Chattanooga Organized For Action Calls For Overhaul Of PILOTs

Thursday, March 5, 2015

Chattanooga Organized for Action (COA), a local community organizing nonprofit founded in 2010, is asking city officials to re-evaluate the current Payment in Lieu of Taxes (PILOT) Program for Affordable Housing currently administered by the River City Company and the city’s Health, Education and Housing Facilities (HEB) Board.

The request follows information released this week by local public interest advocate Helen Burns Sharp, "which shows that the combined Industrial Development Board and HEB Board PILOT agreements abated taxes valued at $26 million for 2014 alone."

COA said it is offering "10 reasons why the program is failing the city of Chattanooga, and why it should be substantially reformed":

1)      The current affordability requirements are too lax, and they haven't been changed since the beginning of the Chattanooga Renaissance. As far back as 1992, the terms of these agreements have consistently been tax abatement in return for a guarantee that 20% of housing units will be rented at an affordability rate of 80% of the average median income (AMI) for Hamilton County. Regardless of whether or not such a program substantially aided affordability problems when first established, we can categorically say that Chattanooga is not in the same place. Our city now has the seventh quickest-rising rents in the country. Although Chattanooga is being heralded as a development success story, according to a 2013 Brookings Institute report, poverty has grown in the last decade in the suburbs by 52% while in the city poverty has grown by 75.2%, faster than the national average. Between 2007 and 2009 alone, Chattanooga had the second-highest rise in poverty levels of any city except Allentown, PA: an 8% increase. The Chattanooga Renaissance may have been an unrivaled boom for some businesses and real estate projects, but the costs and benefits haven’t been shared out equally. Our city’s poor and working families are bearing the brunt of skyrocketing housing costs while Chattanooga continues to have the 7th lowest average annual pay for any city in the country. In light of these facts, the PILOT program should be reassessed. The need for a reassessment has even been noted by Chattanooga’s Finance Department Head, Ms. Daisy Madison, in 2012.

2)      The small number of affordable units designated by the contract means that the city is writing off taxes for units, four-fifths of which can be ostentatiously expensive. In doing so, the city is underwriting the ballooning of housing costs. The PILOT program as it currently exists is a major factor in the gentrification of Chattanooga, meaning the process whereby people with greater means push out people with less means from a city or community. The Walnut Commons complex is a perfect example of subsidized gentrification, with massive tax abatements going to a large project that has an inflationary effect on the housing market.

3)      After the program ends, even the paltry amount of misnamed ‘affordable housing’ is lost, as it goes up to market rate. Not only is the city getting only one-fifth of units at the lower rate, but it is getting them for barely over a decade. No affordable units are guaranteed after the tax abatement contract runs out. A cost-benefit analysis would show that while the PILOT program is a great tool for safeguarding the profitability of massive development projects, in the long term it is these projects themselves which are driving up the market. Chattanooga becomes the recipient of development, while a substantial portion of Chattanoogans are getting developed right out of their own city.

4)      There are no space or family requirements to make sure that affordable units are equally built in keeping with the remaining units, or built for families. Builders can create 400 square-foot closets with bathrooms, call them efficiencies, and then proceed to build palaces in the sky without a tax burden. This point should shed light on what exactly the public is getting in return for allowing certain investors to dodge the tax burdens that the rest of Chattanoogans pay. If no space requirements or equal unit provisions are built into the program, then families may be out of luck when trying to take advantage of the housing stock the city’s tax forgiveness has created.

5)      Communities of color in our city are disproportionally suffering from the lack of affordable housing, yet the PILOT program is not poised to meet their need. Black households make an average of $26,787 per year, and Latino households make $28,519, while for white households the average is $51,548. An astounding 60% of black children live in poverty, compared to 16.5% of white children. This means that taking the current benchmark of 80% average median income for Hamilton County doesn’t even begin to make a meaningful impact for the vast majority of already marginalized community members. Actually, the program’s gentrifying qualities are lending to the “whiting out” of Chattanooga by its inability to reach meaningful affordability. Chattanooga already has two of the top 25 zip codes in the country for racial displacement.

6)      The HEB Board is currently treated as a “rubber stamp” instead of a public body. This is the actual language used to describe the Board by Chattanooga’s former city attorney, Mike McMahan. Rather than closed-door contracts negotiated by a private nonprofit, the Board could be transformed to act as the actual program management it was created to do, and which works so well in other cities. The PILOT program of the Memphis HEB Board is an illuminating case in point. According to John Baker, chair of the Memphis Board:

·         The HEB Board runs the PILOT program directly, from contract negotiation through to monitoring and conclusion of the contract;

·         HEB does its own monitoring;

·         They get quarterly reports from every property;

·         The HEB Board does trainings with apartment managers to ensure knowledgeable compliance;

·         Twice a year, they actually put feet on the ground to walk the properties and ensure compliance;

·         The Board does lease-file audits for every property in the program.

