State lawmakers question officials on development authority tax breaks

Concerned about the impact on school funding, a joint study committee of state legislators convened Thursday for a hearing on the procedures, reporting, and effects of special property tax arrangements with Georgia businesses.

Many development authorities throughout the state have tax-exempt status if their charters establish them as the equivalent of government entities. When those development authorities buy properties, those properties maintain tax-exempt status even when the development authority enters leasehold agreements with private entities such as manufacturing plants. These payment-in-lieu-of-tax (PILOT) agreements are usually designed to provide for economic development by incentivizing companies to stay, relocate to, or expand in Georgia. Generally, as bonds are paid off, the amount of the exemption provided to the company subsides over time until the property is eventually 100 percent taxable again.

One of the factors behind the creation of the joint study committee was a significant error in how one PILOT was reported to the state. Troup County made arrangements with the local Kia Motors plant to accept payments in lieu of taxes several years ago. Due to a mistake in how Kia’s property value was classified in the county’s consolidated digest sheets, the state paid less funds to the Troup County school system than it otherwise would have for 2012. (Apparently, mis-categorizing the PILOT value as taxable rather than as exempt gave the appearance of Troup having a larger overall digest value thereby reducing the state’s calculation of the county’s effective millage rate and the amount of money granted to them in Equalization funding, which is designed to benefit poor or rural counties with relatively smaller tax bases.) During the 2014 legislative session, lawmakers agreed to pay $1.7 million to the Troup County board of education based on a recalculation factoring in the proper PILOT values.

The downstream effects of such PILOT arrangements and calculations on school funding was of particular concern during the hearing to committee member Sen. Lindsey Tippins (R-Marietta), who emphasized the need for standardization to ensure that schools are included in the abatement process and that they are “made whole” for the foregone revenue.

A PILOT deal can have a compounded effect on school funding because it doesn’t just reduce the school district’s local property tax revenues, but it affects some of the state’s funding formulas for money granted to the schools. According to state deputy school superintendent Scott Austensen who testified before the committee, PILOTs don’t affect Quality Basic Education (QBE) funding because they are treated by the state as local exemptions, but PILOTs do affect Local Fair Share and Equalization funding.

But assuming that PILOT property values are calculated and reported correctly, PILOTs may actually help school districts with certain types of state funding. Rep. Mike Dudgeon (R-Johns Creek), vice chairman of the House education committee, noted during the hearing that a local PILOT would increase the amount of money paid out by the state in Equalization funding, and Austensen agreed. Dudgeon proposed assigning a special code on consolidated digest sheets for PILOT properties so that those values would be easier for state and school officials to monitor.

Sen. Hill called upon Capitol staffers to synthesize recommendations made during the meeting for discussion at a future hearing which has yet to be scheduled, but needs to take place before the end of the year according to the resolution that created the committee.