HELEN BURNS SHARP

 


 

Black Creek/Aetna Mountain TIF
A CASE STUDY OF CHATTANOOGA'S FREE LUNCH PROGRAM TO WEALTHY CORPORATIONS


New  Summary--Why the Black Creek TIF Project is Bad for Chattanooga


1. We are robbing Peter to pay Paul. Tax revenues that should pay for needed services in this area and around town are being diverted to reimburse a New York hedge fund for the cost of a road up Aetna Mountain in a residential golf course community.


2. The general PUBLIC will not benefit from our paying from $15 to $25 million to build this road. The beneficiaries are the investors, developers and future residents of a road to nowhere.


3. Subdivision developers pay for their own roads. That's the way it works throughout Hamilton County. What sort of precedent does Black Creek establish? In neighboring Marion County, a developer recently spent $6 million of his own money for a road to serve a new mountaintop development.


4. No one is requiring the owners to develop the top of the mountain. That is their choice. Many cities require a TIF applicant to meet a "but/for" test to demonstrate that the project couldn't happen without a public subsidy. That would be difficult in this case, since the developers are both providing the money for the $9 million note and are borrowers of the $9 million note. If they can afford to buy the note, they can afford to do the project. Could this be a "creative" way of getting the taxpayers to pay them interest (currently 5.25 percent) and pay their soft costs (legal and engineering fees)?


5. This road has never appeared on a city transportation plan and yet it leap-frogged for public assistance ahead of identified needed projects throughout town. Why?


6. The developers called this project "economic development" so they could ask for TIF funds. Yet they never committed to providing any permanent well-paying jobs and have only committed to building a portion of the road needed to serve the "commercial" area on top of the mountain. Actually, there is no commercial area since the entire mountaintop is zoned low density residential.


7. Developers tout the economic benefits to Chattanooga in 20 years, after the properties start paying their fair share of property taxes. They fail to acknowledge what studies from across the county have shown: It costs more for local government to provide services to suburban residential development than it receives in property taxes. In this case, road maintenance will be especially expensive, given the inevitable slides. Unlike the roads up Lookout and Signal Mountains, this road would not be a state highway. City taxpayers would pay to maintain it. 


New  Summary--How the Local TIF Approval Process was Fundamentally Flawed


8. Black Creek was the city's first TIF request. The city, county, and the industrial development board approved it without first developing policies to ensure they were asking the right questions. Neither the city nor the county held public hearings where they asked for the public's feedback.


9. The City/IDB didn't have an application form. They did not get a legal opinion on the front end stating that this project is eligible under Tennessee law. My original lawsuit questions whether it is.


​10. The three local policy bodies approved the Economic Impact Plan without knowing where the road would be located or where the "jobs" would be. The only map in the EIP was illegible and showed part of the plan area outside of Chattanooga in Marion County. State law requires it to be within the city limits.


11. The local government attorneys did not protect the PUBLIC interest by insisting on a Memorandum of Understanding or "claw back" agreement addressing how the public would be protected if the developers do not live up to their representations on economic development (jobs).


12. Both the International Fire Code and the city's subdivision regulations require that developments with over 200 units have at least two separate and approved fire access roads. The local Black Creek developers have represented that there will be over one thousand homes on top of the mountain. There is no other road capable of accommodating a fire truck or ambulance. Would the city be liable if a future resident needs emergency service and the new road is blocked by a mud or rock slide?


13. Appearances of conflicts-of-interest have plagued this project. Both attorneys providing legal opinions on project eligibility were themselves paid from TIF bond proceeds. The attorney representing the IDB signed a letter on the day of bond closing in 2013. He stated that there was "no litigation or other legal proceeding pending before any court ...against the Board." How could he make this statement when I had filed my lawsuit several weeks before?


14. Local developers and their law firm have made campaign contributions to several elected officials involved in the project. Two top members of the Mayor's administrative team once worked as attorneys at the same law firm that represents the developers. Two of the local developers and at least one of their private attorneys hold key positions on city boards.


15. Violations of the "Sunshine Law" made Chattanooga the poster child at a recent statewide training session for newly elected officials. A presenter used Black Creek as an example of how not to comply with the Open Meetings Act. In addition to the original approval process struck down by the Chancellor, the City IDB appears to have violated it again in the recent re-approval process where there was no discussion or deliberation in a public meeting. Access to Open Records has likewise been a issue.


