Promised "windfall" revenue is tantalizing. Rural areas often rely heavily upon tourism attracted to the region's scenic natural beauty. The lure of additional revenue without any apparent cost often blinds authorities to the problems created by development that will diminish the natural beauty at the heart of the economy.
Promises of tax revenues are merely hopeful thinking; they are not secured. What people should keep in mind is that claims made by limited liability wind companies are strictly put forth in a blatant attempt to gain a larger profit. Assertions by state tax offices are based on general mathematical formulas (vs. real world guarantees) that only indicate what may be obligated BEFORE ANY DEDUCTIONS THAT A WIND LLC MAY USE TO REDUCE THAT FORMULA OBLIGATION.
This is really what industrial wind is about, after all—finding ways to shelter income through tax avoidance, although a new Treasury Department program now provides the option of cash grants for production tax credits.
Most rural communities have no ordinances for taxing a windplant in ways commensurate with the capital value of a proposed windplant. Wind developers' promises about what their plants will pay in taxes are basically promotional propaganda to curry favor with local politicians, and should be closely scrutinize for legal accountability, since these claims are usually not secured by any legal document. Characteristically, nowhere is it made clear what the assessed value of each turbine will be for tax purposes. Developers often claim a 30-year turbine life, which seems meaningless in light of the federal double declining capital depreciation schedule allowed for the industry.
For the first two windplants operating in Somerset County, PA, the average per turbine tax payment in 2003 was only $528, a combined property tax payment of $7,388 (fide Somerset County Commissioner Pamela Tokar-Ickes) on machines that cost nearly $50 million to install. Moreover, another Florida Power and Light windplant in Thomas, West Virginia (Mountaineer Wind) has purportedly paid $93,000 over several years after a capital outlay of over $70 million—and this after much delay and a lot of negative press (Judy Rodd, Citizens for Responsible Windpower). These companies had originally promised to contribute many hundreds of thousands of dollars in local taxes. Usually wind facilities will not be taxed as public utilities. Indeed, it is not clear what taxes they would be obliged to pay. With knowledgeable tax accountants, a developer will undoubtedly look to protect his investors, not a local economy hundreds of miles away from its corporate offices.
No penalties seem to apply if local jurisdictions do not receive promised tax revenues. Consequently, there are no real incentives to tell the truth. Wind developers know that spin wins.
Since this project will lease private land, the county will receive little additional property tax. Wind leases are typically written to favor the developer, restricting the owner's use of the land for up to 35 years and devaluing it significantly (a major problem for those in need of emergency funds). Turbine leases also may allow abandoning all equipment to the property owner, providing little or no indemnification for any decommissioning, removal, or restoration costs. And they often include noise and other "nuisance" easements, holding the developer harmless from legal responsibility if his machines create such nuisances.
Income generated from turbine lease agreements varies widely. Wind developers insist that their leases with private property owners remain secret, but they will often claim that lease income will range from $4,000-$6,000 annually per turbine, although it is not clear how this estimate is derived. An examination of several wind leases obtained from disgruntled lessors, however, reveals provision for an initial, one-time payment (from $500 to $1,000) to reserve a turbine lease, with pledges of minimum annual rental income of about $1500 per turbine against a small percentage of the power the turbines actually produce, generating at maximum about $2500 per turbine. Wind lessors should interrogate any lease proposal from a wind developer before signing anything. The supposedly "solid" promises of lease revenue are typically unsecured—and the developer can unilaterally withdraw from the lease with only a 60-day notice. The lessor will not have this luxury.
Wind leases are typically written to favor the developer, often restricting the owner's use of the land for up to 35 years. Aside from saddling lessors with an onerous obligation, the contract also may place property owners who live near the proposed wind turbines at risk. A contract typically specifies that the wind developer can make noise without hindrance on the leased property, which noise will likely spill over to adjacent properties. The contract also may stipulate that the wind developer has the right to the free flow of the wind, effectively controlling not only what can and what cannot be built on the property but also where any building can take place. It usually gives the developer veto power over hunting on the land. The grant of easement may permit the wind developer rights to use any and all the property at the developer's discretion, including provisions for unlimited ingress and egress at any time, for transmission lines, for building any structures, wires, fences, buildings at any place the developer deems necessary, for allowing access at any time to any of its employees—and "an easement for any sound waivers or noise emitted from the wind turbine generators or other equipment."
