Helen Burns Sharp for ATM

Our most popular tax break in Chattanooga/Hamilton County is called "Payments in Lieu of Taxes" or PILOT. About fifty (50) PILOT agreements are currently in effect.   Click on this link for lots of information about individual PILOTs. Tax Year 2016 PILOTs  Thanks to the Hamilton County Finance Department for organizing the data and keeping it updated. 

This ATM webpage contains an overview of the PILOT program and some detail on "Jobs" PILOTs. (Please also check out the web page on this site for the housing PILOT program.) 

ATM Perspective

  • Tax breaks are not inherently bad.
  • We need the PILOT tool in our economic development toolbox.
  • Tax breaks should be used strategically.
  • Tax breaks should be reserved for projects with significant public benefit that would not happen without the incentive.
  • Evidence mounts that many current PILOTs do not provide significant public benefit and very likely would have happened anyway.
  • Evidence mounts that companies are not held accountable for commitments they made to get the PILOT.
  • Evidence mounts that "clawback" language in the agreements is weak and does not protect the taxpaying public.
  • It is highly unusual for a community of our size not to have adopted policies and procedures for their PILOT program.
  • Since 2013, about 20 PILOT applications have been approved by the City Council and County Commission.
  • The current program is plagued by a lack of transparency.
  • The lack of "sunshine" provides fodder for citizens who wonder about appearances of corporate welfare and conflicts-of-interest.
  • The current program raises questions of tax equity (fairness) and social justice.
  • TACIR reports $24 million in city/county property tax revenue were not collected in tax year 2016 due to PILOTs.
  • About $400 million total has been forgiven by current PILOTs over their duration, typically between 10 and 30 years.
  • Revenue not collected could be targeted to high priority needs.
  • The housing PILOT program is better but needs stricter income and term guidelines.

I. Jobs PILOTs 

Why Does It Matter?

In 2016, PILOT agreements resulted in some 24 million dollars of lost revenue to the city and county. An " in-lieu" agreement typically lasts at least 10 years. $400 million is an estimate of the amount of tax revenue that will not be collected from benefitting companies while these existing agreements are in effect. The City gets almost 60 percent of its general fund revenue from property taxes.

When our city and county governments approve PILOT agreements, the businesses pay dramatically less property tax. This arrangement raises both tax equity and social justice concerns. Why should homeowners and small businesses pay their fair share of taxes and also pay for the services (fire, police, etc.) for these companies? What about high priority community projects these uncollected tax dollars could be used for? Is it appropriate for goverment to be picking winners and losers?

Greg LeRoy, the founder of the non-profit Good Jobs First, cites IRS data suggesting that tax breaks rarely influence corporate locations. State and local taxes make up only 1.2 percent of the typical company's cost of doing business, far less than labor, materials, marketing, overhead, transportation---the business basics. He maintains that the "cake" may have already been baked when a company mentions a possible location or expansion and that the PILOT is often the "icing" on the cake. 

What is a PILOT?

A PILOT is a property tax abatement used to "recruit" business. The Tennessee constitution prohibits local governments from exempting businesses from property taxes.  Some years ago, wealthy companies and their lawyers devised a back-door way to greatly reduce the amount of taxes certain businesses pay. The private company transfers its real and personal property to the public Industrial Development Board (IDB)  or the Health Education and Housing Facilities Board (HEB) and then leases it back for a nominal amount. These boards, as public corporations, are exempt from taxation. In exchange for favorable tax treatment, the private company agrees to pay the local government a negotiated (low) amount, referred to as a "Payment In Lieu Of Tax" or PILOT. Lease amounts are so low that our program has been dubbed "Profits in Lieu of Taxes."

What Companies Currently Have a PILOT?

Today there are at least 50 PILOT agreements in effect in Chattanooga.  Some of the companies currently benefitting from PILOTs include multi-billion dollar corporations such as Amazon, Chattem, Coca-Cola, FedEx Ground, Unum (Provident), Volkswagen, Westinghouse and Wrigley. Other very successful companies under PILOTs are Blue Cross Blue Shield of Tennessee, CBL & Associates, and Southern Champion Tray.  

Chattanooga is not alone in granting property tax incentives. However, many other communities only grant them in situations where the investment is high, the jobs are well paying, and the applicant has demonstrated that they would not do the project or would do it somewhere else were it not for the incentive. In looking at the list above, one has the feeling that many of these highly successful corporations would be here anyway, due to our location, transportation, internet speed, and quality of life. Are PILOTs are being used as rewards rather than inducements?

