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May 1, 2015

Certain Principles Should Guide Use of PILOT Programs

By Travis Close, ABR, GREEN, GRI, e-PRO

President, Greater Chattanooga Association of REALTORS®

As experts on the local real estate market, REALTORS® are an invaluable resource to our City and County leadership as they explore economic development opportunities. Recently, the Association was asked to weigh in on Payment In Lieu Of Taxes (PILOT) Programs. In determining our position on PILOTs, it is important to note that REALTOR® and County Commissioner Sabrena Turner-Smedley currently serves on the Association’s Board of Directors. However, Commissioner Turner-Smedley abstained from voting on the Association’s PILOT position statement as outlined below.

As defined by the Hamilton County Board of Commissioners and Chattanooga City Council, PILOTs are sound, acceptable, and positive instruments of tax policy when used for the purpose of economic development in a thoughtful and judicious manner, in accordance with principles which are accountable, transparent in their terms, transferable, fairly and consistently granted to all qualifying and eligible applicants, and readily explainable to the public. The Greater Chattanooga Association of REALTORS® approves the use of PILOTS, subject to certain principles, including the following:

DEFINED, DISCLOSED & JUSTIFIED. Governmental bodies should follow a thorough analysis process to vet a project’s benefits to the community in terms that are clear and meaningful.  This process should be fair and balanced and elected officials should use all means at their disposal to ensure that the public is fully informed about the process, including guidelines for application; qualification of the applicants; individual application details; dates, places, and times in which public comment will be heard, oral or written. This should be web available.

ACCOUNTABILITY. Successful PILOT applications should be carried out with strict adherence to reporting requirements established by local governments. PILOT recipients should be held to a high standard of reporting periodic performance results on each item within their application process that was used to secure approval of their program. Government must assure the performance of the applicants by use of a “clawback” process, which imposes appropriate and proportional sanctions against PILOT recipients who fail to achieve and maintain the level of accountability reporting and measureable satisfactory performance agreed to within the granting process.

TRANSPARENCY. All terms of PILOT Programs should be stated in advance in a specific manner, and as a matter of public record. These terms include financial investment reporting, expectations of employment generation, measurable affordable housing goals, and possible conflict of interest reporting. Applicants should be required to produce specific statistical data where applicable, as opposed to vague suppositions that might be difficult to support.

TRANSFERABILITY. Transferability of the PILOT is essential to development financing, and making PILOT non-transferable greatly restricts the effectiveness of the program. Because of the risk and uncertainty that typically accompany property development –, including the economy, catastrophic events beyond control of an applicant – government should determine at the outset policies generally allowing transfer of the PILOT benefits, upon sale of the property, to a new owner or developer, so long as the new owner adheres to the requirements imposed on the original developer.

FAIRNESS. Applicants should be assured of a fair and impartial hearing of a PILOT request before all governmental bodies. Because it is a fundamental necessity to maintain public trust in the program, there cannot be any suggestion of favoritism, partiality, or inside dealing in the granting process. PILOT Programs must be consistently approved and governed on a basis of even-handed treatment given to each applicant regardless of the size of the application, as long as each application meets the standards of appropriateness, clarity of purpose and use.

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