After three-month delay, Choo Choo tax freeze deal clears first hurdle

The Chattanooga Choo Choo basks in the setting sun in Chattanooga, Tenn., in this file photo.

After three months of starts and stops, an agreement that will freeze taxes for more than a dozen years on an apartment expansion at the Chattanooga Choo Choo Hotel passed its first hurdle Tuesday.

The Chattanooga City Council unanimously approved the payment-in-lieu-of-tax agreement -- known as a PILOT -- for the historic hotel with an 8-0 vote, but it still faces the County Commission and the city's Health, Education and Housing Facilities Board.

City Councilman Yusuf Hakeem, who has criticized housing PILOTs that do not provide housing for the poor, called it "a wonderful project" and said "it sets an example, I feel, for PILOT programs moving forward."

The Choo Choo PILOT is unique, because nearly 98 percent of the apartments will be rented for $800 or less. The program requires that only 20 percent of the apartments are affordable.

Former Mayor Jon Kinsey and about 30 other partners at the Choo Choo plan to convert 97 rooms in the old hotel into 355-square-foot studio apartments. They are asking for a 16-year PILOT because 95 of those rooms will be rented for up to $800 a month, including utilities, to residents who make $31,000 or less -- 80 percent of the county's median income for a single person.

photo Jon Kinsey, managing partner with the Chattanooga Choo Choo, and his son, Adam Kinsey, redevelopment project manager, answer questions about proposed multi-million dollar renovations that are planned for the Chattanooga Choo Choo in this Oct. 11, 2014, photo.

What's next?

The PILOT will go before the Hamilton County Commission on Thursday for its agenda session.

Councilman Chris Anderson, who represents the downtown area, was absent Tuesday but said earlier that day in a text message he supports the Choo Choo PILOT.

Under the PILOT, the Choo Choo's property taxes on the conversion to apartments will be frozen at roughly $16,000 a year for 12 years, with the county school system getting its full share. After that period, the Choo Choo will pay a graduated tax rate on the new property value for four years.

The aim of the project is to attract young professionals to live downtown. The conversion is part of an $8 million renovation of the hotel, which is not part of the apartment tax agreement.

The vote Tuesday came after last-minute changes to the PILOT that tightened up some of the language of the three-month-old proposal. Councilman Ken Smith suggested that the changes be implemented on all housing PILOTs moving forward. That would require a vote by the City Council.

The changes will prevent the PILOT from automatically transferring to a new owner if the property is sold.

A previous PILOT program by River City was criticized after a tax abatement agreement for the owners of Walnut Commons, a 100-unit high-end downtown apartment complex, transferred with the property when the apartments were sold last year for $15 million to a Nebraska company.

"We're OK with it," Kinsey said of the addition of the non-transfer clause. "We are there for the long haul, but that is a significant change [to the agreement] and will be tough for some people to live with."

Under the changes, the Choo Choo partners will also have to submit an annual report to city and county officials disclosing the amount invested at the site and a certified roll of rents in the building.

City Attorney Wade Hinton also said that previously defined, prorated claw-back provisions in the agreement have been replaced with language that allows city and county officials "more discretion" with limiting or ending the agreement if investment and rent commitments aren't met.

Kinsey said the changes to the agreement don't alter his plans, but they were tough to swallow after waiting more than three months to get the city to move on the project.

"They changed significantly the program that we're under. This has been a tough process and a long process," Kinsey said.

The Choo Choo project was first proposed in December. It has since been delayed after the city's HEB had membership issues and couldn't gather a quorum. The city had to restock its board last month.

Tuesday's changes to the PILOT agreement also came after the Chattanooga Tea Party and local public interest advocates called for a review of the housing PILOT program.

During Tuesday's agenda session, the City Council invited residents to publicly speak against the tax agreement. No one did.

River City Co. President and CEO Kim White said Tuesday the changes came from lessons learned after the housing PILOT for an apartment complex at 500 Lindsay St. The first in a new program for housing PILOTs, it narrowly passed the City Council and the County Commission last month in split votes.

"There seemed to be some low-hanging fruit that were changes that needed to be tweaked," White said. "With the [Lindsay Street PILOT] -- with how close the votes were -- we realized that there were some things that need to be changed, and they're good changes."

The PILOT will go before the Hamilton County Commission on Thursday for itsagenda session.

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

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