Who Decides Who Gets a PILOT? 

The public does not know who negotiates an agreement, how they decide who gets a PILOT and what the terms are. What is clear is that the details have been worked out before the requests get to the public meetings before the City Council, County Commission or bond board.  We do not know what role the city and county Mayors play in the negotiations. IDB and HEB bond board members, who are unelected and thus non-accountable to taxpayers, find themselves in the unenviable position of being rubber stamps. (The ownership of a PILOT property is transferred to a bond board to confer tax-exempt status.)

The Chamber of Commerce plays an important role in vetting applications for "jobs" PILOTs. Through this arrangement, our elected officials have privatized a government function by in effect delegating decisions on who does not have to pay property taxes. They have not provided their economic development partner with policies and procedures to guide them. Government transparency may also suffer. 

Site development consultants may try to convince both local economic development officials and corporate executives that the use of subsidies is an inevitable part of the site location process. The consultants play to the fear of communities that they will be shunned by corporations unless they create an appealing "business climate," which usually includes "incentives" such as the availability of substantial  tax breaks and infrastructure assistance. At the same time, companies are made to think they are fools unless they extract the best subsidy deal out of a community, even if issues such as taxes are a minor part of the decision on where to invest.

What does this all really mean for subsidies and jobs? The non-profit Good Jobs First  (GJF) writes: "Candid site location consultants will admit: the only time subsidies can actually tilt the scales is when a company has two equally compelling choices. But that rarely happens. So subsidies are a really crude tool that can only affect a really tiny percentage of deals. All the other times, the subsidies are just wasted windfalls, paying companies to do what they would have done anyway. That means less money for things that really do help create jobs, like skills and infrastructure." Here is a link to the GJF webpage on Site Location Consultants

What Are the Stated Criteria that Must Be Met?

Chattanooga and Hamilton County currently have no established criteria. Our local governments have not adopted policies and procedures. One threshold criterion should address "public purpose, " which might relate to the amount of investment, the number of permanent jobs and how much those jobs will pay. The other threshold criterion should address whether the tax subsidy is needed for the project to happen (the "but/for" test). Some local governments require applicants for tax breaks to submit an affidavit certifying that the project can't proceed without the incentive. 

Policies would spell out who monitors the PILOT agreements and address what happens if companies do not live up to their promises relative to jobs and investment or housing units (so-called "clawback" language). The clawback language remains weak. Such wording is intended to protect the public if a company does not meet the commitments it made to get the tax break. Rather than having teeth, current agreements--likely written by the attorneys for the company--contain wording stating the city and county "reserve the right but are not obligated" to adjust the terms by requiring them to pay an additional amount. Given our weak record of enforcement, companies may view the city and county as toothless tigers. (In announcing a settlement agreement with Alstom, Mayor Berke said: “It’s the first time we’ve pursued a company that has not met its obligations.” )

A former chair of the City Industrial  Development Board called for more standards and transparency in this article from the Chattanooga Times Free Press comparing the Chattanooga process to other cities in the state.  TFP Article on Tennessee Cities

The 2014 PILOT Agreement/MOU for the Volkswagen expansion is a poster child for how our local governments have let us down as city and county taxpayers by not having policies in place to protect us.  Commentary on Volkswagen PILOT Crash Landing 

II. ATM Recommended Policies and Procedures

ATM respectfully submits for City Council consideration a list of draft  policies and procedures for Jobs PILOTs. They are drawn from a variety of sources, including policies adopted by other Tennessee cities and best management practices suggested by non-profit organizations. We  address issues that have come up during the five years we have been following the PILOT process locally.


Initial Contact. A Company seeking a PILOT meets with Chamber of Commerce economic development staff.

Ineligible Projects. Retail projects and projects for Housing, Entertainment, Hospitality and Recreation are not eligible for a Jobs PILOT. Projects that are already underway or have begun construction are not eligible for a PILOT.

Real v. Personal Property. Projects involving real property (land & buildings) rather than personal property (specialized equipment) are viewed more favorably.

Ownership.  A Company must own the subject property or have an enforceable option to purchase.

Required Information.  Company provides information on number of exiting jobs, number of new jobs to be created, average wages to be paid, and amount of investment to be made.

