ANN ARBOR, MI - City Administrator Howard Lazarus says trying to reimburse Ann Arbor residents for the city-imposed property tax increases they incur when adding solar panels to their homes would be cumbersome.

And not only that, he said, the city would lose money because a majority of the taxes collected from the increased property assessments are passed along to other entities such as the county, the library, schools and community college. So, even if the city offered rebates of some kind to residents paying solar taxes, the city still would continue passing along the majority of the taxes to those entities, and that would cost the city tens of thousands of dollars annually.

And the city still isn't convinced it has leeway under state law to just not raise a residential property's assessed value when solar panels are added, even if other Michigan communities, including nearby Ypsilanti, do not. Ann Arbor officials argue the city's hands are tied by state law on the issue of solar taxes.

At this point, the city's best option for removing the frustrating property tax hurdles for going solar appears to be seeking legislative change or clarification at the state level, Lazarus told the city's Energy Commission this week.

"Certainly our goal is to make sure that we proceed fairly, equitably and help the state help us get to where we need to be," he said, making it clear the city does want to try to address the issue, but preferably at the state level.

The administrator's remarks came as a disappointment to some who want to see the city take swift and decisive action at the local level to eliminate or offset the solar taxes that, at least in Ann Arbor, make going solar less financially appealing.

"It was highly disappointing, to say the least," Mark Clevey, founder of the Ann Arbor Solar Users Network and vice chairman of the Energy Commission, wrote in an email to two City Council members on Wednesday, Feb. 15.

"Gone was all talk of mitigating the negative effects of solar taxation. He noted that efforts to rebate solar taxes was too burdensome and that he was relying on the city assessor for guidance in this matter."

City Assessor Dave Petrak points to a section of Michigan law that states "all property, real and personal, within the jurisdiction of this state, not expressly exempt, shall be subject to taxation." And he notes there currently is no exemption in Michigan law for solar panels on residential property.

Others question whether solar panels, which might only last 25 years, should be treated as taxable property since they aren't permanent property additions.

The issue has been extensively studied and discussed in recent months by members of the Energy Commission, a citizen advisory body appointed by the City Council. Clevey and others were hoping to hear some long-awaited good news from the administrator at Tuesday night's meeting.

Clevey said unfortunately it seems now the city's approach will be business as usual, which means continuing to raise people's taxes for adding solar panels to their homes, with no relief from the city unless there's a change in state law.

As for the hope of getting state property tax law changed to carve out a clear exemption for residential solar installations, Clevey thinks it's worth a shot, but he notes past attempts to do so have been unsuccessful in recent years.

John Mirsky, another Energy Commission member who has worked with Clevey on the issue, noted now-former state Rep. Jeff Irwin introduced legislation in 2015 that went nowhere, so he doesn't expect to see different results anytime soon.

Clevey said he's left feeling as if members of the Energy Commission wasted a lot of time and effort over the past year trying to help the city meet its Climate Action Plan goals, which include getting more residents to go solar.

"I sense that local solar users and businesses will feel the same. This is a real gut-punch, to say the least," he wrote in an email to Jason Frenzel, the City Council's current liaison to the Energy Commission, and Chip Smith, who was the council liaison to the commission up until recently.

Lazarus plans to take the issue to the City Council's policy agenda committee for discussion about lobbying for state-level changes or clarification.

"While we always strive to be compliant, there is an opportunity for maybe a little bit of civil disobedience along the way," he said at one point Tuesday night.

Lazarus noted the city already has taken some steps to make it easier for residents to get a permit for a solar installation in the city.

"We've eliminated the need for separate building and electrical permits. Although permit holders are required to use appropriate contractors, you only have to apply for one permit," he said. "We have committed to turn those permits around in not more than 48 hours, and usually it's done within a day."

He said the city also has waived or suspended permit fees for residential solar installations until the city can review its approval process, and the city has better coordinated its inspections to reduce wait times and costs while improving and clarifying the permit form to assist those seeking permits.

