The City Bond Board is set to rule next Monday on a tax increment financing plan for construction of a road and sewer line up Aetna Mountain to a planned major community at a huge site that is now wilderness.

The item is on the agenda at the 11 a.m. meeting at City Hall.

The bond board has already approved the idea once, and it got approval from the County Commission and City Council.

The request now is for the issuance of the actual bonds.

Developer Doug Stein said if the development flounders that it would be the responsibility of the developers to repay the bonds. Otherwise, they will be repaid by proceeds from taxes from the development.

Helen Burns Sharp, a retired planner, said she has hired attorney John Konvalinka "to assist me in reviewing certain aspects of the project."

City Councilwoman Deborah Scott is also a foe of TIF funding for the project.

Here is the position paper from Ms. Sharp:

 

MEMORANDUM

TO:                  Members of the Chattanooga Industrial Development Board

                        (Ray Adkins, Richard Ebersole, Henry Ireland III, James Miller, Theodore                         W. Mills, Chris L. Ramsey, James Woods)

 

FROM:            Helen Burns Sharp

 

DATE:            October 9, 2012 for the October 15 IDB Meeting

 

SUBJECT:      Black Creek Mountain Request for Tax Increment Financing

 

 

ACTION REQUESTED:  DO NOT PASS THE RESOLUTION in your agenda packet that would issue and secure the TIF note to finance the road and sewer line at Black Creek. Instead, HOLD A PUBLIC HEARING on this project and give Developers the opportunity to respond to questions and issues raised, including those in my Position Paper. Then reconsider the Resolution at a later meeting after you have heard and reflected on the testimony.

 

I retired several years ago after a long career in land use planning, community development, and economic development. As Community Development Director for the City of Albany, Oregon, I became familiar with tax increment financing in our urban renewal and economic development program. I believe that TIF is a great tool for the City’s toolbox, but I believe it should be used judiciously for the right projects after the right questions have been asked and answered satisfactorily.

 

I attended your meeting on July 24 and came away with the impression that the Board consists of intelligent members with financial acumen who volunteer their time to foster economic development in Chattanooga. I regret putting you in the hot seat on this matter. A lot of the issues that I bring up in my Position Paper should have been raised and debated at the County Commission and City Council. However, there was no opportunity for members of the public to speak on these topics at their meetings.  Your upcoming meeting(s) provides the last opportunity for discussion on whether or not you believe issuing the TIF note is in the best interest of Chattanooga.

 

You may want to pay particular attention to the Legal Issues I raise at the beginning of the position paper and to the last heading, which is called “Precedent.” I strongly recommend that you not vote to approve the TIF note unless and until you have an unqualified legal opinion that states that this project is clearly and unambiguously within the prescribed definitions of the state statute for eligibility.

Public trust in government has taken a beating of late. You have a chance to give this project what it has lacked from the outset: transparency—openness, communication and accountability. 

 

Thank you.

 

Helen Burns Sharp

129 Walnut Street Unit 444

Chattanooga, TN 37403

 

423 305-1406 (home)

423 994-2382 (cell)

POSITION PAPER (HBS, 10/09/2012)

            Legal Issues That Should Be Addressed Prior to Issuance of Bonds

1.     Project Eligibility. The Economic Impact Plan for Black Creek Mountain says that it is an eligible project within the meaning of TCA § 7-53-101(13) but does not cite the applicable subsections. The statute requires that the Plan meet the definition of two or more subsections. It is easy to see the subsections that it does not meet. It is difficult to ascertain even one in the list of 19 that it clearly meets.

 

2.     Authorship of Economic Development Plan.  State law [TCA § 7-53-312(a)] states that Industrial Development Corporations are to prepare Economic Impact Plans. This is the document that the Industrial Development Board, the County Commission, and the City Council voted to approve. The resolutions approving the Plan state that MSBC Black Creek, LLC (Developer) prepared the Plan.

 

3.      Zoning.  In its very general description of the “project,” the Economic Impact Plan references such components as a town center, office park, corporate retreat center, and resort lodge. These facilities are presumably on top of the mountain, since the taxpayer subsidized road is needed to serve them. All of the property on top is presently zoned R-1, low density residential. None of these uses are allowed in this zone. Is it OK to presume future zone changes? A Developer recently withdrew two zoning applications at the base of the mountain because of opposition from neighbors in the subdivision.

