Legislation to protect electric co-op’s tax-exempt status is pending in the U.S. Congress, but it needs a push.
Oregon’s electric cooperatives may soon face their own version of a Hobson’s choice. Do they accept Federal Emergency Management Agency assistance after their system has been leveled by a storm? Do they accept broadband grants to serve members on the wrong side of the digital divide?
What normally would be easy decisions have become an agonizing struggle because of a recent determination by the Internal Revenue Service that has jeopardized the ability of Oregon electric cooperatives to deliver services to more than a half-million people.
As community-focused member organizations, no more than 15% of an electric cooperative’s gross income may come from nonmember sources. Recent changes to the Internal Revenue Code created an unintended consequence for electric cooperatives, as government grants may now be considered nonmember income. This determination could lead to the end of an electric cooperative’s tax-exempt status.
Electric cooperatives receive grants for a variety of purposes—none more important than those from FEMA. Oregon electric cooperatives faced some of the most devastating storms in their history this winter, taking down entire electrical systems.
President Donald Trump has approved Gov. Kate Brown’s disaster declaration to make FEMA funds available to rebuild vital infrastructure. But for some Oregon electric cooperatives, accepting FEMA reimbursements could come at the price of losing their tax-exempt status.
As Douglas Electric Manager Keith Brooks said in a recent letter to Sen. Ron Wyden, “Our damages could yield up to $7.5 million in FEMA reimbursement … causing us to lose our tax exemption.”
But there is a solution. To address this issue, the Revitalizing Underdeveloped Rural Areas and Lands Act (RURAL Act – H.R. 2147 and S. 1032) has been introduced in the U.S. House and Senate, respectively, to address this issue. The RURAL Act would change the tax code to exempt federal, state and local grants from being defined as income for electric cooperatives.
The grants include broadband programs that help bring high-speed services to rural areas that have been plagued by slow, unreliable internet connections. Tommy Wolff, manager of Columbia Basin Electric Cooperative, has pushed for rural broadband at the highest level, including a meeting last year with Ajit Pai, chairman of the Federal Communications Commission.
CBEC is moving ahead with an ambitious broadband program that will require federal grants. Without the RURAL Act, Wolff told the Capitol Press that CBEC would need to assess an “abrupt and large increase in power rates to rural consumers due to this inadvertent oversight.”
Fortunately, the Oregon congressional delegation is taking this issue seriously. Congressman Greg Walden, whose district is home to 10 electric cooperatives, recently sent a letter to the House Ways and Means Committee and the Senate Finance Committee calling for swift action.
“The RURAL Act would ensure (cooperatives) can rebuild after a disaster without chaining their consumers to increased tax costs in the future,” Walden wrote.
Congressman Earl Blumenauer (D-OR-3), a key member of the House Ways and Means Committee, has signed on as a co-sponsor, as has Congressman Kurt Schrader (D-OR-5).
A key player in the debate will be Wyden, dean of the Oregon congressional delegation and a powerful ranking member of the Senate Finance Committee.
Electric cooperative leaders continue to talk to Wyden’s staff about the legislation. All of Oregon’s 18 electric cooperative managers recently endorsed a joint letter to Wyden seeking his leadership.
“You are well-positioned to help solve a problem that, while not of your making, threatens to harm our members that can least afford additional costs,” they wrote.
Wyden’s office is exploring potential nonlegislative solutions with the U.S. Treasury Department because of the difficultly of passing a bill in a Capitol fraught with politics.
This strategy gives electric cooperatives another potential avenue to solve a dilemma that, so far, has only yielded the toughest of choices.