Payment In Lieu Of Taxes

Over the last few weeks, there have been several story's about local businesses being offered a PILOT. As stated above, PILOT is the acronym for Payment In Lieu Of Taxes. A more precise description would be big tax breaks.

PILOTs are usually used by local governments to entice new businesses to locate in their city's or county's. A local government may be competing with many other governments to lure perspective businesses and industries. Usually the over all gain is to bring jobs to the community.

A few weeks ago, Loudon County and the City of Loudon offered a PILOT to Tate/Lyle. That's the big corn syrup company in Loudon. Tate/Lyle has been in a five year legal dispute with the county and Loudon over just how much their property taxes should be. Both governments agreed to Tate/Lyle's request for a ten year, two million dollar per year PILOT. For ten years Tate/Lyle would pay a fixed property tax rate of  two million dollar per year regardless of any growth or additions to the company. In return, Tate/Lyle would drop all legal actions against the county and city. Seemed to be a good deal for all involved. Then inexplicably, Tate/Lyle backed out on the deal. Legal action still continues by Tate/Lyle.

More recently, you may have read about the new company, Michigan based, Morgan Olson's locating to Loudon. Morgan Olson builds truck bodies for UPS, FedEx and the postal service. By all accounts, Morgan Olson is a good company and may ultimately bring in up to 500 jobs according to them.

According to Morgan Olson officials, they found Loudon to be a great location for their business and were able to buy the old John Deere building and the hundred acres it sits on. Court records show they paid ten million dollars for the property. For weeks Morgan Olson has been taking job applications for their new facility and a plant manager has been assigned to the new facility since back in August. Obviously, Morgan Olson was committed to coming to Loudon long before October 19th.

On October 19th, Loudon County Commission and Loudon City officials were called into a rare, joint special called meeting to consider two PILOTS being proposed by the Loudon County Economic Development Agency, LCEDA. One for Morgan Olson and one for Vanhoosco, a concrete, prefabrication located in Loudon. Vanhoosco has recently began an expansion of their existing facility. 

Neither body had been given much information on the proposed PILOTs. LCEDA president, Pat Phillips was proposing a ten year PILOT for Morgan Olson and a five year PILOT for Vanhoosco.

Under his proposal, Morgan Olson would pay a combined city and county tax of $122,832.00 per year for ten years on their forty-five million dollar investment. Loudon City will get $48,000.00 per year and the county will get about $75,000.00 per year for the life of the PILOT. In this case, the county alone will lose about $225,000.00 per year in tax revenue. In the case of Vanhoosco, the proposal was for the company to pay a combined tax of $40,000.00 per year for five years. Again, the county alone will lose about $38,000.00 per year in tax revenue.

Ultimately, both proposals were passed by their respective governing bodies. I was the only one to oppose both proposals.

Here you have three examples where PILOTs were not used to entice new businesses to our county but were just kind of  given as an after thought. Morgan Olson had already located to Loudon before the PILOT was offered and was not contingent on the passage of the PILOT. Vanhoosco is already well underway on their expansion which was not contingent on the PILOT. Tate/Lyle was given their requested PILOT and then reneged on the deal.

The main source of revenue for local government is property tax revenue. Each time large amounts of tax revenue are lost or given away, it will have to be made up somewhere else. Unfortunately, that usually falls on the property owners and businesses who don't get tax breaks.

One good thing about is, if the city and county's revenues are so strong that we can give large tax breaks, we sure shouldn't have to worry about any property tax increases any time soon.