IDB Votes 4-1 To Reinstate $9 Million Black Creek TIF After Surprise McMahan Legal Opinion

Friday, August 15, 2014

The City Industrial Development Board (IDB) voted 4-1 on Friday to reinstate a $9 million Black Creek Tax Increment Financing (TIF) after a surprise "unqualified legal opinion" from former City Attorney Mike McMahan supporting it.

Skip Ireland made the motion to approve, and Chris Ramsey seconded it. Also voting in favor were James Wood and Chairman James Miller. Ray Adkins was opposed.

Attorney McMahan, who was advising the IDB in 2012 when the original Black Creek TIF that was later invalidated was approved, said he "believed from the get-go" that it was a valid project for a TIF. He said, "My mistake was not making that public" and only telling it privately to the board.

The attorney noted that the issue will likely still be settled ultimately by the courts.

Attorney McMahan handed out copies of his opinion and a resolution supporting the TIF to board members who were apparently seeing them for the first time.

Attorney John Konvalinka, who filed a successful lawsuit for citizen activist Helen Burns Sharp, and former IDB Chairman Ric Ebersole protested attorney McMahan "acting both as the attorney and as an advocate." Attorney Konvalinka said, "It's improper."

Current City Attorney Wade Hinton said attorney McMahan did not have a conflict of interest at this point, but might later during litigation when he could be a witness but not a legal advisor.

Chancellor Frank Brown threw out the initial TIF on grounds of a Sunshine Law violation and that the attorney who gave a supporting legal opinion was paid by the development group.

A group led by Doug Stein and Gary Chazen has spent almost $1 million of the bond funds. The project includes building a road and sewer line to the top of Aetna Mountain.

The development group on Friday morning filed notice of appeal of the Brown decision.

The group has used a team of attorneys from the Miller Martin law firm, including Roger Dickson, and hired consultant Tom Griscom to help get the TIF ultimately pushed through.

Mr. Ebersole, whose term on the IDB recently ran out, said the initial TIF was never approved by the IDB. "The board has been totally ignored in this process," he said.

He told board members, "You certainly don't have to clean up the mess they've created."

Opponents said the road up the mountain to a planned major development would cost far less than $9 million. Mr. Stein said it would be more.

There were four bidders for the project, ranging from $11 million to $21 million, it was stated.

Mr. Stein, who heads Stein Construction Company, said his firm only bid on the paving.

The road is about two miles and will have to be built to city standards, it was stated. It will include two pump stations and several retaining walls.

Mr. Stein defended the fact that a hedge fund that is the majority partner in Black Creek had bought the TIF bonds, saying such outside development help was desirable.

Ben Jones, general manager of the Black Creek Club, and contractor Ben Hagaman said the ongoing development of Black Creek is helping boost the local and Lookout Valley economy. Mr. Jones said a new $3.5 million clubhouse was built that includes two new swimming pools.

James C. Barker said the developers should pay for the road "not the taxpayers."

Lynn Ashton said John "Thunder" Thornton had not asked for government help when he built a similar road up a mountain in Marion County.

Here are the full remarks of Mr. Stein to the board:

Mr. Chairman, Members of the Board:

Thank you for the additional time that you have given to this issue and we appreciate the opportunity to speak with you today.

There’s been a lot of public discussion, and much said in these chambers, about the Black Creek development.

This type of debate - in which people who disagree respectfully express their opinions in open forums- is what makes America great. In fact, this particular issue has been the subject of multiple open forums.

When all of the facts have been clearly put forth and considered, there remains one fundamental point: What must the IDB, as a Board, do to comply with Tennessee law? The answer comes from the same statute that created the IDB. The statute creates a mandatory, three-step process for approval with the Chattanooga City Council and the Hamilton County Commission being the ultimate authorities.

This Board, the City Council, the County Commission, and the developers of Black Creek followed this process to the letter. And the Loan Documents provide all of the proper controls required by the law.

The City and the County have approved the TIF. The IDB is solely responsible for the implementation of the TIF. To the extent that the IDB may properly require an unqualified legal opinion that the Economic Impact Plan describes a project, it may now decide that question.

This conclusion has not squelched the people’s right to speak or to petition the government. These rights have been thoroughly exercised now and in the past as well. But the Tennessee General Assembly set the guidelines for how the public’s business related to the Black Creek TIF must be considered. In this case, and for this development, the law has been followed.

I want to share a couple of clarifying statements.

First, who are the project’s investors? They are people who invest money in projects that might otherwise not occur. Do they make these investments to make a profit? Yes, of course. The majority partner in Black Creek is a hedge fund. And many neighbors in our community, and many here in this room, are invested in hedge funds, knowingly or unknowingly, as part of their retirement strategy.

Chattanooga is a growing community, and looking for investors. We welcome investments that will expand our local economy that will increase tax revenue without raising taxes, and will inject more money into our public schools. Should we encourage these investments? I believe the answer is yes.

Second, the public access road and infrastructure that will connect Black Creek’s mountaintop with the valley has been a topic of our discussion. In a moment we will ask Ragan-Smith, the engineer for the road, to share with you the plans and the results from the competitive bidding for construction. Some have speculated in earlier meetings before this Board that the cost for building this public infrastructure will be far less than $9 million. You will see that building the road and the necessary utilities, to City of Chattanooga requirements for alignment, grade, compaction, stability, and safety, will cost well in excess of the $9 million limit of the TIF.

Third, all of the construction expenses paid from the TIF are subject to the proper controls built into the Loan Documents by this Board. Capital Mark Bank is the Escrow Agent that receives the tax increment funds; the Escrow Agreement appoints Barge, Waggoner, Sumner, and Cannon, Engineers, the Independent Construction Consultant, to examine the work, certify its completion and compliance with the approved plans and specifications, and authorize all payments.

Finally, the claim that the “contractor and developer are the same person” is wrong. Stein Construction did not submit a bid for the General Contract- we did submit a bid for the paving to all 4 bidders, who also received prices for the paving work from other subcontractors.

Aetna Mountain Road, as it exists now, is a public road with no public entity to maintain it. If the City built this road to the top of the mountain, all of our taxpayers would have borne the total cost on the front end. That is how many public road projects are financed.

At Black Creek, private investors are taking all of the risk, committing their money and debt capacity not the City’s and County’s. If the development fails, then the developers and investors lose- not the taxpayers. We have to build that road, no matter how much it costs- or we lose the money. Those are the facts.

Tennessee law is clear. The actions of the City and County are clear. The work of the IDB today will solve any issues raised by the court.

I ask you, the members of the IDB, to cure the alleged procedural deficiencies and reaffirm your earlier action.

Send a clear message: Chattanooga welcomes investments that expand our tax base without having to raise taxes, that support our public schools, and that encourage economic development in our community.




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