are you aware of, because KIUC has been
negotiating the 20 year contracts is that the way it's set up in Honolulu too? Do you
know if there are..
Mr. Hunt:
Ms. Nakamura:
Mr. Hunt:
Whether HECO is doing that?
Yes.
I don't know what they're...
Ms. Nakamura: So the question is are they facing the same
kind of constraints that our producers are?
Mr. Hunt: From what I understand from Jerry
Ornellas's testimony they sort of set it up on grids on their sectors and they're only
Committee Meeting 56 October 12, 2011
allowed to take up to 15% load on each particular segment. So that's really the first
that I've heard of that I don't know how they administer who is allowed to apply
and get these facilities operational or what they pay in terms of their purchase
power agreements. That typically is all confidential information so again
challenging for us to kind of determine how to sort of box these in in terms of
fairness.
Ms. Nakamura: Because I think that's, because we know
that's the deal on Kauai that that is a constraint on future revenues on each of the
producers of the renewable energy that that's something that I'm trying to take into
account. But the other question that I had has to do with, do we know what our firm
or what percentage KIUC, what the limit is of renewable energy sources into the
grid? Do we have any idea? As we do our planning I think it's important to
understand what that limit is and well Kurt has his hand up.
Mr. Hunt: He may have some information.
Ms. Nakamura: So that's one of my questions because I'd like
to know what the, what is that percentage and with the projects that we have online
now then that are being proposed, are we approaching that limit or is it...I want to
know how much reach this bill is going to have. How many projects will it affect? Or
are we at our limit? I think that will also give me better information. I also have a
question about other renewable sources, for example biodiesel, if there's going to be
trees planted, acres and acres of trees that then are processed in a facility then
what are we when we talk about the land, are we basing the industrial use on both
the facility, the processing facility and the land that the trees are being grown on?
Mr. Hunt: Right. For like a biomass facility those trees
would be considered their stock for generating the electricity but it's actually the
plant that generates the electricity. So again the use permit area may be a 5 acre
site, 4 acre site whatever they're building their facility to process on. But it may be
1,000 acres of planted trees. The trees would still continue to get ag treatment but
the facility that they're actually generating the electricity would be then considered
industrial. Similar to the mills this is how the plantation era of the cane was ag, but
the mills where they processed were industrial.
Ms. Nakamura: Okay, but a solar farm photovoltaic panel, or
the panels themselves would be all part of the industrial zone, so it would be a
larger land mass?
Mr. Hunt: In solar in particular seems to be a larger
footprint for what they generate in megawatt. You can generate more megawatts
from a smaller footprint in biomass that's the facility.
Committee Meeting 57 October 12, 2011
Ms. Nakamura: Do you see any disparity, or fairness issues?
Mr. Hunt: Well that again, that's why I'm trying to
learn more. Again it's a evolving industry, there's not a lot of data out there but I'm
trying to learn more about the economics and when we look at our limited use
values that we're making in the appropriate discounts from our benchmark. Maybe
a solar facility gets a 60-70%, and a biomass gets a 30% or 40%. We'd be having
different levels of discounting to accomplish that use permit value.
Ms. Nakamura: So there -may be future amendments as we
learn more about how these facilities are operated.
Mr. Hunt: It's a really complex way of determining
value and I wish there were better means. Just capping the lease rent is not always
the fairest because some are more informed than others in terms of the landlords
and what they can charge. Some do research on the industry and some say well I
can lease it to a farmer for $500.00 an acre but solar will pay me $1,000.00 an acre.
Some are saying well I can pay as much as $5,000.00 or $7,000.00 an acre to do
solar and so there's this disparity amongst the leases too. And also what you're
potentially capping is just the lease and not the land residual so it's really a
leasehold value as opposed to a fee simple value which by ordinance we're supposed
to come up with a fee simple value for that. So again it's a complex issue and having
some sort of a means to come up with a land residual at least gives me a benchmark
as to what kind of discounts will need to be involved from our industrial
benchmarks.
Ms. Nakamura: And I just appreciate seeing the comparisons
from other Counties in Hawaii and other states, that was helpful to see. Thank you.
Mr. Chang: Thank you Councilmember Nakamura, and
Steve for the record I wasn't writing it down but Councilmember Nakamura asked
you specifically for two questions to get back to her. Would you be able to repeat
those questions that she had asked?