"I think that puts us in a much better position and a lot friendlier to those who look to install systems," Lazarus said.

The more complicated issue, Lazarus said, is the taxing of residential solar systems. He said the city assessor bases the assessment value on the size of the installation, specifically the rated kilowatts of installed capacity, and it works out to an increase in annual taxes of about $37 per kilowatt, or an extra $111 per year in property taxes paid by a homeowner with a 3-kilowatt rooftop array.

Lazarus said he has heard concerns that the added taxes can extend the payback period to where it nearly matches the useful life of the panels and that can present a financial barrier for some residents. He said the city's staff has looked at several options to reduce the tax hurdle, most of which include collecting the taxes and then redistributing them through some mechanism.

"I think those systems are cumbersome and they also put the city in the position of having to absorb the entire rebate," he said, again noting not all of the increased property taxes from solar installations go to the city.

"Essentially where we are now is we have about 900 kilowatts of installed capacity, and the assessor captures an estimated $33,000 from those, but the city only benefits to the tune of $10,000," Lazarus said.

"So if we were to do something where we would collect the tax and then make a rebate, we'd be responsible for the entire amount, including the assessment that goes toward schools, the county and others. So I think the best thing for us to do, and a preferable approach, is to get some relief from the state and make sure there is a consistency in how residential systems are assessed."

Asked whether the city could start by rebating the $10,000 the city collects, Lazarus said that would have to go through the City Council.

As for the city's limitations under state law with respect to solar taxation, Lazarus said he has not asked the city attorney for a legal opinion.

"I have been guided by the advice of the city's tax assessor," he said, referring to Petrak, who argues the city has no choice but to tax solar panels.

Lazarus said there are examples from other states, including Virginia, where municipalities can individually opt in to provide tax exemptions by adopting an ordinance and then not assessing the improvements.

"I think that's the easiest way to go," he said. "I have spoken to a couple of our representatives. I've also spoken to people from the Michigan Municipal League and our lobbyist. And I think, from what I've heard ... there is potentially bipartisan support in the Legislature to support this approach."

Over the long term, Lazarus said, that's the easiest and fairest way to remove the tax hurdles for residential solar installations.

Whatever the solution, Mirsky said he thinks it's important for the city to look not only forward, but also backward to make sure residents who already had their taxes raised for going solar see some retroactive relief or rebate.

"If there's something like the Virginia approach that would potentially be adopted here, we need to consider how that would be handled retroactively," he said.

Clevey said commissioners are planning to go to Lansing to talk about the issue with other organizations, including the Great Lakes Renewable Energy Association and the Michigan Energy Innovation Business Council.

He said there have been communications with state Rep. Yousef Rabhi's office. Rabhi took over Irwin's seat representing Ann Arbor last month.

"This is something that I will be looking at very closely," Rabhi said in December. "I need to learn more about this specific Issue, but ultimately one of my legislative priorities is to increase our state's renewable energy use."

Clevey said the Michigan Conservative Energy Forum, led by Republican activist Larry Ward, also wants to do what's possible to increase renewable energy and is interested in better understanding the issue of solar taxation and potentially playing a role in seeking a bipartisan solution.

"They seem to think an effort like this that is led from the conservative side of the House has a better chance," Clevey said.

Mirsky noted more than 70 people have indicated an interest in installing solar panels on their homes through a new group purchase program announced by the city last month in partnership with the Clean Energy Coalition and a company called Geostellar, and six people have signed agreements already.

Mirsky said the problem is residents who go to the program website to get custom estimates of the costs for adding solar to their homes, and the projected financial savings and payback periods, are not given information about the increase in property taxes to factor into the calculations or the possibility that their savings might be further eroded by a DTE Energy grid-usage charge of hundreds of dollars per year if state regulatory changes happen.

So, Mirsky said, the numbers being provided to residents through the city-backed program are misleading and he argues that needs to be rectified.