$ Big Bucks for Businesses $
Local governments, Including the City of Sugar Hill, offer generous tax breaks to select businesses using convoluted workaround for the GA Constitution.
Everybody KNOWS they are paying taxes. You are probably getting your City of Sugar Hill tax bill in the mail this week.
Most people also have some level of awareness that governments give companies tax breaks. And, most people single out the federal government as the giver of the goodies. But local governments, including the City of Sugar Hill, are increasingly doling out massive tax breaks to companies using bond-lease arrangements, often while increasing the tax burden on other companies and individuals.
These bond-lease arrangements are pretty convoluted, and some aspects of the arrangements can vary. Basically, a Development Authority owns the land on which the project is built for an agreed-upon time period. According to State law, the property is tax-exempt as long as the Development Authority owns it. The Development Authority issues bonds for the construction of the building, and gets the title to the project as well. The developer makes lease payments to cover the principal and interest on the bond. At the end of the time period, the developer acquires the title to the land and improvements for some nominal fee.
Essentially, bond-lease deals (sometimes also called “Bonds for Title”) are a way of giving out a tax break without running afoul of the Georgia Constitution, which contains a “Gratuities Clause” that prevents the General Assembly (and other governments in Georgia, per case law) from just giving something (like a tax break) to a private entity without receiving something of tangible public benefit. The Georgia Constitution also includes a “Uniformity Clause” which says that “all taxation shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax.”
A bond-lease agreement gives a tax abatement in the form of a transaction instead of an outright gift, and it places the project in a different class. As such, it technically works around the gratuities and uniformity clauses of the Georgia Constitution.
The City of Sugar Hill currently has two bond-for-title deals with private companies. One is an 8-year deal with Solomon Group, the developers of Holbrook Sugar Hill, the assisted living and memory care business at the far west end of West Broad Street. The other is a 15-year deal with Terwilliger Pappas, the developers of the almost 300-unit Solis Sugar Hill apartment complex next door to City Hall.
These schemes are increasingly common in Georgia. There are attorneys who specialize in arranging them, and the City of Sugar Hill hired such an attorney for its deals. The City’s attorneys were also involved. So, it’s legal. The question of whether it is necessary or appropriate is ultimately the decision of the Sugar Hill electorate, who was not asked about the arrangement beforehand, nor informed by the City afterward.
In fact, governments, including - and maybe especially - the City of Sugar Hill, seem very reluctant to tell voters how many of these deals they have, and how much tax revenue the government gives up for these specific businesses. Although I witnessed the meetings where they discussed these deals, I had to purchase the documents for the Terwilliger Pappas deal, and one document that revealed the most was missing. (I got it much later when the City Clerk provided it to me in response to another Open Records Request.)
The Governmental Accounting Standards Board (GASB) now requires that governments share details about the deals in their comprehensive financial report. These details are provided with the Gwinnett County annual audits. But, since the City’s tax abatements are newer, they would not appear in documents for years 2021 and before. The 2022 audit report for the City of Sugar Hill, which normally would have come out this month, is delayed.
I pulled up the records and did the math myself. In 2022 and 2023, Solomon Group (Holbrook Sugar Hill) saved $923,224.26 in property taxes and Terwilliger Pappas (Solis Sugar Hill), whose project is still under construction, saved $722,739.09 in property taxes.
Bond-lease agreements often provide what is called a Payment in Lieu of Tax (PILOT) as part of a company’s lease payment to the government. This is to allow the government that made the agreement to recoup some of its foregone tax revenue.
The City of Sugar Hill agreements refer to the PILOT as an “administrative fee” or “administrative rent,” and each company is being charged differently. Even with the PILOT amount, each company still gets amazing tax savings. Also, the entire PILOT amount goes to the City of Sugar Hill. Neither company pays Gwinnett County property taxes to fund County parks and roads, fire and EMT services, police protection, and schools.
So, why would any government voluntarily give up so much tax revenue for these companies? The usual excuse is economic development, although the real economic impact can be hazy.
The City of Sugar Hill’s agreements with these companies contain vague language about how the projects will “promote for the public good and general welfare trade, commerce, industry, and employment opportunities” and how they “will revitalize and redevelop the central business district of the City of Sugar Hill, Georgia.” The contracts do not provide anything concrete, specific, or numerical describing the supposed economic impact or employment opportunities. Apparently, the fact that politicians and their hand-picked DDA lackeys like the deal is supposed to be enough for everyone.
In comparison, Gwinnett County specifies “targeted companies” who are given primary consideration. The County also defines concrete conditions and objectives that companies must meet to be eligible. Gwinnett also states that it will require payback of the abatements if certain conditions are not met and that it will reduce and eventually rescind tax abatements for companies that don’t meet the objectives. Such provisions are usually referred to as “clawbacks”.
The City of Sugar Hill does not have any formal policy regarding who is eligible for tax abatements and who is not. Furthermore, the City’s vague objectives don’t allow the City to analyze or measure the performance of the companies against an objective standard. And, the City’s bond-lease agreements do not contain clawbacks.
Given that there are businesses very similar to both Holbrook and Solis operating within the City of Sugar Hill limits without abatements, any potential argument that the City needs to offer these incentives to get these types of businesses quickly falls flat.
Regardless of what the law says, in practice, City of Sugar Hill tax abatements ARE gifts that are given to certain companies (of whom little is asked) at the sole discretion of politicians…the same politicians who congratulated themselves over raising your taxes slightly less.