Mr. Hunt: I did not write them down either, I believe it
had to do with KIUC's maximum amount of energy that they would take from
alternative energy sources. I don't know if it was specific to any one source but in
general. Then the firm rate was what you were concerned about, how much firm
and how much alternative and what rate structures were being proposed? It's not
my area of expertise but I'll try and find out.
Mr. Chang: I understand that and that's great because
when you get the questions back if we can get that returned back in writing.
Committee Meeting 58 October 12, 2011
Mr. Hunt:
Mr. Bosshard might have that answer too.
Mr. Chang: I understand that, but my answer might not
be so I just want to make sure that we got right from the source that the question
was asked. Any further questions for... You know what I'd like to continue the
meeting, Councilmember Kuali`i go ahead please.
Mr. Kuali`i: Thank you for being here. Just a quick
question following up to what Councilmember Nakamura was asking you about. In
many ways basing the taxes on income per megawatt or having this in lieu type of
thing, again based on megawatt if you did it that way then it would be about the
energy produced and not by what means it was produced.
Mr. Hunt: Correct.
Mr. Kuali`i: It would in a way be more consistent, the
energy developer's projects could know for certain going forward that it would be
sort of like how KIUC has that fixed $0.20 for 20 years they would know if you came
up with some percentage that the percentage of whatever they make however they
do it. I mean their profitability will depend on all the other factors that we don't
have control over anyway, how cheaply they get the land, how good their technology
is, and how efficient. But from our side it could be fairly simple if you just did, based
it on the income per megawatt or on some kind of in lieu fee.
Mr. Hunt: It certainly takes a lot of the risk out of it.
God forbid...
Mr. Kuali`i: But it would simplify our system.
Mr. Hunt: It would simplify it and god forbid there'd be
another hurricane and there were no revenue produced then they would be exempt
from taxes that year.
Mr. Kuali`i:
Thank you.
Mr. Chang: Thank you Councilmember Kuali`i. I
understand that Vice Chair you had a question?
Ms. Yukimura: Yes and it actually follows up with
Councilmember Kuali`i and Councilmember Nakamura. If we were to use the in lieu
route which is the PUC, public service company tax, would we use the same
percentage or would there be a problem with changing the percentage? The 1.885%.
Committee Meeting 59 October 12, 2011
Mr. Hunt: That's totally within your discretion, we're
using that in lieu of right now for the ones that are participating but if we call these
a different type of public utility, an alternative or renewable I suppose we could
calculate it differently.
Ms. Yukimura: But that could set also the precedent for any
other alternative energy projects or it would in fact.
Mr. Hunt: It could and would and the other concern is
do we really want to treat a cooperative that we own differently than a privately
owned that's participating with us?
Ms. Yukimura: Right. Okay and it would move the real
property tax system more toward this fee system then? It would take it out of this
process of assessing property.
Mr. Hunt: It would absolutely simplify the assessment
because they would be exempt 100%, land and building and they would just be
paying based on their revenue generated, the in lieu of. That take away the issues
of studying discounts on different types of projects and where they're locationally
situated and what the values are becomes less cumbersome.
Ms. Yukimura: And verification of income is that a problem?
Mr. Hunt: We're doing it now.
Mr. Rezentes: We could definitely set that policy either in
Administration rules or the bill on what form requires CPA statement to that effect.
We can work something out I'm sure.
Mr. Hunt: I'm not sure if the utilities are sending
1099's to these or ,what form they would be using but there's probably some
verification of income that's also sent to the IRS that we could use.
Ms. Yukimura: But for any of the other properties everybody
is subject to the uncertainty except that they may not be bound by fixed price
contracts. Alright, thank you.
Mr. Chang: Thank you Vice Chair, Council Chair.
Chair Furfaro: Hey look we're back to where we were an
hour ago, Steve and Wally. In the energy sustainability plan it is suggested that we
set up a task force from the County to work with the public owned co-op for the
purpose of understanding what might be the right recommendations about types of
Committee Meeting 60 October 12, 2011
alternative and renewable energy, what the allocations might be on various land
pieces, what might be the recommended revenue returned for independence.
They're giving $0.20 on a kilowatt that they're charging $0.42 for. It's all kind of in
that summary. And they're committed for like for 20 years, there's no opportunity
for these people to come back in and say - okay I got a 20 year use agreement with
you but every 7 years maybe we get to open the window on negotiating that rate
depending on what's happening globally, what's happening with oil prices. So those
kind of recommendations are supposed to be made by this committee that's there.
