Unconstitutional Tax Breakes, Pollution, and Economic Burden. Who Bears The Brunt?

By Dr. Christine Wimer, President Jefferson County Foundation 

Why should large, wealthy corporations be treated like national parks? The short answer is they shouldn’t, but they are in West Virginia. 

Payments in Lieu of Taxes (PILOT) are payments made by a state or the federal government to local jurisdictions in which the state or federal government owns real property that is tax exempt because that property is owned by the government. These payments are made to offset the cost of providing services to this government land in the absence of the tax revenue that would be paid on it if  it were owned privately. 

This system has been co-opted to give massive tax breaks to large wealthy corporations and still allow them to “give” money to select entities or projects. In this way, these companies are able to save millions and save face. By contributing to publically popular items, these companies can have huge public relations wins that they can point to anytime their negative environmental or economic impacts are mentioned. 

This works through a lease buy back system where the government takes ownership of the real property—usually land and equipment— of a company. This eliminates the property taxes due on the property. The property is “leased back” by the company usually for no cost, the service of some state backed debt, or the payment of the agreed upon payment in lieu. At the end of some agreed upon time, the company takes ownership of the property back, usually for $1, and the property is again taxed, albeit at its depreciated value. 

The Payment in Lieu is usually a fraction of what would have been paid by the company if the company had paid full taxes on its property. Also, the company usually directs the funds to certain projects that are well-known or popular with the public, perhaps an upgrade of a failing water system that is a well-known issue in a community. Unfortunately, in this way, other projects or services are deprived of the money they would have received if the company paid full taxes on its property. These projects or services have to do without or the remainder of the tax base has to cover the difference by paying more. 

Companies try to convince the public that, if not for the PILOT agreement, the things the company contributed to—like the example of the water system—would never have had enough money to be completed.  This is not true. In fact, had the company paid all the money due, there would be money, not just for the pet project, but for all the things that tax money pays.

These deals are sold as incentives for large companies to bring in “good paying jobs.” Additionally, companies rarely provide the number or quality of jobs they promise. Research shows that companies would locate in the same place regardless of the incentives.[1] Worse yet, in West Virginia, these companies are often not environmentally friendly, requiring more tax payer money to permit, regulate, and unfortunately, sometimes mitigate. [2]

The West Virginia constitution specifically requires that everyone be taxed equally. This system allows some entities to be taxed at a far lower rate than others, making these deals unconstitutional in West Virginia. 

Rockwool, an insulation plant being built in Jefferson County, West Virginia, made just such a deal with the Jefferson County Development Authority (JCDA). However, after overwhelming public pushback and outrage, much of the JCDA resigned and was replaced. The deal was challenged in court and though the challenge was dismissed, it was found that the deal had never been finished. The new JCDA was not inclined to pass a new PILOT agreement. So the West Virginia Economic Development Authority (WVEDA) usurped the local control and made the deal with Rockwool. 

In this deal, the WVEDA “buys” Rockwool’s real property in Jefferson County for $150 million in guaranteed loans funded by state backed bonds. Rockwool leases back the property for the cost of servicing the debt. At the end of 10 years, Rockwool buys back the property for $1 and resumes paying taxes. In this deal, there is no prevision for any payment in lieu of the taxes. This was removed when the deal went from the JCDA to the WVEDA. 

These deals favor large corporations over startups and small businesses. Research demonstrates that new, large corporations typically depress local economies while startups and small businesses drive lower unemployment and higher wages.[3] In this way, political appointees pick winners and losers in the economy by handing out this corporate welfare. 

Jefferson County Foundation is challenging the constitutionality of this deal in court. If successful, this will have statewide implications. We are confident that eliminating these deals will be better for local economies and the environment. Read more about this at bit.ly/WVPILOT .

Taxing polluting companies that are a drain on local economies the same way as national parks is wrong and, in West Virginia, is unconstitutional. Stand with Jefferson County Foundation, follow Jefferson County Foundation on Facebook, support its legal fund if you can, and monitor our Make a Difference page. 

[1] Bartik, Timothy J. 2018. “Incentives and Local Job Creation.” Policy Brief. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. 

Bartik, Timothy J. 2018. “‘But For’ Percentages for Economic Development Incentives: What percentage estimates are plausible based on the research literature?” Upjohn Institute Working Paper 18-289. Kalamazoo, MI: W.E. Upjohn

[2] Boettner T. 2019. PILOT Agreements Cost State Millions in Tax Revenue: An In-Depth Look at Longview Power Plant. https://wvpolicy.org/pilot-agreements-cost-state-millions-in-tax-revenue-an-in-depth-look-at-longview-power-plant/ West Virginia Center on budget and policy. 

[3] Boettner T. 2019. PILOT Agreements Cost State Millions in Tax Revenue. https://wvpolicy.org/pilot-agreements-cost-state-millions-in-tax-revenue/

West Virginia Center on budget and policy.

Small Business is Good for Local Economies; Big Business is Not, Researchers Say, Business News Daily, 2020 Feb 26; https://www.businessnewsdaily.com/1298-small-business-good-for-economy.html