Citizen Group Asks City Board To Discontinue Tax Abatement Deal For Walnut Commons

Wednesday, September 21, 2016

A citizen group is asking a city board to discontinue a tax break for the Walnut Commons apartment complex.

Helen Burns Sharp of Accountability for Taxpayer Money (ATM) said, "On Thursday at 2 p.m. in the City Council Building, the Chattanooga Downtown Redevelopment Corporation (CDRC) will be asked to approve a resolution aimed at allowing the Walnut Commons apartment complex to keep its tax-exempt status.

"The owners currently do not pay city and county property taxes, including for schools. Their PILOT tax break amounts to $2,400,000 over a 14-year period (2012-2025). Our governments have already abated $1,000,000 and will lose an additional $1,400,000 in tax revenues if the tax break is allowed to continue.

"ATM, a citizens public interest advocacy group, hired attorney John Konvalinka to research and answer the question of whether CDRC is obligated to pass this resolution and whether another city board, the HEB, is obligated to take title to the property. His conclusion is that this is a choice and not an obligation. ATM is requesting CDRC to exercise the right choice and place this upscale property on the tax rolls.

"The members of the CDRC are the Mayor's Chief of Staff Stacy Richardson, City Finance Director Daisy Madison, City Council Chair Moses Freeman, David Dalton, and Julian Bell, III. 

"What the Walnut Commons owners are requesting is a whole new deal, an entirely new transaction. The HEB approved a PILOT agreement for the original local owners to build an affordable housing complex downtown. (It has never been affordable, but that is another story.) Shortly after occupancy, they "sold" the project to new owners in Nebraska. It was not part of the original deal for the LLC to purchase in the name of the HEB. Why would two city boards want to do back flips to get this done for the new owners so they don't have to pay taxes for schools, public safety, streets, etc.?

"Earlier this week the City Council did a very good job of addressing public interest concerns in their discussions about the new Housing PILOT program. The tax-paying public, the school system and city and county deparments are counting on the CDRC to place the largest of the "old" PILOT properties on the tax rolls, beginning in 2017. 

"ATM submits that the Health Educational and Housing Facility Board of the City of Chattanooga (HEB) is not “obligated” to take title to the property upon which Walnut Commons LLC’s project (Property) is located. The HEB has a choice as to whether to take title to the Property. Initially, in 2007, there was a lease between Chattanooga Downtown Redevelopment Corporation (CDRC) and Walnut Commons LLC (the 2007 Lease) which provided, among other provisions, for Walnut Commons to pay rent and for Walnut Commons to have the option to purchase the Property and terminate the 2007 Lease. 

"In 2016, Walnut Commons wished to exercise the option to terminate the 2007 Lease (as amended) and purchase the Property to stop paying rent to CDRC. Walnut Commons, as the Sublessee, requested the HEB, as the Sublessor, to ratify HEB’s Chairman’s execution of the Exercise of the Option to Purchase the Property.  At the HEB meeting on February 24, 2016, ATM questioned the status of the title to the Property. This question was not addressed, considered, or answered at the meeting. As described below, the title to the property is still in the name of CDRC and the HEB is the Sublessor. There have been seven amendments to the 2007 Lease. A number of them were dated as an “effective date” which was before the actual date of execution (i.e, backdated). 

"A Limited Warranty Deed dated effective as of December 1, 2010 was signed on August 27, 2012. This backdated Limited Warranty Deed was registered in the Hamilton County Register of Deeds on August 27, 2012, conveying Walnut Commons’ interest in the Property to the HEB.  The only interest Walnut Commons had was as Lessee of the 2007 Lease, as amended. As of December 1, 2010, the HEB leased to Walnut Commons the Property (the Sublease) as part of the PILOT process.

"The Memoranda of Lease reflecting these transactions were recorded in the Register of Deeds on August 27, 2012. Paragraph 11.02 of the Sublease provides Walnut Commons an option to purchase the Property but the Sublease is terminated when purchased. What HEB and CDRC are being asked to do by Walnut Commons LLC is another transaction not contemplated by existing documents in order to prolong the PILOT and continue to be exempt from property taxes. This is a choice and not an obligation.  ATM is requesting the CDRC exercise the right choice and place the Property on the tax rolls."


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