Solar power still offers a path to economic growth for counties
Contributed by Fletcher Mangum with many thanks from NCRE
As recently as February of this year, the nation as a whole and many localities were experiencing levels of economic growth and unemployment that were the best we have seen in half a century. Many understandably built their forward looking plans on the expectation that those good times would continue for the foreseeable future. But, the covid19 virus has suddenly and dramatically changed all that. The non-partisan Congressional Budget Office is now projecting that U.S. GDP will fall 14 percent in the second quarter of this year and the national unemployment rate will rise to 14 percent.
To put those numbers in perspective, in the Great Depression – the worst economic downturn the country has ever experienced – the largest annual decrease in GDP was just 13 percent and we did not reach that level until the third full year of the depression in 1932, while unemployment did not reach 14 percent until the second full year in 1931. This time, we are hitting those benchmarks, not in years, but in weeks. That dramatic change of events will have profound negative impacts on individuals as their income is adversely affected and on localities as their sales tax, meals tax, accommodation tax, and other local revenue streams are adversely affected as a result.
This unfortunate event is a reminder that, as much as we might want it to be otherwise, the future is truly unknowable and the risk of an economic downturn is always with us. Just as individuals minimize downside risk by diversifying their investment portfolio between higher-risk stocks and near-zero-risk bonds, localities can also minimize their downside risk by ensuring they have a similarly diversified tax base. Because it provides a dependable, constant, and near-zero-risk source of local tax revenue that is largely immune to economic fluctuations, solar development can be a key component of that diversification strategy.
A recent opinion piece in the Staunton News Leader in Virginia provides a real-life example of this issue. It pointed out that a local county had voted down a proposed solar project in 2018, even though a study commissioned by the county had shown it would generate more than five-times the local tax revenue that the site provided in its current use. Local officials explained their action by saying they wanted to reserve the site for future industrial development. However, that future development has yet to occur and under current economic conditions is also highly unlikely to occur anytime soon.
Moreover, it is important to note that recently approved legislation in Virginia and other states has further bolstered the local business case for solar development by making it easier for solar developers to work with localities to ensure that their projects positively contribute to the economic and fiscal health of their host communities.
In short, solar development can provide localities with a stable source of tax revenue that will aid them in diversifying their tax base and minimizing the downside risk of bad economic cycles. And as current events are bringing home, that risk is both real and ever present.