East Chattanooga Rising TIF payments fall short of debt service; city, staff plan market analysis and RFP

Board staff told the Industrial Development Board Monday that payments into the East Chattanooga Rising tax increment financing (TIF) district have been far lower than originally projected and are not covering interest on a $4 million loan the IDB issued for infrastructure. Finance staff said the TIF has produced tax receipts each year but the amounts from the city and county have been insufficient to cover the annual interest payment on the $4 million loan. The report showed about $113,000 in total payments applied to interest over the past five years, and staff described the shortfall as an issue that has drawn attention from the state comptroller's office in prior reporting. City economic development staff told the board they are updating the market analysis (the original analysis dated late 2020–early 2021) with the prior consultant and plan to issue an RFP for remaining developable parcels in mid-August to early September. Staff said the $4 million in debt was issued to build infrastructure to make the parcels marketable to a master developer; difficulty securing a housing developer during the pandemic delayed vertical development and thus the generation of incremental tax receipts. Staff said the city is currently servicing the debt and that no interest payments are in arrears, but they warned future years' receipts as currently projected will not be sufficient to cover the debt-service interest and described options including updating deal terms and pursuing additional development to generate increment. Board members requested updates on the market-analysis RFP and the timeline; staff said they expect to return with a development agreement recommendation by the end of the year if parcels move forward.