Thank you, State of Tennessee, for sending Volkswagen a letter holding them accountable for reporting on whether the company has met its commitments in the tax break agreement approved in 2014.
Thank you in advance, City of Chattanooga Industrial Development Board, for taking your VW oversight responsibilities seriously when you discuss this letter at your meeting on January 6, 2020.
The 2014 agreement for the Atlas SUV expansion, coupled with the original PILOT agreement in 2008, made Volkwagen the most incentivized company in the history of our state.
It is the largest incentive package given to any of the major car brands with production facilities in the U.S.
If the company asks for and is awarded tax breaks for the recently announced expansion for their electric SUV, taxpayers will be on the hook for tax incentives that total over one billion dollars over a 30-year period.
Public officials need to make sure that Volkswagen has met previous commitments before approving additional incentives for the recently announced expansion for the electric SUV.
Also, the wording in the agreement needs to change relative to the stormwater fee. The 2008 agreement curiously exempts Volkswagen from the responsibility of paying a stormwater fee. The language says that any stormwater fees assessed shall be credited against any in-lieu of tax payments. Since their only in-lieu payments are school taxes, the stormwater fee is currently subtracted from the taxes going to schools. In 2018, $644,000 was deducted from its school tax bill. If this practice continues until 2040, the school system would not receive about $19 million.
Volkswagen has been a positive addition to our community. Local tax incentives were warranted for Volkswagen in 2008. In addition to public benefit in terms of jobs and investment, it was one of those rare instances where subsidies may have tilted the scales since the automaker may have had two equally compelling choices (most likely, Huntsville). However, we agreed to give them the sun, the moon, and the stars when the sun and the moon might have been enough to ensure their location.
For 30 years, which is an usually long time, the company will not be paying any city or county taxes other than for schools. The PILOT agreement means that VW does not pay any property tax for police, fire, streets (like Lake Resort Drive), workforce development, parks, etc. In 2018 alone, the VW tax abatement resulted in over $17 million in uncollected property taxes.
In the 2008 agreement, the company was not required to commit to a certain number of jobs, there is no mention of wages, and there is no reporting requirement. The agreement is silent on what happens if the company closes or relocates.
In the 2014 Memorandum of Understanding (MOU) for the Atlas expansion project, the jobs' language is weak ("The company agrees to use its best efforts...."). Imagine applying for a mortgage loan and telling your banker you would "agree to use your best efforts" to make payments...In 2014, the city and county governments agreed to provide a GRANT of $52.5 million from local tax dollars for the expansion project.
The MOU did not include strong clawback language to protect existing taxpayers. A clawback, or recapture provision, is a clause in the agreement that says that a company must uphold its end of the bargain or else taxpayers have some money-back protection.
One might have hoped for provisions that addressed permanent v. contract employees and what percentage of jobs are local. Chattanooga and Hamilton County taxpayers provide the massive property tax break yet a high percentage of workers live outside the county.
The city and county need to adopt policies to guide decisions on tax breaks to make sure taxpayers and workers and neighborhoods are protected.
Let's limit new tax breaks to companies that provide significant public benefit and meet the "but-for" test. (But for the incentive, we would not build or expand here.) Our negotiators need to structure "tight" agreements, to be champions for a living wage and to advocate for community benefits that address wages, hiring locally, and investing in surrounding neighborhoods.
Helen Burns Sharp, Founder
Accountability for Taxpayer Money, Chattanooga