Downtown housing projects must have at least 50 percent of the units available for persons of low-income or moderate income in order to be qualified for PILOT (Payment in Lieu of Taxes) tax abatements under stricter new guidelines from the Berke administration.
There was criticism over some PILOTs in recent years, including one to the Walnut Commons apartments that in 2014 was sold by its Chattanooga developers to an Omaha firm at a $3 million profit. It is exempt from most property taxes through 2022 under a tax incentive agreement.
Mayor Andy Berke announced recently there would be much tighter guidelines with a focus on making affordable residential units available.
At the same time, the application process for PILOTs was moved from the River City Company to the mayor's office.
Those receiving PILOTs would get a freeze for a time period to be determined, then would pay 20 percent of taxes the next year, 40 percent the following year, 60 percent the next year and 80 percent the final year.
All school taxes will be paid as assessed each year.
PILOTs would be capped at 10 years for new construction and 14 years for rehab projects.
The projects must be at least $5 million and must be found to be "high impact."
It must also be found that the tax subsidy is essential to making the project go.
The tax abatements would need to get approval from the city Health, Education and Housing Facility (HEB) board and the City Council. If the City Council approves it, then it goes to the County Commission.
There is a $500 application fee.
New guidelines:
Projects should be on a timeline to begin construction within 1 year of the date the incentive is granted.
2. The project must be a high impact project located within the City of Chattanooga. High impact projects are catalytic and are essential to the economic viability of a neighborhood or community.
3. A high impact project’s development cost, including acquisition, construction and soft costs, will exceed $5 million dollars. If the project is deemed to be a high impact project, it will then be reviewed to determine the necessity of subsidy to the overall portfolio.
4. The incentive must be essential to the portfolio of the project. The review committee will determine the importance of the incentive to the project portfolio and whether the project could not move forward as presented but for the granting of the incentive. They will do so through an examination of land cost, area prevailing rents, extraneous development costs, and other factors that may be relevant to the project. If the subsidy is material to the project then the committee will move forward by reviewing the scope of the project.
5. Determine if the value of the building renovations, site improvements or new construction is equal to or greater than sixty percent (60%) of the total project costs including property acquisition, hard and soft costs.
Assuming the scope of the project meets the 60% threshold, the committee will then review the project to ensure it meets the 50% baseline affordability requirements.
6. All projects must reserve at least 50% of the units for affordable housing (“affordable housing” defined as people moving into those units would earn 80% or less of the area's median income). If the project meets this criteria then the committee will weigh the neighborhood context of the project.
7. Determine if the project meets the design characteristics of the neighborhood in which it is located. This shall include architectural design, proposed building materials, building type or use, and other traits material to the maintain consistency in the character of the area.
8. If the project meets these 8 considerations, the committee will then review the scorecard to determine the level of subsidy available to the project through the following process:
a. Determine years achieved from the PRIMARY QUALIFICATION column on the next page depending on the major use of the property. A project may only qualify in this section once.
b. Determine years achieved from the SECONDARY QUALIFICATION column on the next page depending on other uses to be part of the project. A project may have up to three secondary qualifications
c. Determine whether the projects meet one of the PRIORITY AREAS. A project may have up to three Priority Areas.
d. Add years together to determine total term of tax freeze. All subsidies will be capped at 10 years for new construction and 14 years for rehab projects.
e. All school taxes will be paid as assessed each year.
9. The committee will then submit the recommended tax freeze to the HEB and the City Council for their consideration. If the Council approves it, then it will be presented to the County Commission for their approval/rejection.