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Large rocks and debris block access to a road on the side of Aetna Mountain.

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What's tax increment financing?

Tax money collected over and above the amount in a base year are used to pay back developers for the cost of their project. In this case, the new road is expected to lead to new homes and businesses, which will result in new tax income for Chattanooga and Hamilton County. The increase in tax income will be sent to the developers over the next two decades.

What qualifies land for purchase under the Forest Legacy program?

Economic benefits from timber

Hunting, recreation, wildlife and tourism area

Threatened or endangered species habitat

Protection of public access for recreation purposes

Near a government-designated scenic area

Historic/cultural/tribal significance

The property faces the threat of imminent development

Source: U.S. Forest Service

How does the U.S. government calculate payment for forest land?

Each parcel is appraised according to federal appraisal standards

Appraisals are reviewed by a qualified review appraiser

Federal payment to landowners must not be more than market value

Source: U.S. Forest Service

What went wrong?

"Notable short cuts" were taken in the purchase of the tract

No survey was performed prior to sale

The recorded deed description is not based on a survey.

Developers and landowners went to court to determine who could access the mountain

Some landowners say they were arrested for using a public road

Four-wheeling enthusiasts were cut off from trails

Source: The Land Office Inc., news reports

Who's who

Jimmy Chapin -- Original managing member of a group that bought Aetna Mountain at $277 an acre and sold one-third of it to the federal government at $830 an acre.

Doug Stein -- Along with partner Gary Chazen, he bought out Chapin's interest in the development

Gary Chazen -- Head of Perimeter Properties, development company for the former U.S. Steel site

Former U.S. Rep. Zach Wamp -- Helped assemble Forest Legacy appropriation, lives in the neighborhood.

Brant Enderle -- Liaison for York Capital, which bought a majority interest in the project from Stein and Chazen.

Jeff Perlaky and Steven Perlaky -- Brothers and landowners who run Raccoon Mountain Campgrounds and object to what they see as restricted access to their mountain property by developers.

Wayne McNabb -- Says he was repeatedly harassed by police officers hired by the developer when trying to access his land.


Aetna Mountain is on the far west end of Hamilton County, on the border with Marion County.

Combined towns of Lookout Mountain (Ga., Tenn.) -- 4 square miles

Aetna Mountain -- 5.62 square miles

Estimated size of development: 2,000 homes, $500 million

It began with a bankruptcy and led to taxpayer financing for a $9 million road up a mountain -- a mountain that taxpayers had paid for once already.

Uncle Sam's generosity initially helped developers acquire Aetna Mountain through the Forest Legacy program. Soon, the Chattanooga Industrial Development Board will set in motion a bond issuance to pay for a new road through tax increment financing.

Under tax increment financing, taxpayers pay developers back for projects over a period of several years using the expected increase in tax revenues that result from the project.

Neighbors argue the planned road is a duplicate of a state road that already exists, which they have used for years to access the land on top of the mountain.

The entire scheme is designed to enrich the dealmakers at taxpayers' expense, opponents say.

Developers have done everything in their power to block and destroy the existing road, neighbors allege, cutting off access with huge boulders and hiring off-duty police officers to harass property owners on their way up the mountain.

But the new road serves a public good, developers say, and will allow for the conservation of the sides of the mountain, preserving the area's natural beauty for future generations.

The planned $500 million neighborhood will create new jobs, they argue, and the taxpayer-financed road poses no risk to the Chattanooga or Hamilton County coffers, which are supplying tax increment financing to developers over the next 13 to 20 years for the construction.

So far, neither side shows signs of backing down or packing up.


The situation began to intensify for the rural community when a chunk of Aetna Mountain went up for sale in 2001.

Banks were pressuring Gordon Street, head of Wheland Foundry holding company North American Royalties, to sell the land and other nonproductive assets to pay off debt.

The expanse of scenic views and virgin soil up for sale measured about 3,600 acres -- larger than the Tennessee and Georgia towns of Lookout Mountain put together.

In full, the entire mountain stretches to 10,000 acres in Marion County and Hamilton County, according to the Tennessee Wildlife Resources Commission.

At $1 million for about 3,600 acres -- $277 per acre -- Street was pricing the land to sell.

A mini-land rush ensued, with conservationists and developers jockeying to assemble the cash.