You're going to read the plan and you're going to find out the number for renewable
is long term, it's like 80%, 80%. What's not broken down in there is what portion is
hydro, what portion is solar, what portion is... That's what the committee is
supposed to be divulging for. I would strongly recommend that the Office of
Economic Development, we've had that plan now for a year and half and we just
have our energy manager here in the audience, let's get that thing started. Steve,
you should be on it as it relates to what is the impacts that there could be on the
County's financial picture and that we can start having that interaction. But the
goal is pretty high, it's just not broken down and we need to start working that way
and I would get somebody from Apollo Kauai to be on the committee, and somebody
from KIUC, and somebody from our tax office. We need to do that part over here
because until we do that and we have some of this it's pretty difficult to guess on the
proformas. Has the tax office done any of these proformas?
Mr. Hunt: For individual projects?
Chair Furfaro: Yes.
Mr. Hunt: It's hard with the limited data we have to
even understand them. We've looked at land residuals on a direct first year cap
which are high. We've looked at over the life of 25 to 30 years but not knowing what
a land residual return would be after the project's done, what the land value would
be. So it's a lot of speculation as to what the value would be. Without data it's hard.
Chair Furfaro: Okay I'm going to quote somebody here.
Mr. Hunt: Okay.
Chair Furfaro: All things good are difficult at first. All
things good are difficult at first. It wouldn't hurt us to try and gather some
reasonable information so that we could make a couple proforma models and that
we know what we're up against. Thank you Mr. Chang.
Mr. Chang: Thank you Council Chair. Go ahead
Councilmember Rapozo.
Committee Meeting 61 October 12, 2011
Mr. Rapozo: I don't know if it's possible, can you give me
like a 30 second layman's summary of how the best possible use, highest and best
use and in fact does the income or revenue generated by that entity whether it's a
hotel or industrial or whatever it is, does that play a role, I've heard comments to
that effect this morning. I just, I don't believe that's true. Does in fact the revenue
or the income generated by the property affect the assessment?
Mr. Hunt: The position on, we're pretty clear on the
ordinance we use the market approach which is the sales comparison and we use
the cost approach which is the replacement cost less the depreciation. Those are the
two means that we have to value properties. That doesn't mean income is not
important. Income can help substantiate discounts, we have issues with functional
obsolescence, economic obsolescence, things like that when we're, when we have a
hotel analogy- when you have a sale of a high end hotel like The Princeville and a
more budget hotel like the Kauai Sands and say those are your only two sales but
you have a variety in between. So going from the St. Regis to Kauai Sands as the
two comps, you're going to have a way different price per room or price per acre
however you want to analyze it. We have to find a way to say okay I've only got
these sales to work with and I've got my cost numbers, but where do these other
ones fit in. We look at the room rates, occupancy, we come up with what we call a
rev-par analysis, revenue per available room, and we rank them, we stack them. We
then say, okay based on this sale at 500,000 a room and this sale at 60,000 a room
how would the Makaiwa stack up against that. So then based on its room rates and
its potential revenue it would be 150,000 a room. So we do use income for a means
of justifying our adjustments and it's very common practice on even the sales
comparison approach to use income as a determination of how you arrived at your
discount or your adjustment.
Mr. Rapozo: And in a case like this one really you don't
have any historical data because it's a new project.
Mr. Hunt: Right.
Mr. Rapozo: And I guess what from what Mr. Bosshard
said earlier, the comp was one sale, is that accurate?
Mr. Hunt: No, the comp actually included I believe 3 or
4 sales. But they weren't the best sales, one was a former contaminated site that
had a, was on ag land but had an industrial use permit, was the former Brewer
Environmental site that's being used for storing trucks. Another comp, the best
comp obviously which you sited was the A & B sale to KIUC; the site was not really
fully improved, it did have overhead utilities running across it. If you actually stood
on the site you vibrated from the turbines next door. He's right, there really only
was one buyer. But I think the price paid also reflected some discounting for being
Committee Meeting 62 October 12, 2011
so close to that energy generation on the market; no one else would've paid much for
it.
Mr. Rapozo: Is that available for us I guess the...
Mr. Hunt: The Board of Review report?
Mr. Rapozo: Yes if you have something.
Mr. Hunt: Yes I can make a copy of that for you.
Mr. Rapozo: And that explains all of the comps and so
forth?
Mr. Hunt: Yes.
Mr. Rapozo: I'm done thank you, and Steve you can
disregard because Councilmember Nadine Nakamura said we have it in the, she
has a copy of it, so we'll get it thank you.
