ATM Presents Transparency Wish List To City Council

Tuesday, November 28, 2017

Members of the watchdog group Accountability for Taxpayer Money presented a "transparency wish list" to members of the City Council.

Helen Burns Sharp made the presentation to the council on Tuesday night.

Here is the group's full report:

1.    Adopt Policies for Jobs PILOTs—Public Trust Issue

Long overdue; talked about since 2012; embarrassing that the City does not have; recent progress this year thanks to Councilman Ledford; apparently a draft is stuck in City Attorney’s Office; two more jobs PILOTs got approved this year with no policies in place.

ATM recommended policy would provide for a public hearing. It seems strange to the public that the Council would hold public hearings for issues like short-term vacation rentals but not on the 100 or so PILOTs approved since 1985 that have “forgiven” the payment of over $400 million in property taxes. Advocates for PILOT projects—Chamber, ECD, company officials—are allowed unlimited time to address Council at meetings.

Policies should provide clarity on what PILOT jobs would pay. ATM recommendation says that-–to be counted for PILOT purposes--a job must pay $17 plus benefits; Confusion about the $17.92 wage on last PILOT, which was the “average” wage including the managers. The new jobs on Holtzclaw Avenue would begin at $11. There is nothing in that PILOT agreement to address wages at all. Yes, the city needs jobs at all wage levels. But the lower-paying jobs are likely to come anyway. The policy question is: “Should taxpayers be asked to subsidize them”?

Policies should require applicants to make a convincing case that the PILOT is a determining factor in their decision to locate or expand. (The “But-For” Test.) One could look at the list of PILOTs approved over the years and conclude that PILOTs are sometimes used as a reward rather than as an incentive. These taxes, if paid, would be used to support public safety, streets, parks, etc.

Other policies could include community benefits agreements for the affected neighborhood and targeted hiring requirements.

If policies like these were in place and followed, Council would start getting agreements that have been vetted with public interest aspects already having been taken into account. Today it appears that the decisions have been made before they get to Council.

The public is bewildered:  they need to hire Sherlock Holmes just to find out when these PILOTs will appear on Council agendas and when they might be able to speak. Neither the public nor Council has access to a staff report summarizing the proposal, pointing out policy issues, and giving the amount of tax revenue that will be forgiven.   

2.     Adopt Missing Knoxville Policies for TIFs—Public Trust Issue

In October of this year, representatives of Mayor Berke’s staff told Council that Chattanooga has the “toughest TIF policies in the state.” ATM researched other places, including Knoxville, a comparably-sized city that has a successful TIF program. Here is what we learned:

The policies Chattanooga adopted in 2015 were 99 percent identical to what Knoxville had already adopted. HOWEVER---

·         Someone working on the Chattanooga document in 2015 removed four Knoxville provisions. Their removal weakened protection to city taxpayers.

·         Someone working on the Chattanooga document in 2015 modified the wording of two Knoxville provisions, thus weakening protection to city taxpayers.

·         Someone working on the Chattanooga document in 2015 added a new paragraph giving the City unbridled discretion if the City (rather than a developer) chose to initiate a TIF. This addition weakened protection to city taxpayers.

ATM requests that Council adopt policy amendments for TIFs by amending the existing TIF resolution (28335) before approving any new application.

Council could add back the deleted Knoxville policies, including the ones relating to applicant affidavit (but/for test), transfer of TIF and maximum term. Council could add a policy making clear that school taxes must be paid in full. Council could delete the paragraph in Resolution 28335 that gives the City unlimited flexibility if the City initiates a TIF.

Please see ATM/ATM email to Council dated 10-31-2017 for a complete list of recommended changes.

Using Knoxville as a model is fine. Cities frequently borrow from one another. But to virtually copy their policies and procedures and then carefully remove all the sections intended to protect the public interest is not OK.

Did Administration tell Council in 2015 that they were presenting the Knoxville document that a City staffer or consultant used a surgeon’s scalpel to gut?