 

4.     Reservation of Lots Prior to Plat Approval.  State law (TCA §13-4-306) prohibits transferring lots in an unapproved subdivision. On October 12, 2011, this wording appeared on the Black Creek Facebook page: “Three of brow lots already gone. Better come and reserve one.” The Planning Commission has not granted plat approval for this phase of the development. Was Developer negotiating to sell prematurely?

 

            Other Policy Issues That Should Be Addressed Prior to Bond Issuance.

5.     Citizen Participation.   The only public hearing for a $9 million tax subsidy approved by three governing bodies was held by the Industrial Development Board at the very beginning of the process (May 1) when virtually no members of the public were aware of the project or the meeting. Seven members of the development team were present at the hearing; no member of the public was present to speak. Developers’ bond counsel is quoted in the minutes as saying the IDB vote on the Economic Impact Plan (the Plan) “just gets the process going…and that a hearing needs to be held to allow members of the public to express their views.”  Was he talking about this “hearing” in a small conference room where no one except the developers, city staff and the media were present?  The County Commission (9-0) and City Council (5-2-1-1) approved the Plan in June. Neither body held a public hearing.  IDB May 1 minutes quote the IDB (and City) Attorney as saying that “He understands that attorneys for the developers have been around to discuss with the City Council and County Commission and that he understands that Mayor Littlefield supports the project.” Several members of development team were allowed to speak at the two City Council meetings where this project was discussed. There was no opportunity for members of public to speak about this agenda item.  Councilor comments reinforce that developers had approached/lobbied them about this project prior to the meetings.

 

6.     Decision Making Criteria. This was the first TIF request in Hamilton County/Chattanooga, yet there was no presentation by city or county staff at meetings about tax increment financing; its origins; how it has been used in other places; some factors the policy makers might want to take into account in determining whether or not to approve the request. Two basic criteria might be to ask the applicants to demonstrate public benefit and to show that the project would not happen without taxpayer help.

 

7.     Public Benefit. Given that public taxpayer dollars are involved, developers should be asked to demonstrate public benefit. For up to 20 years, new property taxes generated in the project area would go to pay back the developers, with interest, for the bonds they purchased for the road.  During this period, other city taxpayers will in effect pay the cost of providing the new Black Creek residents with fire and police, garbage and road maintenance. (Unlike the roads up Lookout and Signal Mountains, this road will be a city street and not a state highway. So the City will be spending from its limited pot of road maintenance money to address the inevitable slides.) This is primarily a residential development. Studies from throughout the country show that residential development, particularly suburban, does not pay for itself. According to the American Farmland Trust, for every $1.00 in property taxes paid by homeowners, it costs local government at least $1.15 to provide services.  So even after the 20-year period, the city very likely will be spending more to provide services to the mountaintop than it will be collecting in tax revenues. The permanent “jobs” projected for this project are very loosely referenced in the Plan. There is no mention of how many jobs, how much they will pay, where they will be, when or where they are expected to happen, or what happens if they don’t.

 

8.     The “But For” Test.  If the public benefit test is satisfied, it is common for local governments to evaluate TIF requests based on the “but for” test. The applicant is asked to demonstrate that the project wouldn’t happen at all without the tax subsidy. If this project weren’t going to happen without the public subsidy, why have the marketing materials for over a year referenced “brow” lots? Why did the Black Creek Facebook page over a year ago encourage people to reserve their “brow” lots? This was seven months before the public process started and Developers claimed that the public funds were necessary for the project to happen. Why does one of the developers’ attorneys publish on his firm’s web site that: “Had the City Industrial Development Board, Hamilton County Commission and Chattanooga City Council not approved the TIF, the project would have taken much longer to launch.” (Emphasis added.) All of this could lead one to believe that the project is likely to have happened one way or another, but with the public TIF subsidy the project will go at full speed ahead.