16. The Chancellor declared the TIF "null and void" on July 16. Only eight days later, the City Attorney allowed the case to go back to the Industrial Development Board for a procedural band-aid fix rather than recommending that it go back to the elected policy makers on the City Council and County Commission for reconsideration.


17. In 2012 the City Council passed a resolution establishing a moratorium on approval of any tax increment financing until they adopt appropriate guidelines. The Council has yet to adopt guidelines. How can the Black Creek TIF be "re-approved" until policies and procedures are established and the project goes back through the approval process, with the city, county, and IDB?


18. The member of the IDB who made the August motion to ratify their previous approval of the TIF does not live in the city, which is a violation of state law. This board approves the forgiveness of millions of dollars in city tax breaks. The loss of revenue doesn't directly impact someone who doesn't live in the city. Why didn't someone in the City Attorneys' office confirm his residency when he was appointed in 2002 and re-appointed in 2008?


PLEASE SEE QUESTION #5 ON HOW YOU CAN HELP.


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QUESTIONS AND ANSWERS


I filed a lawsuit in early 2013 after becoming convinced that I had to do anything I could to call attention to this gross misappropriation of local taxpayer funds. This $9 million needs to go into city and county tax coffers for needed services rather than to the Wall Street firm that now owns the controlling interest in the Black Creek Mountain residential subdivision.


Pulitzer Prize-Winning reporter David Cay Johnston wrote a book called "Free Lunch"--How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill). He suggests that Americans memorize the following lines: "If it is a sound investment the market will make it. If the investment is unsound, why should taxpayers subsidize it"?


We need to send a message to our elected officials that they need appropriate written criteria and thoughtful deliberation when they are considering requests for ALL tax incentives. Had either been in place in the spring of 2012, this project would not have been approved.


The Chancellor ruled in my favor on July 16, 2014. The City Industrial Development Board "re-approved" the project in August. In September I filed a second lawsuit, alleging sunshine law and ethics violations in the re-approval process. The developers have appealed the case to the Court of Appeals.


An acknowledgement at the outset: This is not exactly a fun, quick read. TIFs are complicated and mind-numbingly boring. Few people other than those directly affected understand them. The corporations getting the tax subsidy benefit from the fact that few members of the public have even heard of TIFs. That lack of awareness allowed this particular TIF to get (and get away with) a public subsidy for a project where there is no public benefit.


1. What is the lawsuit about?

This lawsuit seeks to invalidate our city and county governments’ decisions to provide a $9,000,000 property taxpayer subsidy to well-financed developers for a residential subdivision. TIF funds are currently slated to be used to build a road and sewer improvements to the top of Aetna Mountain in the Black Creek (Cummings Cove) development in Lookout Valley.


Typically, local governments approve tax increment financing (TIF) for projects that either revitalize a blighted area or result in a significant number of permanent family wage jobs. This project does neither. In this particular TIF, the property taxes we pay for things we want--like police, fire, parks, and good jobs--get diverted into a slush fund to pay developers for a remote road we have no interest in.


The lawsuit is also about transparency in government. It is a reminder to elected officials and their staff that what is required by state law and city code should be followed. It requests the Courts to address issues about access to public records and possible violations of the sunshine law. It challenges whether or not this project is even eligible for TIF funding under Tennessee Code Annotated § 7-53-101 (13).


2. How does this TIF project affect us as taxpayers and citizens?

In creating this tax increment district, the city and county agreed to give all new property tax revenue generated in the Black Creek plan area to the developers to recoup their costs for the road in their subdivision. (In every other subdivision in town, this is a cost borne by the developer.) Tax revenue will also be used to pay them interest (prime + 2--currently 5.25 percent) and to reimburse them for legal and engineering fees associated with bond issuance and construction of the road. Included in the subsidy were $232,252 in legal fees related to the issuance of the TIF bond. The interest would mean that the taxpayers' "gift" will be at least $15 million and could be closer to $25 million.


When you and I pay our property taxes, the money goes into the general fund to help pay the cost of providing services like police, fire, street maintenance, trash pick up, parks, libraries, etc. In this scenario, taxes going to city and county government from new Black Creek residents are frozen at low, pre-development levels. For up to 20 years, our city and county general governments loose out on the tax revenues generated by new development. Tax revenue from the Black Creek area that would otherwise go to the general fund will go to the developers to pay for the road and sewer line. This diversion means less property tax revenue for other pressing and deferred needs all over town. This list includes priority items such as enhanced police protection and numerous needed street improvements.


