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IDA PILOTs Spur New Business Attraction Or Expansion; Bringing Investment, Jobs And Other Economic Benefits To Our Communities.
By Steven Porath, Rockland IDA Executive Director
Over my 20 years of economic development work in Rockland County, I have heard a variety of objections whenever the discussion of Industrial Development Agency property tax abatements arises. Often, the objections center on a perception that the tax break is unnecessary. But when applied correctly, they are an invaluable tool in guiding the type of development local communities desire while ultimately growing property tax revenues.
These abatement programs are known as PILOTS… Payment In Lieu Of Tax agreements. They are project-specific, structured agreements that provide a mechanism that phases in NEW, ADDITIONAL taxes for communities while growing our business base to the benefit of residents.
Under New York State statute, IDAs are authorized to provide PILOTs to eligible projects. In Rockland, these projects involve the new construction or expansion of commercial, industrial and – more recently – housing projects. While most IDAs statewide have the authority to impose PILOTs on the local taxing jurisdictions as they see fit, the Rockland IDA requires that the local, affected taxing entities formally approve PILOTs. What this means is that each affected taxing entity – village, town, school and, on occasion, the county, has the individual right to determine (a) if they want to participate in a tax agreement and (b) if so, play an active role in negotiating the terms of the agreement.
For the purposes of this discussion, let us review three items…
- Typical structures of PILOTs;
- Why taxing entities should even consider PILOTs;
- And the benefits of PILOTs to the company and to the community.
Before tackling each of the above items, however, let us establish the context from the community’s perspective:
Too often, those inclined against PILOTs simply ask: Why are we giving away tax dollars? I believe that is the wrong question. As residents of Rockland County, we need to ask this question instead: What do we want and how can we use a PILOT to get it?
Remember… a PILOT is an incentive to promote business development that would not otherwise occur should the incentive not be provided. This is worth repeating: A PILOT is only used as a tool to spur new business attraction or expansion; bringing investment, jobs and resulting host of other economic benefits to our community. Further, because the circumstance warranting consideration of each PILOT is unique, a critical part of every discussion is asking: Does a PILOT ultimately benefit the community?
Typical Structures of PILOTs…
Often a misconception is that a PILOT lowers taxes, resulting in the lost revenues having to be assumed by homeowners. In simplest terms, this is WRONG.
In Rockland, while PILOTs are each uniquely negotiated, there are typically two broad structures: (1) a PILOT structure for new construction on vacant property, or for property previously not on the tax rolls, or (2) a structure for an existing building/site that will be undergoing an expansion or other event that will trigger an increase in tax assessment.
While there may be circumstances that cause a taxing entity to structure a PILOT differently, a PILOT on an existing structure typically begins at the existing assessed value, and then over the course of agreed upon years, escalates upwards to the new, higher assessed value (and resulting increase in tax dollars). On occasion, the starting assessed value can be adjusted or “right sized” should the tax assessor and the participating taxing entities agree the re-evaluation is warranted. Regardless, this structure is simply a negotiation of the timing when the community will realize the full benefit of the increased assessed value.
For new construction on vacant property, or property previously off the tax rolls (i.e., municipal-owned or owned by a tax-exempt entity), the benefit to the community is even greater. In short, from Day One of the PILOT, the newly developed property is generating significantly more tax dollars than would ever be realized from a vacant piece of property or a previous tax-exempt location.
While every PILOT is uniquely negotiated, typical PILOTs may “freeze” the assessment at the property’s current value for the first year or two (while the developer is building or expanding the facility), and then over a period of time, graduate the taxes upwards to 100% of the new, taxable assessed value. The length of the PILOT agreement and the rate of tax increases are negotiated, but the broad concept is generally the same: Establishing a starting point and simply negotiating the timing of tax increases.
Why Should Taxing Entities Consider PILOTs…
For each PILOT, the IDA and the involved taxing entities must consider the following:
- Will the project result in development that would otherwise not occur (without a PILOT)?
- Will the project bring development that is desired by the community?
While the above points are just two examples of questions that should be asked, the main consideration is always the same: Will the community, both short- and long-term, be better off with the new development? If so, then enter negotiations with the intent of using a PILOT as a tool to achieve your community’s objectives…promoting an expanded commercial tax base, along with a diverse and vibrant business community that provides a healthy balance between residential, retail and commercial taxpayers.
Benefits of PILOTs for Businesses and the Community…
PILOTs, for lack of a better term, are business agreements between the project, the IDA and the community. PILOTs provide a financial benefit to the company involved while securing the type of development a community desires.
For the community, a PILOT secures the following:
- A contractual guarantee by the company to pay the agreed-upon taxes and develop the site as represented. Failure to do so can trigger the IDA to recapture any incentives provided.
- Provides tax certainty for the taxing entities. PILOTs eliminate any concerns of tax grievances during the term of the PILOT.
- Ensures the project will continue as represented. IDA projects are not transferable to new ownership without the explicit approval of the IDA, nor can the nature of the business operation change without the IDA’s explicit approval.
- As noted above, all IDA agreements include specific recapture and clawback provisions that ensure the project meets all of its obligations, both to the IDA and the involved taxing entities.
Ultimately, IDA PILOTs can serve as a tool – a tool that provides enforceable guardrails – as an incentive for economic development.
Steven Porath is the Executive Director of the Rockland Industrial Development Agency and has been involved in the County’s economic development efforts for over 20 years.