Taxpayer Group Says Bread Factory Lofts Has No Record Of Providing Affordable Housing; Should Not Get City-Approved Refinancing

  • Tuesday, February 21, 2017

The citizen group Accountability for Taxpayer Money says the Bread Factory Lofts should not get city-approved refinancing of its bonds.

Helen Burns Sharp said in a memo to members of the city's Health, Education and Housing Facilities Board that tax abatement programs are supposed to be set aside for projects providing affordable housing.

She said in research that was carried out "no evidence surfaced to show that any units at the Bread Factory have ever been set aside for low and moderate income or that incomes had been verified." 

The HEB meets Wednesday at noon.

The ATM memo says:

TO:  Health Education and Housing Facilities Board (HEHB or HEB) 

FROM: Helen Burns Sharp for ATM

DATE: February 21, 2017 for February 22 HEB Meeting

SUBJECT: Bread Factory PILOT

 

Action Requested: Accountability for Taxpayer Money (ATM), a public interest advocacy group, respectfully requests that the HEB review the history of the Bread Factory PILOT project and conclude that it is not in the public interest for the Board to adopt the "refinancing" resolution on your agenda.

 

Background:



  1. The Bread Factory Lofts at 1615 Cowart Street was the first PILOT approved under the City's 2002-2012 Housing PILOT program.

    (The City rules changed in 2014 and again in 2016).



  1. In 2002, this Board approved a payment in-lieu-of-tax (PILOT) agreement. For the first 14 years, the Bread Factory LLC paid no property taxes to the city and county, including for schools. It is now in its four-year phase-in period.



  1. The 2002 City Council Resolution establishing the program (23253) lists the basic requirement and other requirements.



  1. Here is the basic requirement in Section 1: "In order to qualify for the incentives, a housing development must be located within the downtown and must qualify as a "project under the state legislation under which the respective bond board was incorporated." 



  1. In his analysis of tax incentives under Tennessee law, attorney Mark Mamantov (Bass, Berry & Sims) writes that "Health, Education, and Housing Facilities Boards are authorized to own and lease only certain specified types of projects....HEHBs generally are permitted to own, lease, and finance facilities used by educational institutions, hospital facilities, and housing facilities to be occupied by persons of low or moderate income." (emphasis added).



  1. The threshold definition for low and moderate-income has long been interpreted as incomes of less than 80 percent of the area median income (AMI) for at least 20 percent of the units.



  1. In research done by this HEB in 2016, no evidence surfaced to show that any units at the Bread Factory have ever been set aside for low and moderate income or that incomes had been verified.



  1. According to the Bread Factory website, the least expensive unit currently rents for $925 for a studio apartment. Currently, the maximum “PILOT” rent allowed for a low-mod single person is $857 per month.



  1. Section 4(g) of the 2002 enabling Resolution explains the board's fiduciary responsibility: "Upon completion of any project qualifying for a PILOT Freeze, the project shall be reviewed by the respective bond board to determine if it was completed substantially in conformance with representations set forth in the application. If appropriate, the term of the PILOT Freeze will be reduced by action of the Bond Board.'



  1. As described above, there is no evidence or representation that the Bread Factory ever conformed to the state law HEB requirement about benefit to low and moderate-income persons.



  1. The (local) membership interest in the Bread Factory LLC sold in 2014 to a Nebraska corporation that apparently now wants to transfer the PILOT to a South Carolina corporation. The Bread Factory LLC is asking the HEB on February 22 to adopt a resolution authorizing this transfer.



  1. Section 4(f) of the 2002 enabling Resolution states that "PILOT freezes may not be assigned without prior written approval of the respective Bond Board.”



  1. The Ground Lessor’s Estoppel Certificate is one of the documents the HEB would be approving if you adopt the Resolution in your agenda. This board is the Ground Lessor.



  1. In this document that Chairman Armor would be asked to sign, the Board is asked to “warrant, represent and certify” a list of 19 items.



  1. Item #3 reads as follows: “All conditions precedent to the effectiveness of the Lease have been fully satisfied and the Lease is in full force and effect. A list of all the documents constituting the Lease is attached as Exhibit A. The Lease has not been assigned modified, supplemented or amended in any way, except as described on Exhibit A.”



  1. Exhibit A, your 2002 Lease Agreement with the Bread Factory LLC, is BLANK. How can you certify something you have not seen?



  1. If this Agreement is like most Lease Agreements approved under the 2002-2012 PILOT program, the Board probably certified: “the project qualifies as a Project under the Act.” This refers to the low and moderate-income requirement in state law. You now know that this one did not. Also you now know that this project has been assigned once before, when the original developers “sold” to Nebraska. Is that transaction described in the elusive Exhibit A?

 

The Public Interest Conclusion:

 

A Nebraska corporation needs your approval to assign the PILOT. The corporation will likely make more money if they can transfer the tax break. This refinancing resolution first appeared on your agenda on January 25, 2017. The draft minutes for that meeting state: "The purpose for the refinancing is that it was a good opportunity to benefit the company."

 

ATM respectfully submits that this is a “good opportunity” to represent Chattanooga and Hamilton County citizens. We do not believe it is good stewardship to enable a company to use our (uncollected) city and county taxpayer dollars as a bargaining chip to make more money on a project that has provided no public benefit for 15 years.

 

The City Council and County Commission have never acted on this 2002 PILOT agreement. They never will. The City and County mayors, in announcing a proposed settlement with GE/Alstom regarding a PILOT, have recently indicated that our governments are taking their monitoring and enforcement PILOT responsibilities more seriously than in past years. The public is counting on this board in this case.

 

ATM asks you not to pass the resolution. You are under no obligation to do so.

 

We assume you will have an issue with certifying compliance with terms of a lease that you have not seen.

 

We are not asking you to reduce the term the PILOT, although we believe you have the authority to do so. (See #9 above.) The agreement with the Nebraska owners runs until the end of 2018.

 

“Nebraska” could, of course, choose to terminate the PILOT agreement, thus allowing the property to pay its fair share of taxes, and then enter into whatever agreement they can negotiate with “South Carolina.”

 

HEB Members: Please protect the public interest.

 

cc: Phil Noblett, Deputy City Attorney

Donna Williams, ECD Administrator

 

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