3.     Honor Adopted Procedures for TIFs—Public Trust Issue

A new TIF application has been submitted to (and solicited by) the City. Staff members from the Mayor’s Office have focused on the 2015 Council adopted procedures rather than policies in their several briefings to the City Council and the IDB. These procedures are not being followed, providing yet another example of the City’s bending over backwards to accommodate development interests while not allowing the public and the TIF review committee adequate time to become informed.

On November 7, 2017, the Industrial Development Board (IDB) determined that the TIF Application for the proposed MLK Extension Project was complete. On November 14, the City Council passed a Resolution of Intent, stating they are “willing to consider an Economic Impact Plan (EIP) prepared and submitted to the IDB and reviewed by the TIF application review committee following a public hearing conducted by the IDB in accordance with the City’s TIF Policies and Procedures.”

According to Section 3.3 of the City’s Policies and Procedures, once the IDB receives a Notice of Intent from City Council, the applicant will submit a proposed Economic Impact Plan to the IDB. It is to contain the information spelled out in state law and in the City’s Resolution. It is to be reviewed by the Board’s designated staff and counsel, who are to advise the Applicant if changes are necessary. The plan is then to be submitted to the TIF application review committee. As of November 27, the EIP had not been submitted to the IDB.

On November 29, the committee appointed to review the proposed MLK Extension application will hold its first (perhaps only?) meeting. According to Section 3.4, their job is to review the Economic Impact Plan and the proposed Development and Financing Agreement. They are to evaluate the terms in light of the City’s policies and determine whether to recommend the Agreement to the IDB. The Committee is to advise the Board whether the EIP complies with the (State) Act and this program, and is, therefore, eligible to be considered for submission to the City Council and/or County Commission for approval. The Committee is then to establish a proposed date for the Board to hold a public hearing and determine whether to submit the EIP to the City Council and/or County Commission for approval.

On November 19, the Times Free Press published a legal notice from the City Attorney advertising an IDB public hearing on December 5 to consider the Economic Impact Plan for this project. It said that a map of the project area was available for inspection but did not say that the EIP was available. There was no mention of the required Development and Financing Agreement. On November 22, ATM asked the City Attorney’s Office if the EIP were available and was told that the City had not yet received it. On November 27, ATM asked the Mayor’s office for a copy of the two documents. Response: “We should have both documents sometime today.”

Issues

·         The applicant had not submitted the EIP to the IDB as of November 27.

·         Therefore, the City Attorney and staff had not reviewed the EIP as of Nov. 27.

·         The members of the TIF application review committee have not yet had the opportunity to become familiar with the project. They meet tomorrow, November 29.

·         When will committee members get the EIP and the Development Financing Agreement?

·         Have committee members been sent a copy of the City’s TIF policies and procedures?

·         Have members been sent a copy or briefed on state law provisions about TIFs (the Act)?

·         How can members of the public become educated with no materials to review?

·         How can the Application Review Committee set the date for the public hearing when city staff already has set the date, apparently presuming the committee’s favorable evaluation?

This process/procedural hairball adds fuel to the fire to citizens who may already believe that the City bends over backwards to accommodate developers and only pays lip service to the public’s right to know and comment.  And it creates a sad perception that Administration views the new committee as a rubber stamp for what they want to see happen.

4.     Monitor King St. Parking Lot Transactions—Public Trust Issue

The Mayor’s staff asked City Council to declare “surplus” a heavily used city parking lot on King Street so they could transfer title to the Chattanooga Downtown Redevelopment Corporation (CDRC). This city entity then issued a request for proposals (not a bid) to sell the parcel. Two corporations responded to the RFP. The CDRC was prepared to sell to their preferred proposer (Seaford Investments LLC/Hiren Desai) at a price much less than the city had paid for it in 2007 and well below its current market value. The public got wind of this plan, an appraisal was done, and the price nearly doubled. The Berke Administration is now asking the CDRC to execute a quitclaim deed to transfer the property to the City Industrial Development Board (IDB). A resolution authorizing this transaction is on the December 4th CDRC agenda.

