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Archive for November, 2013

A Sunny Day for REITs

November 6th, 2013

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Demand for solar energy has outpaced the private sector’s current ability to finance it.

This is a problem.

Renewable projects are still financed based on the expectation of higher-risk investments yielding potentially higher returns rather than lower-risk, income-oriented investments yielding steady returns. This makes conventional financing very expensive. One small tax reform the Obama Administration could make today, without the help of Congress, could reduce the cost of financing and accelerate the deployment of solar. All that’s required, as Third Way (among many others) have advocated, is making a relatively small clarification to the definition of “real property” to include solar as qualifying property for Real Estate Investment Trusts (REITs).

Created in 1960, REITs let the average individual investor buy shares of commercial real estate assets from offices to shopping malls to communications towers. More like buying a stock than buying a house, REITs provide shareholders with the net rents, but also allow shareholders to easily sell their shares they choose to do so. REITs are attractive to many investors because they are required to distribute virtually all of their net earnings to shareholders, and to the extent they do so, they are only subjected to a single level of tax.

So why REITs and why now?

The price of solar panels dropped far more rapidly than industry analysts expectedThis has fueled 76% growth in installed solar capacity in the US from 2011 to 2012 and a market that grew 34%, from $8.6 billion to $11.5 billion over the same time frame. According to BNEF, this growth is expected to continue through 2020, requiring an average of $6.9 billion each year  to finance the installation of new solar panels in the US.

The liquidity, transparency and tax treatment of a REIT could lower the cost of capital for solar. This would make it a much more attractive way to raise money to help finance large-scale installations. With financing as the bottleneck and the solar investment tax credit set to decrease by 2/3rds by 2017, solar REITs could make up for the growing capital deficit. This is also a rare idea that has bipartisan support. Twenty-nine Members of Congress have expressed their support for including clean energy assets in REITs. Richard Kauffman, chairman of energy and finance for New York State and former senior advisor to the U.S. Secretary of Energy described this change as opening the door to a “wall of money” seeking the kind of stable rate of return that solar REITs would provide.

A growing sector of the American economy needs more affordable capital. And there is an answer that doesn’t require an act of Congress. The Obama Administration has an opportunity today to make a small tweak to the tax rules that could help. Opening REITs  to solar would enable the private sector to meet demand without the hurdle of Congressional gridlock or incurring new government spending.

This piece was originally published via The Energy Collective.

Let Us Not Pray

November 4th, 2013

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n 2007 Susan Galloway started going to town board meetings in the town she lived in, Greece, N. Y., to voice support for public-access cable television. Linda Stephens attended several meetings to weigh in on a plan to build a disc golf course at a park. The women arrived to discover that their town board had adopted a new practice: opening each meeting with a prayer. Galloway is Jewish, and Stephens is an atheist. Both felt that they should not be told to bow their heads and join a collective prayer—a prayer in which they could not in good conscience participate—in order to petition their local government. They filed suit claiming that the town board prayer is an unconstitutional establishment of religion.

This week the Supreme Court will hear this challenge. There’s a lot riding on this case. In past rulings the court has drawn a line in the constitutional sand: The state cannot coerce people to join or participate in religious activities. If the court now blurs that line, government will have more power to tell citizens when, if, and how they should pray. The more power government has over religion, the more likely it is that this power will be abused.

Members of both the U.S. House and Senate (most of them Republican) disagree. They insist this is an easy case. They note that Congress begins its sessions with a prayer and point to a 1983 Supreme Court ruling that upheld the practice of opening a state legislative session this way. They say that prayers before a town board meeting are the same thing. But they’re wrong. And that’s the key to this case.

Town board meetings have a fundamentally different function from state or national legislative sessions. Most audience members in the gallery of Congress or a state legislature are simply observers. They can sit in the gallery, or they can watch the legislature on C-SPAN. Either way they’re in the same passive role. By contrast, most citizens attend town board meetings to participate in government. They come to speak up and to petition and influence the board as it makes decisions that matter locally. Much of the work of town boards involves political disputes that impact small groups, neighborhoods, and, sometimes, individual residents. Attending a town board meeting is much more like appearing in court than watching a legislative vote.

And this is where the constitutional problem lies. If your case was being argued before a judge, and he asked you to pray with him at the start of a trial, wouldn’t you feel pressured to comply? Ideally, if you declined, neither a judge nor a town board would hold your unwillingness to join in their prayers against you. In actuality, the risk of alienating the official with decision-making power would probably weigh heavily. Like a courtroom, a town board meeting is up-close and personal. If you decide not to pray, everyone, including the members of the board, will see you sitting silently or leaving the room while the rest of the audience stands and bows their heads.

If you think about it, this is a scenario that’s more prone to coerced religious observance than a graduation ceremony in which students are asked to stand in prayer. And the Supreme Court has already ruled that prayers at public high school graduations are unconstitutional.

