Avalon’s tax abatement – incentive or icing on the cake?

North American Properties has secured a lucrative tax abatement package for their Avalon property in Alpharetta. Granted by the Development Authority of Fulton County, the abatement reduces Avalon’s tax assessment by 50%, gradually phasing back over ten years. The net result is a huge property tax savings for North American Properties.

The plan is implemented as a sale-leaseback transaction. The Development Authority purchases Avalon using bonds valued at $550 Million. The property is deeded to the authority and leased back to North American Properties. Lease payments service the bonds.

Since the Development Authority is a tax-exempt organization they pay no property tax on their interest in Avalon. North American Properties isn’t tax-exempt and is subject to tax on their interest in the lease. As part of the deal the parties agree that this value is a fraction of the market value of the property, or 50% in this case. That value increases by 5% each year.

Abatement packages like this are controversial. The Fulton County Taxpayers Foundation has sued multiple times over projects in downtown Atlanta and Buckhead. One such case went to the Georgia Supreme Court. Projects in Alpharetta are rare. But with Avalon’s bond price tag hovering at half a billion dollars, the abatement deal ranks right up there with the biggest in Atlanta.

Proponents of tax abatements argue that they are valuable incentives used to lure development and jobs to an area. An argument could be made that the abandoned Prospect Park site was a blight requiring incentives to encourage development. In Avalon’s bond application they claim the project will create 1000 temporary construction jobs and 1,100 full-time equivalent when phase 1 is complete.

Opponents might argue that these incentives are often just icing on the cake for a developer. Many of the deals approved by Fulton’s Development Authority have come after a project is well underway. That argument could be made for Avalon. They have already purchased the property, got the site plan and zoning approved, demolished the old structures and have signed leases from tenants. The site is “going vertical” soon. Property tax abatements were never discussed as a condition of Avalon coming to Alpharetta.

At the end of the day, North American Properties will pay substantially less property tax to Fulton County, Fulton Schools and the City of Alpharetta. Alpharetta’s tax digest will be reduced by hundreds of millions of dollars for a few years. Is it a legitimate incentive to bring a huge project to Alpharetta? Or is this just an extra helping of gravy for a developer?

Sources:

16 Responses to “Avalon’s tax abatement – incentive or icing on the cake?”

  1. Greg June 20, 2013 at 1:19 pm #

    Does that mean if the project goes under, the Development Authority owns it (and assumes the liability)? Does the deal occur early on in the construction, or just as it’s opening (and therefore when the project has real value)? How are the other financers treated in the case of a bankruptcy?

    On the surface, this seems like a dangerous deal for the Development Authority.

  2. Kim June 20, 2013 at 3:32 pm #

    “Many of the deals approved by Fulton’s Development Authority have come after a project is well underway.”

    Why is this? From a practical point of view, it seems like this is something that should be discussed and held contingent upon approval. In other words, our City Council should know this up front and approve based on knowing that the tax base would be considerably lower for a time.

    Or did they seek this after the case because they were in some sort of financial trouble and needed it to continue going forward?

    I want to know what was discussed before the Development Authority and how they decide which ones get this sweet deal.

  3. Kim June 20, 2013 at 5:01 pm #

    Can we assume if we don’t hear from any Council or if this story isn’t covered by local media (Neighbor, Revue, Patch) that the fix was in and at least some council members knew this was in the works? That is my assumption. Thank you Lee for alternate media.

    Who sits on the Fulton Development Authority? Anyone from North Fulton or Alpharetta?

  4. JP June 20, 2013 at 5:54 pm #

    Kim,

    Why do you always feel “the fix is in” whenever there is a development project that gets approved? You’d be a lot happier if you’d understand the fact that ALL projects that are approved and built come with a quid pro quo. You might not hear of each inside deal, but they exist. That’s the way deals are done and they way they always will be done.

    Why is it bad if Avalon gets a tax abatement? It’s an enormously expensive project that is hugely important not only for Alpharetta, but for North Fulton as a whole. This has the potential to be a game changer for new projects moving forward.

  5. JP June 20, 2013 at 5:56 pm #

    By the way, of course city council knew NAP was applying for tax abatements. All the regional players in this deal are talking with each other on this and many other projects in the works.

    The city/county/state are more than happy to offer tax abatements to projects that are economically beneficial. It just makes good business sense.

  6. Mike Kennedy June 20, 2013 at 6:24 pm #

    Actually, JP, you are incorrect. No one on the Alpharetta City Council was aware of the Fulton County tax abatement until the deal was done.

  7. Michael Hadden June 20, 2013 at 9:34 pm #

    Lee, nice concise summary of the story. Thanks for putting this out there. Not sure what to think either way but it seems like it’s the status quo for large projects.