Mr. Chang: Thank you for writing down the question
though. Councilmember Bynum.
Mr. Bynum: So I just wanted to step back because, to
what some of the testifiers were saying. They know what their revenue is going to
be for 20 years based on production right, they know what their upfront costs were
to install, those are known, the unknowns are how much energy are they going to
produce. Is there going to be a really good year and a bad year. Although even that
is somewhat predictable or else they wouldn't move forward. We have a sense of
what the overall would be, but taxes does constitute an unknown right? You know,
if you're being assessed at industrial rate at the current values my assumption is in
10 years those values will be much higher is that correct?
Mr. Hunt: If I had that crystal ball I wouldn't be doing
this. It could increase or decrease more, I don't know where we're heading with the
values I'm not going to comment on that.
Mr. Bynum: Well long term; unless the whole world
changes, generally values increase.
Mr. Hunt: Right and supply and demand; if for some
reason there is new industrial lands that become zoned and there's more supply
then that may dampen pricing too, so it all depends.
Committee Meeting 63 October 12, 2011
all?
Mr. Bynum: I mean first have you tried to resolve it at
Mr. Hunt: Yes.
Mr. Bynum: I see some value for them and some
understanding of their uncomfortableness in terms of these are unknowns. So I'm
10 years into the project and now I'm facing 10 years of loss and they're pretty much
fixed. I appreciate what you and Wally said about potential alternative; I even like
what Mr. Rezentes said about could be either/or. But I am concerned for those
people who would choose to make this investment, to give them some level of
predictability and it would be nice and for them to come into at least from their
testimony an assessed value at industrial that they weren't anticipating and maybe
they should have. Maybe they should've done more homework if that's been our
practice all along. I'm just thinking out loud here, maybe there's an alternative to
give that predictability and then I kind of agree with Ken. I want Kauai to have the
best incentive in the State, I want to attract those investment dollars. There's
probably a saturation for solar but technology changes that, bring storage into the
equation which storage costs are going down. Then the equation can be real
different in 5 years and there can be more penetration. I'm kind of summarizing all
the thoughts that I want to go through as we move through this and also the
protection of really viable ag lands. The other thing we've learned today is you get
into taxes and it's complex, it's going to be complex. And the Council is going to be
talking about tax issues the next 3 or 4 months for sure so here we go.
Mr. Chang: Thank you Councilmember Bynum, Council
Chair.
Chair Furfaro: Yes thank you just because I need to leave,
this is the document that Council Vice Chair and myself worked on for almost a
year and a half. It was presented to the Council in April 2010, on page 117 of the
document it talks about the need for us to formulate this working group about all of
these particular options and I'm not suggesting that anything get delayed here as
we move forward. But that this forming of a sustainable energy team is extremely
important, having members from the Farm Bureau, KEDB, DBEDT, environmental
groups, Kauai Community College, it lists them all. And then in our budget session
Steve the Council agreed on a presentation from Councilwoman Nakamura to fund
the (inaudible) accounts would deal with this particular issue. Those money are
broken up in 6 categories that are in Mr. George Costa's division. This is where we
should be going with these pieces as we laid it out in the plan and it starts on
page 117. I strongly suggest that on all of these other discussions that are taking
place in front of the Council we move on the next step as it says here, the forming of
a sustainability energy team using "CEDS" money in the Office of Economic
Development which you should be part of. Thank you Committee Chairman.
Committee Meeting 64 October 12, 2011
Mr. Chang: Thank you very much, Chair.
Councilmember Nakamura.
Ms. Nakamura: Sorry I have a couple more questions. One
thing that I heard in the testimony earlier this morning was that people were
concerned about fluctuations in industrial rates, value. I wanted to find out, do we
have any data on industrial values on Kauai for the past 10 years to see.
Mr. Hunt: We can look at benchmarks for particular
neighborhoods and show you where those assessments have gone.
Ms. Nakamura: Yes just to kind of get a sense of are we
looking...
Mr. Hunt: More recently it's been decline, decline,
decline.
Ms. Nakamura: Right, but even during the peak of the
economic period was there a lot of fluctuation. That would help me.
Mr. Hunt: One of the bigger challenges I guess is sort of
taking a small industrial lot, most of these lots are 10,000-20,000 square feet in
industrial parks. That's where the transactions are occurring and in peak market
they were $26.00 or $28.00 maybe, even over $30.00 per square foot. Taking that
and saying -how do you apply that to a 4 acre piece? We'll .obviously have
diminished returns and that is more of the challenge when we have very few, like
the A & B piece was really the only acreage sized piece that we've had sell in a long
time.