There’s another problem with this particular town’s prayer offerings: According to the U.S. Court of Appeals for the 2nd Circuit, the town didn’t do a good job of making sure the prayers reflected diverse religious viewpoints. From the time they began in 1999 through the point in 2007 when Galloway and Stephens began raising concerns, every single prayer had been Christian, as was every clergy member on the list the town board used to choose its “chaplain of the month.” In 2008, after the suit was filed, the town finally started letting non-Christians volunteer to do the prayers, and that year they had two prayers from a Jewish leader, one from a Baha’i leader, and one offered by a Wiccan. In 2009 and 2010, the prayers went back to being all Christian. The Appeals Court struck down the town’s prayer practice in light of this poor record, saying it unconstitutionally endorsed Christianity.

True, but Galloway and Stephens should win not just because the prayers were almost always Christian. The government can’t burden religious freedom by pressuring people to pray, period. That pressure is unavoidable in the context of a town board meeting.

The critical principle is this: Courts have to intervene when the government coerces people into religious observance. If the Constitution’s prohibition on the establishment of religion means anything, it should mean that a citizen need not choose between the right to petition his government and the right not to pray.

This piece was co-authored by Third Way’s Lanae Erickson Hatalsky and Alan Brownstein, a professor at the University of California–Davis School of Law. It was originally published via Slate.

Is China Building a Trojan Horse into NATO Through Turkey?

November 4th, 2013

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The People’s Republic of China may be building a new Trojan horse in the modern lands of ancient Troy — but this time it seems the mission is to penetrate not a walled city, but NATO’s security architecture.

Turkey currently is negotiating a contract with China’s missile builders, the China Precision Machinery Import-Export Corporation (CPMIEC), which beat competing bids from Raytheon/Lockheed Martin and a few other foreign firms. While it seems Turkey is saving money on the deal — the Chinese bid to sell the FD-2000 surface-to-air missile system came in at $3.44 billion, while the other bids were around $4 billion — Ankara’s behavior suggests it believes it can have its security cake and eat it too.

It’s unclear what is the Turkish word for chutzpah, but Turkey already has a missile defense system defending it in NATO’s Raytheon-built Patriot system, courtesy of Germany, the Netherlands, and the United States. Ankara requested it last year. As part of the NATO Air Defense Ground Environment, other countries have already picked up half of the tab of Turkish missile defense needs. This is because Ankara took advantage of the interoperable missile defense systems among NATO’s 28-country alliance. The civil war in neighboring Syria legitimately threatened Turkey and its allies quickly answered the call.

The Turks know full well that if events ever go south — say, if Syria or Iran devolve into a shooting war that sucks them in– NATO will back them in a military conflict. If Turkey was serious about missile defense, it would have bought the American Patriot system that has a proven track record and avoided wasting money on an inferior Chinese program. It’s like buying a motorcycle when you really need an SUV. Instead, Turkey might be cutting itself off from the alliance if they now try to deploy the Chinese technology. And allowing Beijing spies into NATO’s backyard seems to be a secondary concern for the Turks.

Of course, the Turkish government has been well-informed of the many pitfalls of purchasing this Chinese system. For example, President Barack Obama twice told Turkish Prime Minister Recep Tayyip Erdo?an that there will be major interoperability issues between the Chinese and NATO systems. Despite a top Turkish Defense Ministry official brushing these problems aside,

China’s system is copied heavily from the Russian model, so its technical architecture is completely different than the Western model. And just as China’s cartridges won’t fit into NATO’s rifles, Turkey will have to perform major technical surgery to synchronize the NATO and Chinese systems, reconfiguring sensors and radars to be able to operate on both systems. This of course, will cost a lot of money and may not work in the end.

Even if it’s technically possible, other NATO countries will balk at having a highly-advanced, potentially adversarial structure integrated into their top-secret missile system. According to one defense analyst, “[NATO] member nations will refuse any cooperation with Turkey for the integration of the Chinese system into the alliance’s assets deployed in Turkey.”  As another British defense analyst told the Financial Times, “This type of arrangement, which requires the transfer of design information, is not feasible for American military firms.” And not just Chinese technology, but Chinese cyber, military and missile personnel will theoretically be working next to NATO resources, providing Beijing an intelligence foothold in these critical national security fields.

It remains unclear whether Turkey’s strategy for missile defense buys extends to other parts of the defense acquisition process, for there are ramifications with working with a sanctioned Chinese company that, since 2006, has been banned from working with American firms. U.S. companies now might think twice about selling Turkey fighter aircraft like F-16s or F-35s, or advanced radar systems, because Chinese technology will compromise their systems. It might even be illegal for U.S. corporations to work with Turkish businesses once the deal is complete.

All in all, Turkey might be thinking they worked out a great arrangement because it saved money and forged a deal with a growing economic powerhouse. But this will affect U.S. national security almost as much as Turkey’s because we too have interests in the region and in the cohesiveness of the NATO alliance. Every American and allied policymaker who interacts with his or her Turkish counterparts should underscore this fact.

The contract isn’t signed in stone; Erdo?an hinted that the deal may still be in play. Let’s hope the Turkish president has a change of heart; recall the Trojan War ended rather poorly for King Priam and his people because of a fatal, stupid, self-inflicted wound. Let’s hope Turkey’s modern-day leaders reflect upon the folly of the ancient Anatolians and remember to beware Chinese defense corporations bearing gifts.

This piece was originally published via Defense One.