EAST RIDGE — Over the span of four years here, Interstate 75's Exit 1 has transformed into a commercial development with big-name restaurants and stores. Bass Pro Shops, Chick-fil-A and a soon-to-come Hampton Inn all sit at the foot of 275-acre Camp Jordan park and are projected to bring much-needed sales tax revenue to this city of 21,000.
But look a little closer, critics say, and you'll find relationships between the mayor, the former city attorney and a group of local developers that has allowed one company and its affiliates, Exit One LLC, to capture this commercial market, often at the expense of taxpayers.
A recently filed ethics complaint claims East Ridge Mayor Brent Lambert pushed through a resolution in 2017 allowing more than $4 million in infrastructure improvements on I-75 Exit 1 and then received $3,000 from the project developers 12 days later. The May 14 complaint claims that violated a 2006 city ordinance, which forbids officials from accepting contributions that indicate a "reward for a past action," and states taxpayers have been asked to foot the developers' infrastructure bill.
"When Life Care Centers decided to rebuild its flagship facility at [I-75] Exit 1, the owners, not the taxpayers, paid for improvements to the exit ramp," resident Laura Seneker's complaint says. "Not so with [I-75] Exit 1, where the citizens of East Ridge are paying that bill."
Lambert did not respond to several requests for comment, but he has often touted the development by Exit One LLC, saying any costs will be reimbursed by a unique tax agreement from a complex piece of legislation that East Ridge received in 2012 called the Border Region District Retail Tourism Act.
Under that legislation, the state gives East Ridge 4.125 percent of the 7 percent sales tax revenue that any new businesses inside a 940-acre zone by the Ringgold Road and I-75 interchange generates in a fiscal year.
From there, East Ridge can give some of that money to developers, making it easier to land big-name retailers that would increase sales tax revenues. With that revenue, East Ridge can pay off any debt it accrues in the process and offer incentives for businesses to relocate to the zone.
The first half of the equation is working in East Ridge.
City records show the sales tax revenue has increased every year since 2014, when Bass Pro agreed to come to East Ridge. The state returned $202,033 to East Ridge in 2014; $772,200 in 2015; $1.26 million in 2016; and $2.2 million in 2017. In total: about $4.4 million.
But Seneker and other residents question whether it's been successful for anyone besides the Exit One LLC developers. A Times Free Press review of city records, court documents, sales deeds, business licenses, audits and other memos shows that:
» To date, Exit One LLC is the only group of developers that has received any of the $4.4 million in sales tax revenue. A development related to Dunkin Donuts and Firehouse Subs will receive $600,000 over time — $30,000 over 20 years — if it meets specific thresholds. A recently opened Marco's Pizza has a different long-term payment plan. But those projects haven't met their thresholds yet that would allow them to get sales tax revenue, City Manager Scott Miller said.
» Other businesses may be slow to enter the zone because of a 2014 contract between the city and Exit One LLC. That contract requires East Ridge to pay Exit One LLC a portion of its sales tax revenue every year until the zone generates $10 million in revenue. As a result, Exit One has received about $2.2 million of the $4.4 million. Knoxville attorney Mark Mamantov, who specializes in Border Region legislation and who was hired by East Ridge in 2014, warned the contract would create a "strong competitive disadvantage" for other businesses.
» Since 2014, East Ridge has spent at least $10 million in incentives packages, infrastructure improvements and other beautification efforts on or near property owned by Exit One LLC developers John Healy, Matt Wood and Ethan Wood.
» In the same time, between fixing sewer lines, roads and paying legal fees, East Ridge has flagged $8.4 million in outstanding costs related to the Border Region zone as of June 2017. To pay it off, the city will use the sales tax revenue it gets from the state over the next 20 years — not local tax dollars. That $8.4 million in Border Region costs is expected to increase once East Ridge factors in its most recent expenses later this summer, Miller said. The upshot is, the proposed 2019 budget predicts another slight increase in sales tax revenue from the state — nearly $2.3 million. But the question, some residents say, is whether the economy will hold in the meantime. If the development slows down, or if the sales tax revenue stagnates or decreases, taxpayers are on the hook for the costs.