Ms. Nakamura: Okay and in terms of real property tax rates
for ag and industrial areas, can you...
Mr. Hunt: The rates are identical on land. Industrial,
commercial, resort, ag, and conservation, those 5 categories are all paying at a rate
of $6.90 per thousand assessed. So it's the assessment level not the rate that is
really the step up if you will.
Ms. Nakamura: Okay thank you.
Mr. Chang: Thank you Councilmember Nakamura. Any
other questions? I guess I'll just end this for now, this part, with a quick question. I
had a discussion with you, you know when it's reported in the Garden Island
Newspaper and it's big news, many times the headline and or definitely the front
Committee Meeting 65 October 12, 2011
page, we have the Kapa`a Solar Project that Mr. Bosshard did enthusiastically, then
of course we hear from Kukui`ula, then we hear from Alexander & Baldwin, then we
hear from Po`ipu Solar, and it seems so good. I've been excited because I've been
wanting to put it on the agenda because I'm going to very soon have PMRF tell us
about all the wonderful things happening there. Can you comment or are we
having, a question I asked you a while back was -are we going to have problems
downstream? In light of what Mr. Bosshard had brought up, can you give us an
update on what Kikiaola is, are they moving along or are they having similarities as
far as problems or concerns or where are we with Kikiaola?
Mr. Hunt: You know, that's probably a question
directed to Planning because right now the ordinance requires use permits with the
exception of, if you're doing this on industrial. But aside from the A & B proposed
project I believe all of these are on lands that would require use permits so they're
in various phases of getting use permits. I was able to glean a little bit of
information by going to Planning and pulling the AES use permit file to find out, I
think it's 20.5 acre area that they lease but it's only about 18.8 acres that is
concerned in part of that use permit. It's even unclear as to the preservation
whether they're leasing the preservation might be part of the 20 acres. But no,
there's no financial proforma attached or anything for me to get additional
information.
Mr. Chang: Okay thank you. If there's no further
questions thank you very much, thank Mr. Hunt, Mr. Rezentes.
Mr. Hunt: Thank you Councilmembers.
Mr. Chang: Any other members of the audience would
like to comment on this agenda item? Mr. Bosshard. And Mr. Bosshard before you
start your testimony are you here specifically to answer the. question posed by
Councilmember Nakamura?
Mr. Bosshard: Yes and a couple of other items.
Mr. Chang: Okay before you start, Councilwoman
Nakamura would you like to state that question?
Ms. Nakamura: I just wanted to find out what was KIUC's
limit in terms of collecting solar energy into their grid system.
Mr. Bosshard: It raises a great point, KIUC is way out
ahead of the other utility, primary utility is HECO which has a 15% cap as I
understand it. What I'm told by KIUC is that the Kapa`a Solar facility can produce
at the high point which would be roughly 1,000 kilowatts per hour, 85% or so of that
Committee Meeting 66 October 12, 2011
circuit's use. 85% versus 15%. Now what that means is KIUC is way out in front of
everybody from South Dakota to Washington to Idaho to Honolulu on this curve.
They're using the Kapa`a Solar site as a basis or an experiment as to how their
whole business orientation-production can handle that, and that it's been
successful. I don't know a lot about how much benefit this has been to KIUC to have
this test site but I do know that they bring everybody out there from Washington
D.C. to wherever to come here as to show that they've got something going and to
parlay that into world utility service money perhaps or showing that Kauai is out
in front of the bank. You read the articles in the paper and we're hopeful that
there's going to be all these projects but the bottom line, this project is the biggest
project in the State and it's unique and people are coming here to look at it. This is
part of what I'm saying is -take the momentum and build on it. I know you have to
get bogged down on the details fairly but move on it quickly because time is of the
essence in doing that. Now there are couple of other comments that I had if that's
okay.
Mr. Chang: Go ahead.
Mr. Bosshard: JoAnn I never thought I'd hear the day that
I'd hear you say that the price of oil might be going down and we need to take that
into consideration.
Ms. Yukimura: Short term.
Mr. Bosshard: Short term? Okay well I think obviously
that's going to be a minor factor. If we're going to start to use that as a concern in
this process then we got a problem because everything I've ever heard for the last
20 years is that ultimately we're running out of oil, and the price of oil is going to go
up.
Ms. Yukimura: (inaudible)
Mr. Bosshard:. So I think that that is a safe assumption.
