Chattanooga Chamber of Commerce officials said they will present to the City Council on Tuesday new guidelines on PILOT (Payment in lieu of Taxes) tax breaks for businesses and industries.
Adam Myers, Chamber vice president, told the city Industrial Development Board on Monday that the City Council would be asked to approve the document the following Tuesday.
He said there will still be a requirement that 100 percent of school taxes must be paid as well as stormwater fees.
To be eligible there must be at least 100 new jobs. Total investment must be $20 million on manufacturing and at least $5 million on office projects. Mr. Myers said the latter requirement is included to cover lower-cost retrofitting of existing buildings.
Workers must be paid at least 80 percent of the average local wage. There would be a higher score where the local wage is at 100 percent.
The abatement in the first year would be 100 percent, 75 percent in the second year, 60 percent in the third year and 50 percent in succeeding years.
A project asking for a PILOT of more than 10 years would go before the City Council.
Mr. Myers said officials here are targeting businesses in advanced manufacturing, professional services, future technologies and software and information technology.
The resolution before the City Council says:
Industrial Development Board of City of Chattanooga Policies and Procedures for Payment-in-lieu-of-Tax Transactions
Section I. General Purpose and Eligible Projects*
1. Purpose. The City of Chattanooga, Tennessee (the “City”) is committed to improving the
local business environment and economy. In furtherance of this objective, the City has previously formed the Industrial Development Board of City of Chattanooga (the “IDB”). The IDB is a public nonprofit corporation established pursuant to the Tennessee Industrial Development Corporation Act (the “Act”), Tenn. Code Ann. §§7-53-101 et seq. The IDB’s statutory purposes include financing, owning and leasing certain real and personal properties, which will have the effect of maintaining and increasing employment and otherwise promoting new industry, commerce and trade in Tennessee and in particular, in the City.
In order to promote economic growth in the City, the IDB will consider requests from Applicants
to make payments in lieu of taxes (“PILOTs”) instead of paying property taxes. PILOTs are generally less than regular property taxes and lower the property tax expense for a business that is locating or expanding in the City. Section 7-53-305 of the Act grants authority to the IDB to negotiate, accept and waive PILOTs but only upon receipt of a formal delegation of such authority from the City. The City Council of the City has provided such formal delegation by adopting a resolution delegating to the IDB the authority to negotiate and accept PILOTs that comply with these Policies and Procedures (these “Policies”). If an Applicant for a PILOT incentive requests a PILOT the terms of which do not comply with these Policies, the IDB may still accept such Application and shall follow the procedures set forth in these Policies, but any such PILOT incentive shall not be provided by the IDB unless the City Council of the City has adopted a resolution delegating to the IDB the authority to negotiate such PILOT incentive.
Although under the provisions of the Act, the IDB may also agree with an Applicant to receive
PILOTs in lieu of taxes that would otherwise be payable to Hamilton County (the “County”) without any action by the County, the IDB will not negotiate any PILOT incentive that would result in a reduction of the amounts that the County would otherwise receive as property taxes unless (i) the County has approved the terms of the particular PILOT incentive with respect to property taxes that otherwise would be payable to the County or (ii) the County Commission of the County has approved a resolution authorizing the IDB to negotiate PILOT incentives on the terms provided in these Policies in a manner comparable to the delegating resolution from City Council.
For purposes of these Policies, an incentive provided by the IDB through a PILOT that results in
the payment of a PILOT that is less than the property taxes that otherwise would be payable with respect to the applicable property is referred to herein as a “PILOT incentive.”
These Policies shall not be construed to require the City or the IDB to approve a PILOT incentive
for any Person. Granting a PILOT incentive as to City property taxes that is authorized by these Policies is solely within the discretion of the IDB acting within the parameters of these Policies. Granting a PILOT incentive as to City property taxes that is beyond the scope of these Policies is solely within the discretion of the City Council of the City. In order, however, to inform potential Applicants for PILOT incentives of the specific criteria that the IDB will consider in evaluating Applications for PILOT incentives and the * Capitalized terms used in these Policies and Procedures that are not otherwise defined shall have the meanings given to such terms in Section VIII.
process that will be undertaken with respect to such incentives, and to satisfy the delegation requirements of the Act, the City and the IDB have approved these Policies to provide guidelines for evaluating requests for PILOT incentives.