Jobs. A minimum of 50 ? new jobs must be created. To be counted, jobs must be at least 1,820 hours/year FTE (an average of 35 hours per week).

Wages/Benefits. To be counted for PILOT purposes, new jobs must pay at least $17 per hour, with the employer covering at least half of the cost of health insurance. (Comment: $17 per hour for 1,820 hours is $30,940 annually. For a 40-hour week, it is $35,360.) The mean (average) hourly wage paid to non-managerial workers at the project site must be no lower than 100 percent of the state rate for the industry, as most recently established by the U.S. Bureau of Labor Statistics.

Duration of Subsidy. The typical maximum period for any PILOT is 10 years.

Schools. All companies must pay education property taxes in full.

“But For” Analysis. Chamber/City/County do research to determine if the requested tax break is likely a determining factor for the company to locate or expand here. “But for the PILOT, we would not do it.”

Application. Company completes PILOT application, pays fee and addresses how the request conforms to these adopted policies and procedures. (Comment: See applications from other cities. Our application form needs to be reworked.) http://www.timesfreepress.com/news/local/story/2014/sep/20/former-idb-board-chairman-calls-for-more/267593/ 

Third Party Review. If project eligibility and “but for” tests are met, application is referred for independent third party analysis of project economics and public benefit. Third parties must have expertise in public finance. (Comment: Knoxville uses Municap, Inc. based in Baltimore to review all TIF projects. http://www.municap.com/about-company-overview.htm)


Committee Review. If the City and County mayors and the Chamber of Commerce recommend a project for a PILOT, the Chamber will present a written project summary to the City Council’s Economic and Community Development (ECD) Committee. The amount of tax break per year and for the entire term will be included in the summary.

Public Hearings. The City Council and County Commission will hold public hearings one week before a project is presented to them for a vote.

Citizen Input. The public may speak or provide written comments at the public hearings.

Transparency. At least one week prior to the public hearings, city and county government will post on their web sites a copy of the proposed in-lieu and lease agreements and the third party report, accompanied by a staff report giving a brief history of the project and documenting any past local public subsidies to the company.

Vote by City Council and County Commission.

IDB Review/Vote. If the legislative bodies recommend the PILOT for approval, the project will go to the City or County Industrial Development Board (IDB), accompanied by resolutions authorizing the IDB to approve the in-lieu agreement and the lease agreement. 


Templates. The City Council and County Commission will authorize new templates for payment-in-lieu-of-tax agreements and lease agreements. The new documents will better protect the public interest and improve clarity. (Comment: Perhaps UTK's MTAS or CTAS could be approached for technical assistance. Below are some things that need to be addressed or modified in the agreements.) 

Environmental Report. Require the Company to provide at its expense a Phase I Environmental Site Assessment Report for the property where the PILOT business would be located.

Title Insurance. Require the Company to provide a title insurance commitment for the Project.

Insurance and Indemnification. Require the Company to provide evidence of a certain amount of coverage. Add IDB as additional insured in case of accidents. Because the IDB will hold title to the property while the PILOT agreement is in effect, require the Company to defend and hold harmless the IDB if the IDB is sued.

Guaranties of Completion. Require guaranties of completion of the Project from principals of the Compnay, payment and performance bonds from sureties acceptable to the IDB, or letters of credit from financial institutions acceptable to the IDB that assure the timely completion of the Project.

Community Benefit Agreement. Require CBA provisions in PILOT agreements  to ensure that major development projects benefit local residents and neighborhoods.

Targeted Hiring Requirements. Require the Company to ensure that at least thirty percent of all work hours are performed by individuals whose primary place of residence is within a city zip code that includes a census tract or portion thereof in which the median annual household income is less than $40,000 per year, as measured and reported by the U.S. Census Bureau.  [Comment: the city zip codes where the median household income is below $40,000 are the urban overlay district minus the North Shore and St. Elmo, plus Alton Park, Brainerd and “Erlanger” area. The median for the entire City is $40,177. Zip codes over $50,000 are 37421 (East Brainerd) and 37343 (Hixson).]


Timeliness-Closing. A Company whose application for a PILOT Freeze is approved shall have one year from the date of approval to close a PILOT Lease. If this schedule is not met, the applicant must re-submit an application and pay an additional fee of $1,000.

