Sunday, June 07, 2015

Caterpillar Tax Bill Half Of What It Would Be Without Abatement Oconee County Gave As Enticement To Locate Plant Here

Debt Payments Now Due

About this time last year, the Oconee County Property Appraisal Department made its estimate of the value of that portion of the land and building inside the county that Caterpillar occupies for its manufacturing facility.

It also made an assessment of the value of the lease for the equipment inside that plant.

Caterpillar doesn't own the land or plant. That is owned by the Oconee County Industrial Development Authority, which does not pay taxes.

Technically, Caterpillar also doesn’t own the equipment inside that plant.

By agreement with Caterpillar, the county assesses real property taxes on Caterpiller based on estimated value of the lease of the equipment.

If Caterpillar owned the land and building, it would have been billed $91,113 in real property taxes last year.

Instead, it paid $42,185 in real property taxes on the "lease" for its facility and manufacturing equipment. That is a savings of $48,928, or 53.7 percent.

That reduction is significant as the county budgets for making its first payment early next year of $450,000 on the debt the county assumed to bring Caterpillar to the area.

Additional Taxes

Caterpillar also paid $87,786 for personal property taxes, for such things as furniture and fixtures, according to Jennifer Riddle, Oconee County tax commissioner.

It would have paid those taxes without the abatement arrangement that allows it to pay taxes on the lease rather than on the property itself.

Plant Entrance

The calculation of the $91,113 in real property taxes Caterpillar would have paid if it owned the land and building is based on the assessed value of $7,375,580 for the 45 acres of land the IDA owns in the unincorporated parts of the county.

It also is based on the assessed value of $1,729,000 for the 49 acres the IDA owns in the Oconee County part of Bogart.

Riddle Source Of Figures

In Oconee County, owners of property in incorporated areas of the county pay more in property tax than owners of land in the unincorporated parts of the county, and the owners of property in the cities also pay the city’s property tax.

The Caterpillar plant is mostly in the unincorporated parts of the county, resulting in the higher assessed value of that part of the property.

The county didn’t calculate real property taxes based on the actual assessed value, since the IDA is not taxed.

I calculated those taxes based on the county’s millage rates and checked them against the tax estimator on the county’s web site.

Tax Commissioner Riddle gave me the amounts Caterpillar paid both for real property taxes–based on the lease–and personal property taxes.

Included in the $42,185 Caterpillar did pay in real property taxes was $2,489 in Bogart city property tax, according to the figures Riddle gave me.

Distribution of Funds

The bulk of the tax revenue paid by Caterpillar–and by any property owners in the county–goes to fund the county schools. For the unincorporated parts of the county, the schools get 72.1 percent of the revenue.

The state takes less than half a percent, and the county gets 27.5 percent.

The county’s funds go into the General Fund, which finances the bulk of the routine activities of the county.

Of the money collected by the county from Caterpillar’s real and personal property tax, the county last year got $35,774, my calculations show.

FY 2016 Budget

As part of the Fiscal Year 2016 budget, the Oconee County Board of Commissioners last Tuesday night approved the first payment against the $10.4 million revenue bond the county sold in 2012 to finance the incentive program to bring Caterpillar to the county.

The amount needed was $450,000, county Finance Director Wes Geddings told the commissioners at a budget work session on March 25, though that figure does not appear in the budget released to the public.

Instead, the budget for economic development increased to $540,178 from $148,334 a year earlier.

The county’s Industrial Development Authority is to consider its budget at a meeting at 4 p.m. tomorrow at the Courthouse in Watkinsville.

Included in the proposal released to the Authority last month was a $50,000 contribution to the Caterpillar bond debt payment, which will reduce to $400,000 what will come directly from the county’s General Fund.

Suppliers Missing

The annual payments against the $10.4 million bond will increase to $700,000 next year and will remain at that amount through 2034.

This means that the gap between tax revenue that Caterpillar itself is generating for the county--$35,774 this year–and the amount of money the county has to spend–$450,000 this year and $700,000 until 2034–is very large.

Part of that gap was supposed to be filled by the tax revenue the county would get from Caterpillar suppliers, who were expected to move to land next to Caterpillar, but were not expected to get tax abatements.

No supplier has moved to the open land, and it now seems unlikely they will do so.

The Caterpillar plant is operating, and the suppliers are meeting the plant’s needs without relocating.

Sharing Funds

The Caterpillar plant is located on the Oconee County border with Athens-Clarke County, and Caterpillar pays real property taxes to Athens-Clarke County as well. Athens-Clarke County joined Oconee County in abating those payments.

Last year, the real property tax paid to Athens-Clarke County, based on the posted millage rate and the Athens-Clarke County assessments, was $29,376. That compares with the $42,185.34 for Oconee County.

The two counties have an intergovernmental agreement stipulating that they will share costs and revenue from the Caterpillar project.

This sharing has not been discussed in any open governmental meeting on the Oconee County 2016 budget, but it would reduce even further the meager amount Oconee County had to apply to the $450,000 and $700,000 bond payments from tax from Caterpillar.

Changed Tune

County officials and the commissioners have kept discussion of the debt payments for Caterpillar to a minimum during the budget process.