2. Eligible Projects. The Act defines the types of projects as to which the IDB is authorized
to undertake and as to which the IDB is legally authorized to provide a PILOT incentive. Notwithstanding the broad list of such projects in the Act, the IDB will only approve PILOT incentives for the following types of projects:
a. Industrial facilities that manufacture, assemble, process or fabricate agricultural, mining or other products.
b. Distribution facilities that receive and distribute goods.
c. Office buildings and service facilities.
In addition to the foregoing limitation, any project must also be in a target industry sector as
defined by the current five-year strategic plan of the Chattanooga Area Chamber of Commerce (the
“Chamber”) or as defined by the Tennessee Department of Economic and Community Development.
Section II. Overview of PILOT Structure
Property tax abatement in Tennessee cannot be achieved solely by legislative or administrative
action of the City because of certain limitations in the Tennessee Constitution. In other words, the City Council of the City cannot unilaterally grant tax abatement. In order to implement tax abatement for a Project, and to permit an Applicant to reduce its property taxes by making PILOTs, the Project that is the subject of the PILOT incentive must be conveyed to the IDB and leased back to the Applicant. The following is a general description of the terms of a typical PILOT transaction.
1. Conveyance to IDB. To implement a PILOT transaction, the IDB must take title to the
Project. The conveyance to the IDB is usually consummated by the Applicant’s execution and delivery to the IDB of a deed conveying any real property to the IDB and a bill of sale conveying any personal property to IDB.
2. Lease and PILOT Agreement. Upon the conveyance of property, the IDB simultaneously enters into a lease agreement and an agreement with respect to PILOTs (the “PILOT Agreement”) with the Applicant whereby the Applicant leases the conveyed property from the IDB and the Applicant agrees to make payments in lieu of taxes. The lease will be a “triple net lease” whereby the
Applicant is responsible for all maintenance, repair, taxes, and insurance. Other than such commitments and the PILOTs, the rent under such a lease is nominal, and the lease is generally not considered a true lease for federal tax purposes (i.e. tax ownership remains with the lessee). The lease and the PILOT Agreement will contain specific provisions as to a number of matters including the following:
a. Payment-in-Lieu Taxes — Because the property is exempt from property taxation while owned by the IDB, the IDB and the Applicant will agree upon a schedule of PILOTs to be paid under the PILOT Agreement. Such schedule will determined in the manner shown in Exhibit A.
b. Purchase Option — In the lease, the IDB will grant to the Applicant the right to purchase the Project at any time during the term of the lease by payment of a nominal sum. Upon such a purchase, the PILOT incentive shall terminate.
c. Additional Improvements and Equipment — The PILOT incentive will only be applicable to the initial Project (as such term is defined in the definitions in Section VIII) as described in the Lease and not to additional improvements made (such as expansions) or equipment added after the initial Project is placed in service. Any PILOT incentive as to an expansion or equipment acquired after the
Project is placed in service would be considered under a separate Application by the IDB.
d. Adjustments to PILOTs — The PILOT Agreement will provide that if the Applicant does not achieve the employment, capital investment and average wages projected in the Applicant’s Application, the Applicant’s PILOT will be increased on an annual basis to reflect Applicant’s actual results as described in more detail in Section V.
e. Indemnity/Insurance — The lease will require the Applicant to indemnify the IDB for all matters relating to the Project (except matters resulting from the gross negligence or willful misconduct of the IDB) and maintain certain insurance (including commercial liability insurance, casualty insurance and workers’ compensation insurance) with respect to the Project. If the Applicant typically self insures as to certain risks, the IDB may consider allowing the Applicant to self insure those same risks, but the IDB, in its discretion and upon the advice of its counsel, may require insurance.
f. Limited liability of IDB — Any liability of the IDB under the lease shall be limited to its interest in the leased Project.
g. Assignment and Subletting — The Applicant will not have the right to sublet the Project or any part thereof or assign or otherwise transfer its rights under any PILOT incentive except with the prior written consent of the IDB upon the terms provided in the lease and PILOT Agreement.
