Critics question tax-break practices in Chattanooga

The Southern Champion Tray logo is seen on their wellness center sign in this 2013 file photo.
The Southern Champion Tray logo is seen on their wellness center sign in this 2013 file photo.

The Chattanooga Industrial Development Board approved a $500,000 tax break for the expansion of an 87-year-old Chattanooga company recently, and that has left some residents questioning whether tax relief designed to bring growth to the area should be given to companies that already have deep roots.

The city and county governments approved the eight-year payment in lieu of tax agreement for an $18.1 million expansion at Southern Champion Tray last month, and the IDB put the final OK on the PILOT on Dec. 15.

Southern Champion Tray, which opened in 1927, is one of more than a dozen established local companies that have been granted PILOTs for expansions since 2008, according to Chattanooga Area Chamber of Commerce records from July 6. That group includes Alstom TMG, Chattem, Unum, Coca-Cola Bottling and others.

It's one of 20 commercial PILOTS active in the city, but five will end this year. A PILOT for SIAG Aerisyn, a wind turbine company, is technically on the books, but that company went under in 2012.

County Mayor Jim Coppinger said there is no limit to how many PILOTs the county will enter. Each one is taken individually. If the job creation and investment numbers are strong, the county will move forward with the tax relief, he said.

This is Southern Champion Tray's third such PILOT for new equipment and expansion since 1996, according to Hamilton County tax records.

Helen Burns Sharp, a resident activist who won a lawsuit against the IDB over the passage of another type of tax abatement for a high-end residential golf development, says there's probably nothing wrong with the tray manufacturer's PILOT. But she wants the process to be more transparent. And she's calling on the Chattanooga City Council to set policy and guidelines for measuring PILOTs.

"We all care about jobs and economic development. Sometimes tax incentives do make a difference in where a company locates. But an increasing number of citizens wonder if all of the PILOTs currently in effect are necessary and appropriate. Might it be that we sometimes just reward companies that would be expanding or locating here anyway?" Sharp said in an email.

City, county and chamber of commerce officials have said the food tray maker was considering an expansion at its Dallas-Fort Worth, Texas, location if the PILOT didn't come through.

Southern Champion Tray chief executive John Zeiser said after the vote that the PILOT definitely played a factor in the decision to expand locally.

"We do have a plant in Texas, and every investment decision comes down to a combination of location, incentives and anticipated return on the investment," Zeiser said in an email. "All the PILOT does is slow the rate of growth for a period of time and give us the chance to start recouping some of our investment faster than we could without it."

And Coppinger said keeping businesses is just as valuable as bringing new ones in.

"I know people think these expansions aren't competitive, but they are," he said. "We are just as aggressive about expansions as we are about relocations. It's what the people of this county expect of us -- to grow this county through economic development."

That's how other governments in the state view things, too.

Todd Napier, president of the Knox County Development Corp., the body that administers PILOTs there, said expansions and relocations are treated the same.

Bottom line: Jobs and growth are good, Napier said.

"Expansion wouldn't be treated any differently from any other business," he said.

But in Knox County, there are six industrial commercial PILOTS.

"When Chattanooga was able to develop the old ammunition plant down there, it dwarfed us," he said.

Napier was referring to Enterprise South Industrial Park, the home to Volks- wagen -- recipient of the county's largest PILOT, with $238 million in property tax forgiveness on a $1 billion investment over 30 years.

The majority of Knoxville's PILOTS are actually for historic restoration in the city's downtown. There are about 20 such tax deals, he said.

Chattanooga has more local commercial PILOTs than Knoxville, but former Chattanooga city councilwoman Deborah Scott said more doesn't mean better. She said no one is analyzing whether the amount of deferred taxes for all the current PILOTs -- more than $285 million as of July 6 -- is actually what is driving growth.

And when she served on the council from 2009 to 2013, she noticed a pattern of established companies being awarded tax breaks whenever they planned to expand. To her, PILOTs should instead be used to bring specific, targeted industries to the area.

"I don't think there's that kind of thinking ahead of time -- what is it we want? I got the impression that basically there was a small group of people who were trying to perpetuate the businesses we already had," Scott said. "It was something you could almost time. You knew when the PILOTs are going to be up and a new one would be requested."

Scott said the Southern Champion Tray PILOT, a recent Coca-Cola Bottling agreement and a multiphase Alstom abatement were examples of revolving tax breaks.

City Mayor Andy Berke said he could understand concerns about the secretive nature of the PILOT negotiation process, but said they are not foregone conclusions for any company.

"We turn down many deals because what the companies are asking for is just too expensive and not worth the investment," Berke said. "Usually the ones that get to commission and council are the ones that have been extensively vetted.

"Ultimately, we balance the transparency with knowing that many companies don't want to talk about these possible relocations and expansions until there's a done deal," Berke said.

He and Coppinger declined to cite examples of companies that were turned down.

"We don't want to tell people about our failures to reach an agreement with somebody about a PILOT, because that would just be something to discourage businesses from entering talks with us about economic development," Berke said.

But a former IDB chairman, Ric Ebersole, said in September that other cities, such as Knoxville, Nashville and Memphis, handle tax break deals for industry in a much more open way.

"We have always done this thing in such a way that the public always rightfully perceives this as being back-room deals," Ebersole said in September. "The idea is that none of us -- the public, the council, the bond board -- can explain how the decisions are made."

Tim Price, who owns JAT Systems, a 20-employee polymer and specialty coating manufacturer in Sale Creek, said PILOT agreements are unfair altogether.

"In principle, I think this is unconstitutional -- picking the winners and losers," Price said. "But we end up paying for it. Our taxes pay for these big companies that could afford [expansions] themselves. This is basically taking money from the poor and middle class, and giving it to the rich."

But Coppinger said growth generated by the PILOT programs in the city and county have saved taxpayers' cash.

"The growth has helped us to not even consider a property tax increase," Coppinger said.

Property tax revenue has consistently grown from 1 percent in 2011 and 2012, to 2 percent annually since 2013.

Contact staff writer Louie Brogdon at lbrog don@timesfreepress.com, @glbrogdoniv on Twitter or at 423-757-6481.

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