Prime brow lots on Lookout Mountain were disappearing and Signal Mountain was filling up fast. That left Aetna Mountain as Chattanooga's next, best mountain community.

"I was racing against [developer] Jimmy Chapin," remembers Bobby Davenport, who was then the head of the Trust for Public Land. "The bankruptcy trustee wanted to liquidate it, right now."

He and Chapin had different goals for the land.

Davenport hoped to buy the 3,600 acres and conserve it, preventing future development. Chapin's plan was to develop the mountain into a neighborhood community.

On the way back from a meeting to assemble $1 million for his conservation efforts, Davenport received a call from Chapin.

"Cool your jets, we've got a deal struck," Chapin told him.

Land deal

Chapin had beat Davenport to the punch. The land would be developed.

But Chapin had a plan to compromise with the conservationist and make money in the process.

"Jimmy said, 'If you can get a federal grant, we'll sell you 1,200 acres and we'll donate another 1,200,'" Davenport said. "It was basically a way for him to get his land at no cost."

Chapin had found a loophole -- he could sell one-third of the land to taxpayers for $1 million, the same $1 million he had paid for the entire tract.

To sweeten the deal, Chapin promised to donate another 1,200 acres to conservation by 2010, which would still leave room for up to 2,000 homes on top of the mountain. That donation has now been pushed back to 2018.

"It was a bargain sale," said Jim Brown, executive director for the Tennessee River Gorge Trust.

The federal government soon completed the purchase of 1,200 acres of Chapin's newly acquired land through the Forest Legacy program at about $830 an acre -- a hefty premium over the $277 per acre Chapin had paid.

The deal, set up with help from then-U.S. Rep. Zach Wamp, allowed Chapin to pay off the entire purchase while retaining a chunk of prime land to develop.

At an event celebrating the deal, a number of speakers praised Wamp for lining up the federal funding for the acquisition, according to a January 2003 news report.

Wamp, who had recently purchased land in the development, said in a speech that preservation is important "not just for the next generation, but for succeeding generations," according to news reports.

He bought his 1.7-acre property in Jimmy Chapin's development on September 30, 2002. Three months later, the deed was recorded for the 1,200-acre Forest Legacy sale.

Wamp downplayed his involvement in an interview on Thursday, and said that his decision to buy a piece of land had nothing to do with his appropriation of the Forest Legacy funding in 2001.

Despite earlier reports, he "did not put the deal together," and said the congressional appropriation was requested by then-Gov. Don Sundquist, not the developer.

"I simply followed through on the requests made by the conservation groups and the governor," Wamp said. "As with other land conservation acquisitions I helped on over my 16 years in Congress, I did not know who owned the land at the top of the mountain and it did not matter if the state approved it."

Forest legacy

Calling the transaction a "Forest Legacy" purchase is somewhat of a misnomer, nearby landowners say.

Chunks of the Forest Legacy land are located under high-tension power lines and on mountain slopes, which makes it worthless, they say.

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"The people got ripped off," said Jeff Perlaky, who runs nearby Raccoon Mountain Caverns and Campground. "The developers got the deal of a lifetime."

There aren't any forests growing under the power lines because TVA kills the undergrowth every three years with a combination of herbicide and chain saws, Tennessee Valley Authority spokesman Scott Brooks said Friday.

"TVA has done some aerial spraying in the past," Brooks said, though he noted that it was only in remote areas and the agency had since put a stop to the practice.

U.S. Forest Service spokesman Steven Bekkerus confirmed that about half of the Forest Legacy tract is made up of steep slopes and undesirable land, including about 80 acres located on power line rights-of-way.

However, he defended the price taxpayers paid for the property.

"It is not uncommon that subsequent tracts subdivided from larger parcels sell for more per acre," Bekkerus wrote in an email.

Forester Roger Larson, who patrolled the land from 1966 until 1980, examined the 1,200-acre sale and found it to be "a very unusual transaction."

"It seems that several notable short cuts were taken in the purchase of this tract," Larson said. "The state of Tennessee usually requires very exacting and remarkably time-consuming steps be performed before it will purchase any tract of land."

Yet the deed description offers only "a general tract description that is apparently based on the Marion County Tax Map," Larson said.

Chapin said the naysayers just don't get it.

By preserving the sides of the mountain, developers will secure the area's beauty for years to come, he said. The land may not be worth much now, but in a few years $1 million will seem like a great deal for taxpayers.