New development translates into increased costs for emergency and other services. When a suburban residential TIF like Black Creek is created, it reduces costs to wealthy private developers and means that middle class taxpayers throughout the city will ultimately pay more to cover those costs or accept a lower level of service as government services are spread to developments that are not paying for them.


Can you find the PUBLIC interest that justifies our $9 million gift to a New York hedge to build a road in a $500 million residential golf course community? "If it is a sound investment the market will make it. If the investment is unsound, why should taxpayers subsidize it"?


3. What is the status of the lawsuit?

The lawsuit was filed in Hamilton County Chancery Court on February 28, 2013. The defendants are the three policy bodies that approved this TIF. Since that time, their attorneys filed responses and motions and my attorneys responded.


In April of 2013 the Industrial Development Board and the City filed a Motion to Dismiss the portion of my lawsuit that asserts that the TIF is unlawful. They argued that I lack standing to bring claims challenging the authority of TIF approval. In an Memorandum Opinion dated June 5, 2013, the Chancellor DENIED defendants' Motion to Dismiss my claims relating to the IDB's approval of the TIF. Chancellor Brown wrote that I met the required three tests for standing: (1) I have taxpayer status; (2) I allege a specific illegality in the expenditure of public funds; and (3) I made a prior demand on the government entities, asking them to correct the alleged illegality.


During the "discovery" process, we served the defendants with Requests for Admission, Interrogatories, and Requests for Production. In December of 2013 we took depositions from representatives of the City (Ron Littlefield), the County (Larry Henry), and the Industrial Development Board (Ric Ebersole). Five attorneys representing the defendants took my deposition on March 27, 2014. On June 25, my attorney took the deposition of attorney George Masterson, who served as bond counsel to the developers.


JULY 2014 UPDATE

In June the defendants (City, County, Industrial Development Board) filed a Motion for Summary Judgement to try to get the Court to dismiss my case without a trial. This is a tool frequently used by a party in a lawsuit to try to convince the judge that all the evidence is on their side. In their motion, the defendants relied heavily on an Affidavit prepared by George Masterson, a Nashville attorney whom the developers hired as bond counsel. My attorney then prepared a Motion to Strike the Masterson affidavit, questioning Mr. Masterson's purported expertise.


In the hearing on July 7, Chancellor Brown granted our Motion to Strike. He added that he believes that the TIF process was flawed because of a patent conflict of interest: the IDB relied on the opinion of bond counsel to give an unqualified opinion that this project was eligible under state law and bond counsel was also representing the developers. Judge Brown said this was like asking prisoners if they thought there should be locks on their doors.


In the hearing on July 10, the Chancellor denied defendants' Motion for Summary Judgement. He said that he thought the IDB's approval was a violation of the Open Meetings law because the Board did not vote at a public meeting on whether or not they had received an unqualified opinion from counsel that the project was eligible under the state TIF statute. If it is deemed a violation, the IDB approval action of this TIF project could be invalidated.


My attorney, Mr. Konvalinka, questioned whether or not the TIF funds were necessary since the purchasers of the bonds are the same group developing the project. He said that the way the deal is structured, the road builder can "charge what he wants." He showed an overhead of the illegible map given city and county officials. It is so hard to decipher that Mr. Masterson, who attached the map to the Economic Impact Plan, admitted in his deposition that he could not locate the proposed TIF plan area, the proposed road or the proposed commercial facilities. Amazingly, he testified that a member of the public ought to be able to tell where the TIF district is, even though he could not.

 

At several July City Council meetings, citizens asked the Council to respect the judge's decision and to instruct the city attorneys not to be involved in an appeal. They asked that the city establish criteria for future TIFs and PILOTs. Applicants should be asked to demonstrate that their project is eligible; that it benefits the public at large, and that the tax incentive is necessary to their location or expansion decision. On July 29, I asked the Council when they were going to make a decision on whether to appeal, noting that the City was a separate defendant in the lawsuit. It was becoming clear that the City Attorney may have advised the Council that they could leave that decision up to the IDB. On August 5, my attorney suggested to the Council that a decision not to appeal is a decision that needs to be voted on at a public meeting under the Tennessee Open Meetings Act.


