In 2018, the Chattanooga City Council, the Hamilton County Commission and the City Industrial Development Board approved the use of tax increment financing (TIF) for a one block extension of M.L. King Blvd. to the Tennessee Riverwalk. The City IDB approved the final loan documents on December 21, 2018.
TIF can be a valuable and appropriate economic development tool when used in blighted areas for projects that will likely result in significant public benefit and likely would not happen without the incentive (the "but/for" test).
While extending M.L. King Blvd. one block to the Tennessee Riverwalk is a very good idea, using TIF funds to pay for this street raises public policy questions that were never addressed.
THERE WERE TWO IDEAL FUNDING SOURCES FOR THIS PROJECT. EITHER WOULD HAVE SAVED TAXPAYER DOLLARS AND WOULD HAVE BEEN MUCH MORE TRANSPARENT.
Either proceeds from the $6 million in Alstom settlement funds for a failed PILOT or hotel/motel tax revenue would have been the ideal way to fund this project. The City and County collect a total of about about $16 million annually from hotel/motel taxes. This project is specifically listed in the 21st Century Waterfront Plan (City) and relates to tourism downtown (County), so it would have been an eligible expense.
HERE ARE OTHER REASONS WHY THIS WAS NOT A GOOD TIF:
The City’s adopted TIF policies do not contemplate this kind of project. The project is not in a blighted area. It does not provide a lot of well-paying jobs. It is primarily residential in nature.
This project does not appear be eligible for tax increment financing under state law, which requires a finding that the project meets at least two provisions of Tennessee Code Annotated 7-53-101 (13) (A). The Economic Impact Plan (EIP) states that this project meets subsection (ii), which refers to "any commercial enterprise involved in selling, providing, or handling any financial service or in storing, warehousing, or distributing or selling any products of agricultural, mining or manufactured products." The project defined in the EIP consists of medical office buildings and retail/restaurants, as well as the public infrastructure. These uses have nothing to do with financial services or agricultural, mining, or manufactured products.
Construction was well underway on the condominiums, the medical office building, and the restaurant well before the TIF was initially approved in the spring of 2018. By December when final loan documents were approved, doctors had moved into the new medical office building, the restaurant was open for business and the condominiums (next to Chattanooga Whiskey across the street) were being actively marketed for sale.
In other words, construction is complete on three of the four parcels in the TIF boundary, making it hard to argue that--"but/for" the TIF--this development would not have happened.
This TIF project fails the "straight-faced" test, the "but-for" test and, were someone to file a lawsuit, might also be found by a court to violate the "state law" test.
The private property where the TIF road will go was owned for years by Newton Chevrolet. The TIF application filed in late 2017 by the Nashville Cameron Harbor developer (Evergreen Real Estate) said that this property was under contract until April 2018. The public could not find out the names of persons who had contracted with “Newton," even though public funds were to be used for acquisition and construction.
On August 10, 2018, "Newton" sold the property to 726 Fulton Street LLC. The sale price listed on the Assessor's records is $0. According to online records from the Tennessee Secretary of State, this entity was formed the day before. Four days after the sale, this LLC merged with Riverwalk at Cameron Harbor LLC.
The Economic Impact Plan for the project says that the maximum amount of TIF financial assistance would be $3.5 million plus $1.7 million in carried interest, reserve accounts, fees and expenses for a total of $5.2 million. One third of TIF funds could go to "soft costs." That is a huge percentage. Who benefits? Was TIF selected as the funding source to increase the benefit to private parties?
At about the same time this TIF was approved, Hamilton County nominated the adjacent Alstom property as an "opportunity zone" under a program created by the recent federal tax break. This site was recently acquired by local developers. The narrative in the application says that the Alstom site is "potentially eligible for TIF or PILOT...and eligible for bonding financing."
The current TIF boundary is unusually small for a TIF. Did the master minders of the MLK TIF see it as a linchpin for a TIF boundary that would grow to include an additional 100 more acres along the waterfront, the former Alstom property? City staff announced in October of 2017 that they expected to get "multiple applications" for TIF.
The projected cost of “road land acquisition and loss of units to development” is $2 million. The public does not know the justification for the amount we would be paying.
The TIF application asks an applicant for a detailed cost breakdown of the public improvements, including quantity and estimated cost of street, sidewalks, lighting, traffic signals, etc. This applicant did not fill out the cost breakdown.
The maximum term of the TIF mysteriously changed from 15 years in a May 2018 IDB resolution to "until the payment of the TIF loan in full" in the resolution the IDB approved in December, 2018.
This TIF means that the private development may pay much less in property taxes to the general fund (fire, police, etc.) for up to /more than 15 years, leaving it to other commercial and residential taxpayers to fund these important (and expensive) services.
WHY SHOULD THE PUBLIC CARE HOW THIS PROJECT IS PAID FOR?
You should care because it involves the use of your tax dollars.
It is the responsibility of your government to be good stewards of your tax dollars and to be transparent on how they are being spent.
Situations arise when you may support the use of your tax dollars to promote private development because of perceived public benefit that might not happen otherwise.
The State Legislature has enacted law and outlined what projects qualify for tax increment financing. ATM does not believe this is a qualified project under the law.
Using TIF unnecessarily to benefit private development is an abuse of this good economic development tool.
Using TIF in this case sets a bad precedent. It could make it more difficult to say no to other private developers.
Hamilton County led the entire state of Tennessee in 2016 in both the total dollar amount of property taxes abated ($26 million) and the abated property percentage of commercial and industrial assessment (11.6%). The amount is $26 million for FY 2018.
A TIF, unlike a PILOT, is not an abatement. However, it diverts property taxes from the city and county general funds for TIF project costs, resulting in less tax revenue for important services and programs.
Helen Burns Sharp
Accountability for Taxpayer Money