City Council—July 26, 2016

Nick Wilkinson, Deputy Administrator of Economic Development in the Mayor’s Office, gave a visual presentation. (No one at City Hall can find the PowerPoint and the video of that meeting begins after his presentation.) Through an Open Records request, ATM obtained an audio recording. Here are the highlights:

·         In response to a question by Councilman Henderson on why the city is being asked to declare the property surplus, Mr. Wilkinson said it was because it presents an exciting potential for redevelopment. He acknowledged that the city had been talking for a “couple of years” to the developer (Mr. Desai) who owns adjacent property that he plans to develop. Mr. Wilkerson said the City would be taking a currently underutilized piece of property and making it surplus in order to enter into an agreement to facilitate the adjoining development. (These statements alone suggest that the City had already decided who would ultimately own the property.)

·         He said the existing use (parking) of the property would be maintained. He said the developers plan 300 spaces at their expense and that “75 presumably would be usable by the City at no expense.”

·         Councilman Henderson asked how the property would be transferred. Mr. Wilkerson’s response suggested that Administration had not yet decided whether it would be sold or leased. Mr. Wilkerson represented that any future parking structure would “add to the tax rolls.”

·         This parking lot was purchased in 2007 for $195,00 from local historic architect/developer Thomas Johnson to relieve a parking issue at the city/county Development Resources Center across the street. City fleet and employee vehicles fill this lot every day. There are about 75-80 spaces. Mr. Wilkerson did not make Council aware of the current usage.

·         Why was the City Council asked to transfer the property to the CDRC when the City Council has the same authority it does? The somewhat cynical but likely accurate ATM response is that the CDRC can do things under the radar screen since so few people know the board even exists.

CDRC-2017

January 19—In response to a question from ATM, Board President Daisy Madison (also City Finance Director) said there are plans to issue an RFP for lease of the property.

January 21— Board member Stacy Richardson (also Mayor Berke’s Chief of Staff) tells Times Free Press that the RFP will be competitively bid and that the CDRC will vote on the final terms of any agreement--whether it be lease or sale.

February 6—Two ATM members meet with Stacy Richardson in her office. She said the RFP would be to sell, with a possible lease back to City for parking spots. (What happened to Mr. Wilkerson’s representation to Council that the 75 or so city parking spots “presumably would be usable by the city at no cost”?)

February 22—CDRC passes resolution Authorizing the Issuance of an RFP for 1200 King St. for the Development of a Parking Garage to Facilitate Economic Growth in the Area. The RFP attached to the Resolution is for the purchase of the property. Narrative says the CDRC is looking for a qualified entity to purchase the property, lease a certain number of spaces back to the CDRC for a period of time to be determined (when? by whom?) for the purpose of fleet parking, and, “ultimately, build a parking structure on the parcel within a number of years to be determined upon negotiation of the final agreement.

February 22—ATM members asked the CDRC why the property was considered “surplus,” given its usage; why no minimum price was included in the RFP; and what was the anticipated role for taxpayers if there is a structure?  The Municipal Technical Advisory Service (MTAS) has provided a model resolution for cities to consider when they want to sell surplus property.

ATM also questioned why the CDRC did not use the competitive bid process. The City’s Procurement Manual (Section 2.13) says: An “RFP is the last resort to accomplish a given task. A good bid specification is more competitive and should result in a lower cost to the city.”

March 9--Seaford/Desai Response to RFP

·         Bid Amount: $134,700           

·         Lease Back Proposal: 85 spaces @45.77 per space monthly, total cost to city of $46,685.50 annually

·       Length of Lease: 5 Years

·         Scorer 1 gave a huge edge to Seaford (51 to 36). Scorer 1 ranked Seaford higher on price, length of lease, cost per space, and lease back. See summary above that suggests South Market should have won these categories.

