ATM appreciates those who are willing, in Teddy Roosevelt's words, to get into "the arena." We have followed Chattanooga city government for ten years. You cannot do this without coming away with an appreciation of the hours our elected spend on complex issues.
While I sometimes question the decisions of our elected city officials, these are not meant as personal attacks. After years of advocating unsuccessfully for PILOT policies, a light bulb went off.
I worked as a Community Development Director for an Oregon city for 18 years on planning, building, and economic development matters. The elected officials there were not any smarter or more honorable than ours in Chattanooga, and yet I find it hard to imagine any of the "case studies" described on this web page happening there. The big difference is the form of city government. The Oregon city had a council-manager government. Here, we have a strong mayor form.
The structure of government may seem boring, but it really matters. It influences the political culture.
Below is a summary of some policy areas I believe need attention, followed by reasons why Chattanooga may want to seriously consider changing from a strong mayor to a council-manager form of government. Or at least incorporate some of its features.
I. Property Tax Incentives
"The problem associated with tax-exempt property is one of the most complex and controversial facing the city. Given that property tax is the major source of tax revenue, the large amount of exempt property imposes significant economic costs to the city." This wording is from another city's website. Since Hamilton County has led the entire state of Tennessee in the percentage of property tax revenue abated, it is time we regard it as a major issue and a problem here.
PROBLEMS
• PILOT tax breaks to large companies significantly reduce city revenue for needed services.
• The City gets almost 60% of its general fund revenue from property taxes.
• The City forgave $16 million in tax revenue in 2022 with PILOTs and TIFs.
• About $25 million in city and county property taxes were abated in 2022 via PILOT and TIF Agreements
• Cities received federal funding relating to the COVID pandemic. Those were one-time infusions.
• No written guidelines on how the city decides which companies get “jobs” PILOTs, leaving awards open to political influence.
• Elected and non-elected boards (IDB, HEB, CDRC) are expected to make policy decisions involving millions of dollars without adequate staff analysis.
• Weak/no enforcement if companies don’t meet their commitments.
• The City has been overly generous in both the number and terms of PILOT agreements.
• Most agreements are one-sided in favor of the businesses.
• It is unclear who, if anyone, is looking out for taxpayers when agreements are drawn up.
• Many PILOT and TIF companies likely would be here anyway, paying taxes (the "but for" test).
• Housing PILOTs allow companies to charge more than $1100 in rent for very small units.
CHALLENGES TO REFORM
• The Misperception that tax breaks are always necessary to get companies to locate or expand locally. IRS records show that state and local taxes make up only 1.2 percent of a typical company’s cost of doing business. Successful companies usually make decisions based on business metrics such as transportation and labor. Tax breaks are frequently the icing on the cake.
• Crony Capitalism—Many individuals, law firms, and banks associated with existing PILOTs and TIFs would appear on a local “who’s who” list of Chattanooga movers & shakers and campaign contributors. They are historically ingrained in the PILOT and TIF process. They have a vested interest in the status quo.
SOLUTIONS
• Adopt policies and procedures for Jobs PILOT tax breaks.
• Pursue (“clawback”) money due to taxpayers when PILOT businesses have not met their commitments.
• Require Jobs and Housing PILOT beneficiaries to pay a significant fee at closing. (Example: Memphis collects 1% of the total project cost for Housing PILOTs.) Create a role for the City Council in determining how these fees are spent.
II.Transparency Overview
"Sunlight is the best disinfectant." This is a famous quote from former Supreme Court Justice Louis Brandeis. He advocated for financial and government transparency. He argued that simply making the actions of public officials more visible to the public was a powerful way of stamping out unethical and unprofessional behavior. The more that transparency increases, the more likely public trust will increase. Public-private partnerships can be appropriate, but they require transparency and strong negotiators for the public at the table. We need to level the playing field between public and private interests.
Summarized below are examples where Chattanooga would benefit from more transparency.
PROBLEMS
• Mayor's office does not provide enough written staff analysis to City Council when asking them to take action.
• Mayor's office does not provide enough written staff analysis to non-elected boards (IDB, HEB, CDRC).