3. Financing — In many cases the Applicant will need to use the property leased from the IDB as collateral for financing. The lease will provide that the IDB will cooperate with the Applicant and its lender in assuring the lender that the lender has a first priority lien on the leased property provided that the documentation does not place any obligation or liability on the IDB beyond its interest in the Project.
4. Ground Leases — If the Project is located on property that is the subject of a ground lease, a PILOT incentive can still be achieved, but the documentation will need to include a sublease to the IDB of the ground lease.
5. Personal Property — The IDB can offer tax abatements for personal property as well as real property for eligible Projects through a PILOT incentive. Any personal property can be leased
pursuant to the same lease as any real property or pursuant to a separate lease. If the real property and personal property that constitute a Project would otherwise be owned by separate entities, separate leases will be used, and both such entities should jointly be the Applicant for the PILOT incentive. The lease will require the Applicant to clearly identify the personal property that is included under the lease and to provide annual bills of sale under which personal property is conveyed to the IDB. Personal property shall not include inventory or other similar assets.
6. Requirement of Economic Inducement — A PILOT incentive is intended to be an inducement for a new or existing business to commence or expand its business operations, and to induce businesses to create jobs in the City. If a business has already made a decision to undertake a Project
without the IDB’s prior inducement, then, in such event, the PILOT incentive did not constitute an
inducement or incentive for the Applicant’s decision to undertake the Project. If an Applicant has already contracted for or made binding arrangements to accomplish any of the foregoing prior to submitting its Application to the IDB, and there is no condition in any such contract related to the granting of the PILOT incentive, then a PILOT incentive will not be available for the Project.
7. Expansions of Existing Facilities. If the Applicant’s proposed Project relates to the expansion of a facility (an “Expansion”), the PILOT incentive will apply only to the Expansion. If the Expansion is on the same tax parcel as an existing facility, the entire tax parcel will need to be conveyed to the IDB, and the lessee will agree to make PILOTs equal to the taxes that would otherwise have been
assessed on the existing facility plus the PILOT payment, if any, related to the Expansion. For purposes of clarification, existing businesses operating in City are eligible to apply for a PILOT incentive under these Policies with respect to any Expansion of the existing business. For purposes of the information provided in an Application for an Expansion, the information provided therein as to the projections requested therein shall relate only to the Expansion and not the existing business, although Applicants for Expansion are encouraged to provide additional information regarding the Applicant’s existing business.
8. Commencement of Lease Term; Project Completion. The term for a PILOT incentive relating to each Project determined in accordance with Exhibit A shall commence not later than the first full calendar year after completion of the Project. A Project shall generally be deemed completed when it
is placed in service for the purposes for which the Project is being undertaken. The PILOT lease will
establish an outside date for the completion of the Project based upon an Applicant’s anticipated
completion date, subject to excusable delay, provided that the completion date shall not exceed three years unless the Applicant demonstrates unusual factors as to a Project that require an extended completion date.
Section III. Term and Amount of PILOT
The factors that will be used in determining the term of the PILOT incentive and the amount of
the PILOT incentive is provided in Exhibit A attached hereto and made part of these Policies. As more particularly described in Exhibit A, the four general factors to be considered for Projects are:
a. Jobs. An important factor will be the number of jobs that are created due to the proposed Project. The Applicant must anticipate creating at least 100 new jobs to be considered for a PILOT incentive.
b. Wages. Another important factor to be considered will be the average wages to be paid by the Applicants and whether such average wage encourages economic mobility. An Applicant’s projected average wage for the additional jobs created by a Project must be no less than 80% of the current annual Hamilton County average wage as reported by the US Bureau of Labor Statistics.
c. Capital Investment. The capital investment made by an Applicant in the land, building, site preparation, equipment and any other capital assets relating to the Project will be another factor considered by the IDB. An Applicant for a PILOT incentive for a manufacturing or distribution facilities must project at least a $20 million capital investment, and an Applicant for a PILOT incentive for office or service facilities must project at least a $5 million capital investment.
