Taxpayer Group Presents Policy Paper To City Council On PILOT Reform, Open Government

Helen Burns Sharp, of the group Accountability for Taxpayer Money, presented a policy paper to the City Council on proposed reform of the city's PILOT tax break program as well as making it easier for citizens to have access to government information.

Here is the group's analysis and recommendations:

 

Problems with Current System

 

• PILOT tax breaks to large companies reduce city revenue for needed services.

• $15 million in taxes were not collected in 2015 due to PILOTs.

• City gets almost 60% of its general fund revenue from property taxes.

• Companies with PILOTs include Amazon, Blue Cross, CBL, Choo Choo, Chattem, Coca Cola, Unum, VW, Southern Champion Tray and Wrigley.

• No standard rules have been adopted on how governments decide which companies get “jobs” tax breaks, leaving awards open to political influence.

• Perception that many PILOT companies would be here anyway, paying taxes

• PILOT Agreements last too long (typically 10-30 years).

• 18 PILOT Agreements were approved since last city election (2013).

• Weak enforcement if companies do not meet their PILOT commitments

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• Challenging for citizens to get information about public records or meetings

• Challenging for citizens to present ideas or give feedback to City Council

• Uncommon for officials to disclose bias or possible conflicts of interest when voting on tax breaks or zoning

• Deck seems stacked towards development interests in PILOTs & zoning.

• Structural power disparity between “strong” Mayor & “weaker” City Council

• Non-elected boards (IDB, HEB, CDRC) make policy decisions involving millions of dollars with little information or accountability.

 

Economic Benefits of Equitable Reform

 

• PILOT reform would lead to more productive PILOTs and fewer failures.

• PILOT reform would mean more money for important city services.

• Changes to form of government could give City Council more power.

• Structural change would improve the oversight of non-elected boards, such as IDB, HEB, and CDRC.

• Giving citizens a seat at the table would improve public trust and help level the playing field between development interests and the public interest.

Key Challenges to Reform

 

• Misperception that tax breaks are always necessary to get companies to locate or expand locally. IRS records show that state and local taxes make up only 1.2 percent of a typical company’s cost of doing business. Successful companies make decisions based on business metrics such as transportation and labor. Tax breaks are frequently the icing on the cake.

• Crony Capitalism—Many individuals & law firms associated with existing PILOTs would appear on a local “who’s who” list of Chattanooga movers & shakers and campaign contributors. They are historically ingrained in the PILOT process.

• Unawareness on the part of elected officials of a public perception of the climate at City Hall regarding accessing information or giving input.

• Lack of exposure to City Councilors on how structural changes could shift the balance of power between the executive (Mayor) and legislative branch (City Council).

• Old habits are difficult to change.

 

Strategies for Reform

 

1. Adopt rules for PILOT tax breaks based on the Policies and Procedures recommended by Accountability for Taxpayer Money (ATM).

 

1. Acknowledge that residents in many neighborhoods in Chattanooga have not benefitted from the City’s “Renaissance” and that our current tax break policies contribute to the inequity.

 

1. Aggressively pursue (“claw back”) money due taxpayers when PILOT businesses have not met their commitments. (Example: $13 million due from Alstom; Walnut Commons fiasco).

 

1. Earmark the city portion of the money that is clawed back for a new fund dedicated to meeting high priority needs in urban neighborhoods. Include a representative from the People’s Coalition in discussion for how money is allocated.

 

1. Require PILOT beneficiaries to pay a significant fee at closing. (Knoxville collects 5% of projected tax savings with a cap of $300,000.)

 

1. Define roles in economic development program (Chamber of Commerce, Enterprise Center, Convention & Visitors Bureau, City Hall.) Make clear who is doing what, where money comes from and what it goes for.

 

1. Appoint neighborhood voices to the Planning Commission as vacancies occur. (Almost all members of the PC have development ties.)

 

1. Convene a small focus group to brainstorm improvements for accessing city public records and improving city website. (Include citizens who have been frustrated with the records process or the website.)

 

1. Hire outside counsel to rewrite PILOT in lieu of tax and lease agreements to make the documents better protect the public interest and to be more understandable. Include ATM in the discussion.

 

1. Provide regular training for elected and appointed officials and staff from MTAS, CTAS or TCOG on the meaning (and the spirit) of the state’s Sunshine Law.

 

1. Add more content to city resolutions and minutes to give citizens better knowledge of what is going on and why.

 

1. Evaluate opportunities for public comment. Add a Council public hearing requirement for adoption of City budget and approval of tax breaks (PILOTs and TIFs).

 

1. Establish a policy whereby the Council or Commission Chair asks, at the beginning of any meeting where there will be a vote on zoning or tax breaks, if any Councilor or Commissioner wishes to declare bias or the possible appearance of a conflict of interest.

 

1. Lobby that the Mayor’s proposed budget fund a full-time policy research position for the City Council, with a small set-aside for professional services.

 

1. Convene a small city focus group to explore if a different form of government would better serve Chattanooga. Invite representative of International City/County Management Association (ICMA) to speak about City Manager form of government. Include ATM in the discussion.

 

ATM Recommended PILOT Policies and Procedures

 

1. Public Benefit. Develop a detailed application form. Charge fee to hire independent professional to analyze costs & benefits to the public for each request.

2. “But For.” Ask companies—new or existing—to sign an affidavit stating the requested tax break is a determining factor for them to locate or expand here. “But for the PILOT, we would not do it.”

3. No “Retro.” Disallow PILOTs for companies with projects underway or completed. (No “but/for.”)

4. Job Quantity. Count only permanent, full time jobs and do not include managerial jobs in average wage computations. Stipulate that the obligation to maintain the jobs will last at least the length of the subsidy. Job Quality. Require PILOT beneficiaries to pay livable wages and provide health insurance and other benefits.

5. Real Property. Focus on real property (land & buildings) rather than personal property. Abatements on personal property (equipment) have less capacity for long-term public benefit since equipment is movable.

6. Job Sectors. Do not subsidize jobs in office, retail, and hospitality.

7. Anti-Poaching. Explore establishing a code of conduct for “jobs” PILOTs to address relocation and bidding wars between neighboring jurisdictions. Address the use of subsidies to lure companies from one another.

8. Housing PILOTs. Change definition of low & moderate income from 80% to 60% of Area Median Income (AMI). The current standard allows developers to charge about $900 a month for their “affordable” units. What is the public benefit warranting this type of tax break? Establish a moratorium on new housing PILOTs until this change is made. Limit housing PILOTs to 10 years, with no phase-in period. Increase fee at closing as described below.

9. Citizen Input. Allow for more public involvement. Hold public hearing(s).

10. Agreements. Ask an independent third-party attorney with expertise in municipal law to rewrite PILOT and lease agreements to better protect public interest. Include meaningful clawback language to address what happens if companies do not meet their commitments. Take enforcement seriously.

11. Transparency. Require companies to submit annual reports on actual outcomes (jobs, wages, investment). Post reports on local government web sites. Require PILOT agreements to be recorded in Register’s Office. Require disclosure of amount of tax break per year and for the entire term.

12. Schools. Require all companies to pay school taxes in full.

13. Fee at Closing. Require all PILOT recipients to pay a fee at closing of 5% of projected tax savings, with a maximum of $300,000 (like Knoxville).

14. Community Benefit Agreements. Explore the use of CBAs to ensure that major development projects benefit local residents and neighborhoods.