Further, these agreements may stipulate that the owner "shall join with [italics added] the developer in requesting all infrastructure modifications and ...any and all zoning changes or other land use permits and/or approvals necessary to the developer...". In the words of one contract lawyer who has reviewed these documents, they may well constitute an "unconscionable contract," so lop-sided in favor of the developer that it is unconstitutional.
Windplant leases diminish property values throughout the viewshed, while creating major disturbances that reduce the quality of life for nearby residents. One of the most validated real estate precepts is the idea that significant natural views have premium value, and intrusions that restrict that view erode value. Realtors doing business near windplants in the western United States and in Europe understand that property will sell for between ten and thirty percent less than previous market value, depending upon how close it is to the windplant. The few "studies" which appear to support the claim that windplants don't devalue property are extremely flawed in fact and methodology, often surveying people and evaluating property miles away from a wind site. According to Paul Gipe, author and proponent of responsible wind development, an axiom for the wind industry is that its technology is far more popular with people who live a remote distance from wind facilities—and much more unpopular with those who live nearby. This attitude manifests itself when calculating values to properties near windplants.
Wind developers nearly always overstate the general local economic benefits from a wind facility by counting the full price of goods and services, rather than value added. Generally, a large part of the price paid to a local supplier has to be paid by that supplier to another agent, in this case likely to be a party outside the local area. This price is part of the local supplier's cost of acquiring the goods (for example, the purchase of fuel, wiring, cement) the local supplier is reselling to the windplant. The only portion of the price paid by the windplant that should be tallied is the difference between the local supplier's cost and the price he charges—that is, the value added portion—which in any case would be extremely small in a rural county as most goods will be purchased elsewhere for a wind facility.
Although looming windplants are a relatively recent phenomenon in the eastern United States, there is increasing evidence that the closer one resides to them, the lower one's property value falls. For quiet rural properties, the premiums paid for the serenity of natural views can no longer be justified if huge wind turbines surround the area. The rural areas targeted by wind developers are often filled with family farms framed by misty mountains. Those who feel that a single wind structure is beautiful should visit a wind facility like the one above Meyersdale, PA to see how the 2,750 foot mountain there seems to disappear with 375 ft. wind machines on top (one can see these 15 miles away on a clear day). Note, too, the four acres of clear-cut around each turbine.
One of the most validated real estate precepts is the idea that significant natural views have premium value, and intrusions that restrict that view erode value. Realtors doing business near windplants in the western United States and in Europe understand that property will sell for between ten and thirty percent less than previous market value, depending upon how close it is to the windplant. The few "studies" which appear to support the claim that windplants don't devalue property are extremely flawed in fact and methodology, often surveying people and evaluating property miles away from a wind site, then "averaging" these results with properties adjacent to windplants.
The wind industry has recently put forward The Renewable Energy Policy Project(REPP) (May, 2003), written by personnel associated with the national Renewable Energy Lab, to bolster its claim that not only will wind facilities not diminish nearby property value—they will actually enhance them. However, this study contains serious methodological flaws:
- The study covers just ten projects, only one of which comes close to the size and scope of many newly proposed projects—and this site (Madison County, NY—the Fenner Site), with 20 1.5 MW turbines situated on farm fields—not atop prominent ridgelines—interestingly showed significant decreases in property values.
- The time frame of the study was so short that even the study's authors were compelled to state the data was insufficient to offer compelling conclusions.
- The study did not verify whether individual properties had a direct view of the windplants, making the use of the term "viewshed" something of a misnomer in this context, since the viewshed properties were actually all properties within a five mile radius of the turbines regardless of whether they had a direct line of sight. To mitigate this problem, the researchers conducted phone interviews with tax assessors and other local authorities to get estimates on the number of properties in the defined viewshed that might have had views of the turbines. However, under scrutiny, many of these estimates proved inaccurate.
