Sohn: Building affordable housing one brick at a time

Chattanooga Mayor Andy Berke.
Chattanooga Mayor Andy Berke.

Tax incentives to spur development - both economic and housing development - have long been controversial in Chattanooga.

To many, the incentives seem like discounts frequently awarded to give already high-rolling developers years of tax-free holidays, while they amount to additional tax burdens for us ordinary Joes and Janes.

But to city, county and Chamber of Commerce officials who often have to fight tooth and nail to lure those developers to build here instead of Memphis or Nashville or even Ringgold, Ga., the incentives are make-or-break deal sealers.

In the end, there is no one-size-fits-all answer about the true value of tax breaks for development, known as Payment in Lieu of Taxes - PILOTs, for short. And all too often, the benefit or boondoggle accountability we all seek on the question of tax breaks doesn't become apparent until long after the mortar is dry.

So Chattanooga Mayor Andy Berke's announcement last Tuesday, that the city and county will retool a tax incentive program for developers who build rental property downtown to a more open-ended one providing incentives only for affordable housing, brought mixed reviews.

Berke says Chattanooga will no longer offer tax incentives for new downtown condo-like rental units. Those already are bringing market value sales, and then some. In recent months this paper has reported that Chattanooga ranks seventh in the nation for fastest-growing rents and that our rent prices have risen three times faster than incomes here.

Instead, Berke plans incentives now only for developments that guarantee "affordable" housing for renters who earn 80 percent or less of the area median income. Median income in Chattanooga is $23,804 for an individual and $37,160 for a household.

A redevelopment for aging high-rise apartment buildings where elderly or low-income people live would be a perfect example, Berke says. Some of these properties are privately-owned, subsidized, dilapidated buildings.

Berke's plan makes good sense. In recent years, trendy Chattanooga developers could receive tax breaks for new rental development only if they agreed to ensure that 20 percent of their development would be rented as "affordable" housing, while the other 80 percent of apartments brought high-dollar downtown rents. With this change, Berke says, developers will no longer get tax incentives for majority market-rate rental properties. Tax breaks will only go to projects with majority or all affordable rentals.

"The next project you are going to see will be 100 percent affordable," the mayor says.

That's not to say the housing incentives of recent years cheated city coffers: They did what was intended, the mayor says. They spiffed up city living, sparked downtown housing growth and brought people back downtown to live.

What Berke doesn't say, but we can, is that those incentives - despite their stated purpose being to grow affordable housing as well as market value - seemed to have worked too well. Hence, our fast-growing rental prices.

Helen Burns Sharp, a retired city planner and longtime tax-break critic, says she wants to be positive about the new plan, which she says city officials dubbed "the non-PILOT PILOT."

"I'm pleased the old program is gone. I'm encouraged that affordability is supposed to be the heart of this new program. I'm wary that there are no policies and procedures. And I'm hopeful that a PILOT proposal by John Wise might be used as a prototype for the new PILOT policies," she said. Wise, a local developer, has pitched a Chestnut Street apartment project with input from Sharp.

Berke is short on talking about the specifics of policies, but he understands and appreciates the wariness. Yet he also says he has learned over the last few years that tax-break programs are difficult and questioned as much for too many policies as they are for too few, so he wants the new policies to include some flexibility.

One size does not fit all properties, he believes. Some of city's aging high-risers sit on some of Chattanooga's most prized real estate, for example.

It would be far too easy for them to suddenly become high-dollar condos, Berke says. Should that happen, the community would lose the diversity of fixed-income elderly residents or young people starting out on base salaries because they are suddenly pushed out to the suburbs where they cannot easily travel to downtown doctors or access other needed services.

"The only way" properties like these will be redeveloped as affordable housing will be through the use of affordable housing PILOTs, the mayor says.

The devil is in the details, of course. And right now, we're in a space that can be called "details to follow."

That's OK. That's a good place, as a matter of fact. It's where we all - city officials like Berke, taxpayer watchdogs like Sharp, developers like Wise and community advocates like Franklin McCallie - can come to focus to how to make this worthy program work.

Watch this space.

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