The Dunwoody Development Authority voted July 28 to approve $780 million in bonds to provide property tax breaks for two separate development projects in Perimeter Center: State Farm’s complex and Transwestern’s planned office tower next to the Dunwoody MARTA station.
Under the deals, the authority would own the properties and lease them to the developers, who would pay much lower property taxes that gradually increase over many years. The ownership would eventually switch back to the developers.
If the Dunwoody authority had not offered the tax incentive deal, State Farm developer KDC could have gone instead to Decide DeKalb, its DeKalb County counterpart, said KDC Regional Vice President Alec Chamber. And Trent Germano of Transwestern said his tower needs a break to compete with a nearby Brookhaven tower that got a Decide DeKalb abatement deal.
The authority’s vote to approve the tax incentives is part of a “game” that states and municipalities play to remain competitive in today’s economic climate, said Carlianne Patrick, economics professor at Georgia State University’s Andrew Young School of Policy Studies.
“We live in a world where there is no federal law that prohibits states and communities from competing with each other,” she said.
The Dunwoody deals
The Development Authority approved $650 million in revenue bonds for State Farm to construct two new office buildings as part of its 17-acre hub at the corner of Perimeter Center Parkway and Hammond Drive. The tax abatement also includes Phase 1 of the project currently under construction.
The authority also approved $130 million in revenue bonds for developer Transwestern to build a 16-story office building across the street from the State Farm complex on Hammond Drive on a corner of the Perimeter Mall parking lot and adjacent to the Dunwoody MARTA station.
State Farm’s project adds 2 million square feet of office space to Dunwoody and the Transwestern project will add another 350,000 square feet.
The resolutions are not the final approval of the projects, said Dunwoody Economic Development Director Michael Starling, who is also executive director of the Development Authority.
“Inducements resolutions are fairly broad, and say we agree to talk and move forward on the project,” Starling said.
The corporations and Development Authority will eventually have to sign a formal “memorandum of understanding” that will outline the specifics of the tax abatements, Starling said. The Development Authority will likely meet again in October to go over the final MOUs, he said.
While the Dunwoody Development Authority has a close relationship with the city, it is its own separate entity, and City Council approval is not needed to approve the tax abatements, Starling said.
Taxpayers are not at risk with the issuance of revenue bonds because they are financed by the developer, Patrick said. The Development Authority owns the property during the period of the tax abatement and leases it back to the developers to provide tax incentives.
“The public is not on the hook,” said Patrick, adding, “We’re essentially giving companies money to locate where they want to locate anyway.”
State Farm is expected to save $48 million in property taxes from the city, DeKalb County and the DeKalb County School District over 17 years of the tax abatement for the two phases of its project, according to a financial analysis by Georgia Tech’s Enterprise Innovation Institute used by the Development Authority in crafting the bond issuance deal. The entire project is expected to bring in 2,200 new jobs to Dunwoody. The authority’s deals include “clawback” provisions that require developers to reimburse the authority if jobs or other projections are not met.
Transwestern would save approximately $14.5 million in property taxes over 12 years, according to Georgia Tech. The project is a speculative project — meaning no tenants are signed on to locate there — so how many jobs the project would bring to Dunwoody is uncertain. Transwestern estimates the project will bring nearly 2,500 jobs to the city.
Georgia Tech’s model phases in property taxes over a certain time period and takes into account the number of new families the city will have to serve through police service, schools, even wear and tear on roads, Patrick explained.
The model also determines how much the tax abatement costs the city and how much that money can be made up through other means, such as sales taxes, permit fees, business licenses and even liquor licenses.
“That’s the heart of Georgia Tech’s analysis,” Starling said.
With the Transwestern project, developers would pay 15 percent of property taxes its first year for an 85 percent tax abatement. In the second year, developers would pay 24 percent, 33 percent in year three and eventually 100 percent in year 11.
According to the Georgia Tech schedule for that 12-year abatement, the total property tax revenue for the city is about $1.5 million, while the total tax abatement is $590,000, giving the city a net tax payment of more than $900,000.
State Farm received a 95 percent tax abatement, meaning it only pays 5 percent of property taxes its first year with the amount it pays gradually increasing to 100 percent over 17 years.
Property tax revenue generated during this time to the city is estimated at $8.1 million and the abatement at $3.3 million, for a net payment of more than $5 million.