d. Special Considerations. The IDB may, in its discretion, give special consideration to, and award additional incentive points to, an Applicant under Exhibit A attached hereto, in the following circumstances: (a) construction or renovation in connection with the Project results in building design and equipment that significantly reduces energy consumption. Documentation of LEED Certification
or an equivalent standard of attainment shall be required; (b) the proposed Project will be located in or directly adjacent to a specially designated economic development area (as defined below) identified or certified by the federal or state government or the City or County; (c) the Applicant agrees to provide a specific and measurable community benefit commitment by providing career pathways and upskilling opportunities for employees, creating apprenticeships or workforce
development programs in partnership with the local community, utilizing contractors and suppliers from economically disadvantaged backgrounds, or supporting talent and education initiatives through partnerships with Hamilton County Schools and local higher-education institutions; (d) the Applicant agrees to cooperate with local communities impacted by its Project, (e) the Applicant agrees to provide to its employees substantive work benefits to local employees (health, paid sick leave, childcare services, etc.) and/or agrees to provide apprenticeship programs for project construction; and/or (f) an Applicant demonstrates industry leading or otherwise exceptional performance in promoting the rights and welfare of employees and local communities. A demonstrated pattern of poor corporate and environmental practices and/or violations of law by an Applicant or any of its principal owners or similar considerations shall be grounds for not approving or recommending any Application. A specially designated economic development area includes a renewal community zone as defined by HUD; federal empowerment zone, state enterprise zone, opportunity zone, new markets tax credit eligible census tracts, such other similar zones indicating economic distress or disadvantage as may be designated by the federal, state or local governments, or a remediated Brownfield site identified by the Environmental Protection Agency or Tennessee Department of Environment and Conservation.
Section IV. PILOT Application
1. Application. Any person desiring that the IDB consider a PILOT incentive shall complete
and submit the Application for PILOT incentive attached hereto as Exhibit B. The Application shall be
filed with the IDB no later than 21 days prior to the IDB meeting at which the Application for PILOT will be considered (unless waived by the IDB). A summary of the process for PILOT Applications is outlined in Exhibit C.
After submitting its Application, the Applicant should expect completion of a preliminary review
of the Application by staff of the Chamber and the City (and the County if County taxes will be affected by the PILOT incentive) within two weeks after submitting same. Upon completion of the preliminary staff review, and upon the Applicant responding to any additional requests for information from staff, staff shall submit the Application to the IDB for consideration. If the IDB approves the Application, the IDB will instruct an attorney designated by it to prepare the lease, PILOT Agreement and other documentation relating to the incentive. An Applicant should retain its own legal counsel in connection with the documentation of the PILOT incentive. No PILOT incentive shall be effective until the IDB and the Applicant have approved all documentation and such documentation has been executed.
2. No Obligation. Nothing within these guidelines shall imply or suggest that the IDB or any
political subdivision of the State of Tennessee is under any obligation to provide a PILOT incentive in any amount or value to any Applicant.
Section V. Post-Closing Monitoring
Through the use of the PILOT incentive, the IDB intends to produce measurable improvements to
the economy of the City. Accordingly, each PILOT Agreement with an Applicant will contain certain
provisions to assure that the PILOT incentive is consistent with the job creation, wage levels and capital expenditures actually accomplished, and not just projected, by the Applicant. The IDB will annually evaluate each Project receiving a PILOT incentive to measure whether levels of job creation, wages and capital investment projected in the Applicant’s Application have been achieved.
In order to assist the IDB in such evaluation, the Applicant shall agree in the PILOT Agreement
to provide to the IDB certain information annually in the manner described in the PILOT Agreement,
which information shall include, but not be limited to, the information regarding the Applicant’s then
current number of jobs, wages and capital investment. The form of an annual report to be filed with the IDB will be attached as an exhibit to the PILOT Agreement.
