No tax increment financing for Aetna Mountain

No tax increment financing for Aetna Mountain

May 3rd, 2012 in Opinion Times

Private developers here are seeking permission to use a novel form of tax increment financing, or TIF, to build a $9 million road up Aetna Mountain, in order to then develop a future, and unusually large, residential and commercial community. They are making a big ask. It should not be granted.

There's a good reason why tax increment financing hasn't been used here for such a project: It sets a precedent for general residential and commercial development that would open to the door to an unending stream of requests for tax abatement to boost other developers' projects. Then the problem would be whether, and on what conditions, to grant certain developers tax abatement favors that would be denied to other -- or that ultimately must be granted to all, to the detriment of the city and county governments and the tax revenue they need to build infrastructure to serve the collective growth that developers promise.

The city and county governments shouldn't go there. Granting special tax diversions to help developers and their lenders finance their upfront development costs would essentially shift the benefit of higher tax revenue from such developments to lenders' pockets rather than to public benefits. That means taxpayers would have to pick up the tab for new infrastructure until the tax abatement period -- generally 10 to 20 years -- expires.

The proposal that raises this issue comes from a group of businessmen who say they want to build what they predict would be a $500 million resort-style community on Aetna Mountain, the last undeveloped mountain among those that rim the city. They foresee future construction of a 150,000 square-foot office park, 1,500 homes, a 20,000-square-foot corporate retreat, a 30,000 square-foot mixed use town center, plus restaurants and stores, along with a conservation agreement for more than 1,000 acres. In other words, a full-blown community.

The development group, MSBC Black Creek, which includes Gary Chazen and Doug Stein, would access Aetna Mountain from existing development off Cummings Highway. Brant Enderle, a representative for York Capital, which would provide the $9 million needed to build the road up the mountain, told the Chattanooga Industrial Development Board Tuesday that risk to taxpayers would be minimal.

Daisy Madison, Chattanooga's director of finance, said there would be no risk to taxpayers or financial liability for the loan in the event the project fails. As she described the terms of the TIF agreement for the $9 million loan (plus interest) under state law, increases in tax revenue due to the development above current general city and county taxes -- but not the county's school tax -- would be abated, escrowed and used exclusively to pay off the loan taken to build the access road. When the loan is paid off in 20 years, the city and county would reap the tax benefits of the new development and any overage in escrow account.

Generally, such tax abatement agreements, whether for new industries or business expansions or the downtown redevelopment and tourist districts, are granted on the grounds that local government has nothing to lose, and everything to gain in larger future tax revenue. That's essentially the developers' argument for an Aetna Mountain TIF agreement to outsource the cost of their road up the mountain, never mind that the payback to the lender would be in tax dollars foregone by city and county governments.

That might have momentary appeal for the proposal, but it's still a slippery slope -- and it's still a special subsidy that shifts costs to taxpayers.

The precedent for other developers to make the same argument cannot be minimized. And if, in the alternative, local governments could legally deny a TIF abatement to other developers for help on upfront costs, then the Black Rock group would be getting a special advantage for a development that most likely would simply displace other new developer-funded developments, rather than add to that to total growth.

Either way, the city and county have no business granting such an unfettered taxpayer subsidy for a new private development that does not substantially leverage job growth or municipal redevelopment -- the core principle for tax abatements.