The tax credit became law in 2005. It provides a subsidy of up to $4,000 per home to builders who meet certain efficiency standards for heating, cooling, insulation, roofs, doors, windows and appliances.
The credit is available for new homes measuring 2,000 square feet or less. To qualify, homes must be at least 20 percent more efficient than the standards required by the International Energy Conservation Code of 2003.
The Oklahoma Tax Commission has determined that the energy-efficiency credit reduced state revenue collections by $3.8 million last year. In 2010, the credit was suspended for two years as part of a budget-balancing deal. It is scheduled to go back into effect July 1, 2012.
“We should only have taxpayers subsidizing economic activity if it broadens and grows and increases our tax base,” said state Sen. Mike Mazzei, R-Tulsa, co-chairman of the 10-member Task Force for the Study of State Tax Credits.
“Small subsidies that are frittered around to lots of different interest groups that have marginal, short-term consequences, in my opinion, are not items that are doing that,” said Mazzei, a financial planner and chairman of the Senate Finance Committee.
Mazzei said the criteria for retaining a tax credit include whether it provides high-paying jobs or brings people to live and stay in Oklahoma.
Backers see merit
Proponents of the homebuilder tax credit say building energy-efficient homes will lessen overall energy demand and reduce the need for new power plants, keeping consumers' energy bills lower than they would be if more plants were built.
The U.S. Department of Energy estimates that residential housing claims a quarter of all energy usage. The website of Energy Star, an Environmental Protection Agency program that debuted in 1992 to encourage energy-conserving products, indicates $18 billion was saved nationally on utility bills in 2010 through the program.
Ideal Homes of Norman, Home Creations of Moore and Simmons Homes of Tulsa are among the state's largest homebuilders. Each claims the tax credit, Tax Commission records show. In 1997, Ideal Homes became the state's first Energy Star builder.
Ideal Homes' co-owner Vernon McKown said his company will continue to build energy-efficient homes, regardless of any state or federal tax credits.
But McKown predicted that many smaller builders would not continue building energy-efficient homes without the credit because the homes cost more to build. It's difficult to pass on increased construction costs to the cash-strapped, first-time homebuyer.
Dramatic change
“The tax credits were a great way to get to the building community,” McKown said. “If you look at the number of builders who were building Energy Star and high-performance homes pretax credit and the ones who were after the tax credit, it just blew up. … The number was just gangbusters. It was more than a doubling. … It brought about a dramatic change in our industry.”
Kelly Parker, an energy consultant and owner of Guaranteed Watt Savers, is set to tell the task force how the tax credits motivated builders to build better homes.
Before adoption of the International Energy Conservation Code in 2000, “you could build a house with no insulation,” Parker said. “We had to make the builders change the way they build homes, and (the tax credits) did.”
Surplus credits sold
The tax credit raises questions, though, because it is one of a small number that are “transferable” to other taxpayers who had nothing to do with the activity they were designed to stimulate.
Some homebuilders earn more energy-efficiency credits than they owe in state taxes. The transferability feature allows them to sell their surplus credits to other corporations or individuals, usually for about 80 cents on the dollar. The buyers use the credits to reduce their own state tax bills.
For example, Greg and Patricia Simmons of Simmons Homes were listed on the state's Open Books website as top recipients of the tax credits in 2008, receiving a combined total of $479,334.
“There is no way (homebuilders) are going to owe that much tax liability,” Parker said. “So you lose the incentive” if the credit is not transferable.
In an opinion requested by task force co-chairman Rep. David Dank, R-Oklahoma City, former Attorney General Drew Edmondson called transferability of the energy-efficiency credit “constitutionally infirm” because it did not provide adequate controls and safeguards.
CONTRIBUTING: Warren Vieth and Logan Layden