If any such report or other information obtained by the IDB reveals that the Applicant has not met
the projections in the Applicant’s Application, the IDB will have such remedies as are provided in the
PILOT Agreement. The specific remedies will be set out in the PILOT Agreement, but, generally, if an
Applicant fails in any year to meet the job, wage or capital expenditure projections submitted in its
Application for a Project and upon which the PILOT term and amount was determined, the Applicant
should expect that the Applicant’s PILOT incentive would be proportionately reduced in that year.
The Applicant’s lease and PILOT Agreement may provide for phased-in compliance consistent
with the Applicant’s projections, if approved by the IDB, provided that the Applicant’s projections must be fully met by the fifth full calendar year after the completion of any Project.
If an Applicant is awarded any incentive points pursuant to Exhibit A for the special factors
described in Section III, the Applicant will be deemed in default under the PILOT Agreement if the
Applicant does not achieve the such special factors to the extent such special factors can be objectively monitored. Such a default could result in the termination of the PILOT Agreement.
Section VI. Fees Payable to the IDB for Projects Requesting Incentives
1. Application Fee. An Application fee of $1,000 must accompany any Application. The
Application fee is non-refundable. The Application fee shall be deducted from the closing fee described below if the PILOT transaction is closed.
2. Closing Fees. Upon execution of a PILOT Agreement, the Applicant will pay a closing
fee. The closing fee will be 5% of the tax savings projected by the IDB resulting from the PILOT incentive, but the fee will be no less than $2,500 and no more than $10,000. The closing fee is for reimbursement of the costs and expenses of the IDB, and it also may be used for other economic development programs as from time to time are approved by the IDB.
3. Expenses. The Applicant will pay any and all costs related to Applicant’s Application of
PILOT incentive including, but not limited to, the IDB’s attorney fees and any recording fees. The IDB’s approved attorney shall prepare the necessary documentation for the PILOT incentive. The IDB’s attorney’s fees shall be paid at closing, provided, however, in the event a PILOT incentive closing does not occur for any reason or is delayed for an extended period, the Applicant agrees to pay all of the above mentioned fees and expenses of the IDB at such time.
4. Economic Development Fees. For each calendar year in which an Applicant makes a
PILOT as to a Project that is less than the taxes that would otherwise be payable with respect to the Project, the Applicant shall also pay a fee, that is referred to herein as Economic Development Payment. The Economic Development Payment shall be calculated in the manner provided in the PILOT Agreement but shall generally equal 15% of the amount that would otherwise be payable as taxes with respect to the Project to the City’s general fund if the PILOT incentive was not in effect (with a commensurate payment to the County if the County’s property taxes are affected by the PILOT incentive).
5. Amendments. Applicant shall be responsible for any and all costs associated with
amendments to any PILOT incentive documents or to any other documents or agreements associated with the PILOT incentive, including any documents relating to Applicant’s financing.
Section VII. Conflicts of Interest and Ethical Standards
Each IDB director shall be responsible for disclosing any material interest which he or she may
have in or with an Applicant or any proposed Project. Any IDB director having any material interest in a project or a financial or family relationship with an Applicant or sponsor or financing source for a Project shall submit to the IDB’s counsel a representation of that interest, and the IDB’s counsel shall make a preliminary determination of whether the director should recuse himself/herself from consideration of the Application. In the event the director disagrees with the IDB’s counsel’s decision, then the IDB’s counsel shall submit the potential conflict of interest to the IDB for final determination, which shall be made in accordance with the applicable laws regarding conflicts of interest. If recusal is deemed appropriate, the IDB will then consider the Application without participation from the director who has been recused. No director of the IDB shall disclose confidential information acquired by him or her in the course of his or her official duties as a director of the IDB nor use such information to further his or her personal interests.
Section VIII. Definitions
For purposes of these Policies, the following terms shall have the following meanings:
“Applicant” means the Person applying to the IDB to enter into a lease that would include a PILOT
incentive with respect to a Project.
“Application” means the Application submitted to an IDB by an Applicant to receive a PILOT
incentive.
“Payment-In-Lieu-of Taxes” or “PILOT” means payments established by the IDB to be made
in lieu of ad valorem taxes with respect to a Project.
“Person” means any individual or entity.
