Chattanooga's City Council is set to vote Tuesday on new rules guiding how and when local tax revenue may be used to aid private developments.
The proposed ordinance comes out of the controversy three years ago when tax increment financing for the Black Creek Mountain development provoked a lawsuit against the city bond board.
The council will consider a 22-page resolution that spells out how the city should evaluate and decide on using tax increment financing for economic development. Such financing — known as TIFs — allows the city and county to build infrastructure or even pay for part of a development in advance, reimbursed by the extra property tax collections local governments will recoup over time from the project.
Chattanooga Mayor Andy Berke said there are no pending proposals for TIFs, but the city needs to have a policy if such a proposal comes up.
"Before, we really didn't have standards for how to evaluate proposals for tax-increment financing," Berke said. "We want to make sure if one ever comes along in the future, we have transparent standards to judge it by."
A lack of transparency led to a lawsuit against Chattanooga's Industrial Development Board over the city's first use of a TIF in 2012 for Black Creek Mountain. The city and board approved a plan to build a $9 million road to the top of Aetna Mountain to expand the high-end golf course community.
The bonds sold to pay for the road will be repaid from the extra property tax revenues generated from the new homes and businesses built within the designated taxing zone around the new development.
Helen Burns Sharp, a former city planner who has criticized what she sees as overly generous tax breaks given to some businesses, filed and won a portion of a lawsuit against the city over the Black Creek project. Hamilton County Chancellor Frank Brown found the board's procedures in granting the Black Creek TIF violated state open meetings laws.
The Industrial Development Board had to meet again in public and re-approve the plan. The developer is appealing another part of Brown's ruling.
Sharp has helped organize a citizens watchdog group known as Accountability for Taxpayer Money, or ATM. She said its members are pleased that the city is trying to set standards for aiding private developments with tax increment financing.
The resolution up for council review Tuesday allows the city to use up to 75 percent of the extra property tax revenues generated in 10 years within a designated tax zone — or up to 60 percent of the extra property tax collections in an area for up to 15 years — to pay for capital, land and infrastructure expenses for projects that economically benefit Chattanooga.
Councilman Chris Anderson, chairman of the council's economic development committee, said the council has been working for a year to develop better standards.
"The resolution will give us guidelines for deciding upon future projects, but the council ultimately still has the authority to decide upon any given project," Anderson said.
Sharp urged the city to require anyone seeking such assistance to pay for an economic impact plan up front to ensure that the city support is necessary that protections are in place if the project isn't built.
"We believe TIFs can be a valuable economic development tool when used judiciously and the city's draft is a good start," Sharp said.
But she said stronger "clawback" provisions are needed to ensure the governments can get their money back if the promised benefits do not pan out.
"We recommend an independent cost-benefit analysis by a CPA, paid from the application fee," Sharp said. "We also believe that clawbacks are the true test of whether public officials are serious about accountability."
A report given to the council this spring by the Nashville law firm of Waller Lansden Dortch & Davis said at least seven other Tennessee cities have used tax increment financing, including such projects as the funding for Nissan's North American headquarters in Franklin and the redevelopment of Nashville's old convention center.
Berke said such financing could be a useful tool to redevelop areas such as the former Wheland Foundry and U.S. Pipe & Foundry sites on Chattanooga's Southside.
"There are many circumstances where you can help a project with infrastructure that builds jobs in an area and you can do that with the incremental tax dollars generated from that area rather than from other tax dollars," the mayor said.
Berke said his administration "has made tremendous progress" in better defining and publicizing how tax breaks are used for business development in Chattanooga, including property tax breaks issued through industrial development boards.
"We put every abatement deal on the Internet now so that any citizen can see all the details, and we've strengthened our clawback provisions to help protect the taxpayer," he said.
Contact Dave Flessner at email@example.com or at 423-757-6340.