Sharp: Why are taxpayers subsidizing downtown apartments?

A sign reads "For lease" at the Market City Center apartment building downtown on Friday, Nov. 16, 2018, in Chattanooga, Tenn.
A sign reads "For lease" at the Market City Center apartment building downtown on Friday, Nov. 16, 2018, in Chattanooga, Tenn.

A recent article in the Times Free Press suggests that the downtown apartment market is overbuilt, and the vacancy rate is relatively high. The private market will eventually sort this out.

But what about the taxpayer role in subsidizing market rate complexes downtown? When will that get sorted out?

photo Helen Burns Sharp

In the past few years, our city and county leaders approved large property tax breaks for Passenger Flats at the Choo Choo; Market City Center next to Sun Trust; Heritage-Maclellan on Broad Street; 1400 Chestnut near Finley Stadium, and Walnut Commons near the walking bridge (The "Big 5").

The city and county abated, in their entirety for 10 years, property taxes on the value of new construction or renovations at those complexes. Then the properties will pay partial taxes for an additional four to eight-years. This tax break happens courtesy of the housing payment-in-lieu-of-tax (PILOT) program.

School taxes are not abated, thanks to a policy championed a decade ago by former Hamilton County Commissioners JoAnne Favors, Bill Hullander and Richard Casavant. (Exception: Somehow Walnut Commons was not required to pay taxes for education.)

Accountability for Taxpayer Money (ATM), a public interest advocacy group, estimates the total value of the Big 5 housing subsidies at about $10 million over the life of those PILOTs. (ATM estimates that the total amount of property tax being forgiven due to all PILOTs in effect is about $400 million, with $26 million abated in fiscal year 2018, a number higher than for any other county in Tennessee.)

What is the public benefit provided by the Big 5 housing tax breaks? Is it sufficient to justify the loss of $10 million in tax revenue that could go toward high priority community needs? Do those incentives really make a dent in Chattanooga's very real affordable housing problem or are they just a gift to developers?

Opposition to unnecessary tax breaks seems to be one of those rare issues that unites Americans across party lines. Republicans might be concerned by the idea of government picking winners and believe instead that companies choose locations based on business conditions, not sweetheart deals. Democrats might oppose them because they rob city and county coffers of funds needed for important services.

David Cay Johnson, a Pulitzer-Prize winning reporter, offers this perspective: "If it is a sound investment, the market will make it. If the investment is unsound, why should taxpayers be asked to subsidize it"?

Tennessee state law states that housing PILOTs can only be used for housing facilities occupied by persons of low or moderate income. The local PILOT program defines "low-mod" as 80 percent of area median income (AMI). To get a PILOT, the Big 5 developers were required to set aside 20 percent of their units for low-mod tenants. In 2018, a single person qualifying for a unit can make up to $34,550 and be asked to pay $864 in rent.

Is this rent affordable for most low-moderate income people in Chattanooga? It approaches or exceeds market rent in many locations, making it difficult to see the "public benefit" of the large tax break. It is easier to see the public benefit for a small subset of other recent housing PILOTs, such as the rehabilitation of the former Jaycee Towers or the Bayberry apartments in Avondale, which are geared to help people at 60 percent AMI.

Will our local elected officials, please, put policies in place to ensure that tax incentives are reserved for situations where we are convinced that a housing (or jobs) project would provide a significant public benefit and would not happen without the incentive? In the case of the Big 5, it is very likely that each of these projects would have happened without a tax break. The PILOT was icing on a cake that was already baked.

Perhaps this recent vacancy news will remind the city and county to monitor what percentage of those units are actually being rented to low-moderate income people. When you check four of the websites, the lowest rent shown is about $1,100. The owners may need a reminder of what they agreed to do in order to get their generous tax breaks.

Helen Burns Sharp

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