Chattanooga develops new policy for business tax incentives

July 2, 2024

Chattanooga is the only major city in Tennessee that requires both the city and the county legislative bodies to approve tax breaks for new and expanding industries.

Efforts to simplify the process for granting incentives may take a few more months to work out.

The Chattanooga Area Chamber of Commerce has been pushing for a policy that would allow some tax breaks for prospective businesses to go through without approval for each project by the Chattanooga City Council and the Hamilton County Commission. The Industrial Development Board was expected to vote on the recommended policy change earlier this year. But drafting the policy was delayed amid negotiations over terms of the new Chattanooga Lookouts stadium and the Southside tax financing district, officials said.

Adam Myers, vice president of economic development for the chamber, said the chamber wants to be able to offer certain property tax breaks for job-producing businesses to compete with other communities — without waiting for city and county approval. Waiting on city and county legislative approval can delay and possibly scuttle some investment plans, he said.

“It would certainly help us from a competitive standpoint if we can simplify the process for projects that meet certain standards that the city council agrees to,” Myers said in an interview after Monday’s meeting.

The chamber and city economic development leaders have been working on a policy to set standards on property tax breaks for growing businesses. But Chattanooga Mayor Tim Kelly’s chief of staff, Jermaine Freeman, said officials are still working with city council members to develop the rules for when and how property tax breaks are awarded for new business investments.

Freeman told the city’s Industrial Development Board on Monday that “robust and meaningful,” conversations are underway with the council.

Myers said growing businesses are eager to move quickly on many projects and, without a property tax break policy in place, there is uncertainty about the incentives being offered until they are approved by the city council and county commission.

Knoxville attorney G. Mark Mamantov, a leading expert in business incentives offered by local governments in Tennessee, said Memphis, Knoxville and Murfreesboro have all adopted policies to grant business property tax breaks to incentivize investments without city council approval. With its metro form of government, Nashville also has an approval process faster than in Chattanooga.

Myers and Freeman said they want to develop a policy to focus on target growth industries and delegate authority to the city-appointed Industrial Development Board to approve the property tax breaks and other incentives without having to get approval of each project if it meets the predetermined investment and job targets and is within the caps proposed for the board.

The chamber put together a list of target industries from its own “Chattanooga Climbs” initiative and Tennessee’s target list. The list includes automobile and parts, corporate headquarters, machinery and robotics, outdoor products, specialty food, aviation and aerospace, medical devices and pharmaceuticals and operations using advanced manufacturing, including quantum computing and sensing projects.

Freeman said the city council can still define the targeted businesses and terms of the property tax breaks overall, but having a policy would help the chamber in recruitment efforts and let businesses know what specific incentives are available in Chattanooga.

Freeman said he hopes to have a meeting with city council members in coming weeks to develop the draft policy. The council will then vote on the policy.

Since Tennessee’s constitution forbids government from exempting property from taxes or showing favor to any business, the incentives are offered by having the property owned by the tax-exempt Industrial Development Board. The board then sets the rates paid by the business using the property. The Chattanooga Industrial Development Board, the Hamilton County Industrial Development Board and the Health, Education and Housing Facility Board were created to hold the leases of businesses receiving tax breaks for a set amount of time, typically 10 to 15 years.

Helen Burns Sharp, founder of Accountability for Taxpayer Money, which seeks to limit unnecessary or unproductive tax breaks, said Monday the list of targeted industries is “not very Chattanooga strategic” and “could be a list for anywhere USA.”

“The target industry list is long,” Burns said, meaning that city and county elected officials wouldn’t have much say in many types of business developments once they set the initial rules. “I believe the council’s role is critical, but there are many more issues that need attention. Will the matrix have clear and objective standards?”

Last year, property tax breaks to help lure targeted business investments and expansions saved those businesses about $25 million in city and county taxes, Burns said. The chamber contends such tax breaks helped bring more investment, jobs and tax revenues that would not have otherwise been created if the business investments had gone elsewhere.

While the new tax incentive policy is being developed, the city and county have not had to offer property tax breaks, Freeman said. The most recent PILOT (or payment in lieu of taxes) agreement was negotiated in the spring of 2023 with Kordsa Inc., a producer of industrial-strength nylon for tires which took over part of the former Dupont plant in Hixson. Kordsa was granted a 10-year tax break on its $50 million expansion that is projected to add 200 more jobs.

“The pipeline is active, but we just have not had any projects involving PILOTs and there are none that are in the hopper right now,” Myers said in an interview Monday.

Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.