We're at the point where "EV adoption" is going so well that EV companies have taken to offering fake bonds in order to get tax breaks.
At least, that's what's going on over at Rivian, where the company has structured out $15 billion in "phantom bonds," which are employed by businesses to secure a reduction in property taxes in Georgia, according to Bloomberg. The purpose is for the company to build a campus outside of Atlanta and the practice of "phantom bonds", although it sounds shady, actually is quite commonplace.
The bond "sale" is required as a component of what is among the biggest economic development initiatives in the history of Georgia to basically amount to a tax abatement. These methods have no actual effect on the financial or accounting aspects of the company that "issues" them, the report notes.
It also reflects the intense competition among states to secure substantial manufacturing agreements that offer well-paying employment opportunities and significant economic benefits, the report says. Rivian anticipates creating 7,500 jobs and projects that the facility, once operational, will have the capacity to manufacture up to 400,000 vehicles annually.
After its successful IPO in 2021, the company faced production and supply chain issues but has increased output at its Illinois facility this year.
The Bloomberg report says that Rivian's deal in Georgia involves complex bond arrangements through a four-county agency near Atlanta, designed to foster economic development. Rivian will receive a legal title for its project from the JDA, paying local governments a negotiated amount over 25 years instead of full property taxes. This arrangement, unique to Georgia, uses bonds as a means to facilitate tax breaks, a common practice for economic development in the state.
John Shakarjian, Rivian's associate general counsel, and Andrew Capezzuto of the Georgia Department of Economic Development, confirm that no actual money is exchanged in these transactions, emphasizing their role in providing tax incentives.
Shakarjian commented: “The whole concept is set up for a break on the ad-valorem taxes. There’s no cash changing hands, there’s no cash being generated, there’s no movement of money.”
Capezzuto added: “A lot of other states have the statutory authority to issue abatements and that just doesn’t exist in Georgia. So some clever lawyers came up with this way in which they can do it — by transferring title of the asset to a tax exempt entity.”
Rivian has committed to making escalating payments-in-lieu-of-taxes, starting at $1.5 million and rising to $20.4 million by 2047, with a minimum total payment of $300 million. This could increase if Rivian's investment exceeds its initial pledge. The future site of Rivian's factory currently only brings in about $80,000 in tax revenue, per state data.
These arrangements are called phantom bonds because they don't involve actual debt service payments. In Rivian's case, its rent equals the debt service costs, and as the sole bondholder, no money is exchanged. The company's bond and rent payments are considered simultaneously settled due to its dual role as tenant and bondholder, the report says.
So far, $5 billion in phantom bonds have been issued for Rivian's project. Should project costs rise, Rivian may request an increase in bond size from the JDA to limit property tax liabilities, with the JDA authorized to abate up to $15 billion of Rivian's project costs.
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