How ‘fake’ bonds allow Georgia to offer tax breaks to companies

Recent misreporting on a ‘bond’ deal with Rivian draws attention to Georgia’s unique workarounds to offer property tax breaks to some businesses
Views of the Georgia State Capitol reflected in the window of a Rivian electric vehicle on Wednesday, March 1, 2023. (Natrice Miller/The Atlanta Journal-Constitution/TNS)

Credit: TNS

Credit: TNS

Views of the Georgia State Capitol reflected in the window of a Rivian electric vehicle on Wednesday, March 1, 2023. (Natrice Miller/The Atlanta Journal-Constitution/TNS)

When state and local governments in Georgia woo businesses with property tax breaks, it often takes a bit of financial and legal engineering to make it happen.

There is no constitutional or statutory mechanism in state law for local governments to provide property tax breaks to companies looking to relocate or expand in Georgia. In fact, the state Constitution forbids government entities from providing a good, service or property without an equitable return.

Yet, despite those legal hurdles, Georgia is one of the more generous states in the country when it comes to incentivizing businesses. How is that so?

Well, in the case of property tax breaks, Georgia has invented a workaround. This workaround often involves bonds that aren’t really real, leases that don’t act like typical leases and a government body holding title to a project that they often don’t really own.

The underpinnings of these deals can get really confusing, and that confusion sometimes shows up in unusual ways.

(*UPDATED DRONE PHOTO*) Aerial photograph shows the 2,000-acre Rivian factory site in southern Walton and Morgan counties, Thursday, March 30, 2023, in Social Circle. (Hyosub Shin /


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Headlines sprouted across the Internet this week that electric vehicle startup Rivian planned to take on up to $15 billion in debt via government-issued bonds to fund construction of its future Georgia factory. But those initial headlines weren’t correct — and we’ll get to that shortly.

The $15 billion figure, the bonds and the complicated real estate lease agreement that Rivian disclosed to investors this week are part of the arcane financial and legal alchemy at the heart of how state and local governments in Georgia recruit companies with generous property tax incentives.

What is ‘bond-for-title?’

Instead of cutting a company a check or having an elected body vote to approve a tax reduction as some states can, local governments in Georgia go another route when they want to offer a company a property tax break.

All across Georgia, cities and counties have what are known as development authorities. These authorities, with board members typically appointed by local elected leaders, are often the local business recruiting agencies; they hold vast powers and often face limited scrutiny.

Development authorities can provide tax incentives and issue real bonds in some cases to help finance economic development projects or support things like affordable housing. For decades, local development authorities also have been used by city and county governments in Georgia to reduce the ad valorem property tax bills of economic development prospects to get around the state Constitution’s Gratuities Clause, which dates to the 1790s.

The mechanism they use to abate taxes is known alternatively as “bond-for-title” deals or “phantom bonds” or “lease-purchase” agreements. There are different flavors and contours to these deals. But generally, this is how they work:

The development authority issues “bonds” to “finance” the project, but the “bonds” typically don’t fund the project and the company usually finds its financing elsewhere. The prospect company is usually the one that buys the bonds, not investors. The authority does not publicly sell the bonds and taxpayers are not on the hook for them and no money changes hands, but the bonds still must be approved or “validated” by a local judge like any other bond issued by a Georgia government.

This is where the “phantom bond” name comes from because they’re a sort of legal fiction.

In exchange for the “bonds,” which usually represent the potential future value of the project, the company grants title to the development authority. Development authorities are government entities and don’t pay property taxes and as part of this arrangement pass along that tax savings to the company.

How much tax savings is provided and for how long varies by agency.

The company then generally leases the property back from the development authority in exchange for rent at whatever terms the parties set and eventually the title is returned to the company at the end of the tax break period. To offset lost property tax revenue for schools and local municipalities, the company will sometimes enter into a payment in lieu of taxes (PILOT) agreement with the authority.

This mechanism is used in providing property tax breaks for all sorts of projects, including factories, corporate headquarters and even apartment buildings.

Why is this unique to Georgia?

This feat of financial gymnastics is a Peach State invention.

Several states do not bar gratuities, and that, some politicians and attorneys argue, puts Georgia at a disadvantage.

“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 2022.

Tax incentives are a common yet controversial currency in the war for jobs and investment, and Georgia isn’t shy about using them. Beyond property tax breaks, Georgia boasts an arsenal of various tax credits and other perks. Critics contend state and local governments often provide incentives for projects that would have come here anyway.

Dan McRae, an attorney often credited with pioneering the bond-for-title transaction, told the state Senate committee last year that without these deals and development authorities, Georgia would fall behind rival states.

“If there’s no development authority, we’re out of business,” McRae said at the time.

‘Phantom bonds’ in practice

In the Rivian example, the EV maker in December 2021 announced plans for a $5 billion EV and battery factory where it has promised to employ 7,500 workers.

Rivian, the state and a local development authority — the Joint Development Authority of Jasper, Morgan, Newton and Walton counties (JDA) — inked a deal in May 2022 on a $1.5 billion incentive package, of which about $700 million would come in the form of property tax savings. The deal was challenged in the courts, but ultimately survived largely unscathed.

Rivian also signed a PILOT agreement that spells out that it will pay $300 million in taxes over 25 years to the four counties combined. The current annual taxes on the site total about $80,000.

A display Rivian R1S SUV sits outside the company’s new showroom at Ponce City Market in Atlanta on Thursday, October 19, 2023. (Arvin Temkar /


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In a statement, the JDA said the bonds involved “will not constitute a debt or general obligation of the full faith and credit of the Joint Development Authority, or of Jasper, Morgan, Newton, or Walton counties.”

“The bonds are payable solely from rental payments to be made by Rivian to the JDA, and Rivian is the bondholder. This means Rivian pays itself through a ledger entry — no cash exchanges hands,” the statement said. “This is not a mechanism for Rivian to fund construction of the project, but a mechanism to facilitate the tax incentives provided.”

In Rivian’s case, it does not own the land. The state and JDA control it and Rivian has use of the property through a long-term lease. The EV maker has an option to buy the land in the years ahead. The state also has provisions in place to reduce or claw back incentive awards if Rivian fails to meet certain jobs and investment thresholds.

On Nov. 9, Rivian signed a trio of agreements with the state and JDA to close on its long-term land lease, giving the automaker access to a roughly 1,800-acre megasite in southern Morgan and Walton counties. Once the deal closed, the JDA was tasked with issuing up to $15 billion in “bonds” as part of the lease-purchase agreement.

The value of the bonds was chosen based on the potential value of Rivian’s finished factory. While the company’s current plans amount to a $5 billion facility, the higher bond amount gives the company room to expand their facility’s scope and a mechanism for the JDA to offset more property taxes if Rivian’s plans grow.

On Nov. 13, Rivian disclosed the bond issuance through a required filing with the Securities and Exchange Commission, which prompted multiple news outlets to publish stories on the eye-catching bond amount. Cox Enterprises, which owns The Atlanta Journal-Constitution, also holds about a 4% stake in Rivian.

While Rivian’s bond-for-title deal ranks among the largest in state history, it has plenty of contemporaries. Phantom bonds were issued as part of Kia’s factory in West Point and will be issued as part of Hyundai’s $7.6 billion Metaplant near Savannah.