Helen Burns Sharp for ATM
"Sunlight is the best disinfectant." This is a famous quote from former Supreme Court Justice Louis Brandeis. He advocated for financial and government transparency. He argued that simply making the actions of public officials more visible to the public was a powerful way of stamping out unethical and unprofessional behavior.
The more that transparency increases, the more likely that public trust will increase.
In this section, we explore public-private partnerships. These can be appropriate at times but they require transparency and strong negotiators for the public at the table.
Summarized below are examples where Chattanooga could have benefited from more transparency on issues such as tax incentives, surplus properties, opportunity zones, the downtown business improvement district, using public property for private use, and making zoning decisions.
On the web page on Governance, we offer ideas on ways to address the problems identified on this page.
I. Property Tax Incentives
Problems with the Current System
Tax breaks to large companies reduce city revenue for needed services. Over $25 million in city and county property taxes were not collected in 2019 due to PILOTs and TIFs. The City gets almost 60 percent of its general fund revenue from property taxes.
Here is some wording from another city's website: "The problem associated with tax-exempt property is one of the most complex and controversial facing the city. Given that property tax is the major source of tax revenue, the large amount of exempt property imposes significant economic costs to the city." Here locally, we first need to regard it as an issue. And a problem.
Challenges to Reform
Strategies for Reform--See web page on Governance.
II. Transparency Case Studies
1) Surplus Buildings (2018)
In the summer of 2018, Mayor Berke’s staff asked City Council to declare “surplus” three city-owned buildings near City Hall so they could be sold to private developers. The buildings provide office space for city staff, including Internal Audit, City Attorney, and 311.
Property is typically considered "surplus" when it no longer serves the needs of the City and, therefore, the public. Two of the buildings were (and are) being used by city staff. Where were these employees going? What was the cost of the move, both long-term and short-term? What impact would moving them have on efforts over the years to create a city "campus" where city offices are close to one another?
The City Council and the public were not provided with a fiscal impact analysis or information on how the buildings would be sold; whether there would be an appraisal; what the evaluation criteria would be in determining the successful buyer; where the city employees currently in these buildings would go; how much the City might be looking at in future lease payments, and whether informal “negotiations” with building owners have already taken place.
ATM raised these issues at Council meetings. Council voted to defer action until they got more information from the Mayor’s Office.
ATM also asked why these properties were to be transferred to the Chattanooga Downtown Redevelopment Corporation (CDRC).
The CDRC was going be asked to enter into a Development Services Donation Agreement with the Enterprise Center for the purpose of overseeing the solicitation of development for the three properties if/when they were declared surplus by City Council.
Such an arrangement could have raised the appearance of a conflict-of-interest in that the Enterprise Center works closely with the owners of buildings who might be interested in buying the city properties or leasing the City office space, including the owners of the Edney Building where the Enterprise Center is located.
These properties fall within the 140-acre Innovation District, which is managed by the Enterprise Center. Mayor Berke, in a State of the City Address, announced that the City is offering up these buildings to help stimulate mixed-use development.
This concept may be worth exploring, but not without good answers to several questions. Is the thinking that the properties will pay enough in property tax to justify the city having to pay for office space elsewhere? Is the plan for the Innovation District to become a tax increment financing (TIF) district? That would mean that for 15 years property taxes would not go to the General Fund to fund basic services.
2) King Street Parking Lot (2016-2018)
In July 2016, City Council responded to a request from Mayor Berke's Office by declaring a heavily used city employee parking lot on King Street as "surplus" and transferring title to the Chattanooga Downtown Redevelopment Corporation (CDRC), a city entity. Council was not asked to adopt findings explaining why they believed this property was surplus and where city employees would park and if the City would have to pay for employee parking in the future.
In the presentation to Council, City staff said that they had been talking for several years to the developer of the adjacent property and that the City wanted to facilitate the development of this property. In 2017 the CDRC issued a request for proposals to sell the parcel. Two corporations responded. The CDRC was prepared to sell to their preferred developer at a price much less than the city had paid for it in 2007 and well below its current market value. The public got wind of this plan, an appraisal was done, and the price more than doubled.
In April 2017, the CDRC Board accepted the developer's proposal but added a provision that the purchase price would be based on the results of a new appraisal. In January 2018, the CDRC President (Daisy Madison) reported that the recommended buyer had rescinded his offer.
In April 2018, the City Deputy Administrator for Economic Development (Charita Allen) informed the Board that the City had learned in January of 2018 that the parking lot is causing flooding in the warehouse building on adjacent property owned by the LLC that had been interested in buying the parking lot. Apparently the developer had been made aware of the drainage issue in June of 2017.
Ms. Allen reported that a permanent fix (grading, paving) was estimated to cost about $400,000. She seemed to presume a role for the CDRC in making the improvement.
ATM suggested that the CDRC at least explore the concept of cost-sharing with the developer since their nearby properties would benefit from the long-term fix. He indicated he might be willing to go 50-50, provided he could also share in the revenues from the lot.
