Development Authorities

How tax breaks are created

For companies to receive property tax breaks in most Georgia counties, development authorities must hold title to a project and the company must lease it.  That lease structure requires a bond issue.  But actual bonds aren’t necessarily issued to provide project financing   Instead, a company can pay project costs itself or through a commercial loan.  The only purpose of the transaction is to vest title to the project with the development authority. 

Here’s how the process works:

1. The company transfers ownership title to a project to the development authority
2. The development authority authorizes bonds for the project, designating the company as the bond holder.
3. The company may use the bonds to access lower cost financing. But if the company has other financing, these are phantom bonds or bonds for title.
4. The authority leases project authority back to the developer the lease includes an option for the company to buy back the project for a nominal amount, typically $1 dollar, when the bonds have been retired.
5. The authority also pledges to the company the right to receive rents and a security interest in the project, in order to repay project costs.
6. Because the authority is the title owner of the property, taxes are assessed on the value of the lease, not the property itself.
7. Taxes may then ramp up to allow for savings over the period of the lease.

Source: AJC, Steve Lopez/Staff

Comments

Georgia Law allows cities and counties to place the creation of development authorities on the ballot.  Voters often vote for their city or county to have this power, because they associate it with the city or county’s need to deal with condemned property.  It allows the city or county to appoint an unelected board to sell bonds and give tax holidays without voter approval for each transaction. 

Norb Leahy, Dunwoody GA Tea Party Leader