Trimet has always been a tool for the rich to get richer |
Dan Wieden recently did something few Oregonians can do: He bought a dollar for 75 cents.
Wieden, co-founder of Portland’s Wieden+Kennedy advertising agency, purchased a $1.8 million state income tax credit from TriMet in April. To get the credit, he paid only $1.35 million—saving $450,000 on his taxes.
The
tax credits were created to encourage energy efficiency in
transportation projects in Oregon. At the same time, however, they have
allowed wealthy Oregonians to reduce their own taxes at the expense of
state budgets for schools, health care and public safety.
In
2011, state legislators saw that Oregon’s massive energy tax credit
program was costing the state too much and too many people were doing
what Wieden did: obtaining tax breaks at bargain prices.
But the practice has continued, despite legislative reforms. Records obtained by WW
show a private broker TriMet hired last year claimed to have found a
loophole that allowed public agencies, including TriMet, to continue
selling tax credits for a deep discount.
Earlier
this year, however, documents show a leading Portland accounting firm
warned the Oregon Department of Energy that such discounts appeared to
violate state law. Energy officials responded by rewriting the rules
after the fact, according to records.
Wieden
and other investors who bought the discounted tax credits did not do
anything wrong. But critics, such as Chuck Sheketoff of the Oregon Center for Public Policy, say public agencies in the state were supposed to have stopped serving up big tax breaks on a silver platter.
“This
is a subsidy program for energy investments,” Sheketoff says. “It’s not
supposed to be a program to further enrich the founder of one of the
world’s largest ad agencies.”
Oregon has a long and tangled history
with tax credits. Like many states, Oregon has doled out tax credits to
encourage investments that might not otherwise occur. The state provides
credits, for instance, to stimulate development of alternative energy
projects and low-income housing, and to preserve historic properties.
Tax
credits work like grocery coupons. The Legislature approves the credits
and grants them to project developers, who sell them to investors like
Wieden. The proceeds help pay for new projects, and the investor gets to
reduce his tax bill by the value of the credit.
The Oregon Department of Energy
issued more than $1 billion in tax credits between 2007 and 2014,
according to the Legislative Revenue Office, much of it to support wind
farms. After the agency’s main program, the Business Energy Tax Credit, proved too expensive, lawmakers in 2011 ended the program.
One
major flaw lawmakers wanted to address was the low price investors were
paying for tax credits. New laws required that the purchase price of
credits better reflect their value. If an investor is getting a tax
credit worth $1, then the price of the credit should be as close to $1
as possible.
To
replace the old, unlimited energy tax credit program, lawmakers created
new programs, including the Energy Investment Program, capping tax
credits it would offer at $51 million per biennium. The program included
incentives for transit agencies to save energy, and the Oregon
Department of Energy awarded TriMet $3.6 million in tax credits
beginning in 2015.
Last year, TriMet hired a Portland broker named Blue Tree Strategies
to help it find buyers for the tax credits. Blue Tree president Aaron
Berg told TriMet he’d helped 25 public clients sell more than $10
million in tax credits. In a June 2014 letter to TriMet, Berg noted that
legislative reforms had made tax credits less attractive.
“These
new discount rates are significantly reduced when compared to the old
BETC program, resulting in a much lower rate of return for buyers,” Berg
wrote June 3, 2014. “In our opinion, in order to induce buyers to
purchase TriMet’s credits, the credits (and most other EIP credits in
the marketplace) will need to be ‘marked to market’ against old-BETC
discount rates.”
Translation: To make
the tax credits more appealing to investors, TriMet and Blue Tree would
need to find a way to cut the price below what state law appeared to
allow.
Documents
show Blue Tree came up with an elaborate transaction allowing TriMet to
show it had been selling the credits at a higher price, even while
offering investors a big discount.
In an interview, Berg told WW
the mechanism he proposed to TriMet was perfectly legal and no
different from the rebate programs that manufacturers and retailers
offer their customers. He says he proposed it because new rules raising
tax-credit prices made them unattractive to investors.
“The feedback we were getting was, the price was too high,” Berg says.
But
while TriMet and Berg were preparing to sell the tax credits, a private
accounting firm questioned how brokers could offer tax credits at prices
lower than state guidelines.
Irina Antonache, a senior manager in the tax group at the Portland accounting firm Moss Adams, wrote to state Energy Department officials earlier this year suggesting the practice didn’t comply with the new law.
“I
understand that one or more intermediaries have been transferring EIP
credits at a pass-through rate that is lower than the mandated rate,”
Antonache, who is also a lawyer, wrote in an email to Energy Department
officials Jan. 16. “It has been our understanding that the EIP credits
must be transferred at the pass-through rate as established by the DOE.”
(Antonache did not respond to a request for comment.)
On March 23, the Energy Department acted to resolve the confusion. The agency issued a temporary rule allowing the transactions at whatever price buyers and sellers agreed upon and then made the determination retroactive.
With
the new, temporary rules, the mechanism Berg suggested to TriMet was no
longer necessary. The agency completed the sale of the $3.2 million in
tax credits in April, selling them at 75 cents on the dollar. (TriMet
sold to six buyers in all. The next largest after Wieden was Pacific
Office Automation, which bought $772,500 worth of credits.)
The Energy Department’s new rules yielded less money than sellers such as TriMet might have collected.
On Wieden’s transaction, for example, TriMet netted only 70 cents on the dollar, after fees paid to Blue Tree.
TriMet spokeswoman Mary Fetsch says that’s the best her agency could do.
“Demand
for the tax credits is the determining factor based on the rate willing
buyers will pay for them,” Fetsch wrote in an email.
Fetsch
says her agency will use the proceeds to overhaul aging MAX cars and
other vehicles. TriMet would have done the work that proceeds from the
sale helped subsidize anyway, Fetsch says—just more slowly.
Wieden did not respond to requests for comment.
Sen. Mark Hass (D-Beaverton), co-chairman
of the Joint Committee on Tax Credits, says he’s unfamiliar with the
specifics of the TriMet deal, but he’s opposed to discounting tax
credits.
“We’re trying to meet policy goals,” Hass says. “We’re not interested in lowering taxes for well-heeled taxpayers.”
Sheketoff says big discounts are unnecessary. He notes that the Oregon Film Office auctions the $10 million in tax credits it receives each year and gets more than 99 cents on the dollar.
Department
of Energy chief financial officer Anthony Buckley says the agency
always believed it was legal for tax-credit holders such as TriMet to
sell credits below the state’s formula price. He says the March rule
change merely clarified that point.
“Once a credit is issued,” Buckley said in statement, “ODOE no longer has authority over how the credit is used.”
Sheketoff says Buckley is missing the point.
“Both
ODOE and TriMet have a responsibility to taxpayers,” he says. “They are
enriching people contrary to what the Legislature intended.”
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