ARLINGTON, Va. – Several provisions to modify tax policy and protect electric rates for the nation’s electric cooperatives are included in FY2020 spending legislation passed today by the U.S. Senate. The House passed the legislation on Tuesday. It now heads to the president’s desk to be signed into law.
The package includes:
- The bipartisan RURAL Act, which ensures that co-ops that accept government grants for storm restoration or broadband are not at risk of losing their tax-exempt status.
- The SECURE Act, which will lower the premiums that electric co-ops pay to the Pension Benefit Guaranty Corporation for low-risk defined benefit pension plans.
- Repeal of the “parking lot tax,” which would have assessed taxes on about one-third of electric co-ops.
- Repeal of the 40% “Cadillac tax” on employer health plans that will help protect health care benefits for all co-op employees.
“We’re grateful that Congress understands the importance of fixing a tax problem that threatens 900 electric co-ops and America’s rural communities,” said Jim Matheson, CEO at the National Rural Electric Cooperative Association. “This package preserves the electric cooperative business model, protects co-op members from unfair electric rate increases and provides certainty to co-ops that leverage federal and state grants to meet the needs of the communities they serve. In particular, we’re grateful to Sens. Rob Portman and Tina Smith and Reps. Terri Sewell and Adrian Smith for leading the RURAL Act through Congress.”
Key congressional sponsors echoed Matheson’s support for the RURAL Act’s inclusion in the spending package.
- Sen. Rob Portman, R-Ohio – “I’m pleased that this bipartisan legislation will now head to the president’s desk to be signed into law because in today’s technology-dependent world, we must do more to bring high-speed internet and stronger grid infrastructure to the rural areas of our country. Tax-exempt rural co-ops provide these important services to parts of the country where access to reliable electricity and high-speed internet is the most limited, and they rely heavily on grants to perform these services. Without this legislation, many co-ops may miss out on grant income or disaster assistance, hurting our efforts to promote economic development and job creation in these rural areas.”
- Rep. Terri Sewell, D-Ala. “Communities across my district rely on the services provided by rural electric cooperatives, including the deployment of rural broadband, energy to rebuild neighborhoods after natural disasters, and other economic development projects. Access to reliable, affordable broadband is especially important to my constituents in rural communities who depend on this connectivity for economic growth. By ensuring that government grants for these services don’t jeopardize the tax-exempt status of these cooperatives, today’s passage of the RURAL Act will preserve the ability for co-ops to continue providing these invaluable tools that boost local economies and support families across Alabama.”
- Sen. Tina Smith, D–Minn. “We should take any action we can to help us get more Minnesotans and Americans in rural areas connected. So when I heard from several Minnesota cooperatives at risk of losing their tax-exempt status, I wanted to reverse that. I introduced bipartisan legislation that would ensure co-ops can retain their tax exemptions in efforts to expand rural broadband or in providing relief from, or preparation for, a disaster or emergency. With this measure set to become law, we can make sure rural broadband keeps expanding in Minnesota and nationwide. I also want to thank the National Rural Electric Cooperative Association for being partners in this work from day one.”
- Rep. Adrian Smith, R-Neb. – “Rural communities across the country, including in Nebraska’s Third District, depend on public and cooperative power to provide affordable, reliable electricity. TCJA’s grant-related provisions were never intended to change the tax-exempt status of rural electric cooperatives, and enacting the RURAL Act makes that clear. Grants from agencies such as FEMA play a vital role in rural America, and this provision ensures a tax glitch doesn’t further stress communities as they recover from storms, earthquakes, wildfires, and other disasters. I am grateful to Rep. Sewell, Sen. Smith, Sen. Portman, our more than 350 cosponsors from the House and Senate, and cooperative members across the country for helping us ensure this vital fix becomes law.”
To maintain their tax-exempt status, co-ops may receive no more than 15 percent of their income from non-member sources. Historically, government grants were considered contributions to capital, not income. But the 2017 tax law inadvertently categorized grants as non-member revenue, threatening to push co-ops beyond the 15 percent threshold. The RURAL Act makes it clear that government grants will not threaten a co-op’s tax-exempt status.
The SECURE Act has been another major priority for electric co-ops this year.
“Electric co-op pension plans pose nominal risk of default, yet co-ops continue to pay PBGC premiums as if they were Fortune 500 companies with higher risk profiles,” said Matheson. “I applaud Congress for recognizing these important differences and passing this bill to save electric co-ops more than $30 million annually.”
NRECA offers retirement and health insurance benefits to co-op employees, including a defined benefit pension plan. More than 880 electric co-ops participate in the plan, which covers more than 56,000 employees in 48 states.
The National Rural Electric Cooperative Association is the national trade association representing more than 900 local electric cooperatives. From growing suburbs to remote farming communities, electric co-ops serve as engines of economic development for 42 million Americans across 56 percent of the nation’s landscape. As local businesses built by the consumers they serve, electric cooperatives have meaningful ties to rural America and invest $12 billion annually in their communities.
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