• Resolutions and ordinances from the City Attorney typically do not provide recitals ("whereases") to explain the reasons for the actions.
• It is challenging for citizens to get information about public records or meetings.
• It is challenging for citizens to navigate the city website.
• It is challenging for citizens to present ideas or give feedback to City Council and Mayor.
• There is no procedure whereby public officials disclose bias or possible conflicts of interest in zoning or tax incentive matters.
• The deck seems stacked toward development interests in the tax incentive and zoning processes.
SOLUTIONS
• Add more content to city resolutions, ordinances, and minutes to better inform public officials and citizens what is going on and why.
• Convene a small focus group to brainstorm improvements for accessing city public records and improving city website. (Include citizens who have been frustrated with the records process or the website.)
• Hire an independent professional to rewrite PILOT in-lieu -of-tax and lease agreements to make the documents better protect the public interest and to be more understandable.
• Provide regular training for elected and appointed officials and staff from MTAS or TCOG on the state's Sunshine Law's meaning (and the spirit).
• Evaluate opportunities for public comment. Add a Council public hearing requirement for approval of tax breaks (PILOTs and TIFs).
• Establish a policy whereby the Council or Commission Chair asks, at the beginning of any meeting where there will be a vote on zoning or tax breaks, if any Councilor or Commissioner wishes to declare bias or a conflict of interest.
• Appoint neighborhood voices to the Planning Commission as vacancies occur. (All 11 of the citizen members of the Planning Commission have development ties.)
• Adopt environmental regulations to address development in environmentally sensitive areas, such as hillsides and floodplains.
• Initiate a community conversation to explore if a council-manager form of government would better serve Chattanooga.
III. Transparency Case Studies
City Councilors and members of various city boards frequently are not given enough information by the mayor's office when asked to make policy decisions. The public is clueless when there is no attempt to explain what is happening and why.
The City Council takes official action by two means: A resolution states a policy or opinion of the City Councill and is passed by a single vote. It can be reversed or amended by another vote of the Council. An ordinance is a local law that usually regulates a person or property. It requires two readings at two separate Council meetings. It can only be amended by the passage of another ordinance.
The content of resolutions and ordinances can either explain the "why" of the action or can leave public officials and citizens in the dark. Contrast these resolutions from Chattanooga and San Diego, dealing with the disposition of surplus property.
The San Diego resolution explains how the city got the property; why they do not or will not need it for any public purpose, and describes a purchase and sale agreement. San Diego Resolution
The Chattanooga resolution the Mayor's Office and City Attorney asked City Council to pass pertains to the King Street parking lot, which was actively used for city employee parking. Note that there is nothing in the resolution to explain anything. Chattanooga Resolution
The examples below make clear why the new Mayor and Council need to change the culture at City Hall.
1) "Surplus" Buildings (2018)
In the summer of 2018, Mayor Berke’s staff asked City Council to declare as “surplus” three city-owned buildings near City Hall so they could be sold to private developers. The buildings provide office space for city staff, including Internal Audit, City Attorney, and 311.
Property is typically considered "surplus" when it no longer serves the needs of the City and, therefore, the public. Two of the buildings were (and are) being used by city staff. Where were these employees going? What was the cost of the move, both long-term and short-term? What impact would moving them have on efforts over the years to create a city "campus" where city offices are close to one another?
The City Council and the public were not provided with a fiscal impact analysis or information on how the buildings would be sold; whether there would be an appraisal; what the evaluation criteria would be in determining the successful buyer; where the city employees currently in these buildings would go; how much the City might be looking at in future lease payments, and whether informal “negotiations” with building owners have already taken place.
ATM raised these issues at Council meetings. Council voted to defer action until they got more information from the Mayor’s Office.
2) King Street Parking Lot (2016-2018)
In July 2016, City Council responded to a request from Mayor Berke's Office by declaring a heavily used city employee parking lot on King Street as "surplus." Council was not asked to adopt findings explaining why they believed this property was surplus and where city employees would park and if the City would have to pay for employee parking in the future.