KIUC, when they get assessed a rate like 1.85% or 2.00%, the other figures that
they were throwing around, they just pass it on to the ratepayers. They're a
monopoly. Although they are us, there isn't much of an incentive not to just pass the
expense along to the ratepayer. So we can't pass anything along, we're fixed on a
$0.20 fee. I would oppose that gross revenue assessment. The other thing is I don't
think you have to worry so much that there's going to be so many of these projects
that they're just going to overwhelm the island. In terms of the...
Ms. Laureta: 3 minutes Chair.
Mr. Chang: That was your first 3 minutes, go ahead.
Committee Meeting 67 October 12, 2011
Mr. Bosshard: In terms of the Alexander & Baldwin project
and whether this is oriented towards them it seems like the tax office in figuring
this out said, well A & B said they're going to do this and they're going to do it on
industrial land so how do we protect them in this fashion? As he said, the only
industrial lots we really have are these, and the other comparable was from the
Puhi Industrial Park where you're taking 10 or 20,000 square foot lots and you're
projecting from their value into a 4 acre parcel and that's how we came to ridiculous
numbers of the assessment that I received. Proof is in the pudding, and the pudding
is what happened to me or Kapa`a Solar. As far as using comparables on the
mainland there are so many variables in this. I believe that some jurisdictions,
probably South Dakota, that the price per kilowatt for power for an individual
would be less than $0.10 per kilowatt. The cost of doing business there is very very
small. They have plenty of oil and gas, they don't look toward solar. I would say
that's a "red herring" and not to go the direction of trying to be like somebody else,
whether it's Honolulu, Maui, or anybody else. As to not taxing the improvements I
don't think the County, I know the Building Division, I don't believe there's
structures, you don't get a permit for the post that I put up to put the solar panel
on. So when Mr. Hunt says we're giving up on all this money that we could
otherwise have again a "red herring." Everybody says they want Kauai to be the
most attractive place for solar or that they think this is a good idea, here again the
proof is in the pudding. I really appreciate you guys taking this kind of serious
thought on this. I know you guys will struggle with these issues, thank you.
Mr. Chang: Councilmember Nakamura has a question
for you.
Ms. Nakamura: Finance Department tossed up the idea as an
alternative looking at the public service tax, the 1.885% of gross revenue in lieu of
any real property tax. What are your thoughts about that alternative?
Mr. Bosshard: That number came from what KIUC pays, I
believe, and that was part of the point I was trying to make about whatever date
our assessed, they're amonopoly -they just pass it along to us. We don't really have
anybody to monitor that. I wouldn't mind it being set at a certain percentage but
the cost of doing business on Kauai is more than probably any place else in the
Country. And so since I'm not a monopoly and I don't get to control my costs, and I
don't get to pass it along to anybody or along to the ratepayer, I wouldn't mind a
percentage but I think that would be high.
Ms. Nakamura: I'd be interested, and I'm just tossing this out
because it just came up today. If you would think about that it seems that that
might level the playing field for alternative types of renewable energy.
Committee Meeting 68
Mr. Bosshard: Yes.
October 12, 2011
Ms. Nakamura: Because you're looking at amount generated
rather than the configuration or lot coverage of the different types of renewable that
are out there. So just wanted you to think about that and if you have any further
thoughts, doesn't have to be today.
Mr. Bosshard: Well I was thinking about it in the back of
the room and it does make sense to me except that the rate is high because I can't
pass it along and because the cost of doing business here on Kauai is great.
Ms. Nakamura: So if you have any alternative ideas then I
would be interested in knowing what that would be.
Mr. Bosshard: You'll never get a, I'm not going to know for
years how this all works out so you're looking from Steve or myself, you're looking
for this formula; you're not going to get one. You're going to have to go on your own
instinct and whether you think you're really making Kauai to be the attractive
place for all this to happen. My opinion is you're not going to be inundated with
these projects. Apparently there's some feeling that they're all going to come here
for some reason. We'll see and I reserve the right to be wrong.
Ms. Nakamura: Thank you.
Mr. Chang: Councilmember Bynum.
Mr. Bynum: Councilmember Nakamura asked a question
I was going to ask, but I said earlier, you have these unknowns and taxation is a big
unknown right? I mean I think you would share my assumption that 10 years from
now it'll probably be a lot higher than it is now. So this percentage idea would
provide predictability, it would have some comfort level. I might even be willing to
pay a little bit more now if I knew that that was what it was going to be in 15 years
right? I just want to think about that.