Timeliness-Groundbreaking. If the project on the property subject to a PILOT Lease does not break ground within two (2) years or if the property has been unoccupied for a period of two (2) years, the PILOT Lease will be terminated and the property will be returned to private ownership and full property taxation.

Assignability/Transfer.  A PILOT Agreement may not be assigned without the prior written approval of the IDB and without a written commitment from the assignee that the new company acknowledges they are bound by the terms in the original agreement. Before agreeing to assign, the IDB must confirm that the company is in compliance with their jobs/wage/investment commitments.

Consistency in Commitment Representations. The authorizing resolution and the payment-in-lieu of-tax agreement must contain the same numbers for minimum jobs/wages/investment in the body of the agreement as are stated in the recitals (whereases).

Clawback Language. All PILOT agreements shall contain clawback language spelling out what shall happen if the company does not meet the commitments represented in the PILOT agreement or in the event of corporate misconduct. 

  1. Subsidy Recapture. For each year the company falls short of its obligations for job creation, wages, and health care insurance, the value of the subsidy shall be reduced on a prorated basis by the same share of jobs that were not created and/or that failed to meet wage and health care insurance obligations. If the subsidy has already accrued to the company, the subsidy reduction shall be recaptured. 
  2. Subsidy Recission (Jobs). If a company falls short on its job creation obligations by 25 percent or more for three consecutive years, the pro rata recapture shall apply for the third year in default and the subsidy shall be rescinded effective January 1 of the following year. 
  3. Subsidy Recission (Corporate Misconduct). If a company is fined by the federal government or the Tennessee Attorney General for corporate misconduct during the period the PILOT agreement is in effect, the City and County reserve the right to immediately terminate the tax abatements provided by the agreement and require the repayment of amounts that would have been payable on the property during the Tax Abatement Period as if it were subject to property taxes,  giving credits for those payments made.
  4. Project Closure. In the event the Project closes or moves from the County during the Tax Abatement Period, the City and the County shall  immediately terminate the tax abatements provided by the agreement and require the repayment of amounts that would have been payable on the property during the Tax Abatement Period as if it were subject to property taxes,  giving credits for those payments made.

Annual Reports. All PILOT agreements shall be subject to an annual review and report of status to the City and County Mayors, the City Council and County Commission and to the Industrial Development Board.  By March 31 of each year, the Company  must annually certify in writing compliance with commitments in the PILOT Agreement signed by the chief executive officer or other executive acceptable to the Board. In addition to reporting on new jobs created, the report will state the number of existing jobs at the company when the PILOT was approved.

Conflicts of Interest:Elected Officials and IDB Members: Each elected official or IDB member shall be responsible for disclosing any material interest which he or she may have in or with an applicant or financing source. Any public official having any material interest in a project or a financial or family relationship with an applicant or financing source shall submit to the City or IDB counsel a representation of that interest. Counsel shall advise both the body and the member whether the member needs to recuse himself or herself from consideration of the application. Such recommendation of counsel shall be conclusive. If recusal is recommended, the body will then consider the application without participation from the member or members who recuse themselves.

Conflict of Interest: Attorneys:  No legal counsel to the City Council or IDB may have  a professional legal relationship with the PILOT company or source of the financing other than incidental representations in connection with other projects. In the event of a conflict involving City Council or IDB counsel, the city or IDB  will retain special counsel to represent it in connection with the particular project being considered.  The city attorney may not be paid in addition to their regular salary for their work on a PILOT.


Application Fee. The Applicant will submit the application with a minimum application fee of $1,500 for resources used for the initial review of the application. Additionally, costs and expenses that are incurred by the Chamber, Board, and local government related to the economic impact study and/or financial review are passed through to the Applicant. This includes the third party analysis. (Comment: Knoxville charges a $4,000 application fee for projects with a projected investment greater than $5 million. Almost all of our PILOTs represent an investment of more than $5 million.)

Economic Development Fee.  Compare current practice of requiring PILOT recipients to make pay an economic development fee annually versus the Knoxville concept of requiring a fee at closing of 5% of projected total tax savings, with a maximum for mega projects.

Stormwater Fees. In addition to the In Lieu of Tax Payments and Economic Development Fees, the company shall be responsible for all Stormwater Fees assessed by the City against the property.

Accountability for Taxpayer Money-Chattanooga

Helen Burns Sharp