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Friday, February 1, 2008

PILOTS and Tax Increment Financing

So, just what is a PILOT Tax Increment Financing Plan?

As part of the PILOT (Payment in Lieu of Taxes) agreement with the OCIDA, the OCIDA purchases the land from the developer thus removing the land from the tax rolls because OCIDA is a tax-exempt entity. The developer then makes payments in lieu of regular property taxes to the OCIDA for the life of the PILOT agreement. Normally, the PILOT payment would be sent to each of the taxing entities (school, county & town) on a percentage basis. In the case of PILOT-TIF, each taxing entity will receive no money towards their budget. The OCIDA will funnel the money to the town who is responsible for paying the interest and principle of the bond. At the end of the contract period, the OCIDA will return the land to the developers and the developers thereafter will pay taxes to the town, county and school rather than making payments to the IDA. WHowever, while the PILOT agreement is in effect, the school, town and county will receive money toward their budget only if and when there are monies leftover after the town pays on the bond payments. By the slides presented Wednesday evening, the town won't even receive enough money to cover the debt until year 6!

The proposed Tax Increment Financing is a plan whereby the town will issue bonds based on the revenue the planned development is expected to generate, in this case, 15 years down the road. The bonds will total $2.9 million and carry an interest of approximately $1 million. Let's put it in perspective. If you have a child that is just starting school this Fall, the Town of New Hartford will still be paying off this bond when your child graduates from high school, if all goes well. The town, not the school, not the county, not the OCIDA...THE TOWN will be in debt and solely responsible for any revenue shortfalls.

They make it look so wonderful, but what are the pitfalls of Tax Increment Financing (TIF) or as they were "splitting hairs" Wednesday evening by referring to it as PILOT Increment Financing (PIF)?

First of all, the numbers on the slides presented at the meeting are projections of future revenues and costs and based on assumptions. If the projections are inaccurate and there is not enough PILOT money generated to pay back the bond, the Town of New Hartford is obligated to make up the difference each year, either by using current taxes i.e. raising the tax rate or further borrowing.
Anything that delays the projected completion time of the project will cause the projected revenues to go down and possibly the costs to go up. For example: labor strikes, changes in market conditions, interest rate increases 5 years down the road when they decide to bond to pay off the BAN, or weather conditions that may temporarily halt or delay the development. Remember, this plan is all based on each project being completed at a certain point in time.
The numbers are based on projected assessed values and as we all know assessed values are not set in concrete. They are based on the current market value. Are we on the cusp of a recession...did they take into consideration the fact that in 2007, the equalization rate of the town was 87% and therefore all new development was assessed at 87% of their market value and that rate is likely to decrease again this year?
Cost overruns...what happens if the project ends up costing more than originally planned?
The cost of additional demand for government services that taxpayers will be required to support, such as police, fire, highway services.
In short, a Payment In Lieu of Taxes (PILOT) based Tax Increment Financing (TIF), that's a totally based on ASSUMPTIONS. We all know what can happen when we make assumptions!

After the meeting Wednesday evening, Concerned Citizens had some questions to ask of Steve DiMeo from Oneida County Industrial Development.

Has either the hotel or Dr. Costello signed any agreements obligating them to build on this property. Answer: No
Is the town obligated to repay the debt even if the business park is not successful or say, one of the three (The Hartford, Dr. Costello, the hotel) decide to leave the area before the debt is paid or if Dr. Costello or the hotel building plans never come to fruition? Answer: Yes, the town is responsible for repaying the debt, regardless of anything.
Where can we get a copy of the PILOT agreement? Answer: You should be able to get it from the Town or School. Really, well we already asked the town,they say they don't have a copy...Mr. Gilligan do you have one?
At that point, Mr. DiMeo said he is only the go-between and couldn't really answer all our questions, but he was kind enough to give us his business card.

We will have a couple of more comments this weekend...Stay tuned!

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