A Chattanooga developer's unprecedented request to be given a six-year-old tax break on his nearly completed downtown apartment complex prompted a lively debate about whether the city's tax abatement program runs unchecked.
"This is clear. That because we haven't done this right we're in this mess," said Tresa McCallie from the audience of the local bond board meeting Wednesday. "I feel bad for everybody because the city didn't do it right in the first place."
On Wednesday, local developer John Wise argued in front of the Health, Educational and Housing Facility board that he shouldn't have to pay taxes for five years on the residential portion of his new Main and Market mixed-used property, citing a payment-in-lieu-of-taxes, or PILOT agreement, that was approved in 2010 for a different developer on the same property. The initial agreement was for 10 years and then a 20 percent phase-in for four more years.
Wise purchased the property on the corner of Main and Market streets from River City Co. two years ago after a financing deal went south with the previous developers, Gavin Thomas and Eric Cummings. In 2015, Wise then merged his Main Street Apartments LLC with the prior developers Mission Partners LLC, that dissolved in 2012.
Wise's attorney, Gary Patrick, argued Wednesday that since their current entity was the same as the previous entity, the PILOT should be honored. But several board members said it wasn't clear cut, since the deal was made with different developers for a different project.
Board members also wanted to know why Wise waited until his project was 90 percent complete to bring his request to the board. And Board Chairman Hicks Armor asked whether Wise needed a PILOT, since he had already self-financed the project.
"I stepped into this mess," Wise responded. "River City got egg on their face Then basically a guy like me has to go pull off a project like this in an unreasonably short time."
Wise, who has never requested a PILOT for any of his other numerous development projects on the Southside or the North Shore, said he sought legal counsel after he purchased the property and thought it was clear in the resolution that the PILOT agreement would be honored for his project.
But City Attorney Phil Noblett said another legal concern was that the board had never signed the lease to approve the original PILOT agreement after they voted to approve it.
In the end, the board voted to defer on the agreement for another month to work on a resolution that Armor said would be fair to both Wise and the taxpayers.
But the legal back-and-forth debate that lasted more than two hours revealed a bigger question over whether there is a double standard for PILOT agreements approved before significant changes were made to the law in 2014 and what authority the board has to uphold the standards.
PILOT agreements issued before 2014 - which would include the Main and Market development - don't give developers specific requirements for how many apartment units should be set aside at an affordable rate. The old PILOTS also didn't require developers to continue to pay the school portion of their taxes. But in 2014, the City Council approved a new tax abatement program that required developers who asked for a 10-year tax break to set aside 20 percent of their units for low-income or disabled residents.
Several residents in the crowd who have been critical of housing PILOTS said it would be unfair for Wise to piggy-back off of an old agreement and not be held to the current city standards for new tax-break agreements.
"You're being put in an awkward position," said Helen Burns Sharp, founder of Accountability for Taxpayer Money. "Is this up to you to decide?"
A few board members agreed. And they asked Noblett whether they could renegotiate the old deal with Wise for the remainder of the PILOT agreement. The city attorney will meet with Wise' attorney to work on a new agreement before the board votes next month.
Currently, he said the city is working on a new system to hold developers responsible for the PILOT projects approved since the rules were changed in 2014. The HEHF board is also working on a format to require developers to give them an annual report on whether they are in compliance with their agreements.
But board member Lloyd Longnion said there is still no current mechanism in place to hold developers responsible for any housing PILOT agreements before the changes were made in 2014.
"I think it's horrendous, as a taxpayer," Armor told the crowd, referring to the old PILOT agreements.
Contact staff writer Joy Lukachick Smith at jsmith@timesfreepress.com or 423-757-6659.