A Nebraska real estate company that owns the Walnut Commons apartments in downtown Chattanooga moved a step closer Thursday to keeping a controversial tax break.
But an attorney for a taxpayer watchdog group opposed to the tax incentive said a decision by a city panel supporting the real estate firm exposes the board to a legal challenge.
"To say you're legally obligated, I disagree. It is your choice," said John Konvalinka, who was hired by Accountability for Taxpayer Money (ATM). "There's legal exposure if you do do it."
The Chattanooga Downtown Redevelopment Corp. (CDRC), after more than an hour of hearing pros and cons, approved a special warranty deed to convey the Walnut Commons property to the Chattanooga Health, Educational and Housing Facility Board. That panel, which earlier granted tax breaks to the development at Walnut Street and Aquarium Way, could give its final approval to documents next month which would effectively permit the real estate firm to keep the incentive.
ATM said the owner of the downtown apartments doesn't pay city or Hamilton County taxes, including for schools. It said that $1 million in taxes have been abated so far, and government will lose another $1.4 million in tax revenues if the break is allowed to continue through 2025.
But deputy city attorney Phil Noblett said he didn't think the CDRC or any other board can undo what was already approved for Walnut Commons.
CDRC member Julian Bell said that while he's sympathetic to the taxpayer group, he said their arguments were "too late." He said the tax break was the deal made years ago to attract housing downtown.
"It may not be a good deal for the city. I don't know," he said. "That's up to the City Council."
City Councilman Moses Freeman, another CDRC member, said that "a deal is a deal."
"In hindsight, it may be a bad deal for the city and its citizens," he said. "We shouldn't make a deal where we give up school tax money."
But, he said, in 2007 the city was trying to bring housing to the central city.
Helen Burns Sharp, ATM's founder, said she didn't know what the group's next step may be. However, she said state law indicates that a tax break such as that given to Walnut Commons should include construction of low and moderate income housing.
"This has been completely ignored in this project and a lot of projects in the past," she said. "This to some of us is significant."
Sharp said that the CDRC wasn't obligated to approve the warranty deed because the transaction with the real estate firm is "a new deal."
Walnut Commons, with 100 apartments, was the biggest such complex to be erected downtown in decades when it opened in 2013. In 2014, a local development group that built the project led by developer John Clark sold the stock in the entity, Walnut Commons LLC, to the 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 the CDRC.
Alfred Smith, an attorney for the real estate firm, said ATM is picking at the details of the Walnut Commons tax agreement to try to have it set aside.
"Folks that just ain't going to work," he said. "You cannot take this away."
Smith said that it's fine that the city has since changed such tax incentives so projects now include the payment of school taxes. But, he said, that doesn't apply to Walnut Commons.
CDRC member David Dalton said he has been involved with the Walnut Commons project since the beginning.
"For me, these are people who have negotiated in good faith and that's where we are," he said, adding that the CDRC wasn't involved in setting the terms of the tax break.
Still, former City Council member Deborah Scott said that in addition to the absence of low- to moderate-income housing at Walnut Commons, a parking garage that was earlier included in the project was never built.
"Where is the public benefit?" she asked.
Scott said it appears the CDRC and the Health, Educational Board made "serious mistakes or poor judgments."
Contact Mike Pare at mpare@timesfree press.com or 423-757-6318.