How successful is the Memphis model? There are 85 to 90 properties in the PILOT program. These come to between 18,000-20,000 units, all told. What is most encouraging, however, is that Memphis has been able to reach much deeper levels of affordability from the beginning of the program. Developers who wish to take part contractually agree to rent 20% of their units at 40% AMI, or they may choose to instead rent 40% of their units at 60% AMI. Either way, the Memphis program receives double the affordability gains that the Chattanooga program creates, and this is done in the open with a public body that is accountable for a clearly defined purpose. COA feels strongly that our city can learn from the success of the Memphis model.

7)      The loss of tax revenue would be better used in an affordable housing trust. Given that the affordability requirements of the program are not actually affordable by any meaningful definition, and that such discounted rent is not guaranteed beyond the tax abatement period, greater affordability gains could be met by collecting the taxes on these properties and investing them in an affordable housing trust fund set up by the city. Considering the magnitude of tax income involved in the PILOT program, a housing trust fund would have substantial power in creating truly affordable units in the city. Moreover, these units could pair with the Chattanooga Housing Authority’s Housing Choice Voucher Program to reach much deeper levels of affordability than are currently offered. Such a fund would also give the City power to meaningfully address the housing crisis in a more substantial way. Both Knoxville and Nashville operate an affordable housing trust, and this option has been recommended as a possible tool by the Regional Planning Agency since at least 2012. Although this option cannot apply to contracts already negotiated and approved, the question of how the city evaluates its housing policy for the future makes a Housing Trust a much more viable tool for affordability purposes.

8)      The current situation demands better. Chattanooga is facing an affordable housing crisis. According to the Chattanooga Affordable Housing Report, released in 2012, 1 in 2 households in the urban core, both renters and homeowners, are burdened by housing costs. A full 25% of both renters and homeowners would be classified by HUD as “severely burdened,” meaning that they are spending at least 50% of their income on housing and utilities. According to the recent Housing Task Force organized by the city, Chattanooga currently lacks 4,000 units of affordable housing for low-income families. Such a dire situation does not even take into account that the Chattanooga Housing Authority is beginning the process for closing two of the largest remaining housing units, College Hill Courts and East Lake Courts. This will mean an additional loss of around 1,000 units of affordable housing. Pair this with the 7th quickest-rising rents in the country, and we can begin to see the magnitude of the problem Chattanooga is encountering.

9)      The PILOT program should be part of a larger plan that takes into account the actual affordability needs of the city and seeks to address them, rather than throwing a discount on market units and calling it affordable. To understand the haphazard nature of the tax abatement process, divorced from any broader plan, consider the following: the measure of affordable housing used by RiverCity isn’t affordable for workers with jobs at the companies who are also receiving tax abatements for job creation. Regarding the Industrial PILOT for Chattanooga Seating Systems, a supplier for Volkswagen, Councilwoman Berz was able to confirm that the majority of workers employed by this business would be making $26,400 a year. According to the standard being used, median income for Hamilton County is $54,200. These jobs, for which industrial developers are also receiving similar substantial tax abatement, fall well short of the 80% of the AMI for the county. If actual, substantial city development means that we are working to meet the community’s needs, then we must make sure the current programs are held to these standards. Unless living-wage jobs and truly affordable housing are the ultimate motivations, the city is going to continue to promote a very unequal model of development; one that hurts a majority of Chattanoogans in both the short and long term.

10)   With the existing system, city and county legislators are the only accountable bodies capable of tying the program to the public interest. RiverCity Company is a private nonprofit whose primary mission is the attraction of investment into the downtown area. Their mission is not the creation of a city with safe, efficient, and affordable homes for all.  If such a goal is the actual public interest regarding housing then parameters must be set up to guarantee that this program is substantially addressing the need rather than working against it. On the opposite end, the current HEB Board operates only as a facilitator to this process, with irregular meetings called when the opportunity for more PILOTS or bond lending present themselves. They do not seem to have the power to define a greater public interest, or to create the framework for evaluating a plan relevant to Chattanooga’s needs. This leaves our city and county officials, as well as the mayoral administration, with the full power to make sure that the Affordable Housing PILOT program is actually in the public interest. Chattanooga Organized for Action is hopeful that a better, more efficient system can be chosen by our local representatives.

 


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