Frasier Solar has promised Knox County residents that local schools and townships will receive more than a million dollars per year if the county declines to collect property taxes from Frasier’s solar farms. Given the size of the windfall, Knox County is eager to waive Frasier Solar’s property tax bill. However, an analysis by The Buckeye Institute shows that Ohio’s statutory maximum rates for such “payment-in-lieu-of-taxes” (PILOT) deals may well be too low for such a deal to make sense for the county’s taxpayers. Even if PILOT deals did offer a favorable financial return on investment for taxpayers, Buckeye research has shown that state subsidy programs for green energy, such as the PILOT program, are ill-conceived. These subsidies prop up inefficient energy sources that increase electricity prices, make it harder for Ohio manufacturers to compete, and reduce economic growth and opportunity.

Unfortunately, many communities have rushed into PILOT agreements without first determining if the plan fairly compensates them for the land. Ohio’s statutory maximum of $9,000 per megawatt PILOT payment may tilt the scale in favor of some developers by undervaluing some future property tax revenues. 

For example, a Frasier-commissioned report presents a rosy financial picture of its PILOT payments. According to Frasier, by 2064, its PILOT proposal will pay Knox County $5 million more than it would have paid in property taxes over the project period. But to be safe, Knox County should double-check the company’s math and run a net-present value (NPV) cash flow analysis.

NPV estimates help businesses and local governments determine the current value of money that will be received in the future. For Frasier’s 40-year solar project, a NPV estimate is crucial for comparing the value of property taxes paid by the project’s developer and the value of PILOT revenue paid over four decades. Without that calculated comparison, Knox County cannot know whether the plan—the statutory maximum, in this case—fully compensates for the forfeited tax revenue. 

The Buckeye Institute’s NPV analysis shows that the maximum $9,000 per megawatt PILOT payments will never exceed the projected value of the lost property tax revenues, and certainly not by the $5 million that Frasier claims. In fact, when Frasier’s project ends in 2064, the General Assembly’s payment-cap arguably will have shortchanged the county by $2.1 million (corrected from $3.2 million)—not exactly small potatoes for a small rural community. 

As Buckeye’s analysis shows, for an optimal return, Knox County should collect, at minimum, $9,766 (corrected from $10,150) per megawatt PILOT payment to break even with the property tax revenues it would have collected until 2064, when the project ends. The $766 (corrected from $1,150) per megawatt over the state cap would generate an additional $91,920 (corrected from $138,000) per year for county schools and services over the life of the project. But if Frasier goes bankrupt or cuts the project period short, Knox County’s balance sheet stands to suffer, so county officials may want some additional cushion per megawatt to cover that risk—cushion it cannot get under the current cap. 

Knox County taxpayers deserve a fair return on development projects, but the current structure of Ohio’s ill-conceived PILOT program appears all but certain to shortchange them. Knox County officials have the opportunity to send a message and set an example for rural Ohio communities by refusing to lock their constituents into this restrictive, artificially low payment scheme.

Rea S. Hederman Jr. is the vice president of policy at The Buckeye Institute, and Trevor W. Lewis is an economic policy analyst at The Buckeye Institute.