The Sierra Club Hawaii chapter and Earthjustice filed a lawsuit Tuesday to try to prevent the state from enforcing new restrictions on solar tax credits, prompting Gov. Neil Abercrombie to accuse the environmentalists of protecting "people who cheat."
The state Department of Taxation issued temporary administrative rules in November to curtail the solar tax credit after the estimated cost grew far higher than the state anticipated and the state Legislature was unable to agree on a solution. The cost of the tax credit rose from $34.7 million in 2010 to $173.8 million in 2012, causing the state Council on Revenues to downgrade the state's revenue forecast.
Starting in January, the new rules would base the state's 35 percent solar income tax credit — which is capped at $5,000 per photovoltaic system for homeowners and $500,000 per system for businesses — on the total kilowatt output capacity of a system. Under the existing rules, many homeowners and businesses, working with solar companies, exceed the caps by configuring multiple systems on their properties. The 35 percent state tax credit can be paired with a 30 percent federal tax credit, a generous incentive that has contributed to the rapid growth of the solar industry.
But the Sierra Club, in a legal challenge filed by Earthjustice in state Circuit Court, claims the new rules violate the intent of the state's solar tax credit law, which is to increase the installation of photovoltaic systems by homeowners and businesses and ultimately reduce the state's dependence on fossil fuel. The environmental groups believe the new rules will reduce the average tax credit by about half and deter many homeowners and businesses from converting to solar.
The lawsuit also claims that the Department of Taxation exceeded its authority in adopting the new rules, arguing that the Legislature has the prerogative over the state's alternative energy incentives.
"The Department of Taxation tried to push through a bill last year. It wasn't successful. And it appears they are now trying to pre-empt the Legislature by taking action two weeks before the Legislature starts," said Robert Harris, director of the Sierra Club.
The Department of Taxation would not comment on the lawsuit, referring questions to the state attorney general's office, which was reviewing the suit.
Abercrombie, however, denounced the Sierra Club.
"The Sierra Club is saying that they want to protect people who cheat. It's astounding to me, absolutely astounding," the governor told reporters at the state Capitol. "We're trying to do something serious here. We're trying to say that we want to move to alternative and renewable energy, and we want to do it in a pono way. The fact that some people are trying to take advantage — and threaten the entire system that allows us to provide incentives for people who are doing things the right way, the correct way, the pono way.
"Now maybe the Sierra Club does that kind of thing on the mainland, but this is Hawaii. If people are cheating and gaming the system and preventing other people from taking advantage of what is legitimately there to be done. In this instance, I want it made very, very clear: We are encouraging people to use solar, wherever possible, and we're trying to maximize the capacity of people to be able to afford that.
"And when some people cheat and put in systems that are doubled or tripled or whatever they do in order to pretend that they need more than one system, that takes away from the capacity of honest people to do things honestly. It is an insult to the people of Hawaii to say that in order for us to get alternative energy, we have to shut our eyes to cheaters."
Lawmakers, who were close to a compromise last session that would have contained the solar tax credit, plan to discuss new legislation during the next session, which opens in January.
State Sen. Mike Gabbard (D, Kapolei-Makakilo), chairman of the Senate Energy and Environment Committee, believes the Legislature should set solar tax credit policy. He has been meeting with a working group made up of solar industry experts and state tax regulators "looking at the best way to fix the renewable energy tax credit so there is less of an impact on the state's pocketbook."
State Rep. Denny Coffman (D, Naalehu-Captain Cook-Keauhou), chairman of the House Energy and Environmental Protection Committee, believes the Department of Taxation has the authority to issue the new rules. He said lawmakers had intended for the solar tax credit to have an enforceable cap.
"I think what DoTax (Department of Taxation) is doing is trying to, to the best of their ability, meet that," Coffman said, adding that he intends to work with Gabbard on new legislation.
David Henkin, an attorney for Earthjustice, said the Legislature should decide. "Abercrombie was a legislator for many decades at the state and federal level. He understands how the process works," Henkin said. "The executive branch doesn't make the law; it implements the law. So having failed, they should have dusted themselves off and then gone back to work with the stakeholders and work with the legislators to get the Legislature to enact something this coming session."