Bureaucratic bookkeeping may inadvertently grind Virginia solar development to a halt. The state government is assessing this issue and we understand a decision will be issued in due course. This is the first of three installments highlighting SolUnesco’s research on the Virginia Composite Index and its impact on solar electric generation. To download our complete findings, click here.
WHAT IS THE COMPOSITE INDEX AND HOW IS IT RELATED TO SOLAR?
The Composite Index of Local Ability-to-Pay (Composite Index) is a tool that the Virginia Department of Education uses to allocate state education funding to each county based on relative wealth. Some counties depend heavily on this funding, which could total tens of millions of dollars per year.
The Composite Index (CI) measures the relative wealth of each county and allocates state funds in inverse proportion to the relative wealth. CI values potential sources of tax revenue, including real estate value, gross income, and retail sales. The CI calculates these measures of wealth on per capita and per pupil basis, and calculates the proportion of the state total. The point of this is to measure how much tax revenue a county will be able to raise to fund its school system, how many students the county will spend that money on, and how that ratio compares to other counties in the state. In the end, the CI determines the percentage of certain budget items that should be borne by the county vs the state. Wealthier counties with a higher Composite Index pay a higher percentage of these budget items themselves. Less affluent counties will pay a lower percentage and receive more funding from the state.
Why this matters to solar is that it is being included in the Composite Index. The piece of this equation that’s relevant to solar development is the total real estate value for the county, or the True Value. The Department of Education (DOE) gets True Values from the Department of Taxation (DOT). The DOT breaks the True Value into 2 parts: real estate and Public Service Corporation property, which includes solar and other electrical generation equipment. The DOT calculates the value of real estate by looking at local tax assessments and property sale prices, and it gets the value of Public Service Corporation property from the State Corporation Commission (SCC).
When a solar farm is built, its value is assessed by the SCC. The SCC then reports the value of the complete solar farm, along with all other utility property in each county, to the DOT. The DOT combines that with the value of other real estate to create the True Values that it reports to the DOE, which uses that to calculate the Composite Index. The Composite Index then determines how much education funding each county will receive.
In short, solar development requires huge up-front investments. Currently, the full value of these investments are being assessed by the SCC and have the potential to significantly skew the Composite Index. As we will cover in our next installment, this is not an accurate way for the state to be assessing these values.
Or, to download the full report now, click here.