August 9, 2011

Energy-Efficiency Tax Credit

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Amy Bass, a new home consultant for Ideal Homes, explains the inner workings of an Ideal Home. Bass, who also owns an Ideal Home, says she saves between $50 and $80 per month on utility and gas bills.

Jaclyn Cosgrove/Oklahoma Watch

Amy Bass, a new home consultant for Ideal Homes, explains the inner workings of an Ideal Home. Bass, who also owns an Ideal Home, says she saves between $50 and $80 per month on utility and gas bills.

The merits of a state tax subsidy for energy-efficient home construction will be examined Wednesday, Aug. 10, by a legislative task force assigned to identify tax breaks that are candidates for elimination.

The energy-efficiency tax credit became law in 2005. It provides a subsidy of up to $4,000 per home to builders who meet certain efficiency standards for heating, cooling, insulation, roofs, doors, windows and appliances.

The credit is available for new homes measuring 2,000 square feet or less. To qualify, they must be at least 20 percent more efficient than the standards required by the International Energy Conservation Code of 2003.

Audio clip: Up to $4,000 in Tax Money

The energy-efficiency credit reduced state revenue collections by $3.8 million last year, according to the Oklahoma Tax Commission. In 2010, the credit was suspended for two years as part of a budget-balancing deal. It is scheduled to go back into effect July 1, 2012.

“In my personal opinion, we should only have taxpayers subsidizing economic activity if it broadens and grows and increases our tax base,” said state Sen. Mike Mazzei, R-Tulsa, co-chairman of the 10-member Task Force for the Study of State Tax Credits.

“Small subsidies that are frittered around to lots of different interest groups that have marginal, short-term consequences in my opinion are not items that are doing that,” said Mazzei, a financial planner who also chairs the Senate Finance Committee.

Mazzei said the criteria for retaining a tax credit include whether it provides high-paying jobs or brings people to live and stay in Oklahoma.

Proponents of the tax homebuilder credit say building energy-efficient homes will lessen overall energy demand and the need to build new power plants, keeping consumers’ energy bills lower than they would be if more plants had to be built.

The U.S. Department of Energy estimates that residential housing makes up about a quarter of all energy usage. The website of Energy Star, an Environmental Protection Agency program that debuted in 1992 to encourage energy-conserving products, indicates $18 billion was saved nationally on utility bills in 2010 through the program.

Norman-based Ideal Homes, Home Creations of Moore and Simmons Homes of Tulsa are among of the state’s largest homebuilders, and all use the tax credit, according to Tax Commission records. Ideal Homes became the state’s first Energy Star builder in 1997.

Ideal Homes co-owner Vernon McKown said his company will continue to build built energy-efficient homes, regardless of whether state or federal tax credits are available to help cover the costs.

But McKown predicted that many smaller builders would not continue building energy-efficient homes without the credit because the homes cost more to build. It’s difficult to pass on increased construction costs to the cash-strapped, first-time home buyers the state tax credit was designed to help, he said.

“The tax credits were a great way to get to the building community,” McKown said. “If you look at the number of builders who were building Energy Star and high-performance homes pre-tax credit and the ones who were after the tax credit, it just blew up. … The number was just gangbusters. It was more than a doubling. … It brought about a dramatic change in our industry.”

Kelly Parker, an energy consultant and owner of Guaranteed Watt Savers, is scheduled to speak to the task force at Wednesday’s meeting.

Parker said the tax credits motivated builders to build a better home.

Before adoption of the International Energy Conservation Code in 2000, “you could build a house with no insulation,” Parker said. “We had to make the builders change the way they build homes, and [state and federal tax credits] did.”

One reason the energy-efficiency credit is controversial is because it is one of a small number of state tax credits that are “transferable” to other taxpayers who had nothing to do with the activity they were designed to stimulate.

Some homebuilders receive more energy-efficiency credits than they owe in state taxes. The transferability feature allows them to sell their surplus credits to other corporations or individuals, usually for about 80 cents on the dollar. The buyers use the credits to reduce their state tax bills.

For example, Greg and Patricia Simmons of Simmons Homes were listed on the state’s Open Books website as top recipients of the tax credits in 2008, receiving a combined total of $479,334.

“The trouble with that is any home builder of any size, there is no way they are going to owe that much tax liability,” Parker said. “So you lose the incentive for doing it” if the credit is not transferable.

In an opinion requested by task force co-chairman Rep. David Dank, R-Oklahoma City, former Attorney General Drew Edmondson called transferability of the energy-efficiency credit “constitutionally infirm” because it did not provide adequate controls and safeguards.

Mazzei said the task force wants to examine the financial justification for the energy-efficiency credit as well as the transferability issue.

“What we need to see from the users of these tax credits is real fact-based information that measures what the taxpayers get for this program,” Mazzei said. “Does this simply pad the profit margins of the homebuilders for an activity that would already be occurring because most people want energy-efficient homes? That’s not worth the taxpayers’ money when we’re looking at revenue priorities for schools and roads and public safety and health care.”

The task force will meet at 10 a.m. Wednesday in the House Chamber at the state Capitol in Oklahoma City.

Warren Vieth and Logan Layden contributed to this story