- The analysis used in this study did not incorporate distance from a wind facility as a variable or weighting factor, so that a viewshed property sale five miles away from a windplant counted the same as one a quarter mile away. It is at least plausible that if windplants do have an effect on property values, it would be strongest close to the turbines and decline with distance. Simple geometry suggests that the majority of properties in the area of a five mile circle are likely to be fairly distant from the wind development: 64% of the area of this circle is three miles or more from the center—and only 4% lies within the first mile. Though properties are not necessarily distributed evenly about the landscape, and property values conceivably can be affected by other things in the vicinity, the REPP study confuses substantially the proportion of properties that either have only a distant view of wind turbines or no view at all.
- The study relied on average rates of sale prices before and after the windplant construction and between viewshed properties and properties in a comparison group. Therefore, if one calculates that sale prices among viewshed properties increased $50/month faster than sale prices in the comparison group, then it makes a difference whether the statistical uncertainty in the point estimate is plus or minus $25/month or $500/month. The former leads to a conclusion that the wind development unlikely had a negative effect on property values while the latter intimates that the data are inconclusive—there could be a large negative impact, a large positive impact or no impact at all. These "smoothed" average sale prices against a very small time variable creates a regression analysis that is, for prediction purposes, almost beside the point, suggestive of nothing.
The REPP "study," although its basic methodological approach holds considerable promise, is severely flawed. To say, as wind developers do, that the study demonstrates a proposed windplant will have no effect on property values, that it may in fact enhance them, is disingenuous. George Sterzinger, the executive director of the REPP, admitted as much in response to critics who stressed the study contained no proof that windplants were the reason for changes in property values. "We have no idea," he said, noting that the REPP did not have time or money to answer that question. (Cape Cod Times, June 20, 2003). Sterzinger further agreed that the study's findings have to be applied carefully to different situations.
There are very few windplants in the world, let alone in the eastern United States, with turbines over 400 feet tall placed on such a prominent ridgeline. Consequently, there is no comparable facility "yardstick" by which appraisers can measure the impact for predictive appraisal purposes. And without knowing about the various nuisances this kind of windplant will produce, the problems for credible prediction increase even more.
Let's examine a few other areas where wind facilities and property values have actually been correlated.
In 2001-2002, the Moratorium Committee of Kewaunee County, Lincoln Township, Wisconsin compared property sales prices to assessed values before and after the construction of two wind energy facilities, each having relatively small .65 MW turbines. An assessor reported that property sales (vs. 2001 assessed values) declined by 26% within one mile and by 18% more than one mile of the wind project. The Moratorium Committee also sent anonymous survey forms to 310 property owners, of whom 223 responded. These responses were then grouped based upon proximity to the windplants.
The survey results found that 74% of respondents would not build or buy within 1/4 mile, 61% within 1/2 mile and 59% within 2 miles of the windplants. In fact, a large percentage stated that they would not buy a home within 5 miles of the turbines. The windplant's offer to purchase neighboring homes for demolition—to create an "additional buffer for the windmills"—came immediately following the release of a noise study showing the Lincoln wind turbines increased the ambient noise level significantly, depending on wind conditions, etc.
A 1996 Danish report, Social Assessment of Wind Power—Visual Effect and Noise from Windmills—Quantifying and Valuation, contained a survey of 342 people living close to windplants. The accompanying survey found 13% of people in the area considered wind facilities a nuisance and would be willing to pay 982 DKK per year to have them leave. A survey of house sale prices showed a 16,200 DKK lower price near a single wind turbine and a 94,000 DKK lower price near windplants versus similar houses located in other areas.