CDRC member (and then Council Chair) Ken Smith asked if the city had legal liability relative to water on the adjoining property. A key question in common law drainage is whether the property owner (here, the City) has done anything to change the water flow since the adjoining property owner bought their parcel (in 2014). The drainage on the city parking lot was believed to be the same as in 2014. (It has likely been that way since and before the City bought the parcel in 2007.)
The Board voted unanimously to move for the “full fix." No one brought up the topic of negotiating with the developer to cost-share both the construction costs and the revenues.
On August 13, 2018, the CDRC passed a resolution authorizing the President to negotiate a design-build contract for a total amount not to exceed $480,000.
The issues here are government transparency and the wise use of taxpayer dollars. Who was looking out for the public interest?
3) Opportunity Zones (2018)
“Opportunity Zones” were created by the federal government as part of the 2017 tax cut bill. The program provides an additional source of capital to investors and gives them a temporary reduction or deferral on their federal income tax bill if they reinvest their capital gains in low-income neighborhoods.
The program is intended to spur private development into projects that will strengthen low-income neighborhoods. Here--and throughout the country--there is a risk that instead of helping residents of poor neighborhoods, the tax break will end up displacing them or simply provide benefits to developers investing in already gentrifying areas.
Hamilton County Mayor Coppinger selected certain census tracts for designation as opportunity zones, choosing areas that were already attracting developer interest, like Downtown; MLK/UTC (including the Innovation District, home of the "surplus" properties discussed above); the Erlanger area (including Lincoln Park); the Southside (including the former U.S. Pipe and Wheland site), and the Westside, (including Cameron Harbor and the former Alstom site.) These developers might not have needed the opportunity zone incentive to convince them to move forward with their plans.
Areas that could have been selected as Opportunity Zones but were not include Avondale, more of East Chattanooga, Glenwood, Orchard Knob, Highland Park, Ridgedale, Oak Grove, East Lake, Eastdale, North Brainerd, and Woodmore. The incentive might have been a determining factor in persuading someone to invest in a "real " low-income neighborhood.
The selection "committee" included representatives from the City of Chattanooga economic development staff, the Enterprise Center, and the Chamber of Commerce. The selection committee did not include representation from neighborhoods that might be impacted and whose leaders are familiar with neighborhood assets and needs.
Were the City Council and County Commission even brought into the discussion about a program that picked winners and losers? Yes, there was a tight time frame, and yes, readiness to proceed is a factor that should have been considered. But there could have been some sunshine in this process.
Another interesting aspect of opportunity zone selection is wording contained in the application to the state that alludes to future eligibility for PILOTs and TIFs for properties within these zones. In the cases of the former U.S. Pipe/Wheland and Alstom sites, the application goes so far as to say that these sites are also eligible for bonding financing. In the future, will someone try to use this wording in an obscure application to claim that these areas are "entitled" to these incentives?
Public trust suffers because of a lack of transparency.
4) Business Improvement District (2019)
In 2019, the City Council passed an ordinance creating a Downtown Business Improvement District. In an opinion piece in the Times Free Press, ATM wrote that a BID could be an excellent tool in making downtown more attractive and safer. But the piece went on to suggest changes to the ordinance as originally proposed, describing it as a Case Study of Power in Chattanooga.
The ordinance the River City Company submitted to the city read quite differently from the ordinances that set up BIDs in Nashville and Knoxville. It referred to "property" rather than taxable property. The BID ordinances in the other cities specified that special assessments only apply to taxable real property. Government properties are tax-exempt, as are tax-exempt non-profits such as churches.
In another departure from Nashville and Knoxville, the special assessments on commercial properties are not based on the assessed value as determined by the county but primarily on (the larger of) building square footage or lot size.
The ordinance River City submitted gave special treatment to properties under current or future PILOT or TIF agreements. What is the rationale for abating a special assessment on three properties that already enjoy substantial property tax breaks? These properties are the Market City Center Apartments, the Heritage Maclellan Apartments, and the River City Company Majestic 12 Theater. Currently, these properties pay zero property taxes to support fire protection, public safety, streets, courts, parks, etc. Is the intent of the wording to pave the way for a TIF district that would include the current site of the baseball stadium?
The River City ordinance appears to have been written by the local law firm (Miller& Martin) that represents a majority of the major property owners in the district and has represented most of the successful applicants for various tax breaks awarded by the city and county. These private attorneys are good at advocating for their clients' financial interests. That is their job.
But who did the work for local government to look out for the public interest in the ordinance?
5) Public Parking for Private Apartments (2015-2016)
A local developer built the 10 North apartments next to Renaissance Park at the corner of Cherokee Boulevard and Manufacturers Road.
Other multi-family developments in the area, including nearby condominium and apartment complexes, provided structured parking for their owners and tenants.
A representative for the developer said at a neighborhood meeting that a parking deck would be too expensive and that they would negotiate with CARTA about leasing 75 spaces in its Renaissance Park parking lot. Apparently the lease is for 50 years.
Residents of the adjacent Bridgeview and One North Shore condominiums said there was already a shortage of parking for Renaissance Park and that the lease of this many public spaces would not leave enough public parking. The lot is heavily used by people visiting Renaissance or Coolidge Parks and the county-owned Business Development Center across the street.
