Helen Burns Sharp for ATM

Problems with Current System

PILOT tax breaks to large companies reduce city revenue for needed services. $23,800,000 in taxes were not collected in 2016 due to PILOTs.

City gets almost 60 percent of its general fund revenue from property taxes.

Companies with current PILOTs include Amazon, Blue Cross, CBL, Choo Choo, Chattem, Coca Cola, Unum, VW, Southern Champion Tray, Westinghouse and Wrigley.
•    No standard rules have been adopted on how governments decide which companies get “jobs” tax breaks, leaving awards open to political influence.
•    Perception that many PILOT companies would be here anyway without the PILOT, paying taxes.
•    PILOT Agreements last too long (typically 10-30 years).
•    19 PILOT Agreements have been approved since last city election (2013).
•    Weak enforcement if companies do not meet their PILOT commitments
•    ***
•    Challenging for citizens to get information about public records or meetings.
•    Challenging for citizens to present ideas or give feedback to City Council or County Commission.
•    Uncommon for officials to disclose bias or possible conflicts of interest when voting on tax breaks or zoning.
•    The deck seems stacked towards development interests in PILOTs & zoning.
•    Structural power disparity between “strong” Mayor & “weaker” City Council and County Commission.
•    Non-elected boards (IDB, HEB, CDRC) make policy decisions involving millions of dollars with little information or accountability.

Economic Benefits of Equitable Reform

PILOT reform would lead to more productive PILOTs and fewer failures.
•    PILOT reform would mean more money for important city and county services.
•    Changes to form of government could give City Council more power. 
•    Structural change would improve the oversight of non-elected boards, such as IDB, HEB, and CDRC.
•    Giving citizens a seat at the table would improve public trust and help level the playing field between development interests and the public interest.
Key Challenges to Reform

  • Misperception that tax breaks are always necessary to get companies to locate or expand locally. IRS records show that state and local taxes make up only 1.2 percent of a typical company’s cost of doing business. Successful companies make decisions based on business metrics such as transportation and labor.  Tax breaks are frequently the icing on the cake.​ 
  • Crony Capitalism—Many individuals & law firms associated with existing PILOTs would appear on a local “who’s who” list of Chattanooga movers & shakers and campaign contributors. They are historically ingrained in the PILOT process. 
  • Unawareness on the part of elected officials of a public perception of the climate at City Hall regarding accessing information or giving input.
  •  Lack of exposure to City Councilors on how structural changes could shift the balance of power between the executive (Mayor) and the legislative branch (City Council).
  • Old habits are difficult to change. 

Strategies for Reform

1.    Adopt rules for PILOT tax breaks based on the Policies and Procedures recommended by Accountability for Taxpayer Money (ATM). 

2.    Acknowledge that residents in many neighborhoods in Chattanooga have not benefitted from the City’s “Renaissance” and that our current tax break policies contribute to the inequity.

3.    Aggressively pursue (“claw back”) money due taxpayers when PILOT businesses have not met their commitments. (Example: $13 million due from Alstom; Walnut Commons). 

4.    Earmark the city portion of the money that is clawed back for a new fund dedicated to meeting high priority needs in urban neighborhoods. Include community representation  in discussion for how money is allocated.

5.    Require PILOT beneficiaries to pay a significant fee at closing. Knoxville collects 5% of projected tax savings with a cap of $300,000 for "jobs" PILOTs. Memphis collects 1% of the total project cost for "housing" PILOTs. 

6.    Define roles in economic development program (Chamber of Commerce, Enterprise Center, Convention & Visitors Bureau, City Hall.) Make clear who is doing what, where money comes from and what it goes for.

7.    Appoint neighborhood voices to the Planning Commission as vacancies occur. (Almost all members of the PC have development ties.)

8.    Convene a small focus group to brainstorm improvements for accessing city public records and improving city website. (Include citizens who have been frustrated with the records process or the website.)

9.    Hire MTAS or outside professional  to rewrite PILOT in lieu of tax and lease agreements to make the documents better protect the public interest and to be more understandable. Include ATM in the discussion.

10.    Provide regular training for elected and appointed officials and staff from MTAS, CTAS or TCOG on the meaning (and the spirit) of the state’s Sunshine Law.

11.    Add more content to city resolutions and minutes to give citizens better knowledge of what is going on and why.

12.    Evaluate opportunities for public comment. Add a Council public hearing requirement for adoption of City budget and approval of tax breaks (PILOTs and TIFs).

13.    Establish a policy whereby the Council or Commission Chair asks, at the beginning of any meeting where there will be a vote on zoning or tax breaks, if any Councilor or Commissioner wishes to declare bias or the possible appearance of a conflict of interest. (This disclosure is required by state law in some states.)

14.    Advocate that the Mayor’s proposed budget fund a full-time policy research position for the City Council, with a small set-aside for professional services.

15.    Convene a small city focus group to explore if a different form of government would better serve Chattanooga. Invite representatives of International City/County Management Association (ICMA) to speak about City Manager form of government. Include ATM in the discussion.

ATM Recommended PILOT Policies and Procedures

Please see Jobs Housing page on this website for ATM's updated recommended policies and procedures.

1.    Application. Develop a comprehensive PILOT application form. Ask applicants to address in writing how their request conforms to these adopted policies and procedures. Charge application fee to hire an independent professional to analyze the costs and benefits to the city and county to determine Public Benefit.

2.    “But For.” Do research to determine if the requested tax break is likely a determining factor for them to locate or expand here. “But for the PILOT, we would not do it.”

3.    No “Retro.” Do not approve a PILOT for companies with projects underway or completed. (No “but/for.”)

4.    Job Quantity. Count only permanent, full-time jobs. Consider excluding managerial jobs in average wage computations. Determine baseline employment on expansions and stipulate that the existing jobs must be retained. Stipulate that the obligation to maintain the jobs will last at least five years beyond the length of the PILOT agreement. 

5.    Job Quality. Require PILOT beneficiaries to pay livable wages and provide health insurance and other benefits. Address if cost-of-living increases get factored in over the life of the agreement.

6.    Real Property. Focus on real property (land & buildings) rather than personal property. Abatements on personal property (equipment) have less capacity for long-term public benefit since equipment is movable.

7.    Job Sectors. Continue past focus of prioritizing production/manufacturing jobs rather than jobs in office, retail, and hospitality. 

8.    Citizen Participation. Provide for increased public involvement. Hold a public hearing or have a designated opportunity for public comment. Always allow at least two weeks between the time a proposal is presented to the City Council or County Commission and the time they vote on it.

9.    Agreements. Ask an independent third-party attorney with expertise in municipal law to rewrite PILOT and lease agreements to better protect the public interest and to improve clarity. Strengthen clawback language to address what happens if companies do not meet their commitments.  

10.    Transparency.  Monitor required annual reports on actual outcomes (jobs, wages, investment). Post reports on local government websites. Require PILOT agreements to be recorded in Register’s Office. Require disclosure of the amount of tax break per year and for their entire term. Document other local public subsidies to the company, including land, site preparation and grants.

11.    Schools. Continue to require all companies to pay school taxes in full.

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

13.    Community Benefit Agreements. Explore the use of CBAs to ensure that major development projects benefit local residents and neighborhoods. 

14.    Anti-Poaching. Explore establishing a code of conduct for “jobs” PILOTs to address relocation and bidding wars between neighboring jurisdictions. Address the use of subsidies to lure companies from one another’s jurisdiction.