“Project” means buildings, structures, machinery, equipment, or land identified in the Application
and described in the lease from the IDB to the Applicant. The Project may include the addition of the
buildings, structures, machinery, or equipment that is committed by the Applicant to be started within three years (or such later date as may be approved by the IDB upon special circumstances demonstrated by the Applicant not to exceed five years) of the PILOT Agreement. Any expansion undertaken beyond the approved implementation period will require a new Application to be filed at the time said expansion is planned as is described in Section II above.
Section IX. Miscellaneous
These Policies shall not be construed to create any type of contract or agreement between the IDB
and any third party, including any Applicant. Notwithstanding any provision of these Policies to the
contrary, the IDB retains the right, in its sole discretion, not to enter into any lease or PILOT Agreement with any Applicant and not to approve any Application for a PILOT incentive. If any Applicant does not enter into a lease with respect to a proposed Project within one year of the initial approval by the IDB of the Applicant’s Application for a PILOT incentive, that Applicant’s Application shall be deemed to be withdrawn, and the Applicant shall be required to resubmit a new Application if the Applicant wants the IDB to continue to consider the Applicant’s Project for a PILOT incentive.
Section X. Modifications
Any modification or amendment of these Policies must be approved by the City and by the IDB.
EXHIBIT A
CRITERIA USED TO DETERMINE ELIGIBILITY FOR
AND TERM AND AMOUNT OF PILOT INCENTIVE
Overview. The term and amount of a PILOT incentive for any Project will be based upon the
number of incentive points for a particular Project in accordance with Section III of these Policies and this Exhibit. A minimum of four incentive points is required to be eligible for a PILOT incentive for a Project.
The term and amount of a PILOT will be based on the amount of points awarded with one point representing one year of abatement. Special factors may also be considered pursuant to Section III of the Policies and Procedures and pursuant to the chart below. The maximum period for a PILOT incentive as to any portion of a Project is ten (10) years unless otherwise approved by City Council. The factors that will be used in determining the number of incentive points and the term and amount of the PILOT incentive are shown on the chart and information on the following page.
Term and Amount of PILOT Incentive – The term of the PILOT incentive shall be based upon the
number of incentive points awarded as described above. The PILOT incentive shall effectively provide for a percentage of property tax abatement consistent with the following schedule:
Year 1: 100% abatement
Year 2: 75% abatement
Year 3: 60% abatement
Year 4 and beyond: 50% abatement
Summary of PILOT Application Process
1. Before submitting an Application, an Applicant should arrange a pre-application conference with
the Chattanooga Area Chamber of Commerce to discuss the Application process and whether the
Applicant’s Project may qualify for a PILOT incentive. If the Applicant’s Project may qualify for
a PILOT incentive, the Applicant may submit the Application and supporting documentation to the
Chamber’s staff.
2. The Chamber’s staff will perform all necessary due diligence and prepare a report to the economic
development staff representatives of the City and the County (if the County’s property taxes will
be affected by the requested PILOT incentive). The Chamber’s staff will provide the City and the
County, if applicable, the recommended terms of the PILOT incentive based on these Policies. If
the Chamber’s staff determines that an economic impact analysis would be helpful to its analysis
of a Project, the Chamber may procure an economic impact analysis from a firm with recognized
expertise in public sector economic analysis.
3. Prior to submitting an Application to the IDB for consideration, the Chamber’s staff shall consider
input from the City and the County’s Mayors and staff. Prior to submitting an Application to the
IDB for consideration, the Chamber’s staff shall provide to the Applicant a term sheet setting form
the Chamber’s recommendation as to the proposed PILOT incentive, if any, to be submitted to the
IDB.
4. If the proposed PILOT incentive is acceptable to the Applicant, the Chamber’s staff shall submit
the Application and a proposed PILOT Agreement to the IDB for initial consideration. Such
information shall be submitted to IDB not less than 7 days prior to consideration.
