I received an email late last night from the Governor of Oregon.
I had written to Governor Ted Kulongoski asking him why the taxpayers of his state were subsidizing Wal-Mart with a $3.7 million tax break they didn't deserve. "Thank you for sharing your ideas and concerns," the Governor told me. "I believe citizen input is vital to a strong and healthy society and I urge your continued involvement."
It's doubtful that many citizens in Oregon -- which has a smart growth reputation that far exceeds its actual practice -- had input into the granting of what one newspaper called an income tax "windfall" to the world's richest retailer. The Delaware corporation just snatched a 51% return on a renewable energy tax credit that had nothing to do with renewable energy.
Taking advantage of corporate welfare is nothing new for Wal-Mart, whose employees are heavy users of Medicaid health care, earned income tax credits, and other forms of tax-supported subsidies. Over the years, Wal-Mart has taken advantage of millions of dollars in tax increment financing, job credits, and every conceivable state, federal and local subsidy available. The company has also advantaged itself by shuffling income between related companies to avoid paying state income taxes.
But this Oregon energy tax break involving Wal-Mart has left city and state officials looking foolish. According to the Beaverton Valley Times, Wal-Mart received a fat subsidy at taxpayer's expense by buying a tax credit from Solar World, a German company that makes photovoltaic solar panels. The city of Hillsborough, Oregon was able to attract this large solar production plant, and its 1,000 jobs, by offering a candy store of tax-subsidized incentives to the manufacturer. But some of the profits ended up in Wal-Mart's pocket instead, because of a bizarre arrangement that allows manufacturers to sell their tax credits to companies who are doing nothing valuable for the environment, like Wal-Mart.
According to the Valley Times, Solar World was given an $11 million renewable energy tax credit. Solar World was then allowed to turn around and sell that credit to Wal-Mart for only $7.3 million, two-thirds of its real value. The full $11 million value of the credit was 51% more than what Wal-Mart paid for it. Wal-Mart can now use the full credit to reduce its corporate income taxes on profits owed to the state, earned at Wal-Mart's 32 stores across Oregon. Wal-Mart can spread this $11 million tax credit over the next five years. Oregon taxpayers lose out on $11 million in income taxes that the corporation would have paid, and Wal-Mart makes $3.7 million for merely buying up the credit.
Under Oregon law, nonprofits and businesses can apply for this Business Energy Tax Credit, or BETC. The credit is known as "Betsy," and it proved to be Sweet Betsy for Wal-Mart. Solar World was able to apply for a Betsy to pay for the costs of sustainable buildings, renewable energy or other 'green' projects. Betsy pays for as much as 50% towards the first $22 million in project costs.
Even after the public found out that this renewable tax credit ended up in the pocket of Wal-Mart, the state of Oregon allowed Solar World to apply for more Betsy credits -- which have already been approved by the state -- for another $19.4 million. Solar World is now free to sell these credits also, for a total subsidy of nearly $30 million. Wal-Mart's only connection to the project is the fact that it had $7.3 million to buy up another company's credit. It's called taking credit where no credit is due.
This financing credit was designed to stimulate the development of renewable energy, and to attract jobs to Oregon. It was never intended to write down costs for retailers like Wal-Mart, whose fixation with 'green' has nothing to do with energy. One critic of the Wal-Mart deal told the Valley Times, "The BETC is a financing scheme for people with money to make money. There's this whole industry of lawyers and wealthy individuals that sells the tax credits." For Solar World, the tax credit had more value as a commodity to sell -- than as a tax break, because Solar World only pays the state minimum tax of $10 per year. The tax credit was worth little to the company -- unless they sold it. "A tax credit's only good for those people who have a tax liability," explained a representative of the Oregon Department of Energy.
It is puzzling why the state would offer a huge tax break to a manufacturing company that already pays no taxes -- but the real incentive is in the provision which allows the manufacturer to turn around and sell the credit to a company that imports cheap products from China as its mainstay -- nothing at all to do with renewable energy. The state law allows this "pass through" of the credit, which ends up having to be subsidized by state taxpayers, who may not appreciate the fact that Wal-Mart is the wealthiest retailer in the world, and should be able to operate its stores without corporate welfare. The Betsy credit that Wal-Mart bought becomes just one more advantage the big company has over smaller retailers or grocers, who could never have come up with $7.3 million to buy the credit.
The federal government also has an energy tax credit that companies can claim -- but it must all be used in the year it is claimed, and the federal credit, more sensibly, cannot be transferred to another party. Some Oregon lawmakers will cringe as they learn that Wal-Mart was the big winner here for doing nothing related to renewable energy. Lawmakers have discussed reducing the level of tax breaks available through Betsy, but the Wal-Mart deal is already done.
When a super-wealthy corporation like Wal-Mart, controlled by five of the richest people in the world, is able to use the BETC renewable energy credit to make several million off of Oregon taxpayers, its time to rethink the Betsy program, and its usefulness. Instead of allowing companies to sell these tax credits, the company investing in renewables should be given a direct cash payment that is non-transferable. Wal-Mart did nothing to deserve this form of welfare, and in fact has wasted hundreds of acres on energy-inefficient single-story buildings that encourage automobile-dependent shopping, and undermine the smart growth principles of compact, downtown development.
Governor Kulongoski should ask Wal-Mart to sell the credit back to Solar World for $7.3 million, and let Solar World keep the cash. This would save state taxpayers $3.7 million in revenues. If Wal-Mart is a good corporate citizen, they will give the windfall back to the taxpayers. If they don't, maybe Oregon shoppers will find the energy to shop elsewhere.
Al Norman has been helping local communities organize against superstore sprawl for the past 15 years. His website is http://www.sprawl-busters.com. His book 'Slam Dunking Wal-Mart" has been used as a guide for defeating big box stores across America.