The U.S. Senate debate between Marsha Blackburn and Phil Bredesen in 3 minutes
Former Tennessee Gov. Phil Bredesen spent much of his second term touting the benefits of solar investments.
He dedicated millions in stimulus dollars to set up the Tennessee Solar Institute in Knoxville, recruited two large manufacturers of solar materials to the state, and his administration pushed for legislation providing green energy companies a series of tax breaks.
Weeks after the tax bill passed in June 2010, Bredesen had another reason to root for the burgeoning sector’s success: He became chairman of a new Nashville solar company, Silicon Ranch.
Today, Silicon Ranch builds, owns and operates more than 120 solar projects in 14 states. The company’s partners include global oil and gas company Royal Dutch Shell, which bought a 43 percent stake in the company this year, and Canada-based Greystone Managed Investments. It employs about 45 people, who mostly work in downtown Nashville.
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In its earliest days, Silicon Ranch raised questions about conflicts of interest for Bredesen and Silicon Ranch co-founders Reagan Farr and Matt Kisber, who were both state commissioners at the time. Both the timing of the company’s creation and the introduction of tax incentives directed at the solar industry spurred criticism of the governor during his last months in office.
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Bredesen, now running for a U.S. Senate seat as a Democrat against Republican U.S. Rep. Marsha Blackburn, says he did nothing inappropriate. He invested in Silicon Ranch to help his aides start a company, just as he had done for other employees in the private sector several times before. There is no legal rule against a governor making investments while in office and other governors have done so, he said.
“If I thought I would be describing this hour by hour eight years later, I probably would have documented everything I was doing better,” Bredesen said in an interview at his campaign headquarters earlier this month. “There is certainly nothing wrong with it.”
The timing of Silicon Ranch’s incorporation has been the subject of a recent media report in The New York Times and has been the centerpiece of an ad from the Senate Leadership Fund, a PAC aligned with Senate Majority Leader Mitch McConnell that is flooding the airwaves with ads critical of Bredesen. Republicans in Tennessee have accused Bredesen of using his office to profit personally.
“Whether it’s illegal or not is one thing. Is it an appropriate use of funds?” Gillum Ferguson, a Tennessee Republican Party spokesman, said of the use of stimulus dollars and tax credits aimed at solar. “He is setting up the playing field to tilt to one side and he invests in that side.”
Silicon Ranch never accessed stimulus funding but did take advantage of tax credits.
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Building a company
When Bredesen built his first company, HealthAmerica Corp., in 1980, he turned to four founders and board members of his then-employer, Hospital Affiliates, for early investment. Together, he said they provided $50,000, enough to get the company going, and he grew HealthAmerica to a 6,000-person company that later sold for $400 million.
Similarly, when some of his employees at HealthAmerica sought to start their own companies, including Coventry Corp. and First Commonwealth, Bredesen said he provided seed capital.
“I did with this like I have done multiple times in the past, which is try to help out people who have been working for me and wanted to do something financially,” Bredesen said. “Most of the times, those have worked. A couple of times, they didn’t work so well.”
In the spring of 2010, Kisber, the state’s economic development chief, and Farr, Tennessee’s revenue commissioner, approached Bredesen about starting a company and after considering other sectors, they landed on solar, Bredesen said.
“We talked and said, we have been touting this renewable energy for a prolonged time, why don’t we explore if there is something there to be done, kind of putting your money where your mouth is,” Bredesen said.
Farr agreed to step down from his government role so he could focus on building the company until Kisber and Bredesen could become more involved after the term ended, Bredesen said. In hindsight, they might have waited, but Bredesen said he understood why Farr and Kisber were eager to move forward sooner with their roles for the state winding down.
“I think they understandably wanted to get started rather than suddenly find themselves without a paycheck on Jan. 20 and no work had been done,” Bredesen said. “It was all very upfront, publicly filed documents of everything. I didn’t see it at the time as particularly problematic.”
Election day is November 6th, 2018
On the campaign trail, Bredesen has talked about being an investor in the solar industry after his time in office.
Silicon Ranch was incorporated in early August 2010, five months before Bredesen and Kisber left office, with Bredesen named as chairman. Farr said he stepped down from the state on Aug. 31, and Bredesen invested $250,000 into the company in September. In the years after leaving office, he invested another $3.75 million into the company.
When The Tennessean reported on Bredesen’s involvement in Silicon Ranch in November 2010, Farr described Bredesen as a passive investor and Bredesen said he secured the company’s domain name. He kept his Silicon Ranch investment out of a blind trust that managed his other assets. During his second term, he used the same arrangement for Qualifacts, a software company he co-founded.
A blind trust did not make sense for Silicon Ranch, he said, because he knew what was in it — his check — and there were only a few months left of his term.
“There is absolutely nothing about it that anyone saw as inappropriate at the time,” Bredesen said.
Gov. Bill Haslam also kept his stake in his family’s Pilot Flying J out of his blind trust. As governor, he made investments in a ranch in Colorado and two Florida homes, which he has since sold. He kept those outside the blind trust because state policies would not affect them, Haslam spokeswoman Jennifer Donnals said.
Bredesen, who did not take a salary as governor, said in 2010 that Farr should avoid working with companies that the state had any influence over to avoid any appearance of conflicts of interest. Farr and Kisber said in 2010 media reports they would avoid taking advantage of business relationships built during their time in government.
In October 2010, Kisber met with officials at Corrections Corporation of America, now called CoreCivic, to discuss the company. At the time CoreCivic had a nearly $90 million contract with the state.
Bredesen said he had not known about the meeting until media reports surfaced and that he objected to the meeting because of perception issues. Silicon Ranch has never done business with CoreCivic, but Kisber knew some of its founders and had been interested in insights on running an asset-based business and on workforce development, Farr, now president and chief operating officer of Silicon Ranch, said.
