Benefits of Tax Increment Financing (TIF) agreements in attracting industrial and retail developments were explained to Shelbyville City Council members by an attorney from one of Tennessee’s most respected law firms at an informational luncheon Friday.

“Basically, I’m a tax lawyer,” Mark Manantov of Knoxville, representing the Bass, Berry & Sims law firm, said in introduction. “Every once in a while, I represent the ‘greedy developers.’ And I’m kidding. I try to protect cities and counties from making stupid mistakes and not being taken advantage of by developers.”

Mamantov is familiar to Shelbyville officials. He represents Shelbyville Housing Authority (SHA) and said it’s one of only a few in Tennessee utilizing TIF agreements to finance projects.

Shelbyville-Bedford Partnership president/CEO Shane Hooper talked of attempts to attract national hotel and restaurant chains to Shelbyville, using the proposed Tennessee College of Applied Technology and Bedford County Higher Education Center campuses, the Tennessee Downs auto lifestyle project, the expansion of Middle Tennessee State University’s aeronautics program, and the activities around Uncle Nearest Distillery as drawing cards.

“We’ve done a lot to attract national hotels to smaller towns,” Mamantov said. And Shelbyville’s not that much of a “small town” anymore – Mayor Randy Carroll pointed out Shelbyville is now Tennessee’s 29th largest city. Shelbyville’s population is approaching 25,000 as subdivisions continue to grow, and the urban area around the city likely is already past that point when subdivisions just outside the city limits are included.

“What you have to incentivize people (referring to potential developers) is your property tax,” Mamantov said.

Tool kit

Mamantov listed three “tools in your toolbox” to officials:

• TIF agreements;
• PILOT programs, a form of property tax abatements;
• Special assessments, in which a tax is imposed on small, specific areas to pay for infrastructure. These up-front impact fees are rarely done and usually only for large subdivisions, Manantov said.

TIFs can only be granted to industrial development boards and housing and redevelopment authorities, such as SHA, according to Mamantov.

Their advantages include:

• No abatement of taxes;
• No affect on valuation of property;
• Most are effectively grants to the developer;
• They can result in taxable income to developer.

“A city council through an industrial development board is borrowing money on an income stream (that of the new business/industry) and granting funds to the developer,” Mamantov said.

TIFs are usually utilized to gain money for immediate needs. The banker loaning the developer money, not the city or county, is responsible if the developer defaults, according to Mamantov. Many TIF incentives involve just reimbursement of costs with no borrowing involved, the council was told.

A three-step approval process for a TIF is necessary, Mamantov explained.

• A plan preparation document, also known as a plan amendment. “Just a simple, short explanation,” Mamantov said.
• A public hearing held by the industrial development board.
• Åpprovals from both city and county governments.

The entire process takes about 60 days, Mamantov said.

TIFs need to be well-planned, Mamantov told the council. They involve a bank note, a loan assignment, assignment of TIF revenues and a development agreement.

Mamantov said TIFs are typically used for four types of projects:

• Retail and hotel projects;
• Downtown revitalization and redevelopment of blighted properties;
• Mixed-use developments, such as apartment buildings with retail stores on ground floors;
• Wastewater extensions.

Local situation

SHA has talked about getting into downtown Shelbyville redevelopment, Manantov was told. He responded that SHA cannot do TIFs for non-blighted areas, “and from what I’ve seen of your city Shelbyville has few if any blighted areas.” Mamantov was very complimentary of Shelbyville’s appearance, including “the courthouse on the hill.”

“We struggle with hotels, restaurants and groceries,” Hooper, a strong proponent of TIFs, said. He made a pro-TIF presentation to the council in late December.

“All serious developments ask about incentives. In the absence of TIFs, it’s been hard to keep conversations going.”

Hooper talked of Shelbyville’s projected growth pattern.

“We want something up and down (Highway) 231. That’s where most of our growth is going.”

TIFs have been used in nearby areas, Mamantov said, including the rebuilding of Northgate Mall in Tullahoma and a Hampton Inn in Fayetteville.

“Hampton Inn got a TIF and is struggling with it,” Mamantov said, indicating a lack of business.

Council member Bobby Turnbow asked Manantov what happens if a TIF fails, such as a developer defaulting or a new business using TIF funds shutting down relatively quickly. Mamantov responded that the city and county aren’t financing the projects and the bank loaning the money would be the loser.

Mayor Randy Carroll asked about background checks on TIF applicants, seeing if they had failed projects in their backgrounds.

“Definitely do due diligence,” Mamantov said.

Carroll mentioned the former Summit Polymers plant in Shelbyvillle, which had been given money in a non-TIF program. The plant closed after 5 years and was legally forced to repay the city, Carroll said.

TIFs are a learning experience for local officials.

“I was understanding that a TIF was like a zone where anyone in it could apply for it,” council member Henry Feldhaus said. The use of TIFs is scheduled to be discussed by the council in upcoming meetings.