PILOT Financing
- "Payment In Lieu Of Taxes"...
Continued
from page 1...
The property taxes are $2.00 per $100 of assessed valuation.
The assessed valuation is based upon direct development expense, so
we'll assume 75% of the budget goes to the development of hard
assets. That works out to a basis of $4,000,000 with a
corresponding future tax liability averaging $80,000 per annum, or
$800,000 over the first 10 years. With me so far? Good.
The Payment In Lieu Of Taxes program allows the county to take
control of the real property (for taxation purposes only!) and reduce
the property tax bite to $60,000 a year for the first 10 years (25% more
or less - keeping the math easy, not exact). That's a savings of
$200,000 over the period that results in an increase of $20,000 per
annum in the property's EBITDA.
The developer now has a choice - take the rebate and then enjoy an
enhanced level of debt service coverage; or, the developer could pay the
same amount and use the differential for paying out a grant or
loan. We'll take a grant or loan for $200,000 now, that will be
retired out of the resulting deal.
Is it significant?
Well, $200,000 divided by $6,000,000 is a little over 3.3% of the
total structure, but if it is compared in terms of the equity
requirement for a HUD/FHA Section 232 Insured Loan, then it can cover
the working capital requirement of the loan, all by itself.
What can you do with it?