On July 16 at 11:20 AM, Chancellor Frank Brown filed a final Order. He said : "In the present case, Ms. Sharp won."The court held that the Open Meetings Law was violated and the IDB's action was null and void.


On July 24, the City Industrial Development Board (IDB) left unsettled a decision on whether to appeal the Chancellor's ruling and/or to revisit other aspects of their original decision. When the board emerged from their private session with their attorneys, they announced that they would meet again in several weeks.


AUGUST 2014 UPDATE

The IDB met on August 11. The Board allowed time for public testimony and then recessed into another attorney-client (aka "secret") session. While the meeting notice said they would conduct "decisions" at this meeting, the Board did not. Nor did they discuss or deliberate in the public meeting. See excellent coverage of this meeting in chattanoogan.com and in timesfreepress.com. Deborah Scott, Ric Ebersole, and Leonard Nixon joined my attorney, John Konvalinka, in pointing out flaws in the project and the process. City Councilors Ken Smith, Chip Henderson and Larry Grohn all expressed reservations about the project.


The IDB met on Friday, August 15, at 11:00 AM. After taking time-limited public testimony, the Board passed a resolution by a vote of 4-1. It stated that they had received an unqualified legal opinion from Mike McMahan, their own attorney, that the project described in the Economic Impact Plan is eligible under state law. They resolved to approve, re-approve, reaffirm, ratify and confirm everything related to the Black Creek TIF transaction. There was no discussion or deliberation. None of the five board members present gave any indication of why they voted the way they did. In my opinion--and probably in the opinion of most everyone in the room--they had already made up their minds (or had their minds made up for them) before the meeting began. Perhaps this is why the IDB attorneys scheduled two separate public meetings in the same week. Perhaps Mr. McMahan wanted to present his surprise August 7 legal opinion in the attorney-client private meeting on August 11.


Others who were there have described the August 15 meeting as a travesty, a farce, a charade. I attended over a thousand public meetings in my professional career. From a public policy perspective, this was one of the the worst, and I would make that statement if I were a neutral party. New conflict of interest and sunshine law issues surfaced and procedural "points of order" were ignored. "Chattanooga" re-gifts about $19 million in taxpayer funds (cost of the road plus interest) with no discussion and no transparency.


Here's an example of just how flawed the process is. Attorney Mike McMahan represented the IDB when he was city attorney. He was their attorney when the board "approved" the TIF in 2012. When he left city employment about June 2013, the City hired him to represent the IDB in defending my lawsuit. In reconsidering the TIF this time, they relied on Mr. McMahan's August 7, 2014 "unqualified" legal opinion that the project is eligible. This is the same lawyer who in 2013 inserted his opinion for what should have been a board decision, leading to the Chancellor's ruling that the IDB violated the Sunshine Law. This is the same attorney who signed an opinion letter at bond closing with a sentence says that says ..."there is no litigation or other legal proceeding pending before any court...against the Board...." How could he make that statement when I had filed my original law suit two weeks before? This attorney was a city employee in 2012 and at the time of bond closing is 2013 and yet he apparently saw no conflict of interest or violation of City Code when he asked for and received a separate check at closing from TIF funds for his work on Black Creek.


​​The problems with this TIF project go well beyond the sunshine law violation and conflict of interest issue ruled on by Chancellor Brown. For example, the huge question still looms of whether or not the project described in developers' Economic Impact Plan (EIP) meets the definition of a "project" as defined in state law. Another outstanding issue is whether there is a requirement that the developers actually build the facilities identified in the EIP, even if the EIP defines a project. The EIP says they "expect to build" such things as an ice cream parlor. There is the question of what these TIF funds can be used for. Developers' EIP states that TIF proceeds will be used "exclusively to pay public improvements." So is it OK that they have used TIF funds to pay for transaction costs, including attorneys' fees in excess of $240,000? A close examination of the TIF documents executed at closing reveals that developers haven't committed to building the entire road they want us to pay for. Phases II and III seem to be at their discretion, even though they are needed to serve the commercial area where most of the elusive "jobs" would be. Is this OK? The IDB did not discuss any of these issues when voting to reaffirm the TIF.