5. The IDB will then consider the Application at a duly called meeting. Prior to such consideration,
the IDB will conduct a public hearing with respect to the Application, thereby providing members
of the public an opportunity to comment on the proposed Application and the proposed PILOT
incentive. After such public hearing, the IDB may either (i) accept the Application and instruct the
Chamber staff and City to work with the Applicant to prepare implementing documentation,
including the PILOT lease, for presentation to the IDB consistent with the Chamber
recommendation as to term as such recommendation may be modified by the IDB or (ii) note to
not proceed further with the requested PILOT incentive.
6. At a subsequent meeting of the IDB, the relevant PILOT documentation, in substantially final form,
shall be submitted to the IDB for consideration and, if appropriate, approval.
7. If the Applicant’s request for a PILOT incentive does not comply in all respect with the Policies to
which this Exhibit is attached, the Chamber’s staff, instead of presenting the Application to the
IDB, shall submit the Application to the City Council for consideration of whether to delegate the
authority to the IDB to negotiate a PILOT incentive with the Applicant. Such submission shall
include (i) all supporting documentation; (ii) an explanation as to why the requested PILOT
incentive does not comply with the Policies; (iii) reports of the Chamber’s staff and the City’s
economic development staff as to the Application with recommendation as to whether to approve
the Application; and (iv) a proposed delegation resolution of City Council authorizing the IDB to
negotiate the requested PILOT incentive. If the County’s property taxes would be affected by the
proposed PILOT incentive, the Application will also be submitted to the County Commission as is
set forth in the Policies. In connection with considering any such Application, the City Council
instead of the IDB will hold a public hearing as to the Application.
8. If after the approval of an Application but before the final PILOT documentation is executed, (i)
the Project’s scope, location, or purpose changes, (ii) the Applicant receives tax incentives from
another governmental entity that were not disclosed when the Application was considered, or (iii)
any other change occurs that is would materially affect the information in the Application, the IDB
may reconsider the Application after notice to the Applicant and modify or revoke its prior
approval.
Helen Burns Sharp, citizen advocate, told the board prior to the Chamber presentation, Economic development staff in the city’s mayor’s office placed an 'educational session on PILOT policies' on the January 6th, 2025, IDB agenda.
Interested citizen groups like ATM and CALEB might like to provide constructive feedback. That is challenging because we are unclear about what document will be reviewed. In the comments below, we assume it is the document presented to the IDB in December 2023.
Background
Here is a short history of the evolution of that document.
1. In the fall of 2021, City Mayor Tim Kelly asked his economic development staff and Chamber staff to develop policies and procedures for PILOTs and to work with interested community partners, such as CALEB and ATM.
2. Staff in early 2022 first circulated a draft based on Knox County’s Policies and Procedures.https://knoxcountyidb.org/wp-content/uploads/2019/12/PILOT-Policies-Procedures.pdf
3. A draft document of PILOT policies and procedures first appeared on the IDB agendas in October and November 2022. The Board was still reviewing TIF policies, so it did not discuss them at these or their meetings in early 2023.
4. This late 2022 document was not the same modified Knox County document CALEB and ATM had commented on earlier that year. It did not have a date or an author. Was it based on the policies and procedures of another jurisdiction, or did it just codify current Chamber practice with a few changes? (At the August 7, 2023, IDB public hearing on PILOT policies, a board member asked city staff who authored the document under consideration. The answer was “the Chamber,” with the city providing some input.)
5. Staff scheduled public hearings on PILOT policies and procedures for IDB meetings in the summer of 2023.
6. The document on the 2023 IDB agendas differed fundamentally from the fall 2022 version, although no staff memo acknowledged why or how (red line) it had changed. The most significant change would prevent the City Council (and County Commission) from having a role in considering most PILOT applications.
7. The proposed policies and procedures rely heavily on an economic impact “matrix.” The final numerical score determines the terms and conditions of the incentive. Part IV of the document references it as Appendix A.
9. At the December 11, 2023, meeting, the IDB discussed the proposed policies and procedures for the first and only time. ATM sent comments about the matrix; CALEB offered comments at the meeting.
10. We do not know if any changes have been made to the document based on the IDB deliberation or CALEB and ATM feedback.
Comments on the Substance of the December 2023 draft
1. ATM recommends adding threshold criteria. Is the project a game-changer? Is it a catalyst? Is it in a strategic industry sector? Does it meet the "But For" test? Ask applicants to answer these policy questions in writing as part of the application.
