The city attorneys office reported Tuesday that a Nashville law firm retained by the city and county wrote a letter to GE last week regarding reclamation of Alstom property taxes.
Alstom (now owned by GE), which received a sizable tax abatement from the city and county, is in the process of closing its Chattanooga operation on Riverfront Parkway.
Helen Burns Sharp of Accountability for Taxpayer Money (ATM) said, "ATM is pleased that the city and county appear to be taking action to recover tax money due from GE/Alstom. $13 million seems like a justifiable amount.
"We hope there have been measures taken to ensure that monies realized by the sale of property - by auction or otherwise - are not disbursed to GE or Alstom until the issue of repayment of taxes has been resolved.
"The City IDB is still the legal owner of the equipment being sold at the online auction. The auctioneer should be required to dispense the money collected to the legal owner until the IDB is repaid. Or the auctioneer should be required to hold the money until this issue is resolved, thus saving taxpayer dollars on a future lawsuit."
Ms. Sharp also said, "GE/Alstom has announced they are closing their manufacturing facilities in Chattanooga by the end of the year. This is sad news because of the loss of well-paying jobs. It is sad news because the city and county granted the company a very large 15-year tax break, based on their projected number of new jobs and investment.
"Accountability for Taxpayer Money, a public interest advocacy group, hopes that the Alstom PILOT experience will be a wake-up call to our elected officials about needed changes to the local process for reviewing tax break requests and enforcing the terms of agreements.
"The Alstom property tax incentive package is second only to Volkswagen in the magnitude of taxes being forgiven. The agreement greatly reduces the property taxes the company is required to pay to Chattanooga and Hamilton County. About $2,000,000 per year has been "forgiven." This money could have helped fund emergency services, streets, job training programs, neighborhood services, etc. (This company does pay school taxes.)
"In 2008 the city of Chattanooga Industrial Development Board took ownership of about 100 acres of "Alstom" real and personal property through a payment-in-lieu tax (PILOT) agreement. Under this cozy-but-legal arrangement, the company was able to take advantage of the board's tax-exempt status. The IDB leased the real and personal property back to Alstom Power, Inc. and Alstom Power Turbomachines, LLC.
"The PILOT agreements were to last until 2024, 2025, and 2026. The lease agreements were to expire on Dec. 31, 2029.
"According to current online information from the Hamilton County Assessor’s Office, the IDB still owns the Alstom real property (the land and the buildings). In November 2016, a quitclaim deed (IDB to Alstom Power, Inc). affected only three very small tracts of real property, totaling .61 acres.
"GE/Alstom Power will begin an online event on Dec. 6 to auction millions of dollars of equipment from the 350,000 square foot steam turbine facility on Riverfront Parkway.
"This is part of the very valuable personal property covered by the PILOT agreement. While real property taxes apply to land and improvements, personal property is subject to sales, franchise and excise taxes.
"Is the public to assume that the personal property (equipment) to be auctioned has been assigned and that the public (IDB) no longer holds title to it? This information is hard to track. While deeds are recorded for real estate, assignments or bills of sale for personal property do not have to be recorded.
"ATM does not question that the agreements allow the company to terminate the leases and purchase the property for $1.00. What we do question is why the city and county do not appear to be using re-conveyance as a bargaining chip in negotiations, asking the company to show good faith for the millions of dollars of property tax revenue that has gone uncollected because of this PILOT.
"When Dell left North Carolina "prematurely" a few years ago, the media reported that the company agreed to give back about $26 million of the local subsidies.
"The Alstom story shows why the city and county need policies and procedures for jobs PILOTs. It reveals flaws in vetting, monitoring, and enforcement.
"Vetting: Alstom might have expanded here without a $30,000,000 PILOT (the "but-for" test.). They had purchased the Combustion Engineering property several years before and were employing about 650. They announced their expansion in 2007, the year before the PILOT.
"Monitoring: The in-lieu of tax agreement references at least 300 NEW jobs and an investment of at least $265 million, with approximately $200 million in personal property (equipment). They began laying off workers in 2013 and in 2016 announced the closing of the plant and the layoff of 235 workers.
"Enforcement: The clawback language in the original agreement, while weak, gave the city and county the ability to put the company back on the tax rolls in 2015. Instead, in July of 2015, the city and county mayors and their attorneys negotiated an agreement in which Alstom would begin paying a portion of their general fund taxes. The parties agreed to convene no later than March 15, 2016, to review the status of the PILOT agreement. Did that meeting take place? What was the outcome?
"The 2015 'compromise' is particularly troubling in light of the news in late 2014 from the U.S. Department of Justice that corporate Alstom pleaded guilty and agreed to pay a $772 million criminal penalty to resolve foreign bribery charges. The company apparently will find the money to pay DOJ but our leaders chose not to require them to pay their fair share of property taxes, knowing the company had not met their "new jobs" commitment. Why?
"Who is looking out for the public interest? The time has come to hold our elected and appointed officials accountable. Alstom is just the latest example. Here are a few other examples:
•Why was the clawback language so weak in the two very generous Volkswagen agreements (and in the grant for the expansion)?
•Why do we always seem to give tax breaks to VW suppliers, even when some have already announced that they are locating here because of proximity to VW (the "but-for" test)?
•Why did the Health Education and Housing Facilities Board, with staff assistance from the city attorneys' office, do back flips for the owner of the Walnut Commons apartment complex when the board had the opportunity to put the property back on the tax rolls because they had not met their commitments?
•Why is there no discussion about requiring current beneficiaries of the early housing PILOTs (2002-2014) to begin meeting the state law requirement regarding low and moderate income units?
•Why do the mayors not require written, professional analysis from staff when the unelected and unaccountable bond board members (IDB, HEB) are asked to vote on PILOTs?
•Will we establish a procedure whereby anyone in local government involved with PILOTs will be asked to disclose any actual or "perceived" conflicts of interest?
•Will the city enforce the provision in their housing PILOT program that says "an applicant must apply for a PILOT freeze before commencement or rehabilitation of a project"?
•Will the city put all of the information about the PILOT program in one place on their website?
"ATM will update this list of questions on our website, which is www.atmchatt.com. We look forward to asking these questions of candidates for mayor and City Council. The city election takes place on March 7, 2017, with early voting beginning in mid-February.
"PILOTs (and TIFs) are appropriate tools in our economic development toolbox. However, we need to establish policies that target incentives to companies that will make a significant commitment to investment and quality jobs or affordable housing and can demonstrate that they would not locate or expand without the incentive. We need policies to make sure that companies are held accountable for their commitments. We need procedures to create transparency so that information on tax subsidies becomes accessible and opportunities for public involvement increase.
"We need to realize how truly special Chattanooga has become and that it is not necessary to give away the farm. Our tax break "program" seems geared to 50 years ago when we were desperate to get new development. Companies choose to locate or expand primarily because of business and quality of life considerations. Greg LeRoy, the founder of the non-profit Good Jobs First, cites IRS statistics showing that state and local taxes make up less than two percent of a typical company's cost of doing business. Tax incentives are frequently the icing on the cake.
"It takes money to run a city and a county. This money has to come from somewhere, and the majority - almost 60 percent - comes from property taxes. We assume all taxpayers pay their fair share. When certain companies are given special consideration, this arrangement impacts other property owners by reducing the amount of revenue collected. It can lead to a tax increase or a reduced level of service. It means there is less money available for high priority community projects.
"Let's use tax abatements judiciously. Let's make sure the public interest has a seat at the negotiating table."