In October, 2003, the Beacon Hill Institute, as part of a study of the proposed Cape Wind project in which hundreds of 430 foot turbines were to be located five miles off shore from Cape Cod in Nantucket Sound, contacted 45 real estate professionals operating in towns around the Sound, asking them about the anticipated effects of the wind power project on property values. Forty-nine percent of these realtors expected property values within the region to fall if the Cape Wind power plant was erected, while most of the rest said they didn't know. [Jonathan Haughton, Douglas Giuffre, and John Barrett, Blowing in the Wind: Offshore Wind and the Cape Cod Economy, Beacon Hill Institute at Suffolk University, October 2003, pp. 16-17]
The BHI study also surveyed 501 home owners in the six towns that would be most affected by the Cape Wind project . Sixty-eight percent of these said that the turbines would worsen the view over Nantucket Sound 'slightly' or 'a lot'.[BHI study, page 14] On average, they believed that Cape Wind would reduce property values by 4.0%. Those with waterfront property believed that it would lose 10.9% of its value. The study concluded that, based on the loss of property value expected by home owners, the total loss in property values resulting from the construction of Cape Wind would be $1.35 billion, a sum substantially larger than the approximately $800 million cost of the project itself.[BHI study, page 4]
As the study noted, any reduction in property values would, in turn, lead to a fall in property tax collections in the affected towns; the drop in these tax collections would be $8 million annually. If the tax rates were raised to maintain revenue, this would shift some of the property tax burden off waterfront residents (whose property values would fall the most) and on to the (less affluent) island residents.[BHI study, pages 4, 5]
In the home owner survey, in response to the statement: "It is important to protect an uninterrupted view of Nantucket Sound," 76% strongly agreed, 18% somewhat agreed, 3% were neutral, 2% somewhat disagreed, and 1% strongly disagreed.[BHI study, page 28] It's worth noting that of the home owners surveyed, 94% did not have homes with a view of the Sound; [BHI study, page 32] 76% were not members of a conservation or environmental organization.[BHI study, page 34]. Their main reasons for living in the area were the 'beauty of the region,' 'the beaches,' and 'the ocean views.'[BHI study, page 31].
In 2002, two properties outside Berlin, PA near Somerset Wind, LLC were sold to the wind developer for considerably less than fair market value. According to witnesses and deed records, Somerset Wind (incorporated in Delaware with offices in Texas—an Enron spawn), in order to discourage lawsuits brought by owners who felt that Somerset's wind turbines were disturbing the quiet enjoyment of their property, bought these properties for fair market value—one in May, 2002 for $101,049, reselling it in August to a lessor who had initially leased land to the wind company for $20,000 percent of the previous sale price! In May, 2002, Somerset Wind purchased the other property for $104,447, selling it in August for $65,000--62 percent of the purchase price!
The prices Somerset Wind paid for these properties were comparable to prices paid for similar properties in the area and in line with the price previous buyers had paid. Although the properties were assessed for tax purposes at around $20,000 (as of 1997), they initially had sold for fair market value at $80,000 and $74,000 respectively—in 1998 and 1997. The quotes of the prices listed in the documentary are those listed in the deeds, which are public records. And the reason the developer bought the properties in the first place was to forestall a lawsuit brought on because of the very real nuisances that the windplant created.
The new owners, moreover, signed a "memorandum of non-disturbance easement agreement," which absolves the wind company from liability for what the owners might regard as wind turbine-caused nuisances such as "noise, lights, air movement, odor, dust, vibration, traffic, obstruction of view, [and] light or air currents."
Let's be clear about the difference between the assessed value for tax purposes of these properties and the fair market value involved in the purchase. It is virtually a universal verity that tax assessments for property lag well behind the current market value. The price Somerset Wind paid for both properties was well within the average range of comparable market prices. Clearly, Somerset Wind was willing to pay this price to head off a nuisance suit. And the price it sold the properties for should be instructive as to the company's assessment of their worth, given such proximity to the windplant and the exculpatory non-disturbance easement agreements in the new deed.
Russell Bounds, one of Garrett County's (Maryland) leading realtors in large property transactions, has already lost sales in the area of proposed windplants. He has stated that huge industrial windplants "would be devastating not only to the real estate values in the Pleasant Valley viewshed, especially to neighboring properties, but would also negatively affect the entire county economy, since so much of that economy is tied up with tourism drawn by the county's natural views." Mr. Bounds has recently testified at a Maryland Public Service Commission wind hearing that, over the last several years, he has had at least 25 people who expressed interest in buying land in the area targeted by wind developers. However, when he advised them about the plans for the wind facilities, not one of those people expressed any further interest.
In the face of these transactions, it is ridiculous to believe the spurious claims the wind industry makes about how their facilities will enhance neighboring properties.
A number of appraisers in the United States and Europe have shown that wind projects located within several miles of exiting residential properties will devalue them by at least a third and as much as 50% of their present market value.
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