• Tax Increment Financing uses an increase in tax revenue -- including property and sales -- to pay for projects that benefit the public.
• Developers front the initial money for a project and pay themselves back over 20 years, using subsequent tax revenues over and above the base level.
• The city and county must provide services such as fire and police protection for the TIF area with no increase in revenue, but once the project is paid off, the additional money begins to flow into city coffers again.
What: Residential and commercial development on currently undeveloped land on Aetna Mountain
Size: 3,000 acres
Cost: Developers estimate they will pay $500 million to build the homes and commercial buildings, and $60 million for roads and utilities.
What's there now: The area is home to popular four-wheeling trails, a 1,200-acre wildlife preserve and the 450-unit Cummings Cove neighborhood and golf course.
What's next: Developers must built a $9 million road up the mountain before they can start building.
Source: Black Creek Development Group
A proposed 11/2 mile road up Aetna Mountain may not pass the smell test, a Chattanooga city councilman said Tuesday.
Developers want to use taxpayer financing to fund a $9 million "spine road" up the mountain, which is necessary to begin a $560 million residential and commercial project there. It would mark the first time that this type of financing -- known as Tax Increment Financing, or TIF -- has been authorized in Chattanooga.
But if developers can afford to spend $500 million on housing and $60 million in development costs, why not fund the $9 million road themselves, asked City Councilman Peter Murphy.
"You're talking about 0.6 percent of the project cost," Murphy said Tuesday at a meeting of council's Legal, Legislative and Safety Committee. "That's where I'm wondering if this passes the test of: Does it happen if we don't do this?"
TIF, which captures incremental tax revenues to pay for the road, is authorized by the state Legislature in cases where the development wouldn't happen without it.
Developer Gary Chazen, partner in the Black Creek Development Group which is trying to build the community, argued that the city pays nothing up front, gets a road out of the deal, and ultimately receives the same tax revenue it's getting now -- until the road is paid off in 13 years.
Under Chazen's plan, Chattanooga would continue to receive the $34,000 in tax revenue it currently collects for the property, along with increased funding for schools from property tax generated by the development's homeowners, but would defer several million dollars in general tax payments from the development until the road is fully paid for, he said.
When the road is paid up, Chattanooga and Hamilton County each could begin to receive $2 million to $3 million in estimated yearly tax revenue, developers estimate.
"The city is not putting up the money, the developer is," Chazen said. "[TIF] is just an accelerator."
City Councilwoman Deborah Scott, however, is far from convinced.
Among a number of objections to the plan, Scott called for a referendum before any City Council vote to allow the taxpayers to decide for themselves whether they will support city services for the area during the 13-year interim.
"Every time you do one of these creative financing things, you're carving something out of the general fund," Scott said. "This needs to go before the people as a voter referendum decision because this is a major step. There is a tremendous outlay here, a subsidized cost that everyone else will be paying."
Scott said it is unfair to current residents in her District 1, which includes Lookout Valley, Moccasin Bend and other eastern areas of Chattanooga, to allow the Black Creek developer to "jump the line" and receive subsidized city services. Some people in District 1 are still waiting for city water, she said.
"That's a particularly bitter bill for people who are already waiting on a list to tolerate," Scott said. "And we're talking about adding 1,500 houses to a current system that, on wet weather days, is beyond capacity, that would bear upon the very same system."
That's missing the point, others council members argued, because the project serves a greater public good.
"With 3,000 acres up there, that's bigger than Lookout Mountain," said Councilman Andraé McGary. "We're creating a new city."
Alfred Smith, an attorney for law firm Miller & Martin, which is representing the developers, compared funding the road to the city's deal to lure Volkswagen to Chattanooga.
"Aetna Mountain is going to be developed," he said. "Whether it happens in 2012 or 2022 may very well be decided by whether you approve this TIF."