FALL 2014 UPDATE

I filed a new lawsuit on September 12 about the IDB's August actions. I believe the Board violated the Tennessee Open Meetings and Public Records Acts, the Tennessee Industrial Development Corporation Act, and a City of Chattanooga Ethics Policy. This second lawsuit appeared to be the only way to deal with the highly questionable re-approval process where, with no discussion and an illegal board member, they put a band-aid on the flawed project.


On October 15 the IDB filed a Motion to Sever the new lawsuit to split it into two cases. This would have increased the complexity of the case and thus my legal fees. At a hearing on November 3, Chancellor Fleenor agreed with my attorney, John Konvalinka, that there is no need to sever and denied the motion. The IDB is now represented by attorney Sam Elliott rather than Mike McMahan.


On November 5, the Miller & Martin law firm, representing both the Black Creek developers and the their hedge fund investor, filed a Motion to Intervene in the case. My attorney likely will respond to this motion. This lawsuit only relates to actions by the IDB in the re-approval process. Adding defendants seems inappropriate and would increase my costs. The Chancellor will hear this case in December.


On November 14, the IDB began their discovery process by filing Requests for Admission and Interrogatories for me to answer within 30 days.


4. What is the goal of the lawsuit?

The goal is that the TIF approvals for this project be declared null and void so that no taxpayer dollars are spent on this road and sewer line. Any public funds that have been spent would be reimbursed to the taxing districts.


The other goal is that our local governments agree to establish written criteria for reviewing ALL future requests for public-private partnerships and that they hold deliberations in the “sunshine,” with an opportunity for public comment before the vote. This would include future TIFs as well as PILOTS (payment in lieu of taxes), which also involve property tax breaks. Chattanooga currently has many more PILOT agreements than TIF agreements. Whether or not to grant a tax incentive through a PILOT and, if so, what the terms should be, should be discussed at public meetings. Two threshold criteria should be how the project benefits the public and why the public subsidy is necessary.


5. How can you help?

I really need financial contributions to help pay the excellent attorneys--John Konvalinka and Tom Gautreaux-- working on this public interest lawsuit. My legal bills through October exceed $100,000.


Never in my wildest dreams (or nightmares) did I imagine that I would be depleting my retirement funds this quickly or for this purpose. Rather than conclude that I have lost my mind, I tell myself that I am making an investment in the future of Chattanooga. This case really can change the culture in Chattanooga on how we grant tax incentives. We can move away from the black box or magic 8 ball model of decision-making that seems heavily weighted by who the applicant is.


We can establish policies and procedures that target incentives to companies that will make a significant commitment to investment and quality jobs and can demonstrate they wouldn't be here without the incentive. Most of our current TIFs and PILOTs are tax subsidies and not tax incentives. They are rewards rather than inducements. The money we currently "forgive" in property taxes could make a real difference if they were collected and directed toward high priority community projects.


Chancellor Pam Fleenor ruled in September that I am entitled to recovery of that portion of my attorneys fees and costs relating to  the IDB's denial that they had violated the Open Meetings Law. (Chancellor Brown ruled that they had.) The IDB is questioning the amount for reimbursement that my attorney submitted. Whatever I do recover is already committed to my second open meetings lawsuit and the appeal of the original lawsuit.


I have a bank account with the name of Community Development Consulting.This web site provides a link to PayPal. For those who would prefer to send a check, my mailing address is 129 Walnut Street, Unit 444, Chattanooga, TN 37403.


When I started following this case in the summer of 2012, filing a lawsuit was the last thing on my mind. I was involved in four tax increment districts in my professional career as a community development director. I believe TIFs can be an appropriate economic development tool. But the more I learned about this particular TIF project, the more concerns I had about the legality of the project and the integrity of the process. For several months, I requested the policy bodies to press the "pause button" in the approval process and hold a public hearing. Those requests fell on deaf ears. It was pretty clear that the train was on the track. Chattanooga has changed so much for the better since the time I grew up here. I didn't want to believe that this project is representative of the "Chattanooga Way."


We all have a stake in tax equity and good government. The lawsuit sends a message to our elected and appointed officials that we want them to be good stewards of our tax dollars. It also tells them that we expect decisions affecting our tax dollars to be discussed at public meetings.


6. Who approved this taxpayer subsidy?

In 2012, the Industrial Development Board of the City of Chattanooga, the Chattanooga City Council, and the Hamilton County Commission approved tax increment financing for the Black Creek project.


7. What approval criteria were followed?

None. This is the first local TIF request. Each of the policy bodies made their decision without having established criteria or developing criteria to guide them.


