HELEN BURNS SHARP

 

 

 

 



TAX BREAKS IN CHATTANOOGA

 MILLIONS of DOLLARS "FORGIVEN" 


Chattanooga is home to a new grassroots movement organized by citizens who believe we can and should influence our local elected officials to reform the current "system" for granting property tax breaks. This broad-based coalition calls itself "ATM" (Accountability for Taxpayer Money). The effort began with Chattanooga's first TIF and then expanded to included PILOTs. Our efforts have attracted national attention, with stories by the Associated Press (AP) and the Atlanta Journal-Constitution and interviews by the Wall Street Journal and the German media company, Deutsche Welle.

 

For more information on ATM, please see its new website.  ATM Chattanooga


Chattanooga has approved one project using tax increment financing (TIF), a $9 million bond (plus interest) for a road. In the summer of 2015, the City adopted policies and procedures to guide the review and decision-making for future TIF requests. Progress.

 

Payment-in-lieu of tax (PILOT) agreements are the most popular tax break tool locally.  While we have only one TIF at present, about sixty (60) PILOT agreements are currently on the books. Most last about 10 years; some last up to 30 years.


It has been difficult to get complete information on the total amount of property tax being forgiven and the specifics of individual PILOT agreements. In 2015 alone, the city and county did not collect more than $15 million in property taxes because of in-lieu agreements. In addition to these tax breaks, in 2014/2015, the two local governments (50-50 split) provided a grant to Volkswagen for $52.5 million for site construction and equipment for their proposed expansion. ATM has questioned whether the City and County put sufficient clawback language in the agreement with VW to protect the taxpayers if the expansion project is scaled back or canceled and why such language has not been added to subsequent PILOT agreements. 


ATM has requested the total amount the current PILOT agreements represent over the entire time periods they are in effect. A conservative estimate is that our city and county governments have already voted to waive over $350 million in property tax collections. 


The City Council and County Commission have not adopted policies and procedures on PILOTs. It is unclear how decisions are made on which companies get tax breaks. Many of the subsidized jobs are part-time without benefits. Some pay less that $15 per hour. Many of the jobs would likely be here anyway. Some existing businesses are "frequent flyers" under the PILOT program, visiting the government ATM "machine" when they purchase major equipment. The downtown housing PILOT program allows developers to charge high rents for very small rooms and call it "affordable housing." The PILOT agreements contain weak language spelling out the obligations of the business recipients. Enforcement is discretionary and rarely happens. 


The Government Accounting Standards Bureau (GASB) now requires all local governments to disclose information on property tax abatements like PILOTs. Chattanooga and Hamilton County have recently posted some information on their websites. Please see www.hamiltontn.gov/PILOT. About sixty (60) agreements are listed. Note that fifteen (15) PILOTs have been approved by the current City Council and County Commission, including five (5) for downtown housing. In our current environment, approval is virtually automatic.


We have privatized our economic development program. While the Chamber of Commerce and the River City Company are very effective lobbyists for private interests, our elected officials also need to hear more about the public interest dimension of property tax breaks.


ATM recommends that the city and county adopt Policies and Procedures to guide review and decisions.  A PILOT application fee could be used to hire an independent professional (likely a CPA) to prepare a detailed analysis of the costs and benefits of a PILOT. The city and county attorneys could take a more active role in drafting the agreements and leases. Today it appears that they allow the "commitment" and enforcement wording to be drafted by the Chamber and River City and the private attorneys representing the developers.


ATM has prepared draft Policies and Procedures for both the jobs and housing PILOT program. We would welcome the opportunity to work constructively with the city and county and their economic develop partners.


For more information on PILOTs, please see the new web page.  ATM Chattanooga PILOTs


TIFs and PILOTs are appropriate tools in our economic development toolbox. However, we need to establish policies which target incentives to companies that will make a significant commitment to investment and quality jobs or affordable housing and can demonstrate that they would not locate or expand without the incentive. We need policies to make sure that companies are held accountable for their commitments. We need procedures to create transparency so that information on tax subsidies becomes accessible and opportunities for public involvement increase.


We need to realize how truly special Chattanooga has become and that it is not necessary to give away the farm. Out tax break "program" seems geared to 50 years ago when we were desperate to get new development. Companies choose to locate or expand primarily because of business and quality of life considerations. Greg LeRoy, the founder of the non-profit Good Jobs First, cites IRS statistics showing that state and local taxes make up less than two percent of a typical company's cost of doing business. Tax incentives are the icing on the cake.  


It takes money to run a city and a county. This money has to come from somewhere, and the majority--almost 60 percent--comes from property taxes. We assume all taxpayers pay their fair share. When certain companies are given special consideration, this arrangement impacts other property owners by reducing the amount of revenue collected. It can lead to a tax increase or a reduced level of service. It means there is less money available for high priority community projects.


Let's use tax abatements judiciously. Let's make sure the PUBLIC INTEREST has a seat at the negotiating table.


Thanks for reading. I hope you will get involved in this important public policy issue by letting our elected officials know that we expect them to adopt and follow sound policies and procedures. We can make a difference.


~Helen Burns Sharp

 

Spring 2016