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VOL. 121 | NO. 244 | Tuesday, December 19, 2006

HEHFB PILOTs Often Fly Under Radar Of Public Perception

By Zachary Zoeller

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Memphis Health, Educational and Housing Facility Board (HEHFB)
Created in 2002, HEHFB's PILOT program has granted tax freezes for the construction and rehabilitation of about 40 multi-family apartment complexes.
The Memphis City Council considered taking the authority to grant HEHFB PILOTs, a proposal based on 2005 research by consultants NexGen advisors and URS Corp.

In Memphis, a payment-in-lieu-of-taxes (PILOT) freeze typically is associated with a large corporation opening an office or plant.

While the Memphis and Shelby County Industrial Development Board (IDB) is in charge of issuing such tax breaks, the Center City Commission also grants PILOTs for commercial real estate development Downtown.

ServiceMaster Co., which bills itself as the largest provider of lawn and house care products in the United States, was granted a PILOT in October to relocate its headquarters from Downers Grove, Ill., to Memphis in 2007.

Steel manufacturer Nucor Corp. received a PILOT option last summer, and in October, the company announced it will open a Special Bar Quality Products steel mill at the Frank C. Pidgeon Industrial Park south of Downtown.

However, another Memphis entity retains the power to grant PILOTs, even though it might have a lower profile than its counterparts - the Health, Educational and Housing Facility Board of the City of Memphis, Tennessee (HEHFB).

Breaking the bank

The HEHFB's PILOT is a financial incentive to encourage construction of new multi-family housing and rehabilitation of existing housing for low- to middle-income residents.

Memphis has one of the greatest needs in the state for affordable housing because of its high proportion of low-income residents, said Pat Smith, director of public affairs for the Tennessee Housing Development Agency.

A 10-year tax freeze is awarded to owners of multi-family housing who may not charge residents more than 30 percent of their income for rent, said John Baker, executive director of the HEHFB.

Twenty percent of a program applicant's units must be occupied by residents whose income is 50 percent less than the area's median gross income, or 40 percent of residents must have an income of 60 percent less of the median gross income.

The value of renovations, site improvements or new construction must be at least 50 percent of the total appraised project development costs.

Projects in target areas, or areas with extraordinary lack of affordable housing, throughout the city take precedence.

Some examples of properties that have been granted HEHFB's tax freeze include the New Horizon Apartments at Winchester and Millbranch roads, the Commons of Brentwood in Orange Mound and Oakview Apartments - now Kimball Park Apartments - near Lamar and Kimball avenues.

Big changes

In the midst of the Memphis City Council's reforms to the PILOT program this year, the HEHFB almost lost much of its authority to administer the tax breaks.

Based on a 2005 study by consultants NexGen Advisors and URS Corp., which assessed the program's effectiveness, the council made several changes to the administration of PILOTs.

Among the recommendations of the study was to give the city council and Shelby County Commission the final say on any PILOT granted by all three organizations.

"We recommend that the Industrial Development Boards, including ... any other entities that grant PILOTs, become an advisory board, and the elected boards (City Council and County Commission) become the actual granting agencies or final decision makers," the study says.

On Oct. 3, the council shot down the proposal 8-5.

"That materially changes things," Baker said. "When a project might get approved here, it would still have to go to council agenda. That's another time-consuming process, and some of the projects, I don't think they would survive that delay."

I object

Baker's objection to the proposed changes to HEHFB stemmed from the fact that his board was never included in the study's research.

"They looked at IDB and (Center City Commission) and they never came and talked to us," he said. "Their recommendations kind of hit us because council and the commission took them and said, 'Let's look at all PILOT entities and sweep them all in.'"

In the introduction to the PILOT Evaluation Report, the consultant groups acknowledge that they focused on "the PILOT impacts on industrial and commercial development," and the HEHFB "would not be included in this analysis."

"That took months to, as I felt, get straightened out and clarified," Baker said.

The only recommendation that was applied to the
HEHFB was that the board is to submit quarterly and annual reports. It was doing the latter already, he said.

"There wasn't much impact to us in the outcome," he said.

If the council made the final decisions about PILOTs, the process not only could be lengthened but politicized, he said.

"We are pretty apolitical here," he said. "We have no constituencies, and it's a citizens' volunteer board."

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