While various local officials have been enthusiastic about the projected financial impact of the Pinewood Atlanta Studios in central Fayette County, many among the public may have been unaware that the big development received a significant property tax break bestowed by the Fayette County Development Authority.
FCDA in November approved two bond resolutions that restrict the property tax liability of the film studios’ parent companies to just 5 percent of the appraised value of the property for the first year of the lease in 2014. The taxable value will escalate by 5 percent each year until the lease is fully paid off in December 2032.
This process is referred to as a “real estate tax abatement,” a common if widely unknown feature in financing new economic development projects in Georgia.
The bonds issued by FCDA total $52 million, which is being financed by Synovus Bank at an interest rate of 6 percent over 20 years, according to documents filed in Fayette County Superior Court. Synovus is the parent company of Bank of North Georgia, which has several branches in Fayette County and metro Atlanta.
It is impossible to calculate the full value of the property tax break that the film companies are receiving, at this date, since the buildings and property have not yet had a final valuation established by the county tax assessor. Those calculations are expected to be finished in May.
FCDA President and CEO Matt Forshee said the property tax break was granted to the companies because of the projected impact the studio’s operations will have on sales tax revenue for local governments.
For any given movie production, about 30 percent of the total film budget is expected to be spent on taxable items such as building materials for the various sets, Forshee said, noting that 30 percent is somewhat of an industry standard estimate.
That means on a $100 million movie budget, $30 million would be set aside for taxable set construction purchases which would provide $300,000 to the county’s local option sales tax split between county and city governments … and another $300,000 would go toward the Fayette County School System’s 1 percent educational special sales tax, also known as ESPLOST.
To keep recouping the ESPLOST taxes, Fayette voters will need to reauthorize the ESPLOST when it expires in March 2019.
In the meantime, Fayette governments will share two cents on every dollar of retail sales generated by the development.
“We’ll get way more money as a community off of sales tax generation there than we ever will get in property taxes,” Forshee said. “We saw it as a trade off. We could probably reduce some property taxes potentially through the bond issuance but we’re going to gain on the sales tax side.”
The purchase of building materials is to be so significant that Home Depot has built a store on the Pinewood property solely to service the film production industry there; it is not open to the public.
Forshee said the use of industrial revenue bonds for the Pinewood project means that local taxpayers are not on the hook in case of default. Should such an event ever occur, the matter would be hammered out between the Pinewood companies and the financial institution that issued the bond, Forshee said.
The bonds issued for the Pinewood project are similar to the industrial bonds granted to other companies who are investing in construction projects, Forshee said. Only development authorities have the power to grant those bonds, as such power does not rest with county or city governments.
The two separate bonds included a $7 million bond for the purchase of the former Rivers Elementary School building and property, which is now known as the Pinewood Production Centre, and a $45 million bond for the remaining Pinewood campus directly across from the school site on Sandy Creek Road near Veterans Parkway. The larger campus includes five soundstages totaling 100,000 square feet and another 90,000 square feet to be used for movie set production and prop storage.
The lease documents also include a provision that Pinewood Atlanta, LLC can construct other buildings on the campus that would not be subject to the lease, so long as permission is received from FCDA.
The $45 million bond was issued to Pinewood Atlanta, whose members consist of Georgia-based Rivers Rock I, LLC and Pinewood USA, a California company; that bond covered the large campus on the west side of Veterans Parkway. The $7 million bond was issued to Rivers Rock II, LLC, a Georgia company to purchase the former Rivers Elementary.
The various court documents for the bond issuance and lease explain that the bonds are not being guaranteed by the state of Georgia nor any of its political subdivisions, language that means the county is not on the hook to pay the bonds in case of default.
The development authority is assuming a leaseholding interest in the two Pinewood parcels, Forshee explained. It’s similar to the lease-purchase of a house in that the persons acquiring the property are slowly building their ownership interest in the home and parcel, Forshee said.
In this case, Pinewood’s property interest grows by 5 percent each year over the 20-year life of the bonds, as the firms slowly assume a growing equity in the site. The remaining equity not owned by Pinewood each year is retained by the development authority, Forshee said.
Similar bonds were also issued in the past year for the new Calpis animal feed additive production facility built in Peachtree City, the expansion of Universal Environmental Services in Peachtree City, and IPN, a plastics manufacturer, to add equipment to its facility, Forshee said.
“The development authority is the conduit entity in all five of those bond situations,” Forshee said, including the two separate bonds issued for Pinewood in his calculations. “We’re just the conduit: the entity the bond has to pass through to verify that it’s a legal economic development issue, that there’s no public money behind it, never is. If any of those entities ever go bankrupt, it’s the company that has an issue with the lender, the buyer of the bond.”
That means no governmental entity is on the hook for any unpaid bond proceeds, Forshee said.
On the lease matters, Pinewood Atlanta and Rivers Rock II were both represented by Matt Ramsey of the Ramsey, Warner and Hooper law firm of Peachtree City. Ramsey is also the state representative for the district including all of Peachtree City.
The development authority was represented by the law firm of Murray, Barnes and Finister of Atlanta on the bond negotiations and by Nathan Lee of the Newnan law firm Glover and Davis on the lease documents.
The lease and bond documents allow for the lease to be pre-paid by a certain amount or in full, but doing so does not change the property tax break that the private companies will enjoy for the next 20 years.