The Hamilton County Commission voted unanimously to approve bonds for a private development project under the tax increment financing process permitted by law in Tennessee. This is the first time the county has engaged in such financing, and there was no public discussion among county commissioners on the matter, the Times Free Press reported.
Tax increment financing was conceived in California as an incentive for local governments to encourage development of real estate that otherwise would be considered blighted or of low value to stimulate growth and boost property values. The financing uses a tax revenue increase to fund projects that benefit the public. Developers pay for projects and pay themselves back over a 20-year period with other tax revenues.
The use of the financing has been extensive in cities such as Chicago, which designates districts eligible for the taxpayer-subsidized developments, and the money is "used to build and repair roads and infrastructure, clean polluted land and put vacant properties back to productive use, usually in conjunction with private development projects." The intent has been to improve low-valued properties that never would be developed without the incentive or tax breaks.
Tennessee Gov. Bill Haslam signed into law a broadening of the tax increment finance tool, allowing local governments to expand their defined uses for the funding.
The Hamilton County-approved project was for a $9 million bond over a 20-year period to create a mixed-use community just across the valley from Lookout Mountain, overlooking the Black Creek Mountain golf community.
The City Council's Legal, Legislative and Safety Committee discussed the Aetna Mountain development request for tax dollars to fund a 1.5-mile "spine road" that would access the projected $560 million project. Good questions were asked.
Councilman Peter Murphy asked about the current scope of tax increment financing subsidies, "That's where I'm wondering if this passes the test of: Does it happen if we don't do this?"
Pam Ladd, council chairwoman, noted the need to develop criteria to award such tax breaks, and said she expects a precedent to be set for other developers to seek these city subsidies.
Councilwoman Deborah Scott, who represents the district in question, did her job. While acknowledging the welcomed development, she represented existing citizens awaiting undelivered services they're already paying for, such as city water, through their taxes.
In contrast to the unfolding situation in Hamilton County, Knox County and Knoxville city governments have been successfully in using tax increment financing for development, guided by specific criteria and a detailed process for application, review and selection, according to knoxdevelopment.org.
A few logical questions: Since there is no apparent process now in place defining criteria for taxpayer subsidies, shouldn't there be to avoid arbitrary decisions? In the Hamilton County-approved agreement and the one under review at the City Council, is there a claw-back provision that mandates repayment by the investor group receiving the taxpayer money if the project does not live up to its promises?
The Tennessee Advisory Council on Intergovernmental Relations wrote in "Tax Increment Financing: Opportunities and Concerns" that "expansion over time of the use of TIF to aid in any development project, rather than to aid only in the development of 'blighted areas' that would not be redeveloped 'but for' TIF, has created some controversy." The "controversy" is related to the squeeze for tax dollars for existing and backlogged projects and public services competing with private-sector development.
Area taxpayers want and have benefited from economic development and job creation. Good stewardship of our tax dollars includes asking difficult questions and establishing processes that define an obtainable and objective pathway to success -- for all.