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Kim White, president and CEO of River City Company, gives a presentation in this 2014 file photo.

Despite Chattanooga's downtown housing PILOT program being around for 13 years in one incarnation or another, local officials and community groups still grapple with its purpose.

After a lengthy panel discussion at the Chattanooga City Council last week, a few things are clear: The city's current program for offering payment-in-lieu-of-tax deals to apartment developers was never meant to help the poor find housing. And it was never meant to create jobs, boost other types of housing or promote housing outside of downtown.

Kim White, president and CEO of River City Co., the organization that administers the program for the city and county, said the goal was very simple.

"We had a housing PILOT program in 2002 and the purpose ... was to incent developers to do apartment developments downtown," White said.

That was it. Just bring apartments downtown. That program ended in 2012.

"We only had nine PILOTs in that course of 10 years. And most of those were very small, like Bread Factory," she said. "After that expired, we worked with the city and county and both parties agreed that apartment housing was still needed."

Most of the first programs were small, but there were some big ones, too.

Walnut Commons was a 100-unit, $11 million complex included under the old PILOT program. It sold shortly after it was built to America First Real Estate Group of Omaha, and its tax break went with it. The same buyer purchased the Bread Factory Lofts, another beneficiary of the old PILOT program.

The second PILOT program -- the current one -- changed slightly. The scope shrank to focus on a smaller downtown area. Recently, language was included that barred the tax breaks from automatically transferring if the properties were sold. And it included an "affordability" clause.

The current plan requires 20 percent of the units in a development to be rented to people who make $30,900 or less (that's 80 percent of the county's median income), and the apartments -- mostly efficiencies -- have to be rented for less than $772 a month.

That's where the confusion started, White said.

"I think we are supersensitive to language. I think it's good that the affordability piece was put in, but I think it muddied the water," White said.

IF YOU BUILD IT, WON'T THEY COME ANYWAY?

Chattanooga Tea Party President Mark West questions the necessity of the entire program.

He says downtown is booming. Supply will naturally catch up with the demand for downtown rental living without tax breaks, he said.

"I really don't see that as a need at this point. We've seen Chattanooga develop and thrive over the last couple of decades to the point where I think companies and people are clamoring to come to our city," West said. "And on the other hand, our city and community has a need for revenue."

On the other hand, Ethan Collier, a developer and co-chairman of the city's downtown housing task force, says developers will build apartments downtown, but the rents will be too high for starting professionals -- the target audience of the PILOT program. And most developers would build something more immediately profitable.

Collier himself does not develop apartments.

"Those are very expensive pieces of property downtown. The easiest way to make a buck is to put condos on it or townhouses," Collier said.

The cost of land and development downtown is significantly higher than in other areas, due to demand, structural requirements and environmental remediation. Most of downtown is a brownfield after years of industrial and urban activity.

Collier compared two residential developments his company was involved with currently.

One is in East Brainerd. He's paying $40,000 an acre for the land, and around $20,000 per lot for development costs.

A downtown development is costing his company $106,000 per acre and development costs are doubled to $40,000 per lot.

HIGH COSTS MEAN HIGH RENTS

White could not immediately provide rental rate data for the PILOT program area Friday. But anecdotally, she said there is one new development coming without tax breaks that would be charging $1,100 a month for a one-bedroom unit.

"And you will not find another one for less than $850 [a month]," she said.

Those figures are pretty close to the $940 a month national average for one-bedroom apartments, according to Max Rosett, a data analyst for ApartmentList.com, a national apartment broker.

But it's over the city's average of $720 a month, Rosett said.

A rental analysis by Rosett shows the average one-bedroom apartment rent in Knoxville is $630. Nashville rents average $740 for one bedroom, and in Atlanta rent for the same is $1,090.

Ginny Walker, a spokeswoman for RealtyTrac.com, another company that compiles housing data for the real estate and financial industries, said the median rent for a one-bedroom in all of Hamilton County is $574 a month and $476 for efficiencies.

THE AFFORDABILITY PROBLEM

Michael Gilliland, chairman of Chattanooga Organized for Action, says the city's housing PILOT program is flawed because it doesn't address what he calls a crisis.

Citing a Chattanooga Regional Planning Agency housing study, Gilliland told the City Council on Tuesday the city has a 4,000-unit shortage of affordable housing for households bringing in less than $20,000 a year.

Further, he said, 53 percent of renters in the urban core -- from the river to Missionary Ridge -- are paying more than 30 percent of their monthly income toward housing. More than half of those people are paying more than 50 percent, according to a 2012 federal affordable housing report he cited.

On Friday, Gilliland said the city needs to address affordable housing soon, with or without the current tax-break program.

"It's up to the city to decide what to do with the River City PILOT. But it's no excuse to not address the real affordable housing crisis," he said.

COA is currently developing a "robust affordable housing program" that it plans to present to the city within a month, he said.

"We only see the PILOT program as one of a number of actions that's going to have to take place. We don't think a housing PILOT is any kind of silver bullet," Gilliland said.

COA is calling for an extended affordability program with measurable goals that includes implementing an affordable housing trust fund, a community land bank and other mechanisms.

"We are not going to get there by one road, it's going to have to be multiple roads to get there," he said.

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

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