After calls for change, Chattanooga mayor revises tax breaks for downtown developers

Andy Berke says focus of amended incentive program will be affordability

It's hard to react to something when you don't know what it is.

After months of critics calling for the city to halt its tax incentive program for developers downtown, Mayor Andy Berke announced Tuesday that his office would revamp the program.

While the mayor called the payment-in-lieu-of-taxes, or PILOT, program a success, he said his office would take over the program from the nonprofit River City Co., and officials would only consider approving tax breaks for developers who propose projects in which the majority of apartment units are set aside for low- to moderate-income tenants.

"We see right now there is a great deal of development going on in our city; we want that to continue," Berke said at a news conference. "We think the market is strong, and from an incentive side, our focus will be on affordability."

Critics expressed mixed reaction to the announcement, because the city offered few details about what kind of housing projects might be approved in the future for a 10-year tax break.

"It's hard to react to something when you don't know what it is," said Helen Burns Sharp, president of the taxpayer watchdog group Accountability for Taxpayer Money.

When Berke revived the tax break program in 2014, the city called the program a "crucial step" toward lowering rents downtown. But critics have argued for months that the tool has only helped build market rate apartments and hasn't benefited the poor or workers who want to live in the city center, where rental rates are among the fastest growing in the nation.

But Tuesday, Berke took a different stance and said affordability was not the goal of the tax break program when it was reintroduced two years ago.

"The goal was to unlock developers because we had seen a lack of new housing options in our city for years and years," he said. "As the market improved, it has become clear that the new issue was affordability."

Since 2,100 units of apartments will be available to rent in the next two years, the program worked and the city no longer needs to focus on giving incentives to developers for market rate housing, the mayor said.

Some praised the mayor and the City Council for listening to the public and called the changes a good first step to increasing affordable housing in the city.

"This news comes as a tremendous victory for the people that have dedicated countless hours and many years fighting for housing justice in Chattanooga and is a critical step in moving toward equitable and accessible affordable housing," Sam Fulbright, a board member for Chattanooga Organized for Action, said in a prepared statement.

Other critics of tax incentives said the changes may turn out to benefit the public, but they were confused by the lack of details.

On Tuesday, Berke said city staff members would recommend the City Council not approve any additional PILOTs that meet the standard in which developers agreed to set aside 20 percent of apartments for renters who made 80 percent of the area median income or less in exchange for a tax break of 10 year or longer.

Now, Berke said the city will consider requests in which developers agree to set aside at least 50 percent of a project's rental units at an affordable rate.

"We're going to operate on a case by case basis," he said.

Hamilton County Mayor Jim Coppinger acknowledged that the changes to the program were confusing but said he was going to recommend that the county commission stop using the current PILOT program. However, he said if the city recommends a project in the future, his office will evaluate the merit of the request before asking for the commission to approve or deny the request.

In terms of accountability to taxpayers, the Beacon Center, a Nashville-based watchdog group, said the public is getting a worse deal than the previous one and should be leery of the changes.

"Ultimately, by not having any standard of who does or who doesn't get handouts from the government, there's a much better chance of corruption," said Mark Cunningham, a group spokesman. "This is even worse than it was previously."

Berke's chief of staff, Stacy Richardson, said the structure of the program will remain the same. A developer will still apply for the tax break, using an application that the city is currently working on, and then a recommendation will be made to both the City Council and the Hamilton County Commission for final approval.

"Ultimately, both legislative bodies will have the ability to accept or reject projects based on their merit," Richardson wrote in an email.

Members of Accountability for Taxpayer Money also questioned the timing of the city's announcement.

For the last three months, group members have been working with local developer John Wise to present a PILOT to the city's bonds board that they say is more accountable to the public and creates more affordable housing than any of the other proposals the city has previously approved.

Wise is scheduled to present his proposal to the city's bond board next week.

In front of the City Council on Tuesday night, Franklin McCallie, a downtown property owner and member of ATM, asked the council to still approve Wise's proposal for his Chestnut Street apartment project.

"We submit that the proposal already presented by Mr. Wise should proceed as is because he submitted his proposal before this new retooling was announced," McCallie said. "Further, we suggest that his model may well be the gold standard for the policies to be built into the mayor's retooling effort."

The mayor's office said it hadn't seen Wise's request but he is welcome to reach out to the city's Economic and Community Development department to discuss the details.

Contact staff writer Joy Lukachick Smith at or 423-757-6659.