VW PILOT Crash Landing - And Response (2)

Tuesday, October 6, 2015

The Volkswagen emission scandal proves the point citizen activist, Ms. Helen Burns Sharp, has repeatedly brought to the attention of local government officials. She urged them to "beef up" the PILOT contracts before approving PILOT tax abatements. Any logical person would agree, because it is the only way to recoup a tax loss when unthinkable situations arise. Volkswagen's willful decision to mislead diesel engine customers and perpetrate fraudulent emission testing results is unthinkable, but real. 

The city and county should require clawbacks for more than missed job and wage commitments. Obviously they should require clawbacks for criminal behavior. If officials approve tax discounts and spend millions to invest in a private company, it is too much to expect the company will conduct its business without resorting to criminal behavior? 

The state, county and city of Chattanooga signed its first 30-year long agreement with VW in 2008. Additional agreements have since multiplied that commitment. When three government entities collectively gift property tax abatements and invest upwards of a half billion dollars to benefit a company, the PILOT contract should contain serious ironclad clawback language. These clawbacks should enable PILOT contracts to be re-written or voided in a manner commensurate with the pain and loss experienced by government who granted the PILOT and the citizens who helped make it possible.  

The evaluation and approval process for property tax abatements in Hamilton County and the city of Chattanooga is still woefully inadequate. While a few improvements have occurred, problems remain. Potential conflicts of interest again leave citizens wondering who is guarding the hen house. There should be complete separation of legal representation between the companies requesting PILOT tax abatements and city and county government attorneys that are supposed to represent citizen interests. Citizens did not receive full objective representation in past PILOT negotiations, but they need it now.  

When the law firm representing a company authors a PILOT agreement, the agreement is not surprisingly written to the extreme advantage of the company. When the attorney for the city fails to make substantial contract changes to protect citizen interests, citizens can expect negative consequences. As a past Chattanooga City Council member, early in the term I met with the previous city attorney. I complained about the miserable PILOT contracts. He and I later met to discuss the poor quality of a construction contracts presented to City Council. He listened, laughed, and dismissed my complaints. Concerns about poor contracts, made privately with administration and publicly at City Council meetings, routinely fell on deaf ears throughout the four year term.  

In a normal world, a city attorney is responsible for overseeing the city's PILOT approval process. He is responsible for government contract advice and is a participant  in contract negotiations. The current city attorney was previously employed for a number of years as Volkswagen's general counsel. He lobbied the city on behalf of VW.  Should an attorney be allowed to play for both teams after simply changing  hats? What influencing factors come into play? Common sense and ethical concerns dictate a complete separation for both real conflicts and an appearance such conflicts. Likewise, should a county commissioner serve as board member of River City (an organization that lobbies for private company PILOTs) and then be allowed to vote on the same PILOTs once they reach the County Commission? The stakes for potential losses going forward with VW and any other PILOTs are simply too high to laugh off or dismiss.  

Are citizens protected today? Citizens are not insulated from many PILOT agreements already approved. Many contracts will continue to run years into the future. Currently, many have very weak clawback provisions. Chattanooga/Hamilton County has experienced several PILOT failures. Only once has the city fought for a clawback. It  achieved only minor justice from the failed company known as Alstom. Alstom promised much, received both a PILOT and additional multi-million dollar government subsidies from federal, state and local government. That means citizen tax dollars were wasted. Now Alstom is running from Chattanooga, leaving virtually no job prospects and no boost to our economy. Tax revenues should not be placed at risk because Alstom was found guilty of bribing foreign officials to promote its business or because they became an unreliable business partner and walked away from several international project commitments. Poor city contracts leave citizens financially defenseless.   

The best time to protect both parties of an agreement is before the contract is approved and signed. Now what? We know that State Senator Bo Watson is leading the movement to re-evaluate the state's position on the massive state subsidies approved for VW. What have our county and city government mayors and representatives done to mitigate future losses due to VWs negligence? Are they prepared to protect citizens from the VW crash landing that is coming? What have they done to improve PILOT contracts?  

