In 2008, the city and county approved a massive payment-in-lieu-tax deal to lure Volkswagen. VW’s location was seen (rightly) as a game changer that would create thousands of jobs and be a catalyst to attract other businesses.
While a PILOT tax incentive was appropriate, we might have been able to negotiate a 20-year property tax abatement rather than 30 years, as Huntsville recently did for the Toyota-Mazda plant. In this scenario, we would have started collecting property taxes from the general fund in 2030 rather than 2040. We don’t collect about $17 million in VW property taxes each year.
Moreover, if VW had been required, like all other property owners, to pay its annual storm water fees in addition to its school taxes, the schools would receive more taxes each year. In 2021, the amount of the storm fee deducted from school taxes was $867,000. This is a 30 year old PILOT.
Take-out? How these agreements are structured can have a major impact on future property tax revenues for services such as fire, police, streets, schools, parks and affordable housing.
A new Lookouts baseball stadium is proposed at the former Wheland Foundry and US Pipe sites on South Broad Street. The current plan calls for it to be paid for primarily by diverting new property taxes to the area through a 30-year tax incentive known as tax increment financing (TIF).
Let’s take some time this time to make sure taxpayers are protected. Our leaders could:
– Continue funding the Tennessee General Assembly in January. Our request for $13.5 million for the construction of the stadium was not approved last session. But there is the Knoxville Smokies precedent, and the local delegation might view a request more favorably if the team owner had more skin in the game. Adding state money could reduce the amount of a stadium bond from $79.5 million to $66 million.
— Consider a different approach to bond repayment, shifting from local property taxes (TIF) to visitor hotel-motel taxes. That’s how bond debt repayment is structured in Columbia, SC, where Lookouts’ owner – Hardball Capital – also owns a minor league team. Since Columbia Stadium is held up as a model for Chattanooga, let’s look at how it was funded, both source and contribution from the team owner.
— Negotiate a greater contribution from the owners of the Belvédères. In the current proposal, the team owner would not provide upfront money. In Colombia, the same owner provided 17% of the cost of building the stadium. Our stadium site and the entire area will be the primary beneficiaries of a new $35 million I-24 interchange that the state is paying for. The county has designated this site as an “opportunity zone”, which offers tax benefits to investors. The public sector is doing its part to revitalize this sector.
— Prepare a Memorandum of Understanding (MOU) with the team owner. Taxpayers need to be protected if something unforeseen happens in the world of baseball if we agree to service an $80 million stadium debt for 30 years. The city’s chief financial officer recently told city council members that the city and county should step in if things don’t go as planned and there is a gap in debt servicing. Why should taxpayers assume this risk?
I worked on a TIF project where PepsiCo planned a Gatorade installation. After construction began, the company made a business decision because double-digit growth in Gatorade sales had slowed. They decided to break the agreement with the city. Because the city attorney had put strong clawback language in the agreement, the company wrote the city a check for $25 million to settle.
— Prepare a memorandum of understanding with Core Development. This Nashville-based company has considered investing $150 million in apartments and commercial space next to the proposed new stadium. The Chattanooga Area Chamber of Commerce told the city council that capturing the increase in this new investment is why it is promoting a very fast-track approval process. Their financial commitment and aggressive schedule should be spelled out in a memorandum of understanding.
Clearly indicate in these memorandums of understanding that this TIF is limited to the repayment of debt on the stadium. Most TIFs are set up to pay for infrastructure, such as streets and water and sewer lines in the TIF district. This TIF is set up to repay the debt of a stadium. Make it clear in memorandums of understanding that infrastructure is not an eligible project cost. Neither does the remediation of industrial wastelands.
The stadium project could be a catalyst to revitalize a degraded area. A master developer with an excellent track record seems interested. Both are big positives. But the financing package as currently proposed appears to be an unusually good deal for the owner of Lookouts at the expense of property taxpayers.
I hope our leaders negotiate a fairer deal and that the stadium is a great success.
Helen Burns Sharp is the founder of Accountability for Taxpayer Money, a public interest advocacy group focused on tax incentives and government transparency. Contact her at [email protected]
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