The U.S. economy grew at a reasonably healthy pace in 2017 and more of the same is predicted for 2018, David Wessel wrote in a December 2017 report on the Brookings Institution website. But Wessel also warned of clouds on the long-term economic horizon.
"The growth of productivity — the amount of stuff we produce for each hour of work — is distressing[ly] low," he wrote. "That'll slow the improvement in wages and living standards. We continue to run up the federal debt. That's not an immediate problem, but at some point it will become one; a faster growing economy will help, but won't suffice."
In an email, Healy said Exit One LLC needed money from East Ridge to help lure in Bass Pro Shops in 2014. He said Exit One LLC's projects are and will continue to increase sales tax revenue. "It's simple," he wrote in an email. "The litmus test for us or the city should be, does this project increase incremental sales taxes or not?"
But some residents say it's not that simple. They believe the Exit One LLC owners have used their relationships to land favorable deals that rely on taxpayer dollars.
"The boys can act like they aren't the major beneficiary from this, but I think they are," said resident Frances Pope, who ran for mayor in 2014, "because another [sales tax] increase is from the Walmart Market [which opened in 2015]. And they're in the Border Region, but they didn't ask for any money."
Pope and other residents point to the influence of John Anderson, a long-time real estate lawyer who served as East Ridge City Attorney from 2008 to 2012 and who is credited with helping the city secure the Border Region legislation.
As city attorney, Anderson helped oversee some real estate deals between Exit One LLC and East Ridge. In one 2012 transaction, the City of East Ridge paid the state $107,000 for a piece of land valued in 2013 at $107,600, according to the property assessor's office and sales deeds. East Ridge sold it to Exit One LLC for the same amount that year, making $0 from the sale, according to a deed. That land is now valued at $392,000, property records show.
Since 2004, Healy has been business partners with the Wood brothers, who also own MPL Construction. The partners own the land currently being developed at Exit 1. Healy said Anderson never represented the developers before or during his time as city attorney.
But roughly six months after the East Ridge City Council voted to fire him in December 2012 for allegedly overbilling the city, Anderson began working for the Exit One LLC developers, court records show. Business licenses and sale deeds show Anderson registered three of Healy and Woods' many companies, and he helped them with bank loans as recently as February.
At the same time, Anderson has provided legal counsel to multiple East Ridge officials. According to court documents and interviews:
» Anderson is Mayor Lambert's personal attorney in the criminal extortion case Lambert brought against Hamilton County Commissioner Tim Boyd, who was Lambert's campaign opponent.
» He is East Ridge Councilwoman Esther Helton's personal attorney in a 2016 divorce-related dispute and a 2017 federal case involving the IRS.
» He defended Vice Mayor Larry Sewell in 2010 when the Tennessee Bureau of Investigation looked into a $1,000 payment East Ridge made to Sewell's photo business. No criminal charges were ever brought.
» He helped current East Ridge City Attorney Mark Litchford, who also works in Anderson's firm, Grant, Konvalinka & Harrison P.C., represent the Wood brothers in a 2013 labor dispute in Hamilton County Chancery Court.
Laura Chastain, ethics counsel for the Tennessee Supreme Court's Board of Professional Responsibility, which oversees practicing lawyers in the state, said she could not comment on individual cases. But she pointed to Rule 1.11 in the Tennessee Rules of Professional Conduct, which says lawyers in private practice shouldn't represent clients who are involved in matters they handled "personally and substantially" for local governments.
"Now, the city could provide written consent to this and say, 'That's OK, we don't see this as a problem," said Lucian Pera, a Memphis, Tennessee, attorney in the law firm of Adams and Reese LLP who specializes in legal ethics and professional responsibility.
Anderson and Lambert did not return requests for comment on whether the city did that. Three other people on the council in 2013 — Jim Bethune, Denny Manning and Sewell — said they couldn't remember voting or discussing the issue.