This public policy question did not seem to concern the two public entities who oversee the lot. CARTA manages the lot for the Chattanooga Downtown Redevelopment Corporation (CDRC).
Who was looking out for the public interest?
6) Zoning Contrary to Public Interest (2015)
At 1200 Cowart Street, a previous City Council had limited the height of future buildings to respect the height of neighboring buildings in a National Register historic district across Cowart Street on Market Street.
When a prospective buyer in 2015 proposed a 7-story complex, the City Council Chambers filled with people in opposition to the height. One of the opponents was an architect/urban designer who had played a major role in Chattanooga's downtown Renaissance. The only advocates speaking in favor of the change were the City Councilor for the district and the applicant's engineer. The height restriction was lifted with very little discussion.
Who was looking out for the public interest?
7) Temporary Disappearance of Parking Requirements (2016)
In 2016 the City of Chattanooga made significant changes to its zoning ordinance by creating form-based code provisions for the Downtown and Northshore. During the public process, a number of downtown residents and business owners commented that new apartment and condo complexes should be required to provide adequate on-site parking for their residents. New apartments had recently been built without enough parking, thus negatively impacting existing residential neighborhoods and, in one case, a city park.
Parking requirements were put in the draft. But they mysteriously disappeared as the code changes moved closer to adoption. Reports circulated about a private meeting between certain developers who opposed the requirements and certain city officials who had influence over the wording in the code. After a public outcry, parking was reinstated.
Here is a link to an opinion piece titled "Transparency elusive in zoning rules revamp."
8) The Role of the City Attorney's Office (2012-Present)
One might expect that the Office of City Attorney would be particularly sensitive to issues that might appear to involve conflicts of interest or special treatment. After all, the City Charter designates the City Attorney as Chief Ethics Officer.
However, in most of the examples listed above, the City Attorney seems to have assumed (or been asked to assume) the role of facilitator. Rather than being an independent voice, it sometimes appears that the City Attorney sees his job more narrowly, with a focus on carrying out whatever policy the Mayor favors and business interests want.
The City Attorneys' office has allowed one-sided PILOT and TIF agreements that seemingly are prepared by the attorneys for the companies seeking a PILOT or TIF and are written to benefit the companies. We need the City (and County) Attorney to negotiate for the taxpayers to produce a more balanced agreement.
In the City's first TIF, the City Attorney told the Industrial Development Board at the public hearing that "he understands that Mayor Littlefield supports the project." The City Attorney himself had a personal financial stake in the outcome of the TIF, even though he was a city employee. He received a check for $7,500 after the TIF was approved.
The Volkswagen PILOTs represent the largest tax incentives in Chattanooga's history. The original 2008 PILOT was amended when VW expanded to build SUVs here. This involved a separate agreement, one likely begun by Volkswagen's attorneys and then sent to the City Attorney for review and presentation to Council. Interestingly, one of the VW attorneys who lobbied City Councilors in 2012 in favor of the PILOT became the City Attorney in May 2013. City Council approved the second PILOT agreement in July 2014. Was it appropriate for the same attorney to play for both teams, with no public disclosure of what might appear to raise at least the appearance of a conflict of interest?
The Housing PILOT for the Walnut Commons apartments is the poster child for how the 2002-2015 housing PILOT program failed and how city government has remained unwilling to address non-compliance. The City Attorney never addressed why it was OK for the project not to benefit low and moderate-income citizens, as required by state law, or for the developers not to build a parking structure, which they agreed to do in their PILOT and lease agreements. The City Attorney did not explain why this is the only PILOT since 2008 where the developer was not required to pay school taxes.
In July 2020 the City's Office of Internal Audit (OIA) issued a report about discrepancies concerning LED light fixtures that the City had purchased for about $6 million and then stored in a city warehouse. OIA discovered that the fixtures had gone missing and key city personnel had no explanation. The lighting company provided a copy of a settlement agreement between the company and the city. (The City could not locate its copy.) The agreement was signed by the City Attorney in 2018. However, the City Council never approved the settlement agreement, as required, but the City Attorney apparently allowed the company to remove the fixtures. 2020 Internal Audit Memorandum
This office needs to be de-politicized. One way to do it would be to have the City Attorney report to a professional City Manager rather than to a Mayor.
9) Crony Capitalism?
The lack of transparency on the issues listed above may contribute to a public perception of so-called "crony capitalism," which has been described as preferential treatment based on personal relationships. Public confidence is eroded when a system seems rigged.
If one were to make a list of the names of prominent business leaders benefiting from the tax breaks and public/private partnerships described above, it would be a Who's Who list of the power structure in Chattanooga. ATM acknowledges the risks taken and the investments made by these individuals in our community. We want to believe that their projects were rewarded based on merit and not influenced by personal connections and campaign contributions.
We want our governments to be clearer about how and why they are making decisions. Doing more staff reports and adopting findings to explain their reasons would go a long way towards getting rid of the perception of "sweetheart" deals.
These examples are in the past. But they remind us that we need to make changes to make our government more transparent and more professional. We can do better.
Please see the web page on "Governance " for some ideas.
Accountability for Taxpayer Money-Chattanooga
~Helen Burns Sharp
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