The following op-ed by David Callis appeared in The Tennessean on Friday, Dec. 13. You can view the article on The Tennessean’s website.
PASS THE RURAL ACT
An op-ed by David Callis, executive vice president and general manager of the Tennessee Electric Cooperative Association
In 2016 the Tennessee legislature and the governor’s
administration published reports about the lack of broadband in rural areas. A
major area of concern was the prohibition on electric cooperatives providing
broadband and a lack of funding.
As a result, the General Assembly passed the Tennessee Broadband
Accessibility Act in 2017 to ensure that one day all Tennesseans will have
access to broadband internet. The legislation allows electric cooperatives to
provide broadband internet service and provides grants to jumpstart the efforts
of willing providers.
Lawmakers in Washington, D.C., have also recognized the need for
rural broadband deployment. Since low
population density and high costs are major hurdles to successful rural broadband deployment, state and
federal grants are essential tools in efforts to bridge the digital divide. Congress recently appropriated more than $600 million that will
be distributed through the USDA’s Re-Connect program that focuses exclusively
on expanding access to broadband in rural America.
However, another significant hurdle surfaced last year. An unintended
consequence of federal tax law changes threatens to impose additional financial
burdens on rural communities and hamper broadband expansion.
Let me explain. Most of the nation’s 900
consumer-owned electric co-ops are recognized as tax-exempt organizations by
the IRS as long as they receive no more than 15 percent of their income from
non members.
Under the 2017 tax law, federal, state
and local grants now count toward that 15 percent threshold. If that limit is
exceeded, a co-op will lose its tax-exempt status for that year. Lawmakers acknowledge that the threat to electric co-ops is an
unintended consequence.
This undermines a successful business model that has served
America’s rural communities well for decades. It doesn’t matter if the money is
for storm recovery, broadband deployment or economic development. If a co-op’s
non member income exceeds 15 percent because of the grant, the cooperative
could be forced to pay taxes on the grant amount.
Last month, Forked Deer Electric Cooperative was the first cooperative
in the nation to receive a grant from the U.S. Department of Agricutlure’s new Re-Connect
program. They were awarded a $2.8 million grant that will allow the cooperative
to reach areas across 425 square miles of their sparsely populated West
Tennessee service area that lack broadband service. U.S. Secretary of
Agriculture Sonny Purdue toured Lauderdale County, and during his speech
announcing the grant, he told the audience, “We know when rural America
thrives, all of America thrives.”
I couldn’t agree more.
However, receiving this grant puts the co-op dangerously close to
the 15 percent limit for non member revenue. If Forked Deer Electric Cooperative is
fortunate enough to receive additional grants for broadband or economic development,
they could easily exceed the 15 percent limit. If a natural disaster caused
significant damage to the electric system, grants from FEMA (Federal Emergency
Management Agency) could also force the cooperative into becoming taxable.
Rural America
faces serious challenges, and few organizations are investing more money and
effort into solving these problems than consumer-owned electric co-ops.
Congress
inadvertently created this problem, and now co-ops are urging Congress to fix it.
Pending bipartisan legislation known as the RURAL Act (H.R. 2147 and S.1032)
clarifies that government grants should not jeopardize the tax-exempt status of
electric co-ops. The act, introduced by Reps. Terri Sewell (D-Ala.) and Adrian
Smith (R-Neb.) and Sens. Rob Portman (R-Ohio) and Tina Smith (D-Minn.), will
restore certainty and common sense.
The bipartisan RURAL Act has been co-sponsored by nearly all of Tennessee’s
congressional delegation, including Sen. Marsha Blackburn and Reps. John Rose, Phil
Roe, Tim Burchett, Scott DesJarlsis, David Kustoff, Chuck Fleischman and Mark Green.
We thank them for their support. Their leadership and commitment to helping
rural Tennessee will help ensure that co-ops won’t jeopardize their tax-exempt
status. Electric co-ops
should be able to focus on their core missions of providing affordable and reliable
power and enhancing the quality of life in their communities without fear of a
federal tax bill.
Time is running out, and lawmakers need
to pass legislation this year. Passage of the RURAL Act is essential for
America’s rural communities.
As co-ops across
the nation prepare to apply for the next round of broadband grant funding for
rural America, relief from this taxing problem can’t come soon enough.
