With some tools limited, Chattanooga looks to boost funding for affordable housing

Staff photo by Matt Hamilton/  Chattanooga Mayor Tim Kelly speaks to the media after a meeting unveiling the administration's new affordable housing action plan to Chattanooga City Council on Tuesday.
Staff photo by Matt Hamilton/ Chattanooga Mayor Tim Kelly speaks to the media after a meeting unveiling the administration's new affordable housing action plan to Chattanooga City Council on Tuesday.

Checking in at 101 pages, Chattanooga's first-ever housing action plan is designed to act as a fluid set of recommendations for bolstering the area's dwindling affordable housing stock.

"As you can tell from the acronym soup, this is complicated stuff," Mayor Tim Kelly said in an interview with reporters Tuesday. "Getting these pieces to come together and work in a way that has the desired outcome is tricky."

Because of the constraints of Tennessee law, the city will have to rely primarily on subsidy programs, the plan says, and won't be able to lean on tools like rent control or density bonuses to meet its housing needs.

"There are certainly limitations placed on us by state government that take certain tools off the table for Chattanooga to address housing affordability," City Council Vice Chair Jenny Hill of North Chattanooga, who leads the city's affordable housing committee, said in a phone call. "That said, I think we've proven in Chattanooga that we are good at coming up with innovative ways to work with the tools that we have and even create new tools. I see that this plan acknowledges that reality."

Tax credits

Historically, Kelly said, Chattanooga has not received its fair share of low-income housing tax credits, a federal funding tool administered by the Tennessee Housing Development Agency that is often essential to making affordable housing projects work.

"There are a lot of reasons for that," the mayor said. "I'm not laying that at anybody's feet, but it's just an historical fact. Rebalancing that will let us increase our supply of affordable housing."

(READ MORE: Chattanooga fills new director of housing policy position)

Between 2010 and 2020, the Greater Nashville area received awards totaling more than $630 million to subsidize development of 7,654 units of housing, Hill said. Chattanooga received a fraction of that amount by comparison — almost $75 million across 635 units of housing, Hill added. Knoxville received more than twice Chattanooga's total, with the awards equating to $177 million worth of support, the council vice chair said.

"All things being equal, we were behind," Hill said. "We weren't sending as many projects, but we weren't being awarded as many projects."

The housing action plan says two key factors have hindered the city's ability to benefit from the low-income housing tax credit program: Projects have not been competitive under the scoring criteria the state uses to award dollars, and fewer projects have been financially feasible because of inadequate local support, which includes an unpredictable process for awarding public incentives.

The city plans to work with the state housing development agency to modify how the agency scores projects, but in the meantime, officials intend to be more supportive of projects that receive less competitive tax credits.

Public incentives

Chattanooga also wants to make it easier for developers to use public tax dollars to build affordable housing. There are two main types of incentives outlined in the plan. One, tax increment financing, is a tool where developers use new tax revenue generated in the development to cover costs like infrastructure. The other incentive is payment in lieu of taxes agreements, which act as tax breaks for developers who commit to create a certain amount of affordable units.

City officials are used to hearing concerns from constituents that PILOTs and TIFs are giveaways to developers, Kelly said. Many of those same concerned citizens believe incentives should be deemed absolutely necessary for the success of a project before they're awarded, he added.

"In this case, these reforms are very specifically intended to increase the supply of affordable housing," Kelly said of the changes proposed in the housing action plan.

The city intends to offer two different types of PILOTs: One for projects also receiving low-income housing tax credits, and the second for projects designed for a mixture of income levels. Housing would have to remain affordable for at least 15 years to be eligible.

Under the first track, half the units would need to be affordable for tenants making 60% of the area median income in order for developers to qualify for a tax break. Under the second track, developers could either reserve 20% of the units for families making 50% to 60% of the area median income or have about one-third of the units available for people making 80% of area median income. In Chattanooga, area median income is roughly $55,000, according to the U.S. Census Bureau.

"These two PILOT tracks are going to need a lot of attention from the City Council to really fine-tune and make sure they fit the objectives we have as a city," Hill said.

That will involve ensuring Chattanooga is striking the balance between empowering developers to complete affordable housing while also ensuring the city isn't unnecessarily giving away tax money.

The city also hopes to streamline how developers receive those tax benefits. As is, acquiring a PILOT is already a lengthy and unpredictable process for developers, the plan states, requiring a separate application and approval process at both the city and county levels.

Housing funds

Chattanooga wants to create an ongoing funding stream for its affordable housing trust fund, which officials said would support a wide range of housing programs and development opportunities. Last year, the city set aside $33 million, most of that in federal pandemic relief dollars, as part of an initial investment into a $100 million affordable housing fund.

(READ MORE: Chattanooga mayor proposes $100 million affordable housing initiative)

Across the nation, house trust funds rely on dedicated sources of revenue, said Chattanooga Neighborhood Enterprise President and CEO Martina Guilfoil. Some governments charge a fee for every recorded deed of trust or rely on income from sales and tourism-related taxes.

With home prices and rents skyrocketing as wages lag, there's a moral imperative to maintaining an affordable housing trust fund, Guilfoil said.

"That's really going to be up to the mayor to exert his leadership around rallying the community to make that happen," she said in a phone call.

Contact David Floyd at dfloyd@timesfreepress.com or 423-757-6249.

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