9.     Protection of the Public. There is no “claw back” clause in the Development Agreement to address what happens if the “economic development” doesn’t happen.  Developers should be required to back up their promises in writing. Since they are projecting commercial jobs as their economic impact, it would address what would happen if these jobs never materialize. (Mixed use is a wonderful concept but the commercial component almost always lags behind and sometimes never happens.) The Agreement should address what happens if the project hits a major snag due to the economy or other factors. Developers’ Economic Impact Plan projects over 1,500 new residential units at completion. What happens if the road is built and only a handful of houses get built? (We have an nearby example of what can happen--the Rarity Development on Nickajack Lake in Marion County.) Unless this issue is addressed now, the City could be responsible for costly fire, police, trash and road maintenance, while receiving precious little property tax revenue.

10.  Plan Area.  It consists of approximately 190 acres of developing “flat” land on the southeastern side of the existing Black Creek Mountain community and approximately 2,000 acres on top of Aetna Mountain. Developers do not make clear where any of the commercial components will be located. It appears that some would be at the foot of the mountain, including improvements at the existing clubhouse. (These improvements were underway before the Plan was approved earlier this year.) At the IDB meeting on May 1, Developers’ bond counsel indicated that the TIF funds would be used to finance a road that makes facilities and utility improvements accessible for certain commercial facilities.  Given those comments, why does the Plan Area also include land that is not on the mountain, including a 10,000 square foot village center within the existing Black Creek development and the restaurant and banquet additions at the existing clubhouse? The Plan does not discuss, let alone make a finding, that the property at the base of the mountain would be directly improved or benefited due to the undertaking of the road project.

 

11.  Public Access to Facilities They Are Subsidizing. The existing commercial facilities at Black Creek are available to homeowners and members and not to the general public. It stands to reason that if city and county taxpayer dollars are helping to build this public road up the mountain, the commercial facilities and improvements called for in the Plan should be required to be open to the public. This could be addressed in the Development Agreement.

12.  Cost Estimate for the Road. Developer is requesting a tax taxpayer subsidy in the amount of $9,000,000 for the road and sewer line up the mountain.  The “Plan” provides no information on how they came up with this number and how it is split between the project components. None of the three governing bodies inquired or asked if a neutral, knowledgeable third-party had reviewed this estimate or if City Engineering staff has reviewed the estimate.  Nor do we know if the required geo-technical and wetlands investigations have been done. The findings in these studies would influence the cost.

 

13.  Interest Payments Go to Developers. The loan agreement states that “the outstanding balance of the TIF note shall bear interest at a variable rate per annum equal to the Prime Rate, as it may change from time to time, plus 200 basis points.” The public is the bank through the TIF note and in effect we pay the interest to the developers.

 

14.  Timing. Throughout the project Developers appear to have pushed for speedy decisions. A City Council member asked the Black Creek developers in June if a one-week deferral would be acceptable to give the Council time to learn more about TIFs. A member of the development team ominously warned the Council that even this short a delay would have a “chilling effect” on potential developments and would send the message that Chattanooga is not open for business. The governing bodies of the city should not allow themselves to be rushed to approve a project that may ultimately hurt the area instead of help.  One wonders if part of the reason for the pressure was that more and more members of the public were raising questions about the project. Also, the State Legislature in their last session passed amendments to TIF provisions (Public Chapter 605) that became effective July 1. One of the major changes was to increase the oversight of the state on local TIFS. Perhaps Developers were trying to beat this deadline. Once they got the necessary approvals of the Plan, their urgency seemed to go away. It took four months (June-October) for them to request to be on the agenda at the IDB October meeting for issuance of the TIF note to finance the road and sewer line.

 

15.  Precedent   If this project is approved without addressing the issues raised in this paper, it would open the door to an endless stream of requests for tax abatement for other general commercial and residential projects. How can you say no to other requests if you approve an unfettered taxpayer subsidy for a new private development that does not substantially leverage job growth or urban redevelopment, the two core principles for tax abatements? Without a higher standard of review for TIF applications, governing bodies will be seen as nothing more than an ATM for developers. TIF funding should be done right in Chattanooga from day one. Approval of this request, as currently structured, is destined to be blight on the City’s business development record, instead of a success story.