A proposed bill in the Tennessee Legislature that loosens limits on industrial development board housing projects also gets rid of public hearings when industrial development boards “amend” their tax increment financing plans.
The provisions are part of larger bill that appears aimed at spurring new housing development. The bill widens the authority of industrial development boards to use such tax-increment financing for single-family housing, condominiums, and townhomes. It also removes the limit that multifamily housing financed with public funds must be targeted for low and moderate income, elderly or handicapped people.
Tax increment financing allows industrial development boards to fund a project through issuing bonds and using the increased “increment” of sales and property taxes in a particular zone generated by the development to pay off those bonds. For example, Nashville has used tax increment financing for the HCA Summit project and the Omni hotel downtown. Nashville had $2.7 billion in outstanding debt on 70 tax-increment financed projects, according to the most recent Comptroller’s report in 2024.
Currently, before submitting a plan or changes to a plan to a governing body, such as a city council or county commission, an industrial development board must hold a public hearing that identifies where the project will be, the benefits of the project, the anticipated new tax receipts from the project and how they will be allocated. Notice for the public hearing must appear at least two weeks in advance and include information on how to view a map of the area for the project.
The bill does not define what an amendment to a plan might be. But an example of an industrial development board amending its plan was when the Chattanooga/Hamilton County board amended a plan to include a larger geographic area in its zone for harvesting taxes to help finance a new baseball stadium.
The bill itself points to another type of amendment that could happen: a change in allocation of taxes between the government and the industrial development board. Currently, the government that normally receives property and sales taxes from the geographic zone would continue to receive the amount of tax equal to the tax levied and received before the development occurred. The increase in taxes after the development would go to the tax-increment agency that financed the development to help pay off the bonds. The bill removes this split of tax revenue and requires that all taxes be allocated to the tax-increment financing agency when the plans involve multifamily, single family, condominium or townhome developments.
Industrial development boards can avoid public hearings, advance notice of plans
The bill, HB1306 / SB1271, allows an industrial board to skip the public hearing requirements (and two-week notice) when it “amends” a previously approved economic impact plan. The bill doesn’t define what an amendment is, but an example of an industrial board amending a plan was when the Chattanooga/Hamilton County industrial board expanded the tax-increment financing zone to harvest more local taxes to help pay for a new baseball stadium project.
Industrial development boards are used mainly to divert property or sales tax to pay for certain types of projects, or to eliminate property taxes entirely but they also can establish a “payment in lieu of taxes” otherwise known as a PILOT. When first developed, tax-increment financing zones were used as a way to create development in blighted zones. But the rules have been loosened over the years to allow more types of project to receive such government subsidies.
Qualifying housing no longer has to be aimed at low or moderate-income people
For example, currently, a qualifying project for tax-increment financing includes “multifamily housing to be occupied by persons of low or moderate income, elderly, or handicapped persons.”
This bill would replace the definition of multifamily housing so that the housing no longer must be aimed at low- or moderate-income, elderly or handicapped people. The new definition would be: “any multifamily housing including, but not limited to, affordable and workforce housing as defined in § 5-9-113, to be occupied, in whole or in part, by persons of low to moderate income, elderly, or handicapped persons, as may be determined by the board of directors.” By using the words “in part,” the industrial development board is free from any limits on rent prices as long as it has at least some, which could be a very small number, aimed at “low or moderate income, elderly or handicapped people.”
The bill also adds a new type of project development that could get tax subsidies: single family homes, condominiums or townhome. These would also not be limited to low or moderate income, elderly or handicapped people, allowing higher prices.
The law already allows the industrial development board to determine the definitions of “low to moderate income, elderly or handicapped people,” but the bill adds language that says “those determinations shall be conclusive.”
The bill is on the calendar of the House Cities and Counties Subcommittee next week, which meets at 3 p.m. Wednesday at the Cordell Hull building in Nashville.
