TVA Develops Innovative Strategies to Avoid Federally Imposed Debt Ceiling

Nashville–The Tennessee Valley Authority (TVA) has developed a number of innovative financing methods in order to stay within the $30 billion debt ceiling imposed on it by Congress in 1979.  These include the use of sale-and-lease back and lease-and-lease back arrangements.  A sale-and-lease back arrangement between TVA and an Electric Generation & Transmission Cooperative could affect the distribution of PILOT funds and negatively affect county and city funds, as was the case in Mississippi following the sale of the Southaven plant.  Under that arrangement, TVA operates the plant and all sales of electricity produced are through TVA.  Revenues are counted as TVA revenues and subject to the PILOT allocation to states.  Although the fact that TVA doesn’t own the Southaven plant doesn’t affect the PILOT allocation across states, it does affect the PILOT distribution to the state of Mississippi.

With a sale-and-lease back arrangement, the amount of the TVA PILOT that goes through any particular state’s own allocation formula would decrease to the extent that the new plant owners must pay taxes to the state or local governments.  For Mississippi this was a reduction of $6.0 million in its allocation for 2012.

So far, generating expansions in Tennessee have been through lease-and-lease back agreements.  An example is the natural gas combined cycle plant built in 2010 in East Tennessee and leased to a private company in January 2012.  The company paid TVA $1 billion for the lease and leased the plant back to TVA for 30 years.  The plant is managed by TVA.  This lease arrangement changes neither the ownership of the property nor TVA revenues and so has no effect on the PILOT across states or with Tennessee.

The Tennessee Advisory Commission on Intergovernmental Relations is charged with monitoring the effects of the Electric Generation and Transmission Cooperative Act and recommending changes as appropriate and reporting annually to the Tennessee General Assembly.  In this year’s report, the Commission noted that TVA’s estimated payments in lieu of taxes for the region for federal fiscal year 2012-13 are $43 million less than the $579 million in actual payments for federal fiscal year 2011-12.  This is only the second time since 2000 that a decrease from one year to the next has occurred.  The estimated decline in payments results from the loss of one of TVA’s largest customers and the continuing slowdown in economic activity stemming from the recession, as well as other factors.  This estimated decline amounts to approximately $1.5 million in distributions to Tennessee county governments and municipalities, and approximately $2 million to the state and its agencies.    While the report noted some future concerns, the commission sees no immediate need for further legislative changes.

The full report is available on TACIR’s web site at www.tn.gov/tacir/pubs_by_date.html.  For more information, contact Lynnisse Roehrich-Patrick at 615-741-3012 or email.                                                                     

The Tennessee Advisory Commission on Intergovernmental Relations (TACIR) serves as a forum for the discussion and resolution of intergovernmental problems and provides high quality research support to state and local government officials to improve the overall quality of government in Tennessee and to improve the effectiveness of the intergovernmental system to better serve the citizens of Tennessee.