Concerns About Tax Subsidy For Aetna Mountain - And Response

Tuesday, June 12, 2012

The Chattanooga City Council will soon vote on a request for a property tax break for a $9 million road to facilitate expansion of the Black Creek (Cummings Cove) development up Aetna Mountain. I have concerns relating to the appropriateness of using tax increment financing (TIF) for this project. Approval would mean that the city and county would, for up to 20 years, forgo collecting property taxes in this area. Taxes that otherwise would be collected as development occurs would go to pay bond debt on the road rather than to fund citywide services.

If approved, this would be the first time Chattanooga and Hamilton County have used tax increment financing. I am familiar with this financing tool from my professional experience with a city in Oregon. I think it can be a useful and appropriate tool PROVIDED it meets several tests. First of all, does it pass the Public Good test? The projects I am familiar with either redeveloped a blighted part of town or paid for roads and utilities for development that would provide a significant number of family wage jobs. The second test is called "But For." Assuming a proposed project meets the public good test, the project sponsors need to convince the local governments that the development will not happen without taxpayer help. 

From what I have read, I have trouble seeing how it passes either test. I am also concerned about the precedent it would be setting. If this proposal is approved, it is likely that other residential and commercial developers would be knocking on the door of City Hall. If the Council approves this request, I hope they will develop tight criteria to explain why this project was OK and others might not be. Approval here would allow property taxes from the development--revenues that would otherwise go to police, fire, libraries, etc.--to subsidize the development. If such a practice becomes commonplace, funding to support city services takes a big hit.

The Council could decide that this proposal passes the tests. The project sponsors describe a first class development that would contain some commercial components (public good?). I believe they have represented that they would provide a school site and a large conservation area. They have made the case that this project couldn't absorb a $9 million road and be feasible. They point to the new tax base that would be there in 20 years.

If the Council does choose to approve, I hope they will not approve the "Economic Development Plan" until the City has entered into a Development Agreement with the project sponsors. I believe an agreement with the public is warranted since they are asking for a public subsidy. It would require them to dedicate the school and conservation sites. Since they are projecting commercial jobs as part of 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.) It would address what happens if the project hits a major snag due to the economy or other factors. What are the implications if the Industrial Development Board borrows money through bond sales and the TIF District fails to produce enough extra property tax revenues to pay the bond debt? I read in the press that one of the developers said there would be no liability on the part of the government. He said that the developers as bond holders would lose out in the event of default. If that is the case, make it clear in the Agreement.The Agreement could also clarify that--since public funds are being used the finance the road-- the road will be public. (No gate house like on Elder Mountain.)

The Hamilton County Commission approved this request unanimously last week, with no discussion on any of these issues. I have confidence that the City Council will have a good discussion before making their decision and will do what they believe is in the best interest of Chattanooga. Hats off to them for wrestling with all of the thorny issues that come before them.

Helen Burns Sharp

* * *

Helen Sharp, you are a good citizen for asking questions and well informed.  It is highly appropriate for citizens to ask a lot of questions about this $9 million deal with public money. 

The Hamilton County Commissioners did vote unanimously for the taxpayers to fund the infrastructure, roads, sewer, for this private subdivision development at the taxpayer’s risk, called Black Creek Mountain Group.  They voted unanimously, last week, to give $9 million in bond funds to construct roads into his subdivision, shifting risk onto the taxpayers if the lots do not sell, and all the profit to the Black Creek Mountain Development Group.  What a deal. There was absolutely no public discussion, just a unanimous vote.

The taxpayers will be making payments on the $9 million bond issue, whether the lots sell or not. There is no reason to believe that the taxpayers will see the $9 million returned to them.  

Subdivision development is highly speculative and a high risk business. This is a deal no commissioner would fund with their own money, but with other people’s tax money it’s all fun to gamble. The $9 million investment by the taxpayers assumes the lots will sell.  The Commission has made risk, public, and  profit, private. This is a bait and switch on our dime.  

If this private and very speculative development at Aetna Mountain is such a great investment with about 1,500 units, why aren’t the banks funding this project? 

It is not the constitutional mission of Hamilton County government to collect mandatory property taxes from citizens, and hand it over to fund high risk private development.  Why is this private subdivision development more worthy of bank rolling than any other?  This is a reasonable question. 

At a minimum, all the information submitted to Hamilton County government by the Black Creek Mountain Creek Group in support of giving them $9 million, needs to be made available to the public to view at a public hearing.  There are a lot of unanswered questions. 

In the alternative, citizens should file open records requests to Hamilton County immediately to gain access to these documents, and examine the basis for why we are giving the chosen $9 million for subdivision roads. 

The public deserves to see the documents that justified getting taxpayer funds. 

April Eidson


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