Residential, industrial PILOT agreements work differently

Residential, industrial PILOT agreements work differently

August 5th, 2014 by Joy Lukachick Smith and Ellis Smith in Local Regional News

Construction workers install cardboard tubes for pouring concrete into vertical columns at the construction site of retail and apartment space on the corner of Main and Market streets in downtown Chattanooga.

Photo by Doug Strickland /Times Free Press.

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Payment-in-lieu-of-taxes, or PILOT, agreements are a favorite tool for attracting investments and jobs from companies like Volkswagen, Coca-Cola and Chattem.

But a new PILOT agreement proposed by Chattanooga Mayor Andy Berke's staff to attract residential development marks a departure from precedent, and is likely to add confusion to a process already little understood.

Though called by the same name, the existing industrial PILOT and the proposed residential PILOT types of agreements operate differently.

Industrial PILOT agreements are negotiated in secret between the Chattanooga Area Chamber of Commerce and businesses that are looking to move here. The groups agree on the investment and jobs created, then present a proposal to the Industrial Development Board, City Council and Hamilton County Commission to freeze some part of the company's property taxes for a certain period.

The city's residential PILOT, as proposed, would be negotiated with River City Co. and the developer for a 10-year property tax break. The deal they reach would go before the Health, Educational and Housing Facility Board, the City Council and the County Commission for final approval.

The City Council will vote on the PILOT proposal tonight. The County Commission already has approved the plan.

River City introduced a similar PILOT agreement in 2002 that helped pave the way for multiple high-end townhomes, such as the Walnut Commons off Aquarium Way, the Bread Factory Lofts on the Southside and the Mountain City Lofts off Main Street. That agreement has expired.

City officials say the major difference this time is that developers will be required to rent 20 percent of their units at rates affordable for people who make less than 80 percent of the area median income, or around $31,000.

Helen Burns Sharp, a retired city planner who is sharply critical of city and county tax incentives, said this agreement is better than the previous one, but she's concerned it could set a precedent for future housing development. And the process prompts more questions about transparency, she said.

"I'm not anti all tax incentives or PILOTS, but there needs to be an application made public. There needs to be criteria, and this information needs to be presented to the public and the public needs to have time to comment," she said.

Jim Williamson, vice president of planning and development for the River City Co., argued that the benefits of this housing agreement outweigh the costs because the infrastructure, such as the sewage lines, electricity and buildings, is already in place and the city isn't spending extra money to offer the tax break.

Freezing the taxes for a few years will increase the number of people downtown, who will spend more money at downtown businesses, he said.

"You don't get that [benefit] to the same extent in suburban areas," he said.

Contact Ellis Smith at 423-757-6315 or

Contact Joy Lukachick at 423-757-6659 or jluka