Inside of Knoxville

Start naming projects to help an entire downtown and the money can slip away pretty quickly. Some issues or dreams can’t be addressed with that small amount of money. As massive as it would seem to many of us on a personal level, when you start spreading it around block-by-block, it’s hard to make it stretch all the way across our tiny .67 square mile downtown.

That’s the conundrum the Downtown Knoxville Alliance faces when it looks at its budget, which is generated by a tax on downtown residents and businesses. A board made up of representatives from government, residents, businesses, developers and others makes the decision of where to send the limited dollars. A host of committee members sits behind the scenes taking a deeper look into the decisions to be made. None of these people are paid.

A quick look at the budget reveals the priorities. The biggest piece — about a third — goes to the administration of the entity, which includes salaries and operating expenses. The next biggest piece, $170,000, goes to marketing, which includes their excellent website, advertising and event sponsorship. The money promotes the city and helps bring many of the annual events we all enjoy.

$125,000 goes to security and beautification. The organization pays for a larger police presence than we would otherwise have in the downtown area which should help reduce crime simply by discouraging it. And those flowers we enjoy on Gay Street and all around? That’s them, too. Another $90,000 goes to support downtown businesses in a range of ways. $75,000 to special projects and another $68,000 goes to residential projects and support.

CBID Board, Knoxville, July 2019

It goes quickly and it hasn’t always been as large a pool to begin with. The alliance (which is our Central Business Improvement District), was founded in 1993 and while I’m not sure what the budget was at the time, I’m pretty sure I remember it being in the $300,000 range when I started following the organization nearly a decade ago.

At that point, a major focus for the organization was to support the renovation and redevelopment of the individual buildings downtown. The area had an abundance of abandoned and semi-abandoned buildings dotting the downtown area and getting them occupied was a priority. The assistance largely came in the form of facade grants, meaning they helped bare the sometimes major expense of returning the facades to their original state. The idea was that the businesses in the building may come and go, but the building would still contribute to the betterment of the city.

Most of the major buildings downtown that were redone during this era received money from the CBID, including, but certainly not limited to, the Arnstein Building (Urban Outfitters, etc), the Kern Building (Tupelo Honey/The Oliver), Tailor Lofts (including Blackhorse Brews), the JC Penney Building (Babalu and condos), the Medical Arts Building and many more. Some of the grants were relatively small, but others ran into the multiple six-figure range and were paid out over several years. The developers often presented the case that the grants from CBID were what made the projects tenable.

It was a similar pitch before the group earlier this week, albeit with a twist. Dover Development and Bristol Development Group working on the twin pieces of the Supreme Court site bounded by Clinch, Henley, Church and Locust asked not for direct money from CBID, but for relief from the tax that goes to the CBID. The city and county have agreed to a 25 year PILOT (a time period during which the developers would pay tax based on the purchase value — $2.6 million — rather than the increased value once they complete the project. The group asked for the same twenty-five year break from CBID.

Parking Lot of the Old Supreme Court Building

It led to some lively discussion, starting in the development committee, where Mr. Dover stated that the project could not go forward without help from the CBID, in the form of forgiven payments. Bank financing, he explained, could not be obtained with the current numbers and this abatement would make the difference in his project vs. the land remaining vacant in the hands of the city. This is not the first project to be proposed on the site and the previous project became untenable.

His request would result in the developers paying just over $83,000 over the twenty-five year period. The full assessment would likely come in in just over $1,000,000. The committee countered with an offer of a ten-year abatement, meaning the developers would pay about $644,000 over the twenty-five years. Mr. Dover responded that this would not be enough to save the project. Letters from the banks were presented that supported the request.

With that background in committee, the request came to the full board this week. Mr. Dover acknowledged the difficulty facing the board, and said:

I value what CBID does and want to support it. I took the recommendation to the bankers and could not make it work. I want to be respectful and to be good neighbors, but if the answer is ‘no’ here, it will go back into the hands of the city. I don’t want to go back to city council to try to get five votes.

The point was made that his residents will enjoy the benefits of the work of CBID without the burden of paying their part. A representative of Bristol Development who was present said, “We have an arithmetic problem with topography, geology and the costs of urban construction. If we had rents to match Nashville it would work. Without the opportunity zone and the PILOT, it would not be happening.”

It was explained that the 2017 Tax Reform bill established “opportunity zones” which tax benefits to investors building in low investment areas. Strangely, most of our downtown qualifies, despite the hundreds of millions that have been invested here in the last decade.

Pointing out that it will be five years — two of construction and up to three to get the residences completely filled — before they will see the profit from their investment, they requested the ten years not start for the first five years, but kick in after they are beginning to get a return on their investment. It was pointed out that the city has been starting PILOTs after the construction period. It was also noted that the board supports the project and wants it to happen despite some statements that had challenged that idea.

Rick Dover Presents to the CBID Board, Knoxville, July 2019

Also noted, by chair Tim Hill, was the fact that the city is now requiring developers to provide their own parking which has driven up expenses and made projects more difficult to finance. He used his own previously-planned project between Gallery Lofts and the Century Building (the hole on Gay Street) as an example. With the cost-per-spot for underground parking coming in at such a price that he could not make the numbers work and the project died.

In the end, the board agreed to give ten-years of taxes at the rate of the sale price and to delay the onset for four years to give the developers time to build the project and get it occupied. The consensus was that this would be the last project to get a deferment, as they didn’t feel going forward they could forfeit that amount of funding.

The decision was a hard one. The cost was high, but the project is an important next step for the city and the block has languished for years. Was it the best decision? Had you been on the board would you have supported it or would you have been willing to see the project cease? If you were king of queen of downtown and could spend this money, how would you spend it? It’s the kind of difficult decision made at multiple levels of governmental and quasi-governmental agencies and departments that have real impact on what the city becomes.