  8. Jen June 20, 2013 at 11:18 pm #

    Tax abatements are laid out in our state constitution. While the recent Georgia Supreme Court case upheld the legality of these abatements, the court said the way in which the assessed value of the leaseback is determined must be consistent among commercial property within the county-no sweetheart deals. From what I understand, this is what is being called into question in the existing lawsuits. There is no “watchdog” in the county or state government to ensure the assessed value is appropriate. There is currently no comprehensive state list or database of properties with tax abatements.

    How does this impact the average taxpayer? Assessed value of the tax digest is used to determine eligibility and the amount of state equalization grant money given to school systems each year. When large commercial projects receiving tax abatements are removed from the tax digest for that county, the assessed value of the county digest decreases and their equalization grant eligibility may change as well as the ranking and eligibility of other school systems. The gist of it is that the tax abatements have the potential to impact every school system in the state, including charter systems. A recent survey sent by the GA Dept of Audits & Accounts at the request of the Senate Appropriations Committee to all counties went unanswered by Fulton County, does this mean they don’t know exactly how many projects they have currently impacting the tax digest? Or did they not want to share that information?

  9. Kim June 20, 2013 at 11:58 pm #

    JP,
    You’re probably right but in my world I like to still believe there are honest people who do the right thing because they have a moral compass and a conscience. I’m always disappointed when I find out when there is corruption.

    I don’t necessarily think it is bad that NAP received an abatement but it is bad if no one knew about it before the approval was made because it affects Alpharetta taxpayers who are basically subsidizing NAP. It could have affected whether the deal was approved or not. Also how is it fair to other competing developments who do not get such a sweet deal?

    What about the cost of all the services we have to provide for them. Who is on the hook for that? Us, the taxpayers.

    Also this convention center boondoggle (read up on them — they all are) that NAP wants directly benefits them.

    I would expect that if it is true that our Council did not know about this that they would be spitting mad and that will be BIG front page above-the-fold headlines in all the local papers. If not, we all know the score.

  10. MarkToro June 21, 2013 at 7:14 am #

    Lee,

    As always, we appreciate your interest in Avalon. I am confident that the City of Alpharetta and the entire North Fulton community will be proud of what we will deliver.

    See you at Grand Opening!

    Thank you,
    Mark Toro
    Managing Partner
    North American Properties

  11. Parker June 21, 2013 at 10:51 am #

    I’m confident that what eventually grows out of the Avalon site will be very impressive. Will we be proud of what they deliver?

    Will we be pound that the success at Avalon will cause numerous other businesses elsewhere in the community to close?

    Will we be pound that these huge tax shelters are arranged in secret by conservative politicians who campaign against government intrusion?

    Will we be pound that these actions are simply the politically powerful picking winners and losers in the business world?

    I’ll stay pound of the ordinary man who worked for years to build a business only to see it stomped to death while his taxes go to line some fat cat’s pockets.

  12. A June 21, 2013 at 12:39 pm #

    I still think the whole Avalon venture is shady and won’t believe it will materialize until it actually does.

  13. Mala June 22, 2013 at 11:33 am #

    I agree with Parker. What should any business get a tax break when there are so many empty retail spaces and struggling business already in alpharetta. Let I be a free market and make a Avalon compete. I didn’t think the property was an eyesore. Planting trees in that space and making it a big park might be cheaper for tax payers than giving them a tax break

  14. JP June 22, 2013 at 3:36 pm #

    @Mala,

    Why would NAP make it a park? They paid millions of dollars for commercial real estate and the rights to develop on it. It’s prime space abutting GA 400. It doesn’t get much more prime than that.

    What sort of business plan would make sense that they then plant trees on it and “make” it a park?

    Not trying to be rude, but honestly, many of the readers of this blog obviously never took a class in economics or business.

  15. @greg June 23, 2013 at 10:29 am #

    JP–

    The real question is why allow the abatement after the plans are in process and NAP was moving forward on the project? It obviously was not needed to obtain the project. Why should government collect 100% of tax from the business across the street and collect 50% from Avalon? Also, this sets a precedent for future developers to demand similar treatment.

    You position yourself as the resident expert and econ genius, but contrary to what you state, most building projects do not come with a guaranteed tax discount, and contrary to what you state, the City Council was unaware of this sweetheart deal.

  16. Scott October 29, 2013 at 8:11 am #

    To be sure I understand the abatement – it sounds like the way it works is the assessment is artificially lowered by 50% then pro-rated back up over 10 years. If so, since the assessment is lowered, and city tax bills are based on the county assessment, does that mean that both their Fulton County property tax bill *and* their City of Alpharetta tax bill is cut in half?

Leave a Reply:

Gravatar Image

Switch to our mobile site