Mr. Bosshard: That's true, I'm not resisting the concept. I'm
really a lot more worried about this industrial thing because when you talk about
what the cost are going to be and how much difficult it is to be zoned into industrial,
that pool of land is not going to be there. The infrastructure on that industrial is
going to be so much and the values are going to be so high or it's going to be so finite
that those costs are just going to continue to skyrocket. That's, I think I've been
consistent through all of this is -don't put it in industrial or you're just going to
allow, I'm going to be competing with the most intense activity in the market.
Committee Meeting 69 October 12, 2011
Mr. Bynum: I understand that point but we have to think
about not just the projects that are on the ground that's why I really hoped to have
this nailed down 2 years ago so people would know and could make their proformas
based on that knowledge. But we have to think about the impact of whatever
decision we make here on biomass, on biofuels, on algae, on hydro, on wind -what's
the implication for all of that?
Mr. Bosshard: Well I'm glad you came to the understanding
that my 4 acres passive solar panels that don't have anything going on over there
are going to get that 4 acres is going to be tax assessed the same as a biofuels plant.
If that makes any sense to anybody that in this whole years of discussion about
alternative sources of energy I would have a hard time believing that that's going to
be seen as equitable.
Mr. Bynum: I understand.
Mr. Bosshard: So that makes me suspicious of the whole
set-up here and about the large land holders and how they're getting inside
(inaudible). They don't have to come down here and take your time up because the
tax office is taking care of them not accidentally.
Mr. Bynum: .Thank you.
Mr. Chang: Anything further questions for
Mr. Bosshard.
Mr. Rapozo: I have a question. You said something earlier
about you really don't know, how long you think before you have even an idea, a
pretty realistic idea of whether or not your project is even going to be...
Mr. Bosshard: Six or seven years probably.
Mr. Rapozo: Okay. Then you can have a better
understanding of what's going on?
Mr. Bosshard: That's right.
Mr. Rapozo: Okay interesting. I'm just looking at this
ordinance from 1980, interestingly Councilmember Yukimura was on the Council at
that time, you're the only one left. Back in 1980 they talk about tax exemptions
back then and there was an exemption for property use of manufacturing pulp and
paper. I would assume back then it was an incentive, they needed to produce paper
or pulp from bagasse so they created this ordinance. But they said the exemption
was good for 5 years from the first day of the, and I'm assuming like you at that
Committee Meeting 70 October 12, 2011
time it was unknown - we didn't know. So we said -you know what we're going to
do, we're going to exempt, completely exempt on that industrial, whatever that case
might be, for 5 years and then...I'm just saying that's another option for us, if we
want to incentivize alternative energies.
Mr. Bosshard: That's right.
Mr. Rapozo: I almost feel like we're building a wall right
here and saying -hey we don't want to give away the store but want them to come
in. I'm really feeling uncomfortable, it's almost like we're trying to not be difficult
but we're being difficult. That's how I feel personally so I have a lot of reading to do
again. I'm riot on this committee but I'm just reading this thing and interestingly
they have quite a few exemptions back then. All of the new exemptions came with a
time period and some are 5, some are 7, and I don't know what that number is.
Because it's such a new project...
Mr. Bosshard: I think the community would say...
Mr. Chang: Mr. Bosshard hold on please, did you want to
pose him a question or was that just a.
Mr. Rapozo: I hoped to get a response, I didn't phrase it
as a question but your comments?
Mr. Bosshard: I think that the community, most of it I
mean you can't please all the people all the time, would say you can't go wrong by
trying to attract this kind of investment. I mean we've built all of this foreplay up to
where there's now some interest, grab it.
Mr. Chang: Thank you. Ms. Allione.
Ms. Allione: Everyone is probably fairly exhausted by
now so I'll make it brief. Just a couple of comments...
Mr. Chang: I'm just going to ask you to state your name
for the record.