This is the first year the county is taking money from the general fund for that purpose. Until now, the county has used excess borrowed money to make the payments, and the payment this coming year will be $450,000 rather than $700,000 because some of that money is still available.

At a planning session held outside the county in January, however, the commissioners and other county leaders discussed the benefits of having Caterpillar in the county even with the tax burden it is now creating.

The video below is from that session on Jan. 22, 2015, at the offices of the Northeast Georgia Regional Commission in Athens-Clarke County. Seated on the left is Finance Director Wes Geddings. Behind him is Administrative Office Jeff Benko. To the right is County Attorney Daniel Haygood. Further to the right is BOC Chairman Melvin Davis.

OCO: Caterpillar Comments from Lee Becker on Vimeo

The argument was that Caterpillar is paying more taxes than would be the case if the land were undeveloped, that the abatement does not apply to schools, that Caterpillar employees are buying houses in Oconee County, and that Caterpillar is contributing to charities in the county.

Orkin Property

Estimating how much more Caterpillar is paying, even with the tax abatement, than the property owner would have paid this year had Caterpillar not come here is not so simple.

The acreage that Caterpillar is using had never been assessed separately in the past, and the surrounding property has changed in value because of Caterpillar.

Allen Skinner, chief appraiser for Oconee County, told me after that meeting in January that he had been asked to make an estimate, as Chairman Davis said in the video, and he said he did so by using the remaining properties as a base.

Skinner said he didn’t remember the details of his calculation.

I attempted to repeat the process by calculating the tax per acre on two adjoining properties owned by Southeastern PVC Pipe Manufacturing Inc. of Marietta. That same group owned the property on which the Caterpillar Plant is located.

Kenneth Orkin is the agent, and the property is referred to as the Orkin property.

What Would Have Been

The average tax per acre of a 59-acre tract owned by Southeastern PVC is $263, and the average tax per acre of a 204-acre tract is $278.

I averaged those two figures and multiplied them by the Caterpillar acreage.

The result was a real property tax of $25,387, or less than the $42,185 Caterpillar paid in real property taxes, as Davis claimed.

The comparison ignores the fact that the county borrowed $10.4 million to entice Caterpillar to bring its plant from Japan to the Orkin tract and now has to pay off that debt. The county would have no debt to pay off without Caterpillar.

Oconee County and Athens-Clarke County have spent $19.7 million together in incentives for a plant that now employs 932 workers and is committed to having 1,100. Included was purchase of the land, installation of roads and other infrastructure, and construction of the building.

School Taxes Abated

Oconee County Administrative Officer Benko said at that meeting in January that the tax abatement did not apply to the schools, so those schools were benefiting from Caterpillar’s taxes at the regular rate.

Tax Commissioner Riddle assured me that is not the case. The abatement applies across the board.

The assertions about Caterpillar employees purchasing homes in the county is difficult to assess, since there is no public list of employees.

Caterpillar has contributed to projects in the county, including landscaping at county parks.

How Tax Calculated

How the taxes Caterpillar is paying are calculated is quite complex, but the process has at its core one essential element.

What is taxed is the lease, not the property itself. And, in fact, there is no actual lease.

Caterpillar Display
Oconee County Courthouse

Appraiser Skinner told me that his officer and his counterpart in Athens-Clarke County discussed how to assess the value of that lease, and they settled on a common strategy.

Since Caterpillar sells bonds to itself to finance its purchase of equipment for the plant, the two counties could use those bonds as the basis for determining would could be a lease if Caterpillar actually were paying a lease to the county, which it is not.

So both counties used the bonds from 2013 and 2014–and they will use future bond sales–as the way of estimating the value of a lease.

But even that lease value is not fully taxed.

Based on the agreement with Caterpillar, only 10 percent of the lease value is to be taxed.

Further Reduction

And since real property is taxed in Georgia at only 40 percent of assessed value, the estimated value of the lease is reduced a second time, that is, to 40 percent of 10 percent.

The resulting value is then multiplied by the millage rate to get the tax that Caterpillar is expected to pay.

The 10 percent figure does increase to 15.3 percent in the fourth year and goes up each year after that, to 100 percent at the 20th year.

But each new bond sold has a 20-year run, so the 2013 won’t reach 100 percent until 2033, and the 2014 bond won’t reach 100 percent until 2034.

Riddle told me that Caterpillar is to sell another bond this year, and that won’t reach 100 percent until 2035.


Anonymous said...

Why would Mr. Benko falsely state in a public forum that Caterpillar is paying the school portion of their tax bill? These kinds of statements along with the mismanagement of our utilities is eroding confidence in the county government.

Anonymous said...

"Part of that gap was supposed to be filled by the tax revenue the county would get from Caterpillar suppliers, who were expected to move to land next to Caterpillar, but were not expected to get tax abatements.
No supplier has moved to the open land, and it now seems unlikely they will do so. The Caterpillar plant is operating, and the suppliers are meeting the plant’s needs without relocating." Oh well, who miscalculated? One thing "they" know, they will always get what they need from the ordinary property owners. Sounds to me like the county is giving Caterpillar a ride on a golden train.