In the presentation to Council, City staff said that they had been talking for several years to the developer of the adjacent commercial property and that the City wanted to facilitate the development of this property. In 2017 the City's Downtown Redevelopment Corporation (CDRC) issued a request for proposals to sell the parcel. Two companies responded.
The CDRC was prepared to sell to the preferred developer at a price much less than the city had paid for it in 2007 and well below its current market value. The public got wind of this plan, an appraisal was done, and the price more than doubled.
In April 2017, the CDRC Board accepted the developer's proposal but added a provision that the purchase price would be based on the results of a new appraisal. In January 2018, the CDRC President (Daisy Madison) reported that the recommended buyer had rescinded his offer. No reason was given.
In April 2018, the City Deputy Administrator for Economic Development (Charita Allen) informed the Board that the City had learned in January of 2018 that the parking lot is causing flooding in the warehouse building on the adjacent property owned by the LLC that had been interested in buying the parking lot. Apparently, the developer had been made aware of the drainage issue in June of 2017.
Ms. Allen reported that a permanent fix (grading, paving) was estimated to cost about $400,000. She seemed to presume a role for the CDRC in making the improvement.
ATM suggested that the CDRC at least explore the concept of cost-sharing with the developer since their nearby properties would benefit from the long-term fix. He indicated he might be willing to go 50-50, provided he could also share in the revenues from the lot.
CDRC member (and then Council Chair) Ken Smith asked if the city had legal liability relative to water on the adjoining property. A key question in common law drainage is whether the property owner (here, the City) has done anything to change the water flow since the adjoining property owner bought their parcel (in 2014). The drainage on the city parking lot was believed to be the same as in 2014. (It has likely been that way since and before the City bought the parcel in 2007.)
The Board voted unanimously to authorize the “full fix," which was now estimated to cost about $500,000. No one brought up the topic of negotiating with the developer to cost-share both the construction costs and the revenues. There was no discussion of the drainage issue being a "pre-existing condition."
The issues here are government transparency and the wise use of taxpayer dollars. Who was looking out for the public interest?
3) Opportunity Zones (2018)
“Opportunity Zones” were created by the federal government as part of the 2017 tax cut bill. The program provides an additional source of capital to investors and gives them a temporary reduction or deferral on their federal income tax bill if they reinvest their capital gains in low-income neighborhoods.
The program is intended to spur private development into projects that will strengthen low-income neighborhoods. Here--and throughout the country--there is a risk that instead of helping residents of poor neighborhoods, the tax break will end up displacing them or simply provide benefits to developers investing in already gentrifying areas.
Hamilton County Mayor Coppinger selected certain census tracts for designation as opportunity zones, choosing areas that were already attracting developer interest, like Downtown; MLK/UTC (including the Innovation District, home of the "surplus" properties discussed above); the Erlanger area (including Lincoln Park); the Southside (including the former U.S. Pipe and Wheland site), and the Westside, (including Cameron Harbor and the former Alstom site.) These developers might not have needed the opportunity zone incentive to convince them to move forward with their plans.
Areas that could have been selected as Opportunity Zones but were not include Avondale, more of East Chattanooga, Glenwood, Orchard Knob, Highland Park, Ridgedale, Oak Grove, East Lake, Eastdale, North Brainerd, and Woodmore. The incentive might have been a determining factor in persuading someone to invest in a "real " low-income neighborhood.
The selection "committee" included representatives from the City of Chattanooga economic development staff, the Enterprise Center, and the Chamber of Commerce. The selection committee did not include representation from neighborhoods that might be impacted and whose leaders are familiar with neighborhood assets and needs.
Was the City Council and County Commission even brought into the discussion about a program that picked winners and losers? Yes, there was a tight time frame, and yes, readiness to proceed is a factor that should have been considered. But there could have been some sunshine in this process.
Another interesting aspect of opportunity zone selection is wording contained in the application to the state that alludes to future eligibility for PILOTs and TIFs for properties within these zones. In the cases of the former U.S. Pipe/Wheland and Alstom sites, the application goes so far as to say that these sites are also eligible for bonding financing. In the future, will someone try to use this wording in an obscure application to claim that these areas are "entitled" to these incentives?
