Lawmakers end solar tax credits, leaving 760 Iowans out of the money

School House Apartments in Fort Madison has solar panels. (Photo courtesy of the Iowa Environmental Council)

More than 750 Iowa homeowners will lose an average of $3,200 each after lawmakers failed to extend a tax credit for solar energy systems.

The homeowners qualified for the credit when they bought their systems, many in 2020, and had legally applied for the tax breaks, said Tyler Olson, a former Democratic state representative who runs a company that sells mostly commercial grade solar energy equipment. 

“I’d be upset if I were on that list,” Olson said. “They met the criteria to qualify for that credit. Then the Legislature decided after the fact to take away the credit.”

Olson is a board member in the Iowa Solar Energy Trade Association and president of SiteGen Solar in Cedar Rapids. 

The credits will officially expire at the end of the year. The state already has spent all its money for residential projects. Businesses will continue to be eligible for credits, said Lewis Butler, president of the trade association.

Leaders of the Republican majority in the Legislature in the past couple of years have discussed reviewing a range of tax credits, some of which have been in place for years, to see if they are still warranted. Solar energy advocates said GOP senators told them the residential credits would be removed because the industry is “mature” and doesn’t need them.

Sen. Dan Dawson, R-Council Bluffs, said the end of the tax credits was part of the broader review. “Iowa’s tax credits and exemptions have provided a patchwork of tax relief for certain Iowans and prevented overall, comprehensive tax reform for all Iowans,” Dawson said.

“As we work toward providing comprehensive tax reform and relief for all Iowans, we need to closely examine existing tax credits and exemptions currently on the books and standing in the way of that reform,” Dawson added.

On May 18, Rep. Charles Isenhart, D-Dubuque, tried to amend a budget bill to provide money to pay for the backlogged credit requests and to expand the program. The amendment failed.

During floor debate, Rep. Dustin Hite, R-New Sharon, said: “Rep. Isenhart, I know a lot of us support the concept that you are going on. Unfortunately this was something that we just could not find an agreement on across the way” in the Senate.

Polk County Supervisor Matt McCoy, a former Democratic state lawmaker, installed a $38,000 solar array at his south of Grand home in Des Moines and is among those who lost the credit.

“A lot of the folks (on the waiting list) were farmers,” McCoy said. “I didn’t think the Legislature would bite the farmers.”

McCoy said the credit extension appeared to die in the Senate. “I think there is a philosophy up there that all special tax credits are a bad thing,” he added.

The end of the credits is unfortunate because people who are willing to help cut fossil fuel use and greenhouse gas emissions should be rewarded, McCoy said.

The change means McCoy will have to add several years to his projections that his solar energy system would pay for itself in 11 years. The panels meet his home’s full electricity demand.

Solar a statewide selling point

Iowa is one of the national leaders in renewable energy, especially wind. The solar industry has been growing quickly.

A trade group notes the 900 solar-related jobs in Iowa in 2019 compared with 350 jobs in 2015. At least 85 companies are in the solar energy supply chain here.

​Leaders including business executives, state lawmakers and local elected officials regularly brag about the state’s renewable energy record and its relatively low-cost electricity, a selling point in business recruiting.

Josh Mandelbaum, a Des Moines city councilman who is a senior attorney for the Environmental Law & Policy Center, said the tax credit died in the just-ended legislative session despite bipartisan support, at least in the House. 

“It was a major disappointment in a session full of disappointments,” he added. “We made a strong case that the state solar tax credit spurred a lot of investment in communities across the state, particularly focused in smaller communities and rural areas” where hog farms and other businesses started adding them. 

Mandelbaum said if lawmakers were going to let the credit die, they at least could have appropriated money to cover the waiting list of people who applied for the credit. “Hopefully the Legislature will take a look at that and realize that that’s not good just from a business practice and certainly from the point of people trusting the state, and we’ll go back and fix that piece next legislative session,” he added.

Because applications far exceeded the state’s limit on spending on the credits, a long waiting list for the aid formed.

The state had set a limit of $5 million a year for credits. Advocates had asked lawmakers to double that to $10 million in future years. Instead, legislators let the program expire.

Andrew Fisher of 1 Source Solar in Ankeny said the waiting list had grown to 2,000 before this year’s money was spent. There were 760 homeowners still awaiting a credit when the state ran out of money this year, based on Iowa Department of Revenue records, Fisher said.   

The homeowners who were denied a credit had spent a combined $27 million on projects, Fisher added.

Delayed payback

Michael Schmidt, attorney for the nonprofit Iowa Environment Council, said those who recently bought panels now will wait longer for their energy savings to cover the cost of their personal solar project. 

“That makes a big difference on your rate of return,” Schmidt said. “It takes quite a while longer to make that up through savings on your electric bill.”

The state credits typically offset up to 13% of project costs, with a limit of $5,000 for a residential project and $20,000 for commercial ones. Federal tax credits cover 26% of project costs. 

The state offered $36.6 million in solar tax incentives between 2012 and 2020, backing 6,213 projects costing a combined $291 million, according to the Iowa Solar Energy Trade Association

Several bills were introduced last year to extend the tax credit, in some cases divorcing it from the federal tax breaks. They died in committees when the Legislature turned its attention to other matters in an overtime session with delicate negotiations on budget issues, Olson said. 

A matter of choice?

Restoring the credits would give homeowners and businesses the power to determine their own energy fate instead of relying solely on the investor-owned utilities, for example, he added. 

“By not extending the tax credit, the Legislature really swings the balance back toward the monopoly utilities and away from homeowners and small businesses that want the ability to generate their own power and take control over their energy price,” Olson said. 

Fisher, who is vice president of the Iowa Solar Energy Trade Association, said, “We will definitely try to get something passed next year.”