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KENNESAW - County leaders are steaming mad over what they view as a hush-hush move by the Kennesaw Development Authority to remove a 34-acre redevelopment project from the tax rolls.

KDA leaders are expected to appear before county tax assessors this morning to ask that the property be taken off the rolls, in effect, diverting tax revenue to finance private development. A decision is not likely to come today, Chief Appraiser Phil Hogsed said.

Two years ago, the city of Kennesaw lost a bid for an $8.5 million tax-allocation district subsidy to spark development at the corner of Cobb Parkway and Kennesaw Due West Road. After the Kennesaw city council approved the application, it went to the Cobb County School Board, which voted 3-3 to reject. The idea died there.

Not long after that, the city found another way to cover some of the development costs. With the assistance of Gordon Morton, a prominent bond advisor, and the Atlanta law firm Kilpatrick Stockton LLP, which specializes in bond counsel, the Kennesaw Development Authority embarked on a PILOT agreement.

By using a PILOT, or payment in lieu of taxes, the Kennesaw Development Authority took title to the property and, on Dec. 20, 2007, issued $13.5 million in 33-year bonds. Because the KDA is a government entity whose property is not taxed, no tax would be paid on the 34-acre site - not to the county nor the school district. The property could be off the tax rolls for as long as 33 years, or until the bonds are paid off.

The redevelopment, the Columns at Kennesaw, is a $100 million project by George Nemchik's McGuire Realty, based in Cobb, and Atlanta-based Branch Properties. It includes an 85,000-square-foot Sheraton hotel and almost 50,000 square feet of office and retail space.

Kennesaw State University is nearing completion on a 40,000-square-foot space to be known as the Edge Connection Enterprise Center, at the site. It will offer office space, a commercial kitchen, meeting space and other support for entrepreneurs.

"In this economy, it's appropriate that everyone is looking to stimulate development," Chairman Sam Olens said.

But here's the rub: Unlike a TAD, a PILOT does not require consent of the other governing bodies affected. Olens said he had no idea the county or the school district would lose out on tax revenue from the property until after the deal was done. The property is currently assessed at $8 million, and its total property tax bill came to about $125,000. School taxes make up the bulk, at more than $61,000. The city and county would each take about $31,000. State taxes add $800 more.

"One government should never use another local government's millage without their consent," Olens said. "Those decisions should be made in the public."

Because PILOT projects are not on tax rosters, they do not generate any tax revenue until the bonds are paid off. That's different from a TAD, wherein governing bodies continue to collect the base tax revenue from the property. As the TAD property's value grows, the increased tax revenue is diverted to the bond payoff.

"The fact that the city chose to initiate a PILOT after the school board denied the TAD - to me it's reprehensible," Olens said.

Leonard Church was Kennesaw's mayor when the deal was done. Following the TAD's failure, relations were tense between the city and school board.

"Developers wanted to see if it would work because the TAD was slammed so hard," he said. "To make that project work, we needed to find another tool. But I can't address why or why not other governments weren't notified."

Church said he did not personally call county or school board officials because he was busy seeking re-election, a race he ultimately lost to Mark Mathews.

Mayor Mathews said that when the TAD was denied, the city's choices were to allow apartments or townhouses to be built on the site, or find a way to make a commercial development work.

"We didn't want residential in that location," he said. The site is in the flight path of McCollum airport.

"(A PILOT) is an economic-development tool that's been on the books for quite a while," Mathews said, although he admitted, "it takes a lot of legal work to get them done properly."

Olens said the county first learned that the property could disappear from the tax rolls when the KDA applied to the Board of Tax Assessors for tax-exempt status. That was around February, Hogsed said.

The county had to hire outside counsel to figure out how PILOTs work, and whether they are legal, Olens said. There are only four other PILOTs in Georgia, he said.

Northwest Cobb Commissioner Helen Goreham gets more upset the more she learns about PILOTs.

"This was quite surprising to a lot of people at the county level," she said. "I think (PILOTs) are very one-sided - with the county losing out."

Like Olens, Goreham said she does not appreciate that the county wasn't told about the change in tax status.

"Since it affects our property taxes, I would like to see us have an active role in the approval or having guidelines of how they work," she said.

Cobb School District leaders were apparently unaware they would lose the tax revenue until the Journal requested comment.

Cobb School Board member Lindsey Tippins said he's concerned if in fact one government entity could "unilaterally take the property off the tax rolls."

Tippins said he was surprised with Kennesaw's use of the PILOT for the development, and did not know whether the school board had been notified about the property being taken off the tax rolls.

"It's clearly a legal issue and I would have to have the legal people look into it," Tippins said. "But if it's an attempt to do a backdoor TAD, then I'm against that."

Bob Fox, Kennesaw's economic development director, justified the public financing by saying the prep-work cost prohibited the Kennesaw Due West site from private redevelopment. Tons of dirt had to be brought onto the site to raise the level of portions of the property, he said.

Payments mimic what the developer would have paid in property taxes. The tax assessor's office currently values the property at $8 million, although city leaders plan to appeal that value in 2009. The developer purchased the property for $24 million.Neither the city, nor the authority, would be held accountable if the bonds cannot be repaid, Fox stressed. And development leaders expect to pay off the bonds in about 14 years, he said.

"The goal is to pay off the debt as soon as possible," he said. And he insisted all the governing bodies - the city, county and school board - would ultimately benefit from increase sales-tax revenue generated by the project. The hotel will also contribute to the county's hotel/motel tax.

But county leaders - who in 2007, tightened requirements on TAD projects - also want to make sure they are not surprised again. They have asked state legislators to require approval of all the governing bodies involved before a PILOT deal is done.

"A serious flaw in the process is that PILOT bonds can be issued without the notification and consent of any governing authorities whose taxes are being used to pay off the bonds," county officials wrote in their recommendation to state legislators. "This means that one political body can take the current taxes and future taxes of another political body for a long period of time without ever notifying or obtaining their consent."

Mathews said such a move could undermine the power and authority of cities, and could potentially stop a redevelopment tool.

"Why do we have cities?" he said. "Cities have all this power - unless the county doesn't like it. I've yet to understand what the big issue is between cities and counties."

As for the Columns at Kennesaw, he said: "It's going to be a major cornerstone for redeveloping the Cobb Parkway corridor."

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