Public trust suffers because of a lack of transparency.
4) Walnut Commons Housing PILOT (2010-2017)
The Housing PILOT for the Walnut Commons apartments is the poster child for how the 2002-2015 housing PILOT program failed and how city government has remained unwilling to address non-compliance.
The River City Company administered this program for the City of Chattanooga and Hamilton County during this period.
Neither River City nor the City Attorney ever addressed why it was OK for the Walnut Commons apartment complex not to benefit low and moderate-income citizens, as required by state law, or why it was OK for the developers not to build a parking structure, which they agreed to do in their PILOT and lease agreements or why this is the only PILOT since 2008 where the developer was not required to pay school taxes.
5) Public Parking for Private Apartments (2015-2016)
A local developer built the 10 North apartments next to Renaissance Park at the corner of Cherokee Boulevard and Manufacturers Road. Other multi-family developments in the area, including nearby condominium and apartment complexes, provided structured parking for their owners and tenants.
A representative for the developer said at a neighborhood meeting that a parking deck would be too expensive and that they would negotiate with CARTA about leasing 75 spaces in its Renaissance Park parking lot. Apparently the lease is for 50 years.
Residents of the adjacent Bridgeview and One North Shore condominiums said there was already a shortage of parking for Renaissance Park and that the lease of this many public spaces would not leave enough public parking. The lot is heavily used by people visiting Renaissance or Coolidge Parks and the county-owned Business Development Center across the street.
This public policy question did not seem to concern the two public entities who oversee the lot. CARTA manages the lot for the Chattanooga Downtown Redevelopment Corporation (CDRC).
Who was looking out for the public interest?
6) Environmental Regulations (2017-2020)
Homebuilders and other development interests were successful in 2017 in weakening the City's stormwater standards on South Chickamauga Creek. The change to the stay-on-volume requirement allows more sediment and pollutants to run off properties after heavy rainfalls.
The new rules replaced standards based on state guidelines and EPA advice. The higher standard for the South Chick had been adopted because of previous loss of wetlands and floodplain and its state designation as a threatened and endangered stream. Developers now pay a reduced stormwater fee for new development while taxpayers throughout the city will pay for more stream restoration.
More recently the homebuilders have been successful in slowing down the adoption of regulations about development on hillsides and in the floodplain throughout the city. One of our greatest selling points for economic development is our quality of life. The mountains, ridges, rivers, and creeks are among Chattanooga's greatest assets. Recent development in North Chattanooga has shown what can happen without adequate standards.
In 2018, Council passed a resolution directing the staff of the Regional Planning Agency (RPA) to analyze the city's steep slope and floodplain challenges. The planning staff worked with an advisory committee and a technical committee. Their analysis resulted in the Natural Resources Assessment. RPA is still awaiting Council guidance relative to the parameters and scope of the recommendations. Apparently the Home Builders Association (HBA) interpreted the assessment as being recommendations and has pushed back.
The Council could show leadership and ask RPA to reconvene the committees and come up with recommendations. The public and the HBA will likely agree on a number of things. What does this Council want its legacy to be? Does it include environmental stewardship?
7) The Role of the City Attorney's Office (2012-Present)
One might expect that the Office of City Attorney would be particularly sensitive to issues that might appear to involve conflicts of interest or special treatment. The City Charter designates the City Attorney as Chief Ethics Officer.
However, in most of the examples listed above, the City Attorney seems to have assumed (or been asked to assume) the role of facilitator. Rather than being an independent voice, it sometimes appears that the City Attorney sees his job more narrowly, with a focus on carrying out whatever policy the Mayor or Council favors and business interests want.
The City Attorneys' office has allowed one-sided PILOT and TIF agreements that seemingly are prepared by the attorneys for the companies seeking a PILOT or TIF and are written to benefit the companies. We need the City (and County) Attorney to negotiate for the taxpayers to produce a more balanced agreement.
