3 City Council Members Ask IDB To Hold Off On Approving TIF; Developers Tout Economic Benefit

Monday, August 11, 2014
Ric Ebersole
Ric Ebersole

Three City Council members on Monday asked the City Industrial Development Board (IDB) to hold off on "reconfirming" a controversial $9 million Black Creek Tax Increment Financing (TIF), and the former IDB board chairman was critical of the project.

At a packed meeting, developers brought out a team of lawyers from the Miller Martin law firm to try to get the derailed project back on track, touting its economic benefits. Developers said they plan to sink $60 million into a major residential and commercial development on the top of Aetna Mountain and said it should yield an overall $500 million in development.

The IDB has another meeting set on Friday at 11 a.m. at City Hall to hear further public comment and to decide on whether an unfavorable opinion from Chancellor Frank Brown should be appealed and whether the group should re-approve the TIF.

City Councilman Ken Smith said in a statement he had heard strong opposition to an appeal and asked the IDB "to delay any further action." He said that "multiple legal issues" had arisen on the project "and I urge you not to have a vote."

Chairman Chip Henderson made a similar request, and Councilman Larry Grohn noted that those council members who approved the TIF "all got thrown out." He said afterward "there was a moratorium placed on TIFs that stands to this day."

Attorneys Roger Dickson, Mike Mallen and Alfred Smith all urged the IDB to put the $9 million TIF back in place.

Mike McMahan, former city attorney who worked closely on the TIF, said the ruling by Chancellor Brown "was very narrow" and could be cured.

Ric Ebersole, former IDB chairman whose term on the board expired recently, said the IDB had agreed to move forward only if it had "a qualified opinion." He said the TIF bonds got sold without that happening.

He also said that in a normal lender-developer relationship that the lender kept a close eye on a project and held it in balance. He said in this situation the developers themselves bought the bonds and are the lenders. He said they also stand to make money through interest on the bonds over 21 years.

Mr. Ebersole questioned a $9 million cost for the road and sewer line. He said some figures for a four-lane highway suggest that 3,000 feet can be built for $1.2 million to $1.3 million.

Developers said that almost $1 million has been drawn down to date out of the $9 million available. They said it would be repaid through higher taxes brought by the development.

Attorney John Konvalinka, who represents citizen activist Helen Burns Sharp who sued to stop the TIF, said the first draw of $242,000 went to pay lawyers. He said only $60,000 has been spent thus far on the actual project. Attorney Mallen said legal expenses are a necessary part of such projects. He also said that TIFs do not have to be in "blighted" areas.

Attorney Konvalinka said the project outline was poorly drawn and said it contains no requirement that the developers follow through after getting the road and sewer line in place.

Attorney Smith said he had been practicing law for 40 years "and I don't think I have ever seen so much misunderstanding and, frankly, misrepresentation about a project." He said the closest example was of the critics and pundits of the Aquarium when it was being planned.

On the issue of the attorney who gave a favorable opinion on the TIF being paid by the developers, he said that happens in every case. And he said reversing the TIF could put a chilling effect on local economic development efforts. 

He said there was no procedure to send the matter back now to the City Council and County Commission. Attorney Konvalinka disagreed, saying it could be remanded. 

Attorney Smith said the City Council and County Commission approved the project after thorough discussion and citizen input. He said the margin on the City Council was 7-2.

Deborah Scott, who was on that council, corrected him, saying there were only five votes to approve, along with two in opposition, one who passed and one who abstained.

She said the project involves "a dead-end road" and includes a proposed convention center, which she said the city is already saddled with debt for a civic center and the Chattanoogan hotel.

Ms. Scott said of the project, "A lot of citizens are appalled, and rightfully so."

Also speaking was James Mapp of the NAACP, which has been critical of the TIF.

The owner of a quarry next to the site said potential purchasers are not going to want a million-dollar home that looks down on a quarry or to be near one. He said a road up the mountain has been in place for 150 years and would be in good shape except that it had been allowed to deteriorate by  owners over the past 15 years.  

Franklin McCallie said Ms. Burns was not opposed to the project itself. "She thinks it's a good project, but that the developers ought to pay the costs."

He said, "I hope they build it, but a mistake was made and this is not a TIF project."  

Developers Doug Stein, Bobby and Gary Chazen and Brian Sewell were at the meeting, but did not speak.

Here is the full statement of Councilman Smith:

"Since taking office last year, I have worked hard to ensure city government is more transparent and accountable in how its leaders spend taxpayer resources, especially when it comes to funding non-essential projects and services.  As an elected official for the city of Chattanooga, it is also incumbent upon me and other Council members to answer questions coming from the public and, when needed, quickly reassess decisions made by prior City Councils to address their concerns. 

 "These two guiding principles are why I feel compelled to send this letter stating my strong opposition to the IDB spending additional taxpayer resources to appeal Chancellor Frank Brown’s ruling that overturned the $9 million Tax Increment Financing (TIF) incentive for the Black Creek development on Aetna Mountain and strongly encourage its members to delay any further actions on this issue pending input from City Council. 

 "I made this request after reading the full opinion from Judge Brown where the facts clearly show there are multiple legal issues that remain unanswered and a valid challenge whether or not this project even complies with state laws.  From my perspective, these and other reasons cited by Judge Brown clearly necessitate a second look by City Council, especially given how there is no independent review and analysis about the legitimacy of the project and little, if any, oversight and accountability measures for this incentive.  

 "I hope that the Industrial Development Board (IDB) will agree with my position and postpone action on its vote to appeal the lawsuit so we can address and answer these critical questions raised by Judge Brown. Should the IDB feel compelled to vote on the judge's decision on Aug. 11, I would urge the IDB to vote NO on this issue and reject the original TIF incentive.  If the IDB believes this incentive is valid and deserves support, I request that the incentive be sent back through the full review and approval process by all parties, including the City Council."


Roger Dickson speaks as Helen Burns Sharp looks on
Roger Dickson speaks as Helen Burns Sharp looks on

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