“I told him not to do it again,” Bredesen said. “I do not believe they ever did anything like that again. There wasn’t anything bad about it; it was just visibly bad.”
Bredesen, who loaned $19 million to Silicon Ranch and has invested $4 million into the company since 2010, has seen his investment stake grow to between $25 million and $50 million, based on Shell’s valuation. He has not sold any shares of the company to date.
Bredesen said that he has never been an employee of Silicon Ranch and receives no stock options. He will resign as chairman if he is elected senator.
Farr emphasized that for the first year of the company, it was an idea and for a while, its survival was uncertain. But now he’s “extremely proud of what we’ve done.”
Tax legislation for solar companies
Bredesen’s attention on solar was driven by a focus on economic development and his interest in the environment, he said. When Bredesen and Kisber traveled to Europe in June 2009 and June 2010, they focused on renewable energy development, and when Bredesen traveled to China in October 2009, he reported positive conversations with leaders about the industry.
“The real interest for me was my personal desire to do things that were environmentally sound, but more fully, in my role as governor, I thought it was a real opportunity to create some jobs and bring some investment in,” Bredesen said. “Our focus was probably much more on the creation of manufacturing jobs rather than the presence of solar generating facilities.”
In 2008, Bredesen recruited Hemlock Semiconductor Corp., a manufacturer of solar ingredient polysilicon, to Tennessee, committing at least $111 million in incentives to attract the $1 billion investment in Clarksville and the 500 new jobs expected, according to the Tennessee Economic Community Development office.
The next year, Bredesen announced German polysilicon producer Wacker Chemie AG had chosen a site near Cleveland, Tennessee, for a $1 billion plant also promising 500 jobs. The state provided $107 million in grants and training funding.
But in 2013, after the price for polycrystalline silicon dropped amid a trade conflict with China, Hemlock announced it would lay off about 300 employees. The site now is being converted by Google to a data center. Meanwhile, Wacker’s investment has expanded to $2.6 billion and the company employs 650 people at its Tennessee plant, according to the Chattanooga Times Free Press.
Under Bredesen, more than $62 million in federal stimulus money went to set up the Tennessee Solar Institute, a partnership between Oak Ridge National Lab and the University of Tennessee. About $6.4 million in grants was dedicated to Austin Peay State University to train workers in solar.
In June 2010, Bredesen signed into law three tax breaks for green energy companies. Sales would be taxed similarly to pollution control facilities, such as water recycling operations or dust filters, allowing businesses to receive a full tax refund on machinery and equipment purchases.
They would be exempt from the state’s franchise tax on equipment, and their property taxes were calculated as they were for pollution control facilities in Tennessee, with their salvage value of property assessed no higher than half a percent of their acquisition value.
After then-Attorney General Robert Cooper and Comptroller Justin Wilson objected to the property tax provision, calling it unconstitutional because it favors certain taxpayers, state lawmakers changed the limit to 12.5 percent in 2013. The larger break remains intact for pollution control facilities.
Lawmakers originally sought a higher tax limit, closer to 30 percent, which would have significantly damaged the sector, said Tennessee Solar Energy Industries Association Executive Director Gil Hough.
“It would have made a lot of projects not go up,” Hough said.
Bredesen said the impetus for the tax law was to give structure to the new sector in Tennessee. At the time there was no definition of how taxes for solar businesses would be treated because there weren’t many solar businesses in the state, and companies needed a clear policy to secure loans from lenders.
Bredesen said Tennessee’s tax treatment on solar is “middle of the road” compared with other states. Matt Beasley, Silicon Ranch chief marketing officer and president of the Tennessee solar association, pointed to 13 states where property tax credits are the same as or higher than Tennessee’s, four of which are in the Southeast.
In 2012, Silicon Ranch began applying for the tax breaks passed in 2010. As of July 2018, Silicon Ranch has been certified by the Tennessee Department of Environment and Conservation for 19 solar projects. The state does not disclose the size of the credits.
Silicon Ranch does not benefit from the sales tax provision passed in 2010 because it is classified as an industrial machinery company, and Silicon Ranch still pays a franchise tax on its equity, Farr said.
Silicon Ranch benefited from the original, more lucrative property tax break for one year before the law was changed, Bredesen said. With just 10 percent of Silicon Ranch’s business in Tennessee, any savings from the property tax law are “very, very small.”
The 2013 tax change amounted to about a $50,000 annual increase in tax payments in Tennessee for Silicon Ranch, a $500 million company in market value, Beasley said.
Silicon Ranch grows to gain Shell investment
Silicon Ranch helps companies or utility cooperatives that want to have solar energy. The company signs a long-term contract for buying solar power and Silicon Ranch secures the financing, builds the solar park, owns and operates it.
Among its earliest customers was Volkswagen, a company Bredesen recruited to Tennessee in 2008. The automaker announced plans in 2013 for a new 33-acre solar park to power its Chattanooga facility, owned and operated by Silicon Ranch. Discussions with Volkswagen about solar began in late 2011, after Bredesen left office, Farr and Volkswagen officials said.
Tennessee’s solar sector includes more than 4,400 jobs, according to a 2018 Solar Energy Industries Association report. That’s about half of the jobs in Florida and North Carolina and on par with Georgia, each leaders in the sector in the Southeast.
Bredesen said he thinks the state could be doing more to help the sector expand in Tennessee.
“There is no question I had a very different commitment to it than Bill Haslam did,” Bredesen said. “We could be more of a leader in this field than we are.”
Reporter Joel Ebert contributed to this report. Reach Jamie McGee at 615-259-8071 and on Twitter @JamieMcGee_.