Tuesday, December 2, 2008

Lease-Purchase update

An article in the AJC answers some of my questions regarding the county's lease-purchase program. Basically, the county gives tax breaks and acts as a bond issuer to help deals get financed. The mechanism for this is that the developer gives the county the land for a period of time and leases it back from them. My confusion earlier (and what prevented me from posting about this basic structure) was a comment that suggested that the Development Authority actually made money on these deals. The information I was able to find was incomplete, but this article makes it pretty clear to me that the Development Authority doesn't make any money:
Development authorities say their assistance produces numerous benefits that far outweigh the cost of the tax breaks: permanent and construction jobs, higher property values generating higher taxes, increased spending by workers and visitors, and the possibility that a big project will ignite more development.
So there are valid public policy reasons for the program, but the government isn't making any money.

4 comments:

  1. Actually, the issuance of lease-purchase bonds is a significant source of revenue for the Fulton County Development Authority. The Development Authority charges issuance fees based on the total value of the bonds being issued. The Atlanta Development Authority has a similar program, but has not been as successful in attracting developers to their program. I understand the confusion because neither authority’s website is very transparent about the way the program operates.

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  2. I can see how it would be a source of revenue for the Development Authority if you are ignoring the loss in tax revenue which I guess goes to the county and not to the Development Authority. I don't see any way that the issuance fees would offset the tax revenue (otherwise, as a developer, what is the point?). If there were no tax breaks, and the FCDA were ONLY acting as a bond issuer, and so they were just receiving fees from that, I can also see how it would be a net source of revenue. Please, please, please clarify if I am misunderstanding this. The PDF I have from the ADA explaining the program is missing the page that explains the mechanism, and I haven't been able to get a clean copy yet.

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  3. You've got it right - the Development Authority is a separate entity from the County. So the County sees the value in forgoing the full property tax revenue because the development is hypothetically on a parcel that isn't generating much revenue as is. So the County is already benefitting from the hopeful catalytic development and therefore doesn't need repayment of fees that the Development Authority charges.

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  4. I guess it all depends on what you are comparing.

    If you are comparing existing parcel vs. new development w/ tax abatement, you can argue that the county is "making money". If you are comparing new development w/ tax abatement vs. new development w/o tax abatement, obviously the tax abatement scenario gives the county less money.

    The first comparison is fair if you can prove that the development wouldn't happen without the program. People are always skeptical of developers and often consider these programs as "give aways" - see how the newspaper framed it.

    I think it comes off as either too confusing or too slick to suggest that the county is "making money" by giving tax abatements, even if it can be accurate. I would position the program to the public on the merits of the jobs and catalytic nature of the projects. This is how the Fulton County folks framed it in the article.

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