Ms. Allione: Jody Allione back again, Po`ipu Solar. On
Oahu we were under the, I was using the wrong designation and the term came up
"utility lots," that is the category that we were told by the land planners and the
County when we started the work that we would fall into that designation. Which is
why we did not need a special use permit on Oahu. We have to do a small use
permit but it's non-public, it's a very non-discretionary permit. We were planning on
moving into the area of utility, now that we hear that HC&C is looking at changing
Committee Meeting 71 October 12, 2011
it to industrial, it's news to us as well as this was. Just for the record I am now
representing my third mainland solar company. The other two came in here with
big money, big plans, wide eyes, all excited. They didn't last very long because it got
just chewed to bits with one thing after another. The projects that we're looking at
sound huge, are very very hard to finance. Three megawatts on Kauai, it's too small
for mainland investors to traditionally finance, it's too large of the banks of Hawaii,
we can't get a Hawaii bank that is interested inputting up the funding for a project
of $15 million on its own. The tax laws are "skitzy," we're not even sure how the
interpretation of the State Tax Law is going to fall in place with respect to these
projects. They may not change the law but the Department of Taxation can change
the interpretation, another big unknown. So with respect to this 1.885%, I ran some
quick numbers, I'm not the analyst in the company I think just based on my
telephone calculator it might work out. It probably falls within the range if I haven't
done something wrong with the math, so from our standpoint because I've
expressed the willingness to go higher, if we went to a number like that that gave
us predictability it would at least alleviate that huge concern. I do suspect the
number would clobber Mr. Bosshard's project. The economy's scale works for us, on
the cost per acre it's difficult because we have never ever seen anyone able to build
projects unless in 5 acres per megawatt. So when you see people talking about 3
acres, it gives me cause as to wonder if they really know what's going on in this
business. What we do find out as we progress through development, things change.
I mean you go in with one proforma that looks like this and it changes monthly.
Those numbers are eroded, the net present value on the profits of this project are
very low over a 20 year period. So I would welcome a certainty and I hope that we
do get to that point. I'll also volunteer to give input wherever we can on any
committees, thank you for your time.
Mr. Chang: Thank you Ms. Allione, does anybody have a
question? Are there any other members of the audience that would like to testify on
this agenda item? If not, we will call the meeting back to order. Members,
Councilmen and women any comments? Councilmember Bynum.
There being no objections, the meeting was called back to order and
proceeded as follows:
Mr. Bynum: I really appreciate the dialog today and the
input from the tax department and the developers. This is, as all of the issues that
we're going to deal with within the next few months, it's complicated and we're
starting to wrap our brains around it. I do, I think the long term benefits for our
community are tremendous. We're paying $0.43/kilowatt, we heard that KIUC is
negotiating at $0.20 for 20 years. That's not going to pay a big dividend to the
community in the long run. I think it's almost unquestionable that in 15 years, the
rate if we stayed with fossil fuel might be $0.80/kilowatt. So this is an investment
we really need to make and in the bigger picture the tax revenue difference for the
Committee Meeting 72 October 12, 2011
County between a very strong incentive and not so strong incentive because I
believe regardless we're going to have a really strong incentive. But in terms of the
tax revenue generation of a pragmatic basis, we're not talking about big differences.
So if some investment dollars come in to the State or once into this arena, and we
have an attractive situation that's predictable, that is, I think, in our community's
very strong interest. I want us to have a strong incentive for alternative energy so
given all of that I'm hopeful that we can defer this today after discussion and give
us some time to think about some of the ideas and proposals we had today, run
them by the Administration and others. I'm contemplating a potential amendment,
but I think this is very important for our sustainability future.
Mr. Chang: Any other comments from Councilmembers,
Committee Members? Vice Chair.
Ms. Yukimura: I just want to say I too appreciate what the
Real Property Tax Division and our Finance Director have provided and I really
appreciated Ms. Allione and Mr. Bosshard have given. It's helping us to "put our
arms around the issues," and maybe craft some creative amendments that might
work for everybody. I think we do need more time and I'm ready to vote to defer.
Mr. Chang: Any other Councilmembers? If not, thank
you very much for the wonderful discussion. I want to thank the members of the
public and everyone for testifying. This is in many cases, "swimming into
unchartered waters," so I do agree with the members that we are going to
recommend, we're going to need more time for discussions and or possible
amendments. What I'm planning to do, if I can I'm going to ask for a deferral and
I'm hoping to bring it back into the Committee. Next Committee Meeting would be
October 26, 2011 if that is alright for Councilmembers. I'll be specific on a deferral
for date specific Wednesday October 26. Can I get a motion to defer?
Upon motion duly made by Councilmember Bynum, seconded by
Councilmember Yukimura, and unanimously carried, Bill No. 2415 was
deferred.
There being no further~business, the meeting was adjourned at 3:58 p.m.
Respectfully submitted,
~~ ~_
Ihilani C.J. Laureta
Secretary
APPROVED at the Co mittee Meeting held on November 9, 2011:
~~~
DICKIE CHA
CHAIR, EDR OM ITTEE