How would you spend $.75 million and change annually to help downtown?

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.

Comments

  1. This ploy of ‘this project is not viable without TIF/PILOT/ or now a tax reduction’ is completely outdated. Downtown Knoxville is smokin’ hot. Anyone who buys into this ‘not viable’ BS is blind, smoking crack, or on the take. Or all 3.

  2. Joe Malgeri says

    “I coulda been a contender.” Words spoken by Marlon Brando in On the Waterfront: Never spoken by Knoxville city or Knox County mayors, ever.

    In response to your query “How would you spend $.75 million and change annually to help downtown?”, I submit the following, which could bring in millions of dollars in revenue and probably be done for ZERO dollars or close to it.
    To set the stage, please follow the timeline:
    • 1999 TN General Assembly passes a law permitting municipal electric utilities to offer high speed internet and other services to their utility customers only.
    • 2004-2009 Seven utilities begin services, Chattanooga one of the last two, In 2009, City Council announces it’s going forward with financing, is sued immediately by Comcast: proceeds anyway, wins the suit.
    Gains international recognition as the first 1 gig city in the US, and one of a handful in the world. Attracts entrepreneurs, venture capitalists, opens incubators, gets press coverage galore. Is profitable almost immediately. Attracts large companies like VW. https://www.vice.com/en_us/article/ezpk77/chattanooga-gigabit-fiber-network
    Over time, new start ups in Knoxville, unable to access high speed internet, find venture capital, relocate.
    2015 Comcast announces Chattanooga is no longer 1 gig city. It’s now the 2 gig city thanks to them. Two weeks later, EPB Chattanooga announces Chattanooga is no longer the 2 gig city: it’s the 10 gig city
    2011-2018, Hamilton County adds/expands 44 businesses, 7,644 jobs
    Knox County adds/expands 23 businesses, 3,782 jobs
    https://www.knoxnews.com/story/money/business/2018/12/10/what-tennessee-tech-census-means-knoxville-startups-cirrus-entrepreneur-center-discovery-regal/1932202002/
    Sometime around 2000, entrepreneurs install fiber optic cable along Gay Street in private venture. It fails. Fiber optic cable still idle.
    2015-2015 prox., Cumberland Ave ‘big dig’ o upgrade utilities, doesn’t include fiber, too costly (about $1 /foot).
    Responding to your question “How would you spend $.75 million and change annually to help downtown?”, consider the following: Instead of talking about tax breaks for ventures that may or may not last:
    • Survey the residents/businesses along South and North Gay St.
    ◦ “If we build our broadband, will you buy the service?
    ◦ Would you pay some amount ($100, $1,000: put skin in the game) to help us get the system going? You’ll get the money back as credit against your monthly bill once we’re online.
    ◦ If the answer is positive, buy the cable, get moving, with or without KUB. If you need some case studies to study, let me know. I’ll send you a list – by email.
    I don’t know how many businesses/residences are on the street. But you do. And you can do the math, I’m sure.
    • Ditto, Cumberland Ave. You should be able to snake the cable along the same hole you dug earlier, and you already own the rights of way.
    • There are plenty of knowledgeable utility people to tap as consultants.
    And, you can pay as you go, funding the project from cashflow.
    That’s my answer, offered as a consultant. If you find value in it, figure out what the advice is worth and send me a check. I trust your judgement,

    Joe Malgeri

  3. I really wish there were bathrooms in Market Square. It would be so much easier than going back to the parking garage.

  4. This may be off topic but what’s the status of the Wild Wing Cafe on Gay St.? The previous article said:

    “The hope is to get the current plans into the permitting process by the end of next week. He hopes to have that process completed in about four weeks, allowing for intensive construction to begin around the end of April or beginning of May. Opening the restaurant is the highest priority and he hopes to have it open for football season.”

    I walk by there often and it appears nothing is being done at all.

  5. Laura O’Rear says

    I agree with more seating needed on Market Square. On a positive note, I always bring out of state visitors to Market Square and Downtown. They love the positive energy, happy people, thriving businesses and of course the food choices. Also think the golf cart type of quick rentals to move people around the area is neat. The entire area is a wonderful, welcoming atmosphere.

  6. Michael O'Malley says

    How typical is it for cities to require developments to provide parking? Because it seems like in a downtown that is ostensibly transit- and pedestrian-friendly, that’s an unnecessary burden.

  7. JOEL ANSTETT says

    It would be nice and convenient if the city would provide more benches on Mkt. Square as well as along Gay St. It would be helpful to the elderly and disabled. We would come to the downtown area more often.

  8. CHRIS CAMPBELL says

    Good morning. I apologize for using this space for an unrelated question. Wondering about any update on Clayton museum project and The “T”. Thank you

    • KnoxvilleUrbanGuy says

      I asked about the T earlier this week and was told there is no news: Still on track, but nothing happening. I haven’t heard anything recently on the Clayton museum project, but I can ask.

  9. Jonathan says

    Alan – has the DKA granted similar relief from the tax previously for other developments and/or redevelopments?

  10. I’ll have to say, I actually agree with this one. This building is really the last “abandoned building” that needs saving that isn’t already being worked on. This developer owns the Pryor Brown garage, the Cal Johnson building is already being worked on, and the other “abandoned building” currently houses a business and they refuse to accept help anyway.

    You mentioned the Gay Street “hole.” I happened to notice the other day that there are not one, but actually two “holes” on that end of gay street, and it looked like the ground that was formerly a parking lot was getting ripped out of the smaller “hole.” Do you have any news on this? Potentially another building going there?

    • KnoxvilleUrbanGuy says

      Point of Clarification: Rick Dover is no longer involved with Pryor Brown. Ownership reverted to the Conley family about a year ago. Regarding the growing hole by the Century Building, I have no idea, but my confidence that it might be something good is slim given the ownership. I will try to follow up on that, as well.

Speak Your Mind

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.