PILOT (payment in lieu of taxes) is an economic development incentive. It is a property tax exemption program established in the North Dakota Century Code (chapter 40-57.1). The City of Fargo has approved 73 PILOTs since 1990, of which 20 are for downtown projects.
The City of Fargo has a policy on how it uses PILOT locally. As with all economic development programs, the PILOT is designed to accomplish a goal for the city that otherwise would not happen. In the case of PILOT, the city is incenting job creation and new and expanding businesses.
This program does not mean the City writes a check to any entity, rather it allows the city to defer near term taxes to make these projects feasible in exchange for significantly higher tax revenue in the future.
By policy, PILOTs can be granted for up to 20 years. When a large-scale project qualifies for a PILOT lasting more than 10 years, the City of Fargo engages a neutral third-party consultant to complete a financial review to determine if the project is financially feasible without the PILOT.
A majority of the projects receiving PILOTs in Fargo have occurred in open fields that require additional city infrastructure. When the development occurs on the edge, the city must build roads, lights, water and sewer pipes to reach the development, as well as extend services such as police and fire protection and snow plows.
As city officials see the need to revitalize historic downtown buildings and create infill projects where infrastructure already exists, they have initiated an effort to revamp the local policy to better align with the types of development that are best for all taxpayers.
Why are PILOT projects good for the taxpayers of the city? In exchange for a short-term reduction in property taxes collected, the city receives significantly higher future taxes from the property, with no up front risk. All the risk is taken on by the developer.
Kilbourne Group has applied and been approved for this program twice, for our $14 million investment into Woodrow Wilson school and our $16 million investment into the Black Building. How will these projects affect Fargo’s tax base?
As Fargo Mayor Tim Mahoney said in his February 3 Mayor’s Message, The utilization of PILOT is an investment in our future. By growing the tax base of commercial properties, we continue the work of decreasing the tax burden on homeowners.
Fargo’s Renaissance Zone is another program that has incentivized private investment into downtown that otherwise would not have happened. Read about how the Renaissance Zone has been instrumental in increasing downtown property values from $200 million to $600 million since its inception in 1999 in Fargo Monthly’s feature What You Need to Know About the Future of Downtown Fargo.