In the City's first TIF, the City Attorney told the Industrial Development Board that he understood that the mayor supported the project. The City Attorney himself had a personal financial stake in the outcome of the TIF, even though he was a city employee. He received a check for $7,500 after the TIF was approved. It is quite uncommon for public employees to receive "bonuses."
The Volkswagen PILOTs represent the largest tax incentives in Chattanooga's history. The original 2008 PILOT was amended when VW expanded to build SUVs here. This involved a separate agreement, one begun by Volkswagen's attorneys, and then sent to the City Attorney for review and presentation to Council. One of the VW attorneys who lobbied City Councilors in 2012 in favor of the PILOT became the City Attorney in May 2013. City Council approved the second PILOT agreement in July 2014. Was it appropriate for the same attorney to play for both teams, with no public disclosure of what might appear to raise at least the appearance of a conflict of interest?
8) Crony Capitalism?
The lack of transparency on the issues listed above may contribute to a public perception of so-called "crony capitalism," which has been described as preferential treatment based on personal relationships. Public confidence is eroded when a system seems rigged.
If one were to make a list of the names of prominent business leaders benefiting from the tax breaks and public/private partnerships described above, it would be a "Who's Who" list of the power structure in Chattanooga. ATM acknowledges the risks taken and the investments made by these individuals in our community. We would like to believe that their projects were rewarded based on merit and not influenced by personal connections and campaign contributions.
We want our governments to be clearer about how and why they are making decisions. Doing more staff reports and adopting findings to explain their reasons in resolutions and ordinances would go a long way towards getting rid of the perception of "sweetheart" deals.
These examples are from the past. But they remind us that we need to make changes to make our government more transparent and professional. We can do better.
IV. Best and Worst Run Cities in America
Each year WalletHub rates the operating efficiency of 150 of the largest U.S. cities to determine which are managed best. They look at how well city officials manage and spend public funds by comparing the quality of services residents receive against the city's total budget.
In the report that came out in June 2020, Chattanooga had an overall ranking of 147 out of 150.
Click here to open the WalletHub report.
V. Forms of Government
Chattanooga currently has a strong mayor form of government. ATM believes a council-manager government would be a much better choice for the city and would address many of the issues raised on this website. Of course, there would need to be a broad community conversation before this issue is put before the voters as a charter amendment.
Below are reasons why ATM believes the council-manager government would be better for Chattanooga.
ICMA REPORT: COUNCIL-MANAGER OR STRONG MAYOR: THE CHOICE IS CLEAR
Here are excerpts from a report prepared by the International City/County Management Association (ICMA):
"Everyone wants strong political leadership—neighborhoods, civic leaders, and the business community included. And today’s complex communities cannot succeed without the guidance of effective mayors who provide a sense of direction and contribute to the smooth functioning of a local government.
But communities also need thoughtful, dedicated council members, who work with the mayor to establish appropriate policy, and competent, professional managers to carry out those policies. None of the three are mutually exclusive; they can and do work together today in many of the country’s successful council-manager communities.
Today council-manager government is the fastest-growing form of government in the United States; it frees up the elected body to establish policy, which is carried out by an appointed manager and an administrative staff. The manager is accountable to the entire council for the satisfactory implementation of council policy and the day-to-day administration of municipal affairs.
There are compelling reasons why many of the nation’s most successful cities and towns have adopted the council-manager government rather than the “strong-mayor” form. The council-manager government encourages neighborhood input into the political process, diffuses the power of special interests, and eliminates partisan politics from municipal hiring, firing, and contracting decisions.
People who take time to learn the facts about council-manager government are likely to join the ranks of those who favor this popular form. Consider the following when deciding which form of government is best for your community:
1) Neighborhoods Strengthen Their Voice
The council-manager form encourages open communication between citizens and their government. Under this form, the mayor and each council member have an equal voice in policy development and administrative oversight. This gives neighborhoods and diverse groups a greater opportunity to influence policy.
Under the “strong mayor” form, political power is concentrated in the mayor, meaning city council members relinquish at least some of their policy-making power and influence. This loss of decision-making power among council members can have a chilling effect on the voices of neighborhoods and city residents.
