Tax breaks for the Walnut Commons apartments and other downtown Chattanooga residential projects are boosting rents, hurting the poor and sharpening racial inequalities, some citizens said Wednesday.
But an attorney for Walnut Commons told a city housing panel that efforts to change a tax break agreement to cut off the incentives for the project would be "terribly unfair, illegal and probably unconstitutional."
"My client won't take that lying down," said Alfred Smith, who represents a Nebraska real estate group, to the city's Health, Educational and Housing Facility Board.
Former Hamilton County Industrial Development Board member Joe Rowe told the panel the tax incentives helping spur an array of new apartment projects downtown are creating gentrification by hiking property values and displacing lower-income families.
"It's a huge problem. Poor people can't live downtown," Rowe said.
The situation is also leading to racial segregation, he said, calling the housing program of tax incentives an "apartheid form of government."
He said homeless people are being "pushed out" of downtown and into the Brainerd neighborhood.
Rowe called for a suspension of the housing program until an audit is done to see if developers are meeting terms in some of the agreements that call for 20 percent of housing units be devoted to low- and moderate-income people.
He also cited huge tax breaks for companies such as Volkswagen, saying there are "two systems" in Chattanooga.
"You call it Gig City. African-Americans call it rigged city," Rowe said.
Chattanoogan Franklin McCallie joined in the complaints, saying "I couldn't have said it any better."
"I've been around a lot of people with power getting things that have not done good for everyone in the city," said McCallie, an educator whose grandfather co-founded McCallie School.
Michael Gilliland, chairman of Chattanooga Organized for Action group, also voiced concerns about payment-in-lieu-of-taxes agreements between the city and developers for new apartment projects.
He said state law calls for devoting a certain percentage of such residential units for moderate- and low-income people in such agreements.
Helen Burns Sharp of the Accountability for Taxpayer Money group said she lives in a condominium complex near Walnut Commons, which is at Walnut Street and Aquarium Way near the waterfront.
Some people in the complex "have concerns why our taxes are so high while others are not paying taxes," said Sharp, who has advocated that Walnut Commons be put on the tax rolls.
Hicks Armor, chairman of the housing panel, thanked those people expressing their thoughts. But, he said, the panel is carrying out programs approved by the City Council and Hamilton County Commission. He said the programs are well-intentioned.
"In a given situation, we may find the result of good intentions may not have met good intentions," Armor said.
Panel member Richard Johnson said his concern over the Walnut Commons agreement is that altering the accord would "change the rules of engagement after the fact."
He said that would create a negative sign in future talks with developers, he said.
Walnut Commons, a 100-unit apartment building, was the biggest such complex erected downtown in decades when it opened in 2013.
In 2014, a local development group led by developer John Clark that built the complex, sold the stock in the entity, Walnut Commons LLC, to an Omaha, Neb., real estate company for about $15 million.
Now, the new owner wants to exercise an option to buy the property it has been leasing from a city nonprofit agency, the Chattanooga Downtown Redevelopment Corp.
Board attorney Phil Noblett said that in 2007 the CDRC was trying to infuse new apartments downtown and held the property where the development group wanted to build. It leased the site to Walnut Commons LLC, which obtained the PILOT from the housing board, and the tax breaks were approved by the city and county commissions in 2010, he said.
Now, Walnut Commons LLC "wants to get the CDRC out of the mix of involvement in the property and they'll have a total ownership interest in it," Noblett said. He said Walnut Commons LLC also has the remainder of the 10-year PILOT agreement.
Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318.