‘Tax Dead’ Program Clears First Hurdle

By Bill Dries

Shelby County Commissioner Steve Mulroy scrambled Monday, Jan. 13, to overcome some of the nagging questions about an anti-blight initiative aimed at “tax dead” properties and overcame most of them for now.

Still ahead is a review by the Tennessee Attorney General’s office that will center on the state’s ban on any provision that waives or forgives property taxes and whether the program runs afoul of that ban.

An anti-blight program aimed at “tax dead” properties cleared its first hurdle Monday with approval by the Shelby County Commission. But there are more details and legal judgments to come.

(Daily News File/Andrew J. Breig)

The County Commission approved the resolution that sets the framework for the program aimed at properties in which the owner owes more in back taxes and related fees than the property is valued at or could ever be sold for.

Mulroy accepted amendments to the basic idea of a grant or loan to a prospective property owner in the amount of those back taxes and fees that would then be used to pay off the back amount.

The amendments included making the $200,000 a year fund in the five-year pilot program available only to nonprofit community development corporations and not individual developers or homeowners.

The program also includes an additional incentive from a $100,000 a year fund to grant the property owners the equivalent of five additional years in property taxes on the property. An attempt to amend that out of the resolution was voted down by the commission.

Leaders of several community development corporations have said the further incentives are necessary to secure development of the properties over the long haul.

The resolution now goes to the Tennessee Attorney General’s office for review, which is a part of the process established in enabling state legislation. If the Attorney General’s office finds the terms of the program are not arbitrary and capricious and do not violate the state’s prohibition against waiving or forgiving property taxes, the commission would approve basic ground rules provided they are not substantive changes to the resolution.

“We’re just trying to get something provisional to the Attorney General,” Mulroy said. “Let’s just go ahead and get this done.”

The details include an appointed committee that would administer the program, and there has already been some indication of how the attorneys in Nashville might view the program.

Assistant County Attorney Danny Presley talked with two officials in the Attorney General’s office in Nashville Monday as the commission waited.

Presley said while their opinion wasn’t definitive, they expressed concern about limiting the program to community development corporations only.

“I’m paraphrasing. That is potentially upon review problematic as being arbitrary and capricious,” he said. “That depends on the articulation of the justification in the record of this meeting as to why CDCs are being singled out as the only potential recipient of a grant award.”

Commissioner Mike Ritz’s intent was to limit potential abuse of the program.

The first tentative opinion out of Nashville led Mulroy, a professor at the University of Memphis Cecil C. Humphreys School of Law, to amend the program further with what he termed a “severability clause.” It says that if the Attorney General’s office rules that the limit to CDCs doesn’t fly legally, it can be severed from the program without starting all over in the process of passing a resolution.

Presley also expressed concern about terming the initial grant or loan a “forgivable mortgage lien” and how the Attorney General’s office might view that.

When it comes to property taxes and waiving them or forgiving them, the legal points are detailed and terms mean a lot. There is also a way around the waiver that has been a major incentive in the Memphis economic development arsenal as well as a controversial one.

The state allows payments-in-lieu-of-taxes (PILOT) programs to freeze or forgive a certain amount of property taxes for economic development purposes. In the PILOT transaction, the property that is going to get what amounts to a tax waiver is transferred to the entity granting the PILOT, which is a tax-exempt organization.

Shelby County Trustee David Lenoir has been following the details of the developing proposal closely for months and backed passage of the resolution as Mulroy worked on questions about the details to come that Lenoir and others had.

“I feel comfortable we can get where we need to be,” Lenoir said. “We need to get this out of Shelby County. It needs to get to Nashville before the attorney general so he can give an opinion on it. We spend millions of dollars on PILOTs. I’m sure we need to spend a few hundred thousand dollars to address blight in Shelby County.”

The Memphis City Council has discussed making the program a joint city-county program but has delayed its action to let the commission take the lead on such a program.