8. What criteria are appropriate for tax incentives?

  • how the project is eligible under state law;
  • how it benefits the public, and
  • how it meets the “but for” test. (The “but for” test involves a demonstration that the project would not happen without the subsidy. The way this TIF is structured, the developers are both providing the money for the $9 million note and are the borrowers of the $9 million note. (They get repaid from future property taxes in the subdivision.) If they can afford to buy the note, they can afford to do the project. The TIF is a "creative" way for them to get the public to pay for their attorney's fees and other "soft costs" and to get us to pay them interest to boot. Other indications that the project wasn't dependent on the TIF are that Black Creek’s marketing materials referenced mountain “brow lots” a year before TIF approval and they submitted construction plans for the road to the city the year before TIF approval.)


This project doesn’t meet any of these criteria. If you do research on how other other cities throughout the country deal with TIF requests, you will find that it is highly unusual for a local government to make a funding decision in a vacuum, without an application form or any criteria to guide them.


In their brief deliberation on this TIF, the Chattanooga City Council referred to Knoxville's program. When you google Knox County TIF, you learn that they have an application, policies, and procedures. They have a $10,000 application fee. They have an administrative fee. They say that TIFs are "primarily for projects that provide improvements to infrastructure in blighted and underutilized areas." Their maximum term is 15 years. They send out notice to all owners in the Plan Area. They state that projects that are substantially residential will not qualify for TIF funding. They require that the applicant submit a signed affidavit certifying that the project cannot proceed without the availability of the TIF funds. The Hamilton County/Chattanooga process and the Black Creek TIF do not meet ANY of these requirements.


Former IDB Chair Ric Ebersole has recommended that that applicants for both TIFs and PILOTs be required to fill out a detailed application form and pay an application fee. The fee proceeds would be used to hire an independant CPA firm to develop a detailed anaysis of the costs and benefits to the city and the taxpares of each application.


9. What is the significance of project eligibility?

To be eligible for TIF funding, the applicants Economic Impact Plan (EIP) must demonstrate that what the Developer proposes as economic impact meets the definition of “project” in the TIF statute in state law. Unless this threshold test is met, the TIF bonds would not be lawfully issued. Developers’ bond counsel acknowledged that a straight residential project would not meet this test.


Listed below are the details on the Black Creek project and the definition of project in state law. You don’t need to be a lawyer or a rocket scientist to wonder if the Black Creek project is what the Tennessee Legislature had in mind as “economic development” when they passed the TIF statute. Is this the kind of project that the City's Industrial Development Board should issue bonds for?


In the EIP, Developers list the following retail and commercial projects they plan to construct to demonstrate economic impact:

  • A restaurant and banquet facility (This one is in addition to the existing one at the Black Creek Clubhouse);
  • An approximately 30,000 square foot town center, with retail and commercial space (about the size of the Whole Foods store);
  • An approximately 20,000 square foot corporate retreat and training center;
  • A resort lodge facility;
  • An area for an approximately 150,000 square foot office park;
  • An assisted living facility,*and
  • An approximately 10,000 square foot village center within the existing Black Creek development that will include retail and commercial space, a restaurant and ice cream parlor.**

*The Planning Commission approved a Planned Unit Development at the base of the mountain in February of 2013. The PUD Plan included an assisted living facility (ALF), which is one of the components of developers' Economic Impact Plan. The Plan expired expired after one year since construction had not started. In April of 2014, the Planning Commission approved a new PUD Plan submitted for this area. It calls for single-family housing. No ALF. Has the Assisted Living Facility been eliminated or are they proposing to move it to the remote mountaintop with only one access? ** denotes project component to be located at the base of mountain that does not need the $9 million road and sewer. If the remaining project components were to be located on top of the mountain, it would require a change in zoning. How likely are the proposed retreat center and resort lodge? How likely are they to build a restaurant and banquet facility in addition to the one on the Golf Course? How many (or few) jobs are we talking about for the $9 million taxpayer subsidy? Note that they don’t mention an office or an office park, but rather “an area” for an office park.