2. ATM recommends strengthening “But For” by requiring the applicant to sign an affidavit stating the requested tax break is a pre-requisite for them to locate or expand in Hamilton County.
3. ATM recommends more discussion about strategic industry sectors. For example, city staff referred to "key sectors" in a June 2023 PowerPoint presentation to the IDB and mentioned a few, including distribution centers. Why is this a key sector? Are there some that need to be added?
4. PILOT Evaluation Criteria refers to an Economic Impact Matrix. While a matrix can help determine what factors to consider when evaluating a PILOT request, ATM disagrees that the terms and conditions of the incentive should be based solely on the final score.
5. A matrix has been around for a while. It has been referred to as the Chamber's “black box." How different will the new matrix be from its predecessor? Will it contain clear and objective standards? Would past PILOTs for a call center, downtown movie theater, office parking garages, etc. have passed muster under the new matrix?
Economic development is more of an art than a science. Let’s figure out a better way to decide which projects get incentives than just adding numbers. Threshold criteria would be a good starting point.
6. ATM recommends that the public have strong advocates at the negotiating table early in the vetting process.
7. ATM believes the economic impact analysis should include a public interest perspective. Those done by Younger Associates typically do not. You could add an independent third-party review, as required for TIF applications.
8. ATM believes ALL PILOTs should go to the City Council (and County Commission) for consideration. They are elected officials and thus accountable. They vote on budgets, and PILOTs involve the budget in that they result in reduced revenues.
The 2023 draft document calls for a public hearing before the IDB and no review by the Council if the proposed project does not exceed 10 years and meets the policies. All but one of the seven PILOTs the IDB has approved since 2015 have been for 10 years or less. These PILOTs came to the IDB after the elected City Council passed a resolution saying, “We do hereby find that the project is in the best interest of the city.”
Why do the Chamber and the Mayor’s office want to eliminate the step where the Council discusses a PILOT request? They suggest that the current approval process is burdensome and time-consuming and may cause us to lose business locations in cities like Huntsville and Greenville (two cities that have abated less property tax revenue than Chattanooga).
A Chamber representative expressed concern that the process “will be so slow that we lose projects….” A senior official on the Mayor’s staff said: “We have the same questions over and over again on these PILOTs, and it almost turns into theater…and it takes months and months at a time.”
However, this narrative does not reflect reality. It took less than a month to move the three PILOTs approved since Mayor Kelly’s term began in 2021 from the Council's "best interest" determination to IDB action. The mayor’s staff references the “politicization” of taking PILOTs to Council. If it’s “political” to include all ten of our elected officials in the review process, isn’t it equally (or more) “political” to vest all the power in one (the mayor)?
Here are examples of questions Councilors have asked on recent PILOTs. They asked about the "but for" test. They asked about training programs and the mix between full and part-time jobs. They asked about clawback language in the agreement to address what happens if the company does not meet its commitments. They asked staff about the impact on the City's general fund while the incentive is in effect. Good questions. No badgering. No political theater.
9. ATM recommends adding the City and County to the Chamber as a repository to maintain checklists and copies of all required public documents relating to the PILOT application. It is essential for transparency and open government.
10. ATM recommends more discussion by the IDB and City Council about the Chamber's expanded role in the PILOT process.
In 2010, the Chamber wrote this to explain its role to the City Council: “The Chamber does not make policy for PILOTs nor determine what companies are eligible. We facilitate the process as an agent of the City and County and rely on the Mayors, the Council, and the Commission to determine a company’s eligibility for a PILOT.”
We need the Chamber’s expertise and perspective. We also need to recognize that the Chamber is a business advocacy organization. Allowing the Chamber a much-expanded role is like putting the fox in charge of the hen house.
Is it appropriate to give so much power to a pro-subsidy organization to write the policies, oversee how they are applied, and monitor company compliance? How would the local Homebuilders Association feel if the city hired the Sierra Club to write our environmental policies and direct enforcement?
11. ATM recommends a PILOT flowchart.