·         Length of Lease: 3 Years

March 17—South Market LLC/Thomas Johnson Response to RFP

·         Bid Amount: $200,000

·        Lease Back Proposal: $30 per space monthly; assuming 85 spaces, total cost to city of

$30,600 annually

·         Length of Lease: 5 Years

March 20—Letter to CDRC President Daisy Madison from Deidre Keylon, the “buyer” in the Purchasing Dept., saying that the (5 member) Evaluation Committee for this RFP scored the responses individually based on criteria in the RFP solicitation document. They then averaged the scores. “There was unanimous agreement that the higher scoring proposal by Seaford” …is the proposal to be recommended to CDRC. Members of the Evaluation Committee were Stacy Richardson, Jermaine Freeman, Cary Bohannon, and Gail Hart. ATM speculates that the other member may have been Ms. Keylon or Bonnie Woodward, Director of Purchasing.

ATM did an open records request in April, asking for a list of who of those who submitted proposals and for the scorecard the committee used to rate them. The City responded, but the scorecard was not filled out. ATM did another request in October, asking for Mr. Wilkerson’s PowerPoint presentation and a filled-out copy of the scorecard.

The City did respond with a filled-out scorecard. There were 11 criteria, including price, length of lease, and lease back proposal. There was nothing to indicate that any of the criteria were weighted. Scorers ranked them on a scale of 1 to 5 points , with 5 being the highest.

·         Scorer 5 ranked the proposals the same.

·         Scorer 4 gave the edge to South Market (40 to 35).

·         Scorer 3 gave a slight edge to Seaford (43 to 42)

          Scorer 2 gave the edge to Seaford (43 to 40)

         Scorer 1 gave a huge edge to Seaford (51 to 36). Scorer 1 ranked Seaford higher on price, length of lease, cost per space, and lease back. See summary above that suggests South Market should have won these categories.

April 9—After learning that Seaford’s proposal was considerably less than what the City paid for the property 10 years ago, ATM requested the board to table the resolution accepting the proposal, citing fiduciary responsibility to Chattanooga taxpayers and public trust. ATM pointed out that developer would recoup the money he paid for the lot in 3 years.

April 10—At the CDRC meeting, about 10 citizens spoke in opposition to the board’s accepting this proposal. Consensus among speakers that the purchase price was way too low, given what the city paid in the past and how property values have increased in this area. The two developer members of the Board—David Dalton and Julian Bell, III-- said they believed an independent appraisal was needed. Board member Stacy Richardson acknowledged that the last time the parcel was appraised was when the City bought it in 2007. The Board passed a Resolution accepting Seaford’s proposal but added a provision that the purchase price would be based on the results of the appraisal.

June 19—CDRC President Daisy Madison reported that the fair market appraisal placed the value at $360,000. (Seaford had offered $134,700. The Hamilton County reappraisal, which was available thus spring, placed the value at $395,000.) She said that the vendor has agreed to pay the $360,000 amount. She said the next step is to negotiate contract terms. Once terms are agreed upon and the contract is drafted, it will come back to the board for approval.

December 4—CRRC Board will be asked by the Mayor’s Administration to transfer ownership of the parcel to the City Industrial Development Board (IDB). The mechanism is a quitclaim deed to be signed by President Madison.

IDB 2017 or 2018?

According to the list prepared by the Hamilton County Assessor of Property, all of the 32 or so parcels currently owned by the City’s Industrial Development Board are under a PILOT agreement. PILOT stands for “Payment In Lieu Of Taxes.” It is a tax break mechanism allowing certain companies to pay greatly reduced property taxes to support city services because the tax exempt IDB technically holds title to the property and then leases it back for a nominal amount.

ATM emailed the City Attorney’s Office on November 27, hoping to learn more about the purpose of the transfer. No response yet.

5.     The Solution

Stay Tuned.

 

 

 

 



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