In an email, Healy said Anderson is one of many attorneys his company uses. He said there's no smoking gun or conspiracy theory.
"There are just a few people in the community that will never be satisfied and those people speak the loudest," he wrote. "We could be handing out the cure for cancer in Camp Jordan Park and 'they' would be complaining that the city is not charging for parking."
Some residents, though, have been worried about Anderson's influence for a while now. When Hal North resigned as East Ridge City Attorney in December 2016, Lambert recommended Litchford as a replacement. In a Dec. 28, 2016, city council meeting, Lambert said he wanted to repay the firm responsible for bringing the Border Region legislation to East Ridge.
"My suggestion for Mark Litchford is because Grant, Konvalinka & Harrison, that firm, without them, the Border Region would not have happened. Period. Period. It would not," Lambert said. "And you can say what you want to: It wouldn't have happened. So we owe that, we owe the Bass Pro shop, everything that will come, in large measure, to that law firm."
Councilman Jacky Cagle and a handful of residents protested, concerned about the link between Litchford and Anderson. Bethune, a former councilman who is now running for mayor, said picking Litchford was a "done deal."
"You got two people who are going to vote any way you want," Bethune said at the time to Lambert. "One is Mr. Sewell. And the other [Ms. Helton] is represented by Mr. Anderson."
The debate continued before then-interim City Attorney Alex McVeagh spoke on the issue of a possible conflict of interest.
"As the current city attorney, it could be wise if any council member would like to seek outside counsel or advice on this issue," said McVeagh, who is now a Hamilton County General Sessions Court judge.
According to a February 2017 account on East Ridge News Online, Councilman Cagle asked City Manager Scott Miller to seek a legal opinion from the Tennessee Supreme Court's Board of Professional Responsibility. The opinion said any potential conflict could be waived, or "there could be a screening off of the attorney who represents the City Council," the same news account said.
Ultimately, Litchford got the position, but the questions about conflicts of interest did not end.
During their race earlier this year for the District 8 county commission seat, incumbent Boyd suggested Lambert should end his campaign. Boyd said he and his team had learned from public records that Lambert received $5,000 in political contributions, including $3,000 from Healy and the Wood brothers, just 12 days after the East Ridge City Council approved more than $4 million in bonds for an infrastructure project in the summer of 2017.
At the time, Lambert hadn't had a campaign going since 2014.
When asked about it at a public debate, Boyd said the contributions "stink."
Though Lambert recorded their conversation and brought it to District Attorney General Neal Pinkston, resulting in Boyd's indictment for extortion, the incumbent beat Lambert earlier this month. Boyd has pleaded not guilty to his criminal charge, a Class D felony that carries two to four years in prison upon conviction. And his defense lawyer, Lee Davis, has asked Lambert to bring any emails, bank statements or phone records related to those contributions to Boyd's next court date Tuesday.
"Can there be any reasonable interpretations of these events that explain why this trail of documentation does not clearly indicate a 'reward for past action?'" Seneker's complaint asks. "I think not."
In addition to outlining the contributions, Seneker's complaint asks Litchford to recuse himself because of his relationship with Anderson. Litchford has already done that, saying that he considers it a conflict of interest "to undertake actions that involve adverse claims directly against any member of the City Council," according to a recent resolution.
During a council meeting on May 24, Lambert stepped out so members could discuss the complaint. By the end, the council directed City Manager Scott Miller to contact a list of attorneys about potentially representing the city as its ethics officer in Seneker's complaint. Those attorneys are Sam Elliott, Ryan Hanzelik, Jerry Summers and Ronald Wells, and the issue will come before the council on June 28.
Contact staff writer Zack Peterson at firstname.lastname@example.org or 423-757-6347. Follow him on Twitter @zackpeterson918.
Correction: This story has been corrected to show that a development project related to Dunkin Donuts and Firehouse Subs will be granted $600,000 over time — $30,000 over 20 years — if it meets specific thresholds. Also, Marco's Pizza has a different long-term payment plan from that project.