2) The Power of Special Interests is Diffused
Under the council-manager form of government, the involvement of the entire elected body ensures a more balanced approach to community decision-making so that all interests can be expressed and heard—not just those that are well-funded. Under the “strong mayor” form, it’s easier for special interests to use money and political power to influence a single elected official, rather than having to secure a majority of the city council’s support for their agenda.
3) Merit-Based Decision-Making vs. Partisan Politics
Under council-manager government, qualifications and performance—and not skillful navigation of the political election process—are the criteria the elected body uses to select a professional manager. The professional manager, in turn, uses his or her education, experience, and training to select department heads and other key managers to oversee the efficient delivery of services. In this way, the council-manager government maintains critical checks and balances to ensure accountability at city hall.
Functioning much like a business organization's chief executive officer, the appointed professional manager administers the daily operations of city government. Through a professional staff, the manager ensures the effective provision of services and enforces the policies adopted by the elected body. He or she, in turn, uses merit as the leading criterion for making all hiring and personnel decisions.
Appointed local government managers have no guaranteed term of office or tenure. They can be dismissed by the council at any time, for any reason. As a result, they must constantly respond to citizens and be dedicated to the highest ideals of honesty, integrity, and excellence in the management and delivery of public services.
Under the “strong mayor” form of government, the day-to-day management of community operations shifts to the mayor, who may lack the appropriate training, education, and experience in municipal administration and finance to oversee the delivery of essential community services. Also, under the “strong mayor” form, the temptation may be strong to make decisions regarding the hiring and firing of key department head positions—such as the police chief, public works director, and finance director—based on the applicant’s political support rather than his or her professional qualifications."
EXAMPLES OF COUNCIL MANAGER CITIES
Council-manager is the most prevalent form of government in the United States. More than half the cities with populations over 100,000 use it. Examples of council-manager cities include Charlotte, Dallas, Oklahoma City, Phoenix, San Jose, and Colorado Springs.
In the WalletHub list of best-run cities, four cities in the top 10 are under the council-manager form (including Durham) or a unified city/county government (Lexington-Fayette, KY). None of the cities in the bottom ten, including Chattanooga, have the council-manager form.
Business Facilities magazine annually ranks the best business climates for cities and states. In the 2020 rankings just released for large cities, six of the ten--Austin, Phoenix, Dallas, Charlotte, Kansas City, and Las Vegas--have a council-manager government, and one (Nashville) has a metropolitan city/county government.
THE ROLES OF THE MAYOR, COUNCIL, AND CITY MANAGER
Political power in a council-manager city is concentrated in the entire governing body, which includes the mayor and council. This form of government combines the strong political leadership of elected officials with the strong managerial experience of a professionally trained manager. The elected officials set policy for the city; the manager is appointed by the mayor and council to manage the day-to-day operations of city government.
Council members are elected by district to represent the people in that district. The mayor is elected at large, by people from all over the city.
The Mayor is regarded as the leader of the entire city and presides at council meetings. Examples of highly regarded "council-manager" mayors in the South include Joe Riley in Charleston and Knox White in Greenville. Almost all council-manager communities have a mayor who is a leader in developing community policies. With the council, the mayor is responsible for soliciting citizen views in developing these policies and interpreting them to the public. The mayor also represents the city in official functions and appoints advisory committees and civic groups.
The Council sets policy approves the budget and determines the tax rate. It also hires the manager and supervises his/her performance. The City Manager serves at the pleasure of the council and can be dismissed at any time with the vote of a majority of its members.
The City Manager prepares a recommended budget for the council's action, serves as the council's chief adviser, recruits and hires the government's staff, and carries out the council's policies. The council works with the manager to develop policy positions and then delegates to the manager the responsibility to carry out their decisions.
The manager makes policy recommendations to the council, but the council may change or modify them. The manager is bound by whatever action the council takes. The manager and his or her staff do background research on various topics in order to present the council with objective pros and cons on policy alternatives.
Accountability for Taxpayer Money -Chattanooga
~Helen Burns Sharp
IV. Best and Worst Run Cities
Governing
Helen Burns Sharp for ATM