What is a PILOT?
Every month I will be communicating with the public about all of the great things going on throughout Chautauqua County as they relate to economic development.
This could include a discussion about specific projects of public interest that are underway or have been completed, where they are at, and if completed, how they are performing. It could also involve a discussion about initiatives being undertaken at various agencies or at the County level, including, but not limited to, the County of Chautauqua Industrial Development Agency, the Chautauqua County Partnership for Economic Growth, Chautauqua County Department of Planning & Development, Chautauqua County Land Bank Corporation, the Workforce Development Board, the Chautauqua County Visitors Bureau, educational institutions, or at any one of the many agencies whose mission makes them a critical partner in economic development across the County.
I didn’t want to start out my articles for the Building Chautauqua series, which started in October of 2020, with an educational piece as it’s probably not as interesting to most people as a story about a new company locating here, investing capital, and creating jobs. That being the case, I waited until now to explain, in layman’s terms, the various tools the County of Chautauqua Industrial Development Agency (CCIDA) has at its disposal to facilitate economic development. Most importantly, I would like to attempt to clear up some common misconceptions related to what is known as a Payment in Lieu of Tax (PILOT) Agreement, and also discuss some additional tax abatement and lending programs facilitated by the CCIDA.
Let me start off by dispelling a common myth: a PILOT does not curtail payments on any of the current taxes paid on a property, it only adds to it. A second misconception is that developers approved for PILOT Agreements receive a payment of some sort, which is also not true. Developers do not receive any funding from the CCIDA through a PILOT Agreement, but rather the PILOT Agreement modifies the future tax payments they pay for a given period of time. There is often confusion and consternation about giving companies PILOTS (tax-breaks) for projects, and it is sometimes interpreted that these incentives deprive or take away needed revenues from the taxing jurisdictions. The tax breaks I am referring to are Mortgage Recording Taxes, Sales Taxes, and Property Taxes. The CCIDA, along with the 100+ IDA’s across the state, is empowered by the State of New York to offer these incentives for the purpose of propagating development. While some people believe that tax breaks are unnecessary, unwarranted, or too generous (corporate welfare), there is no doubt that without them we would be at an extreme disadvantage compared to our “competitors” in other communities.
The concept behind PILOT programs is that the tax reductions encourage and incentivize existing local companies and new corporations to invest here and create or retain jobs by offsetting costly construction and renovation expenses, while increasing cash flow for company operations. Without these programs, we would see far less new investment and job retention/growth coming our way. The CCIDA competes with the other IDAs across the state, not to mention Pennsylvania and Ohio and every other state nationwide and world-wide, and these tax abatements help to level the playing field.
First and foremost, I think it is important to explain, in a simple way, what a PILOT is. Most of us are familiar with our property tax bill and the amount charged based on the property’s assessment. When we invest in new construction, renovations, or other improvements our assessment often increases and we accordingly owe more property taxes on the property due to its greater value. In its simplest form, a PILOT (Payment in Lieu of Taxes) reduces the amount of these NEW taxes that would be owed, due to property improvements, for a specific period of time. The original amount, however, is not affected and is still billed and paid. In other words, this has to do with new money being invested in projects that results in an increase in the assessed value of the property. These are often millions or hundreds of millions of dollars in new capital investments at the corporate level. Instead of the owner being taxed immediately at the new full assessment, a PILOT allows the increase in taxes to be ratcheted up over a given period of time (often 10 years), until it is paid at the full rate. This gives the company time to get their operations humming at full capacity, at which point they are able to financially carry the burden of the increased tax levy that resulted from their investment. In summary, and just to be clear, a PILOT DOES NOT take away any of the existing property taxes paid; rather, it adds to the tax base, which is all new money to the taxing jurisdictions (county, town, village, and school districts). The granting of PILOTS also requires the creation or retention of jobs as part of the approval process, and is only pursued if the municipality is in favor of it.
The CCIDA also has several revolving loan funds that provide high-risk, low-interest financing to businesses in all sectors. These include the AL-Tech Revolving Loan Fund, the CCIDA CARES Loan Fund, and the Chautauqua Revolving Loan Fund. The CCIDA typically takes a subordinate lien position on collateral, often behind conventional lenders. This induces lending for new development, startups, expansions, and higher-risk projects because it reduces financial risk for conventional lenders as they know they can get a first lien position on collateral in front of the CCIDA.
The CCIDA may also issue tax-exempt, Small Issue Manufacturing Revenue Bonds to finance certain facilities enumerated in Section 142 of the Internal Revenue Code, including certain airport facilities, docks and wharves, water and sewerage facilities, solid waste facilities, low income residential rental facilities, and certain other facilities.
As for the structure and governance authority of the CCIDA, it is independent of Chautauqua County insofar as it is a Public Authority (a creature of the State of New York), has its own volunteer Board of Directors, and makes its own decisions with the intent of being void of political influence. The Board reviews the merits of any given project, i.e., investment, job creation, cost/benefit, etc., with respect to each program’s guidelines and New York General Municipal Law, and renders their decisions accordingly. That being said, the County Executive does appoint the Administrative Director and appoints the Board Members who have 2-year renewable terms; however, most of the CCIDA Board Members are long-serving. The Chairman of the Legislature’s Planning & Economic Development Committee is the only Member who serves on the CCIDA Board in an ex-officio capacity.
The CCIDA is also a conduit to other outside funding sources for projects, and typically coordinates activities involving other local, state, or federal entities, as well as interaction with the NYS Small Business Development Center at JCC and the SUNY Fredonia Technology Incubator for startup companies.
Mark Geise is deputy county executive for economic development/CCIDA CEO.