A Morgan County judge on Thursday shot down a central component of the $1.5 billion incentive package offered to electric vehicle startup Rivian, a ruling that threatens the future of one of Georgia’s biggest economic development projects.
If the ruling survives a likely appeal, it would not only disrupt the Rivian project, but could provide a pathway for residents in other parts of the state to challenge controversial local property tax breaks to corporations and developers. The ruling sent shockwaves through Georgia economic development circles, which use incentives known as tax abatements to woo industry and new development.
Rivian and state leaders have anticipated a ceremonial groundbreaking in the coming weeks, and it’s unclear whether this ruling could delay construction of the planned $5 billion factory along I-20 east of Atlanta. Georgia and local leaders near Savannah struck a similar incentives agreement with Hyundai for another massive EV factory in Bryan County, but officials said Friday they did not think the Rivian ruling would impact that project.
Ocmulgee Superior Courts Chief Judge Brenda Holbert Trammell ruled a local development authority “failed to establish” that bonds at the center of the Rivian project “are sound, feasible and reasonable.” She further sided with seven residents who challenged the Rivian incentive deal, ruling that the type of land lease negotiated with Rivian is one subject to property taxes.
Trammell also chastised the Joint Development Authority (JDA) of Jasper, Morgan, Newton, and Walton counties for not doing its due diligence to determine whether Rivian is financially viable. The California-based startup reported about $15.5 billion in cash on hand at the end of the second quarter. But the company has lost billions over the past two years as it works to scale up its operations and compete with Tesla and other automakers that are converting to electrified fleets.
During the most recent financial quarter, Rivian reported a net loss of $1.7 billion, and the company’s CEO R.J. Scaringe said he expects higher costs and supply chain issues to widen the company’s losses this year. However, Scaringe said but the company expects to meet its production goal of 25,000 vehicles in 2022.
“The JDA has put the issue of the Project’s economic feasibility squarely before the Court and therefore it bears the burden of proving the same — a burden which it has not carried,” Trammell wrote. She went on to say the JDA has not “put forward sufficient evidence demonstrating that the Project would promote the ‘general welfare within the territory of the Authority.’”
Seven members of Rivian opposition group Morgan County Land, Sky & Water Preservation challenged aspects of more than $700 million in local property tax incentives offered the automaker.
The state of Georgia offered Rivian the use of 2,000 acres of land essentially for free through 2047. As part of the deal, the JDA entered into a long-term rental agreement on the property where Rivian plans to employ 7,500.
Credit: HYOSUB SHIN / AJC
Credit: HYOSUB SHIN / AJC
Development authorities use lease transactions such as “bonds for title” and usufructs to grant property tax breaks to companies and developers as a legal workaround of state law, which has no constitutional or statutory mechanism to provide property tax incentives.
The JDA contends the Rivian lease is a usufruct, a common type of lease in which the tenant has limited rights and isn’t subject to property taxes. The Morgan County Board of Tax Assessors ruled earlier this year the land lease agreement constituted a usufruct.
Instead of paying typical property taxes, Rivian and officials with the JDA reached a payment in lieu of taxes agreement or PILOT in which the automaker would pay a reduced tax bill of more than $300 million to local governments and school systems over 25 years.
Rivian opponents contend the Morgan board erred in granting its approval, and that deal isn’t a usufruct but an “estate for years,” in which the tenant has more complete control of the property and is subject to taxes. Trammell agreed.
Credit: robert.andres@ajc.com
Credit: robert.andres@ajc.com
John Christy, an Atlanta attorney for the Rivian opposition, said the court’s 34-page opinion “reflects a careful consideration of the issues.”
“My clients are grateful for the Court’s time and attention to this important case,” Christy wrote in an email to The Atlanta Journal-Constitution.
In a statement, the JDA and the Georgia Department of Economic Development (GDEcD) said the agencies were “currently assessing all legal options.”
“As the entire country is looking to revitalize and grow domestic manufacturing, protect American jobs, and secure the country’s economic independence, we are disappointed and respectfully disagree with Judge Trammell’s decision,” the statement read. “This is a transformational project for the people of this community, the State of Georgia, and the United States of America.”
The statement said the JDA and state “intend to work with Rivian to move this project forward and see it through to completion.”
A Rivian representative declined to comment.
Tax break workaround
Bond for title deals are complicated legal transactions that act as a sort of legal workaround of the Georgia Constitution’s prohibition on gratuities, which forbids government from providing a good, service or property without an equitable return.
The bond for title deals amount to a real estate transaction where a development authority holds the title for the property while the company makes rent payments to the authority. In Rivian’s case, the authority sought the court’s approval to issue bonds totaling up to $15 billion, which represents the potential future value of the project, but not an amount of money that changes hands.
Neither the JDA nor Rivian planned to publicly sell the bonds and taxpayers would not have been on the hook for them.
Since development authorities do not pay property taxes, they can lease the property back to the project’s developer while providing a tax break.
But the bonds must be approved by a judge and they are rarely turned down as the Rivian deal was Thursday.
Other states do not bar gratuities, and some state leaders and attorneys argue Georgia needs these bond deals to compete.
“We’ve had all these constructs made out of clouds to try to do things that other states might just do the regular way,” Ed Wall, a managing director of public finance investment banking at Piper Sandler, said during a Senate committee meeting on development authorities in August.
The Rivian incentive package was the largest such deal in Georgia history until Hyundai was offered $1.8 billion in similar incentives to built its EV plant near Savannah. A GDEcD spokesperson said, “We are confident in the Hyundai deal and are unconcerned that Judge Trammell’s ruling will impact that project.”
The ruling comes at a critical time for Rivian when work on the 2,000-acre site has already begun.
The JDA acquired the full project site in early August and agreed to pay Plateau Excavation nearly $48 million to grade the first 500 acres of the property in anticipation of formally breaking ground on the factory in the coming weeks.
A note of disclosure
Cox Enterprises, owner of The Atlanta Journal-Constitution, also owns about a 4% stake in Rivian and supplies services to the company. Sandy Schwartz, a Cox executive who oversees the AJC, is on Rivian’s board of directors and holds stock personally. He does not take part in the AJC’s coverage of Rivian.
