PROBLEMS WITH THE CURRENT SYSTEM
1. PILOT and TIF tax incentives reduce city and county revenue for needed services.
$26,000,000 in taxes were not collected in FY 2017 due to PILOTs.
City gets almost 60 percent of its general fund revenue from property taxes.
2. No standard rules have been adopted on how governments decide which companies get “jobs” tax breaks, leaving awards open to political influence.
3. Perception that many PILOT companies would be here anyway without the PILOT, paying taxes.
4. Weak enforcement if companies do not meet their PILOT commitments.
5. Challenging for citizens to get information about public records or meetings.
6. Challenging for citizens to present ideas or give feedback to City Council or County Commission.
7. Uncommon for officials to disclose bias or possible conflicts of interest when voting on tax breaks or zoning.
8. The deck seems stacked towards development interests in PILOTs & zoning.
9. Structural power disparity between “strong” Mayors & “weaker” City Council and County Commission.
10. Non-elected boards (IDB, HEB, CDRC) make policy decisions involving millions of dollars with little information or accountability.
BENEFITS OF REFORM
1. PILOT reform would lead to more productive PILOTs and fewer failures.
2. PILOT reform would mean more money for important city and county services.
3. Changes to form of government could give City Council more power.
4. Structural change would improve the oversight of non-elected boards, such as IDB, HEB, and CDRC.
5. Giving citizens a seat at the table would improve public trust and help level the playing field between development interests and the public interest.
KEY CHALLENGES TO REFORM
1. 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 make decisions based on business metrics such as transportation and labor. Tax breaks are frequently the icing on the cake.
2. Crony Capitalism—Many individuals & law firms associated with existing PILOTs would appear on a local “who’s who” list of Chattanooga movers & shakers and campaign contributors. They are historically ingrained in the PILOT process.
3. Unawareness on the part of elected officials of a public perception of the climate at City Hall regarding accessing information or giving input.
4. Lack of exposure to City Councilors on how structural changes could shift the balance of power between the executive (Mayor) and the legislative branch (City Council).
5. Old habits are difficult to change.
STRATEGIES FOR REFORM
1. Adopt rules for PILOT tax breaks based on the Policies recommended by Accountability for Taxpayer Money (ATM).
2. Acknowledge that residents in many neighborhoods in Chattanooga have not benefitted from the City’s “Renaissance” and that our current tax break policies contribute to the inequity.
3. Aggressively pursue (“claw back”) money due taxpayers when PILOT businesses have not met their commitments.
4. Earmark the city portion of the money that is clawed back for a new fund dedicated to meeting high priority needs in urban neighborhoods. Include community representation in discussion for how money is allocated.
5. Require PILOT beneficiaries to pay a significant fee at closing. Knoxville collects 5% of projected tax savings with a cap of $300,000 for "jobs" PILOTs. Memphis collects 1% of the total project cost for "housing" PILOTs.
6. Define roles in economic development program (Chamber of Commerce, Enterprise Center, Convention & Visitors Bureau, City Hall.) Make clear who is doing what, where money comes from and what it goes for.
7. Appoint neighborhood voices to the Planning Commission as vacancies occur. (Almost all members of the PC have development ties.)
8. 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.)
9. Hire MTAS or outside 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. Include ATM in the discussion.
10. Provide regular training for elected and appointed officials and staff from MTAS, CTAS or TCOG on the meaning (and the spirit) of the state’s Sunshine Law.
11. Add more content to city resolutions and minutes to give citizens better knowledge of what is going on and why.
12. Evaluate opportunities for public comment. Add a Council public hearing requirement for adoption of City budget and approval of tax breaks (PILOTs and TIFs).
13. 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 the possible appearance of a conflict of interest. (This disclosure is required by state law in some states.)
14. Advocate that the Mayor’s proposed budget fund a full-time policy research position for the City Council, with a small set-aside for professional services.
15. Convene a small city focus group to explore if a different form of government would better serve Chattanooga. Invite representatives of International City/County Management Association (ICMA) to speak about the Council/City Manager form of government. Include ATM in the discussion.