Contrast the Developers’ list above with these portions of the definition in Tennessee Code Annotated § 7-53-101 that their bond counsel points to for justifying eligibility: (13) "Project" means all or any part of, or any interest in: (A) Any land and building, including office building, any facility or other improvement on the land, and all real and personal properties deemed necessary in connection therewith, whether or not now in existence, that shall be suitable for the following or by any combination of two (2) or more thereof (ii) Any commercial enterprise in selling, providing, or handling any financial service or in storing, warehousing, distributing or selling any products of agriculture, mining or industry;(C) Pollution control facilities, coal gasification facilities, and energy production facilities….Pollution control facilities include waste water collecting systems and waste water treatment works.


Is there anything in their list of proposed “commercial” enterprises that seems to fit? Where are the commercial enterprises that are financial in nature or have anything to do with “agriculture, mining, or industry?” Do you think a residential sewer line should be considered a “pollution control facility”? A wastewater treatment plant is a facility. A sewer line isn’t a waste water collecting system. A system is a set of things forming a complex whole.


Why was developers' own bond counsel--whom they were paying, as Chancellor Brown noted in his finding of conflict of interest--apparently unwilling to sign a simple opinion letter stating that they had examined law, certified proceedings' certifications and other documents they deemed necessary to render an unqualified opinion that the project described in the EIP was within the definition of project in the TIF statute?


10. What did the policy makers NOT discuss in their deliberations before approving the TIF?
 

  • Does the proposed project meet the definition of “project” under state law?
  • Why were they not provided with a legible map showing the location of the proposed road and sewer?
  • What is the length of the TIF road? (The minutes of the June 12, 2012 City Council Economic Development Committee meeting say that the developer stated that the length was 1.5 miles. The package sent to the IDB for their October 15, 2012 meeting contains a color map. It divides the road into three phases, with a total length of 2.44 miles.)
  • Why were they not provided with a map showing the proposed commercial facilities? (Some of the jobs referenced in the developer’s Economic Impact Plan (EIP) appear to be at the base of the mountain and thus do not need the new road and sewer line.)
  • Why were they not told how many permanent jobs would be created?
  • Why does the map in the EIP appear to include land that is in Marion County? (State law says a TIF must be entirely within the municipality. Marion County isn't in the City of Chattanooga.)
  • Why isn't the road being built as part of the normal subdivision process? (This process gives members of the public opportunities to ask questions.)
  • Why was no information given on the geo-technical suitability of the proposed road? (Detailed soils maps available online suggest that this area has significant limitations for this use, including slope, large stones, depth to hard bedrock, and shrink-swell.)
  • Why was no information given on what it would cost for the city to maintain the road once it is built and turned over to the city? (It would likely be one of the most expensive roads in the city to maintain. Unlike the two roads up Lookout Mountain and Taft Highway up Signal Mountain, this road will not be a state highway. Unlike the “W” road up Signal, it is not in unincorporated Hamilton County and thus the county likely will not provide funding for the inevitable slides. The County estimated that repairing the recent slide problem on the W road would cost $1.3 million. )
  • How can the proposed new development on top of the mountain be approved legally from an emergency access perspective? (Both the International Fire Code and the city’s Subdivision Regulations require that developments with more than 200 units have at least two separate and approved fire access roads. The developers have projected far more than 200 new houses on top of the mountain. (Has the City Fire Marshall signed off on this project? )
  • Who prepared the cost estimate for the road? (Was the estimate prepared or verified by the city? Might it have been prepared by the developer, whose construction firm is expected to build the road?)
  • Why is it OK to allude to commercial facilities on top of the mountain when the zoning is R-1(single-family residential)? (Not only is the zone change presumptive, the commercial development is "planned" for the southernmost part of the mountaintop parcel, almost to the Georgia line. Presumably everyone working or shopping there would be driving through the new residential development on the mountaintop, which would likely remain R-1. The Zoning Ordinance says that commercial can't be accessed through residentially zoned property.)
  • Why were officials not given a Memorandum of Understanding addressing how the public would be protected if the developers do not live up to their “economic development” obligations (jobs) and their representations at public meetings? (In this case, jobs, land donations for a school site and for conservation). Rather than pay them interest, why wasn't the agreement structured so that the developers had to pay interest to the city and county?


11. Why then did the City and County approve the tax subsidy?

It can be hard to come up with the right answers if you don’t know the right questions. Perhaps the members of the County Commission, City Council and IDB Board assumed that someone else had asked the appropriate questions and had received good answers. Since this was not the case, they all became a rubber stamp for the developers.


