SALEM — Republican state lawmakers are calling for a probe of allegations that employees at the Oregon Department of Energy and Department of Revenue violated state law on energy tax credits, engaged in favoritism and allowed some people to evade the capital gains tax.
The lawmakers outlined the allegations in letters sent Monday to Oregon Attorney General Ellen Rosenblum, the state’s U.S. Attorney, the FBI, the IRS and Marion County District Attorney Walter Beglau.
The legislators who sent the letter were state Sen. Doug Whitsett, R-Klamath Falls; Rep. Gail Whitsett, R-Klamath Falls; Rep. Cliff Bentz, R-Ontario; Rep. Mark Johnson, R-Hood River; and Rep. John Davis, R-Wilsonville.
“We hope to achieve a broad legal investigation of what may or may not have gone on,” Whitsett said. “That was the purpose of sending the letter to six different law enforcement agencies and (carbon copying) the others so everybody knew they got it.”
Lawmakers based their allegations on interviews with whistleblowers who were former or current employees of the Department of Energy and Department of Revenue.
Tax credits for renewable energy
The state issued the tax credits to owners of renewable energy and efficiency projects. Project owners could use the credits to offset their taxes, or sell them at a discount to raise capital. Those sales produced a capital gain for the purchaser.
Business energy tax credits issued between 2006 and 2014 could cost the state up to $968.1 million in tax revenue, according to the Department of Energy. A majority of that cost — $703.6 million — comes from tax credits that were sold to investors.
The companies and individuals who bought those credits could realize a total gain of $209.4 million, which is the difference between the value of the tax credits and the price taxpayers paid to purchase them, according to an analysis by the EO Media Group/Pamplin Media Group Capital Bureau.
The lawmakers wrote that “(business energy tax credits), as they were issued by the (Department of Energy), were hand-delivered by a (Department of Energy) employee to a select buyer of those credits without an opportunity for others to bid.” The same employee allowed the tax credit recipients to ignore state price regulations on the sales of the energy tax credits.
“The capital gain on the sale of the credits by the entity purchasing the credits was not appropriately reported to either the state or federal taxing authorities,” lawmakers wrote. A state auditor who raised the issue was told to “stand down,” and the Department of Energy never issued 1099 tax forms to report the capital gains, according to the lawmakers.
The EO Media Group/Pamplin Media Group Capital Bureau reported many of the same issues in recent months.
For example, the bureau reported in August that the well-connected energy tax credit broker Blue Tree Strategies was able to get the Department of Energy to change the rules for energy tax credits. The bureau also reported in June that wealthy individuals and companies were able to avoid paying taxes on capital gains they realized by purchasing discounted energy tax credits, because auditors at the Department of Revenue were told by top officials in 2012 to ignore the problems.
“It certainly appears that there was some favoritism going on,” Whitsett said Tuesday. “There certainly sounds like there may have been significant taxes foregone ... It certainly sounds as if there was one particular brokerage that was garnering great favoritism.”
Democrats considering legislation
Whitsett said the Republican lawmakers decided to send the letter because Democratic lawmakers are considering possible legislation to address liability the state could face as a result of the Department of Energy’s handling of the tax credits, including a new type of tax credit that replaced the business energy tax credit. The leaders of the Oregon House and Senate revenue committees, Gov. Brown’s energy policy adviser and lawyers from the Legislature and state Department of Justice met behind closed doors at the capitol Wednesday to discuss the issue, as first reported by the Oregon Capital Insider online newsletter.
“We understood there was an effort being made to bring some legislation to clean up this thing,” Whitsett said. “We thought perhaps it would be a good time to let the public know how bad it might be, before we started the cleanup.”
A spokesperson for Rosenblum’s office said the attorney general is reviewing the letter.
The Capital Bureau is a collaboration between EO Media Group and Pamplin Media Group.