Did you know that Volkswagen does not pay its school property taxes in full because of a sweetheart arrangement whereby its stormwater fee is paid from those school taxes?
Our county and city governments gave Volkswagen a very large incentive package 10 years ago. Some incentives were warranted, given the jobs, investment and potential as a catalyst for attracting other companies.
Also, its location decision was one of those rare instances where subsidies may have tilted the scales because the company likely had two equally compelling choices. "But for" the subsidy, they might have gone somewhere else, such as Huntsville.
However, the package is overly generous. Land, site preparation and cash grants of more than $50 million are part of the deal, in addition to a tax break agreement that lasts a very long time (until 2040.) Last year alone, our local governments abated $17.5 million in property taxes. VW will not pay any taxes to support police, fire, streets, parks, etc. until 2040.
By 2040, the total amount of VW tax incentives the city and county will have granted could approach $500 million in lost property tax revenue. The state also provided major incentives, but their subsidies are primarily structured as reimbursements for performance.
Many of us have been under the impression that Volkswagen pays its school property taxes in full. That has been the unwritten policy for companies under tax break agreements approved since 2008. (The two exceptions are the Unum parking garage on Walnut Street and the Walnut Commons apartments.)
The original VW agreement says the company will pay 29 percent of what would have been payable if the property were subject to property taxes. That percentage represented the educational portion of property taxes.
However, Accountability for Taxpayer Money recently discovered that there is also a provision in the original VW agreement that says the company shall not be responsible for any stormwater fees: Any stormwater fees assessed shall be credited against any in-lieu payments.
Because all of its in-lieu payments go for education, this annual stormwater fee is now subtracted from the taxes they pay to schools. Last year, the amount deducted from its school tax bill of $5,560,667 was $644,000. If this practice continues until 2040, the school system wouldn't receive about $19 million.
I know of no other tax break agreement that says that the stormwater fee may be paid from in-lieu-of-taxes. One is a fee; the other is a tax. The school tax goes to Hamilton County; the stormwater fee goes to the city of Chattanooga. The policy is that everyone pays school taxes in full.
Not only do the schools not collect money they should receive, but the company with the largest amount of impervious surface in Hamilton County does not pay a separate stormwater fee. Few residents and businesses "enjoy" paying this fee, but we all do. We also are expected to pay all our taxes — county, school and city.
A golden opportunity may soon present itself to redirect the VW stormwater fee amount to the schools and ask the company to pay its stormater fee from other than in-lieu-of-tax payments.
Soon the city and county will consider a new memorandum of understanding with Volkswagen. The draft MOU — likely prepared by VW attorneys — probably will seek to include the expansion for the new electric vehicle under the terms of the original PILOT to provide the new investment with tax abatement for the remaining term of the PILOT and lease (2040).
Given the land donation, the capital improvement grants, and 30 years of tax breaks, our leaders can make a strong case that the company should pay its school taxes in full and also pay a stormwater fee.
I believe Volkswagen will want to be a good corporate citizen and negotiate in good faith.
County Mayor Jim Coppinger, Chattanooga Mayor Andy Berke and the Chamber of Commerce have the opportunity and the responsibility to try to negotiate a change to the section in the original agreement that allows the company to pay its stormwater fee from its school property taxes.
The county commission and city council should not approve a new agreement unless this change has been made.
Helen Burns Sharp is the founder of Accountability for Taxpayer Money.