The policy-makers may have also been seduced by being told that this was economic development, which no elected official wants to be perceived as being against. [But this wasn't economic development in the conventional sense. It's a road in a residential subdivision. The permanent "jobs" associated with it are few and low-paying.]


Before the vote on the TIF, a City Councilor asked about the impact on the project if Council were to delay to study the issue more. The developer said that a delay would have an impact, that they were late already. [After passage of the resolution , it took developer four months to go back to the Industrial Development Board. It took eight months for them to close on the bond note. Could it have been that they sensed that the public was starting to ask questions? ] He added that if the TIF were not approved by the Council, it would have a "chilling" effect--it could send the message that Chattanooga "is not open for business." [Really? Business? What business?]


This TIF is essentially a political slush fund hiding under the guise of economic development.


City and county legal staff and planning staff failed to raise any of these issues at any of the public meetings. Apparently, they did not prepare written staff reports prior to the meetings or advocate for developing criteria prior to decision-making. One might have expected the City Attorney, who was also the IDB attorney, to act as gatekeeper. At a minimum he could have made a determination at the beginning of the process on whether or not the project was clearly eligible for TIF funding under the state statute and explained why he thought so. One could also have hoped that he would have been a proponent for the establishment of criteria to guide the policy-makers in their decision-making. The position of City Attorney in Chattanooga is a city government position. In the case of this TIF, the City Attorney may have received a separate check other than his regular check for being the "issuer's counsel." He, along with the private attorneys (according to State Form CT-0253), was on the list for payment from TIF funds after the bond closing in February of 2013. One wonders if there is a conflict-of-interest question because the City Attorney had a contingent financial stake in the outcome. Or, was he going to receive the same amount if the TIF was not approved and/or closed?


Members of the developer’s team lobbied policy makers prior to the public meetings in the spring of 2012 and made their case again at the public meetings. Officials were apparently persuaded by the developers’ argument that the area on top of the mountain would produce a substantial tax base in 20 years if development goes as planned. City officials probably did not realize that the city would be spending more money every year from then on to provide services than it would receive in property taxes. Studies from throughout the country show that it costs more to provide services (police, fire, road maintenance, etc.) to a new suburban residential development than the local government generally receives in property taxes. A study for Blount County in East Tennessee found that for each $1.00 in revenue the county collected, it cost $1.23 for them to provide services. Maintenance of the road up Aetna Mountain would make serving this development especially expensive.


Once the public found out about this project from the newspaper, there were no public hearings before the County Commission or City Council where citizens could raise questions or express opinions.

12. What about public records and public meetings?

“Transparency” has never been this project’s middle name. It has been difficult to get access to public records and it has been difficult to find out what is on the agenda for public meetings. By their own admission, elected officials were approached by developers well before the public meetings in May/ June of 2012.


In his order on July 14, 2014, Chancellor Frank Brown found an Open Meetings Act violation. The Industrial Development Board voted in October of 2012 to approve the project subject to an unqualified opinion by counsel or the Attorney General that the project was eligible under the TIF statute. In February of 2013, the IDB closed on the project, but no vote or discussion about accepting the opinion took place in a public meeting. I had requested all email between the IDB/City Attorney and IDB board members on this topic. I suspected that deliberations took place outside a public meeting after board members received the opinion. We were told that the emails were privileged, although they were clearly deliberating towards a decision in secret.


13. What do local citizens who oppose this TIF project have against the Black Creek subdivision and its developers?

Nothing. Black Creek is an attractive, prestigious development and an asset to Chattanooga/Hamilton County. The local developers are successful businessmen. Since York Capital in New York apparently now has the controlling interest in Black Creek, its role further reinforces the question as to why our local property tax dollars should be used to repay that out-of-state group for the road and sewer improvements up Aetna Mountain. "If it is a sound investment the market will make it. If the investment is unsound, why should taxpayers subsidize it"? Funding private enterprise is not a legitimate government expense.


14. Are opponents of this TIF against all so-called public-private partnerships?

No. However, many believe that requests for all TIFs and PILOTS should be evaluated on a case-by-case basis using appropriate criteria. These tax incentives can be valuable economic development tools when judiciously applied. This project, however, is a classic example of a square peg in a round hole. It sets a terrible precedent for Chattanooga and gives ammunition to opponents of all tax incentives.

Community concerns prepared by:

Helen Burns Sharp
June 6, 2013 (original posting date--site updated periodically)