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Iowa Congressional delegation united to fix electric co-op tax problem

It’s no secret that Washington politics have become so polarized that it can be tough for Democrats and Republicans to come together to tackle challenges that their constituents face. But that’s exactly what happened recently on Capitol Hill thanks to Iowa’s Congressional delegation.

Our senators and representatives listened to thousands of electric cooperative stakeholders as they fought tirelessly to add important tax and retirement policies to the 2020 spending bill. The bill was signed into law before Christmas and included a provision known as the RURAL Act, which solved an existential issue for electric co-ops and America’s rural communities.

Locally owned electric co-ops work to secure government grants to help pay for numerous activities that benefit the communities they serve. These include grants for storm recovery and mitigation, broadband deployment, renewable energy and economic development.

In order to maintain their tax-exempt status, electric co-ops must receive no more than 15 percent of their income from non-member sources. Historically, government grants to co-ops were counted as contributions to capital. But due to a glitch in the 2017 tax law, government grants were reclassified as income, pushing some co-ops beyond the 15 percent threshold and jeopardizing their tax-exempt status.

The tax problem left co-ops with a broad dilemma: Do they take the money they need to turn the lights back on for their members as quickly as possible after a disaster? Do they accept the broadband grants to help close the digital divide between rural and urban America? Or do they turn down those grants so they wouldn’t have to spend critical funds when the tax bill comes due?

Had the unintended consequences of the tax change been in place prior to 2018, some of Iowa’s electric cooperatives may have experienced several instances where they would have lost their tax-exempt status for the year.

Thanks to Congress, electric co-ops across America won’t have to make those impossible choices. This is good news for both co-ops and their member-owners because some co-ops may have had to raise their electric rates to pay new taxes.

On behalf of Iowa’s electric cooperatives, we are extremely grateful to Senator Joni Ernst, Congresswomen Cindy Axne and Abby Finkenauer, and Congressmen Dave Loebsack and Steve King for their support of the stand-alone RURAL Act. And without Senator Chuck Grassley ensuring the provision was included in the final negotiations on the congressional budget bill, those painful scenarios would have begun to play out in co-op board rooms across the country. In standing up for Iowa’s rural communities, they proved that Congress can still work for the people.

Notably, the legislation drew the bipartisan support of more than 350 of the 535 Federal lawmakers. That’s a rarity in Washington these days. In today’s fast-paced society, pausing to give thanks is done with increasing rarity. That’s unfortunate.

Thank you to all our Federal legislators. Thank you for looking out for rural communities across Iowa and thank you for working with us to solve this problem.

Chuck Soderberg is executive vice president and general manager of the Iowa Association of Electric Cooperatives

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