Gallery: More TIFs 'a good idea,' Black Creek developer saysBut caution also urged in city financing incentive
Upping the use of tax-increment financing in Chattanooga is "a good idea," says a developer who holds the city's only such incentive, though the project it's funding has moved slower than planned.
"Many, many other municipalities are using this tool, which essentially allows a government entity to borrow money from a developer for public infrastructure," said Doug Stein, who is overseeing the Black Creek housing development in Lookout Valley.
Chattanooga officials said they expect multiple applications for new tax-increment financing, or TIFs, this year and in early 2018 to spur road and infrastructure projects.
Charita D. Allen, the city's deputy administrator for economic development, said the use of TIFs would be "strategic." Their use could focus on areas where officials want to see development accelerated, she told the city's Industrial Development Board this week.
"Historically, we haven't implemented them," she added.
Under a TIF, developers spend the money for a project up front, then are paid back with interest over a period out of additional tax revenues generated by the development. While the project may happen, the city loses for a set time property tax revenues which might have been used for such services as police and fire.
The city has developed policies and procedures guiding the use of TIFs that include multiple chances to vet proposals by the Industrial Development Board, the city council and another panel, Allen said.
In 2006, Stein and his partners in Black Creek bought the Cummings Cove development as well as a large tract of land on the part of nearby Raccoon Mountain known as Aetna Mountain.
About five years ago, Black Creek developers won a $9 million TIF from the city to build a new road up Aetna Mountain. Developers envisioned up to 1,300 homes in a potential $500 million development.
But the project has unfolded slower than developers had hoped, with just 100 homes in the TIF district so far. Stein blamed a New York hedge fund that was a partner in the project, which has been bought out.
"We spent a lot of money on planning," said Stein. "Me and the current partners weren't happy."
He said about 2,900 feet of road up the mountain has been built so far, while another 2,500 feet is currently under construction. About 7,500 additional feet of new road is left to build, which is expected to be complete by 2020, Stein said.
About $1 million in bonds have been sold so far to finance the work, he said. An added $8 million in bonds have been authorized and are ready to be sold as the road's construction continues, Stein said.
He said if the project doesn't materialize, the private investors who purchased the bonds bear the risk, not taxpayers.
Stein said that at the end of the 20-year life of the TIF bonds, there will be "a huge increase" in property taxes to the city and Hamilton County due to the new development.
Plans are to put another 34 lots on feeder streets to the new road built so far on the market in the TIF district within days, he said. Also, another 60 lots are to go on the market in spring 2018, Stein said.
"The best thing about the TIF as a tool for development is that there is zero risk to the taxpayer while delivering significant upside," he said.
But there were concerns raised about the use of TIFs this week.
Helen Burns Sharp, founder of the watchdog group Accountability for Taxpayer Money, said that unlike the property tax breaks often provided for private developers to spur projects through PILOT (Payment in Lieu of Tax) agreements, the IDB doesn't receive ownership of the property under a TIF. Also, property tax money is diverted to pay back the TIF bonds, she said.
"There is money that won't go to public services like police, fire ...," she said. "Black Creek is 20 years. That's a long time."
Sharp told the Industrial Development Board that "You don't need to give developers everything they ask."
Sharp earlier filed suit against the Industrial Development Board over the Black Creek TIF financing. She claimed the IDB met secretly in 2012 and again in 2014 — after Sharp won her first suit — before the panel approved and then reapproved the Black Creek TIF.
The city agreed to pay Sharp $22,500 to settle the lawsuits.
Stein said the intent of a TIF is to drive a long-term increase in tax revenue by increasing the value of property.
"Already the increase in taxes paid in Black Creek is pouring more money into the Hamilton County schools," he said.
Contact Mike Pare at email@example.com or 423-757-6318.