Chattanooga City Council members listen during a presentation during an agenda session earlier this year.

UPDATE: The Chattanooga City Council has narrowly approved a new tax break plan to promote affordable housing. 

The measure passed in a 5-3 vote, with Councilman Jerry Mitchell abstaining. 

Council Chairman Moses Freeman and council members Chris Anderson, Carol Berz, Russell Gilbert and Yusuf Hakeem voted for the new plan, while council members Larry Grohn, Chip Henderson and Ken Smith voted against it. 

Prior to vote, several council members attached amendments intended to improve enforcement and compliance through a number of administrative fees. 

Mitchell asked his colleagues to consider delaying the vote in light of evolved version of the program, but made no formal motion to do so. 

Previous story:

The Chattanooga City Council will vote on a new set of tax breaks to encourage developers to create more affordable housing this evening.

some text
Donna Williams, administrator for the city's Economic and Community Development department, addresses the Chattanooga City Council concerning proposed tax breaks for housing developers.

The tax incentive plan - known as a payment-in-lieu-of-taxes, or PILOT, program - calls for developers to offer at least half of their rental units at pricing below market rate. In return, they receive property tax freezes for up to 10 years for new construction or 14 years for rehabilitation of existing sites. The program's tax freeze allows participant developers to pay taxes based on the property's value before any new construction or rehabilitation takes place. 

Chattanooga Economic and Community Development Administrator Donna Williams reviewed the plan with the Council this afternoon. 

"If we don't take some action now with affordable housing, we're going to have the same situation as Nashville," Williams said. "Nashville has an out-of-control housing market."

Developers must make at least half of their units affordable to renters who earn less than 80 percent of the area's median income to apply for the new PILOT. For a single-person household, that equates with a $34,300 annual salary, according to U.S. Department of Housing and Urban Development figures. The 80 percent AMI requirement caps rent at $858 for units leased at that income threshold. 

Councilman Larry Grohn voiced disappointment with the program, accusing it of only providing "the bare minimum" of affordable housing. 

Mayor Andy Berke's last PILOT program, which dates back to 2014, only required developers to make 20 percent of their rentals affordable at the 80 percent AMI threshold. 

Developers who make at least half of the units affording to the 60 percent AMI level can earn longer tax freeze periods. 

Other council members indicated they would propose changes to developer application costs and include new rules for annual PILOT reviews by the council. 

Accountability for Taxpayer Money, a citizen watchdog group, has questioned whether the new PILOT can deliver on its intention to boost affordable housing, calling for lower rent caps than the 80 percent AMI level. Members of the group have also voiced concerns over unfair taxpayer burdens associated with the tax revenue losses and the costs for administering the program.

"Tax abatements raise both tax equity and social justice concerns," ATM leader Helen Burns Sharp said in an email to council members. "Why should homeowners and small businesses pay their fair share of taxes and also pay for the service [fire, police, etc.] for these companies?"