Leaders of several nonprofit organizations said they're relieved annual fees were largely waived a second time inside a new downtown Chattanooga business improvement district, but that doesn't mean they're done fighting.
"It's based upon property, and it's a property tax, and we're exempt from it, and if we don't continue to fight this, there's no end to what can happen to a nonprofit organization like the [YMCA] that's giving back to the community all the time," said Janet Dunn, president and CEO of the YMCA of Metropolitan Chattanooga.
In addition to continuing to appeal to the business improvement district's board of directors for fee waivers, they'll approach the Chattanooga City Council about amending the ordinance that established the district in 2019, leaders of the nonprofit groups said.
"We're going to work through the process to try and get the ordinance changed," said the Rev. Brad Whitaker of St. Paul's Episcopal Church. "It's a business improvement district, and we're not a business."
At their February meeting, the board of directors of the Downtown Chattanooga Alliance voted to grant a 90% fee waiver for the YMCA and the United Way, and to charge St. Paul's and Second Presbyterian churches only the fees on their income-producing parking lots.
After the 90% fee reductions, the United Way paid a fee of $306, while the YMCA paid $1,400. St. Paul's and Second Presbyterian each paid about $2,000 for their parking lot properties. That resolution of the fees for 2020 is the same deal the alliance board made the nonprofit groups for their 2019 fees, but things may change when the bill comes due again.
"That doesn't mean we'll continue to do that in the future, but for this year we felt it was the right thing for us to do," said Gordon Stalans, head of the board's finance committee, during the February board meeting.
Downtown Chattanooga Alliance
Properties within the district zone pay special assessment fees of about $1 million a year collectively to fund improvements to the central city to make the area cleaner and safer, as well as to fund beautification and other special projects. A team of 13 Downtown Chattanooga Alliance ambassadors deep clean and maintain the area, as well as providing hospitality to support visitors to downtown, and outreach to homeless people in the district.
The process of applying for fee waivers is annual. To qualify, organizations must be tax-exempt and demonstrate that the fees would cause financial hardship. The Downtown Chattanooga Alliance board ultimately has discretion in whether to grant the waivers.
For the 2020 process, the board asked the four organizations to address the financial impact of the pandemic in their applications. Steve Hunt, chairman of the alliance board, pointed out during the February meeting that the pandemic had been difficult on everyone, not just nonprofits, but the board can't grant flexibility to those properties.
"Many on this call have been impacted by the pandemic, as well," he said. "It's unfortunate that we don't have any authority to change the assessment because a number of people within our district could use a little help this year."
There are 25 properties inside the business improvement district held by 14 property owners that are either 501(c)(3) nonprofit organizations or have qualified for PILOT, or payment-in-lieu-of-taxes, status. About one-third of those properties don't qualify to apply for a fee waiver because they're not exempt from property tax, Stalans said.
Total assessment on those nonprofit and PILOT properties comes to about $142,000 of the roughly $1 million collected by the district annually from the 260 properties in the zone. Collections from the four organizations that have appealed twice for waivers would be around $34,000.
How BID fees are calculated
To fund the district’s services, commercial and nonprofit landowners in the district pay an annual assessment of 9 cents per square foot, of either the lot or building size, whichever is greater, plus $4.95 per linear foot of lot frontage. Residential property owners with townhouses or condominiums pay a flat annual fee of $150 per unit.
The business improvement district was established in 2019, and an early step in that process was a survey of property owners. For the zone to move forward, 50% of owners representing over two-thirds of total assessed value had to approve the creation of the district. In initial conversation about the structure of the zone, Whitaker said, he was led to believe nonprofit organizations wouldn't be subject to the fees, and so the church didn't respond to the survey.
"My regret is that we were not following it closely enough in the final wording that was passed," he said.
Steve Brookes came to Chattanooga from Boston about a year ago to establish and lead the team of ambassadors who provide services from cleaning and painting to visitor hospitality and outreach to people experiencing homelessness in the business improvement district.
The impasse over the fees is difficult, but his team is committed to serving those properties, and he is focused on keeping open lines of communication with the organizations, Brookes said.
"We speak with them. We keep in touch with them. The church is opening up, so we're out power-washing their sidewalks hopefully in advance of followers coming," he said. "We have Easter coming up. We want everything to look good."
It took until October 2020 to work out a final decision on the fee waivers for 2019, but the waivers for 2020 have been settled quickly, allowing much of the year for conversations about the requests for 2021 that will almost certainly be forthcoming, Brookes said.
"Our plan is to sit down and have further conversations and see if we can get past this impasse and keep the dialogue going," he said. "We've come to this decision pretty early in the year compared to last year, so we have some good chance to dialogue."
In the district where he worked in Boston, property that wasn't subject to property taxes was exempt from the fees, Brookes said, but every business improvement district is different and has varied funding sources, he added.
David Downey, president and CEO of the International Downtown Association, said there isn't a consistent or typical approach to this issue across the roughly 2,000 business improvement districts and place management organizations in the U.S.
"No best practice exists and, quite frankly, every state has its own enabling legislation and each municipality has its own governing ordinances," he said. "You'll find a great diversity of approaches, but I would suggest that's what makes it so fantastic and so special — it can be designed for the location it serves."
Ultimately, the zones are an attempt to address needs that government entities cannot fulfill without additional resources, Downey added.
"The reality is local government alone is not able to provide a level of service our centers need," he said. "These are public/private nonprofit place management organizations that tend to leverage the resources from the private sector for the betterment of the public sector."
What is unusual in his experience, Downey added, is the appeals process in Chattanooga that allows nonprofit entities inside the district to seek relief from the fees.
"That often doesn't exist — this is one of the first times I'm hearing about it," he said.
The Rev. Cathy Meyer from Second Presbyterian said the fee reductions help for the time being, but the issue remains.
"We appreciate the efforts of the BID board, and I appreciate that they are trying to work with us, but we do not consider ourselves a business," she said. "We take care of our own property, so the benefits of the BID for us are not quite the same, and the money that comes into a church is not given so that it can be taxed. The money that comes is for mission and ministry."
The fee on the church property would be about $4,000, she said. When the time comes in the fall, the church will apply again for the waiver, she said.
"We will be going through that again, which also is time and energy that could be put to better use," she said.
At the YMCA, where annual fees would come to about $14,000 a year, Dunn pointed out that the approach to the fee waivers wasn't consistent across the four entities that appealed for them. The churches paid fees on their taxable property, while the fees were waived for their non-taxable property. At the YMCA and United Way, the organizations paid 10% of their fee assessment on their non-taxable properties, she said.
"We're not being treated across the board equally," Dunn said. "We keep appealing to them based upon our mission work and all the things we do in the community, but at the end of the day it really became clear to us that they understand who we are as an organization but they are looking at it financially."
Whitaker said the nonprofit leaders are concerned about how the fee waiver might shake out next year.
"At any point they could determine the nonprofit should be fully charged, and that is worrisome," he said.
Contact Mary Fortune at firstname.lastname@example.org. Follow her on Twitter at @maryfortune.