"The whole point was to try to create and protect the side of the mountain, and the area that overlooked the gorge, and to get a reasonable return for investors," Chapin said. "I would gladly buy it back for a million dollars."

Road rules

There's more to the long-running dispute than the land deal.

Perlaky and a group of other landowners have been embroiled in a decade-long court battle with Aetna Mountain's developers, whom they accuse of repeatedly blocking the existing road.

Along with his brother Steven Perlaky, Jeff Perlaky has worked to fight what he calls the destruction of the current road in favor of the new, taxpayer-financed road approved in June by the Chattanooga City Council.

Larson, the ranger who has worked for both the Perlakys and Chapin, found that the eastern half-mile of the original road was destroyed in early 2005, forcing access through the paved subdivision road.

According to Larson, the history of the road that now ascends the mountain has been one alternating between outright neglect and sporadic upkeep.

"The state improved and graded the entire mountainside portion of the road and even paved several of the steeper portions," Larson said in his review of the area.

For many years, the existing road was used to transport coal down the eastern slope.

Military maps from 1865 and 1896 alternately refer to the existing road as Alleys Trace or Cummings Trace, and later as Aetna Mountain Road, Larson said.

But currently, it's impassible except to four-wheel-drive enthusiasts, who Chapin repeatedly accused of trespassing.

Developers' attorney William Horton suggested that drivers would only be allowed to pass if they carried "a personal letter addressed to them, signed and notarized" by the landowner.

A court eventually ruled against the developers, requiring them to allow traffic on the road easement.

But the legal battle continues. In a recent contempt of court filing, neighbors have accused workers of blocking the road with rocks and construction equipment.

"They're wrecking the road I use to access my property so they can go to the city and get money to build a new road," Jeff Perlaky said. "That's stealing land, and it's just not right."


Developers' actions went beyond simply cutting off the road, landowners argue.

They say off-duty police have been involved in intimidation of mountain residents who simply wanted to get to their land.

The dispute got so hot that Chattanooga Police Chief Bobby Dodd ordered his officers to stop working for the developers based on legal advice from the city attorney, according to news reports.

Officers arrested one landowner, Jeff Fox, three times for trying to access his property, Steven Perlaky wrote to the Tennessee Wildlife Resources Agency.

Wayne McNabb claimed said he, too, was harassed by off-duty police officers who told him to "go back to Georgia," when he attempted to use the road to get to his land.

When he complained, he says he was harassed by patrolling officers on four-wheelers and his property was damaged.

"I've had outbuildings burned down, a shed destroyed and a camper blown up," McNabb said. "I'm not against the development, I'm against them stealing property."

He said the court ruling against the developer gave him the right to use the existing public road to access the mountain.

"I've had all kinds of problems and I'm still having problems about this same piece of property," he said. "I never had a problem with anything up there until after this development started."


Developer Doug Stein, who is working on the neighborhood with partners Gary Chazen and Brant Enderle, bristled at the charges against his group.

"A lot of times, there are people saying things that are false, and they somehow believe that by repeating these falsehoods they become true," Stein said.

Stein and Chazen bought the development from Jimmy Chapin in November 2006. They have since sold a majority stake to York Capital, an investment group that will manage the construction through real estate veteran Enderle.

"The model for it is Lookout Mountain," Stein said. "Our deal was intended to protect the sides of the mountain, and to protect the way it looks from the valley."

He doesn't buy the argument that developers are too cozy with the government and are profiting from the arrangement.

"Why should the city improve Fourth Street and add cobblestone intersections, why should the city be involved in the riverfront or infrastructure in front of the aquarium?" he asked. "The answer is, it's a good investment for the city."

The best part for taxpayers, he argued, is the lack of risk.

Just like the original 3,600-acre purchase, it's the developers -- not taxpayers -- who supply the initial cash.

Through a financing instrument called tax increment financing, the developer is repaid over a period of years with the expected increase in tax revenues in the Aetna Mountain area.

As the land grows in value through new homes and businesses, the increased tax revenues will go toward paying back the developer for the expected $9 million in road construction costs.

If the development fails, there's no risk, Stein said.

"This is just a way to accelerate growth," he said. "If [tax increment financing] is what enables the development of the Wheland Factory and U.S. Pipe Foundry, that's a good thing. If a TIF helps with Highland Park urban revitalization, that's a good thing."