I shall never forget a comment made by a fellow council member at a council meeting. I pleaded for council action to recoup a tax abatement from a company who had already received a PILOT agreement and several city financed perks. The company failed to honor their side of the PILOT agreement. Another member of council disagreed with me on re-couping city losses. The rest of the council sat in stony silence after he asked, “Why should we punish a company when they have fallen on hard times?” Wouldn't it be nice to hear that same comment from the city tax collector, the county tax collector or a mortgage lender when citizens fall on hard times?  

Ms. Burns has long cried in the wilderness for government leaders to wake up and strengthen the PILOTs to protect citizens.  Is anyone listening now? 

Deborah Scott
Chattanooga 

* * * 

Ms. Scott, I respect you as an individual and many of the stances that you took on the City Council.  However I disagree in a major way with the recent article that you wrote wherein you opposed the granting of PILOT agreements to entice business and companies to come to Hamilton County.  I was one of the five commissioners who voted for the tax increase several years ago to provide money to put the infrastructure that helped to entice Volkswagen to come to Hamilton County.  If you have been around Chattanooga for any period of time you will remember how disappointed all of us were when Toyota decided not to locate their plant in Chattanooga.  They wanted to come but because of the lack of infrastructure they decided not to come.  In a similar way Kia wanted to come here but again they would not locate here due to the lack of infrastructure. 

Well, five of us on the County Commission voted for the tax increase and one result was that our critics put our faces on billboards.  I was proud to be one of that number because of several reasons.  One of them is that we were able to build five new schools and two major additions.  Can you imagine what would have happened if we didn’t have East Hamilton and Signal Mountain High School in addition to the others that was added?  I need to say that I believed that if we could get them here that Hamilton County could live on the growth and no new taxes would be needed for the years to come.  

Another result was that we put the infrastructure in that allowed Volkswagen and their suppliers to come here and that has caused Hamilton County to become the envy of the state.  I represent Hamilton County in the statewide Tennessee County Commission and whenever I go to the conferences I take delight in sharing with our sister counties how well we are doing with new jobs and development.  

It is especially satisfying to have helped to encourage VW to come to town because when I was 17 I had to move from the comfort of my parent’s home on Riverside Drive to the city of Detroit to make money to go to school.  As you travel around Chattanooga you see that many of our talented and ambitious youth are deciding to stay home and use their talents here and in doing so are making Chattanooga an exciting and vibrant place to live.  And yet another result of the PILOTs that have been granted is real estate prices are exceptionally strong. 

Volkswagen made a mistake that has shaken confidence in the company, by I for one will fight as hard as I can to help make them successful.   Mrs. Scott you already know that in today’s competitive climate you have to offer major companies some kind of inducement to get them to locate in your community.  The primary reason that I serve in public life is to bring jobs and economic development to Hamilton County.

Commissioner Warren Mackey

* * *

I am perplexed by Commissioner Mackey's response to Deborah Scott's letter. She was not questioning the need to grant a tax incentive to VW, given the projected impact and competition. She was questioning the county and city's willingness to sign PILOT agreements like the ones with VW that are completely one-sided in favor of the company. Most all of our elected officials, including Dr. Mackey, routinely approve PILOT agreements where We the Public are not protected if a company moves or closes or fails to meet its "goals," which should be contractual commitments to protect both sides.

I once worked in a city whose elected officials, attorneys, and staff were interested in attracting good jobs and in protecting the public interest. A Fortune 500 company selected the primo industrial site in town and committed to several hundred family wage jobs and a $250 million investment.The city offered an incentive package and agreed to build infrastructure. We met our commitments. The company, citing market conditions, decided not to build the plant.The parties settled out of court, with the company paying the city over $20 million. This amount was more than the city's out of pocket expenses. It compensated the city for the loss of predictable revenues if the company had honored its contract.

The takeaway from this story is that a city or county does not have to agree to a one-sided agreement with a business. It's really important that a company be required to back up its promises in writing. VW can be the wake up call for our city and county leaders  and the Chamber and River City to protect the taxpayers' investment in future agreements.

Helen Burns Sharp


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