What's At Stake

BACKGROUND

Knoxville developers are in the process of purchasing the Daugherty building from its current owner, Mr. Hansen, at an expected sum of $1.75M. They will convert the five floors of the building into thirty-nine Section 42 (low-income housing tax credit) units to house up to 148 individuals, including families. The largest changes to the building will be removal of the central staircases, converting the majority of the main level and entirety of the basement and second level into residences instead of commercial space, and constructing an external stairwell and elevator shaft on the side of the building facing Charles G Sievers Blvd. The issues that citizens have raised are not about whether additional low-income housing is needed in Anderson County, but instead are centered on whether the heart of historic downtown in the center of the commercial district is the appropriate location, with particular questions regarding parking, waste, infrastructure, green space for residents, noise, future business growth in downtown, and historic property rehabilitation standards. Most of these questions remain unanswered.

WHAT IS LIHTC AND WHY DOES IT RAISE CONCERNS?

The Low-Income Housing Tax Credit (LIHTC) is the largest supply-side housing subsidy in the United States, with more than $9 billion worth of credits allocated per year to states and then on to developers. The benefits of the LIHTC are supposed to flow through to tenants in the form of lower rents, but studies suggest that investors, developers, and financial companies gain most of the benefits. The program has complex administration, is prone to abuse, including well-documented abuse by local government officials, and produces costly low‐income housing that is less effective than demand-side housing aid. Research shows developers profit over communities and tenants, and that such developments are not well-suited for the proposed location at the heart of Clinton's business and historic district. This has raised additional concerns.

For a summary of published studies (cited) on LIHTC and a listing of citations, please click here or select the button below.

A listing of LIHTC properties in Anderson County can be found at https://lihtc.huduser.gov. There are 690 LIHTC units currently in the county, housing approximately 1,516 people. Half of the county's LIHTC units are in the city of Clinton.

The developer's LIHTC application can be found here (click pdf icon):

A statement, written by the developer, can be found published May 4, 2022 in the Courier News, and addresses the expected upcoming payment-in-lieu-of-taxes (PILOT) request to be heard by the Anderson County Industrial Board and Anderson County Commission. You can view Clinton City Council's special meeting to discuss whether to support the developer's request for PILOT, including the votes and comments by each councilman, and the citizen speakers and their questions. The vote was 5-2 to not recommend support: https://www.youtube.com/watch?v=RjqITJQxSBE

LIHTC Studies

WHAT ISSUES ARE THERE WITH THIS SPECIFIC TO CLINTON?

A recurring question has been where residents will park. Will it be in the taxpayer-funded city parking lot that houses the farmers market, food truck events, and downtown small business customer parking? How will the City handle the trash collection? Sewage? Utilities? What other city resources will be needed? What about security? Despite the fact that the developer's LIHTC application mentions a security system, they recently stated to the Historic Zoning Commission (April 2022) that there will be no security system, surveillance, or cameras. Downtown small business and residents have sent letters of concern about numerous aspects of the project to Commissioners and City Council members, without a response or brushed off, exacerbating those concerns.

The Daugherty Building question centers on appropriate use of a historic property (current plans risk the National Register of Historic Places designation), appropriate modifications to a historic property (current plans violate Department of Interior standards), and crucially, appropriate location for such a proposed development. Is historic downtown Clinton, at the heart of a commercial business and historic district, the best location in Anderson County? Have elected officials given any consideration to the possible effects of such a location on economic potential of our downtown? Have they considered the independent studies and academic journal articles that have shown that LIHTC developments are most successful in low-income, high poverty areas, where they have the potential to raise property values, but do the opposite in other areas?

Should this development move forward in this location, the property is bound by deed covenant for subsidized housing use for 20 years or longer. It will remain so after today's officials, developers, and investors have moved on. Investors get rich, of course, which is why the government structured the LIHTC program as it has: to make it attractive to private investors. Other East Tennessee downtowns with LIHTC developments at the heart of their cities have learned this the hard way, and are working to relocate them to other locations. There are better ways, that will benefit the city, all residents: low-income to high, our businesses, and our beloved hometown. Can you honestly say that you think this development, and in this location, is really the best Clinton can do?

NEW DEVELOPMENTS & CLINTON CITY MEETINGS

On May 11, 2022, the City of Clinton held a meet-and-greet and Q&A with Tennessee Housing Development Agency (THDA) Director Ralph Perrey, for city staff and select invitees. Daugherty Building developer Kent Leach attended. The meeting was held at the Clinton Community Center, but was not shared with the public. The meeting was not announced on the City of Clinton website. To date, the only open City meetings regarding the Daugherty Building have been the Clinton Board of Zoning Appeals, Clinton Historic Zoning Commission, and a single Clinton City Council meeting considering a Payment-In-Lieu-Of-Taxes (PILOT) resolution. These have spanned more than a year. There has been no public forum, per se. The City Council meeting is the only one recorded and, as mentioned above, can be found here: https://www.youtube.com/watch?v=RjqITJQxSB

The following notes were provided from Director Perrey’s talk and the subsequent Q&A:

There is a general housing shortage across the region, not only in Anderson County, of both market-price housing and affordable housing.
Clinton’s current housing market – high demand and low supply - is ripe for new market-price additions.
Deeds to LIHTC properties are attached by covenant to remain in use as below-market (subsidized / rent-controlled) housing for 20 - 30 years. There is an opt-out at the 15-year point which Director Perrey says is seldom exercised in Tennessee.
Johnson City and Cleveland are relocating LIHTC properties from their downtowns. To do so, residents must be relocated. To relocate residents, remove deed covenants, and thereby free previous LIHTC properties for other uses, cities must purchase the new properties - to which residents will be moved - then renovate them to acceptable standards. Director Perrey’s Tennessee Housing Development Agency staff is assisting Johnson City and Cleveland. An attendee indicated there were others too, but none of the others were named.
Director Perrey said that Johnson City and Cleveland are moving these LIHTC properties because city leadership finds them inconsistent with their visons for their city centers and downtowns.
Director Perrey was asked about civil problems flowing from subsidized housing near city centers at La Follette and Jellico, but he was unfamiliar and could not answer.
Director Perrey was asked if other Tennessee buildings on the National Registry of Historic Places have been reutilized under the LIHTC program. Clinton’s J. R. Daugherty Building is on the National Register. Director Perrey could not answer. Daugherty Building developer, Kent Leach, replied “yes, the school at Dandridge.” Fact checking, after the meeting, shows this building – the former Dandridge Elementary School - is not on the National Registry.
Virtually all LIHTC projects are sold soon after tax credits expire (at the ten year point so original investors can reclaim their equity). Director Perrey said new owners would “usually” abide by existing rent controls (not downgrade the property to a lower income category), later saying they “would” abide. Pressed by someone in the audience, when all was said and done, the answer remained uncertain. A local data point: Clinton Towers began differently than what it is today (Section 8).
LIHTC projects are attractive and nicely appointed, when new. Maintenance to keep them this way downstream has been an issue in Tennessee about a half dozen times. The open literature says that (nationwide) oversight and inspection of property upkeep is often infrequent and haphazard. That it’s been an issue for Tennessee projects only about a half dozen times leaves open the question of how long properties are derelict before being noticed, particularly for the decades after tax credits expire and financial incentives for property maintenance weaken. Local data point: social media commentary by residents of another Clinton LIHTC project – Gate Manor Apartments – reveal that maintenance impacts community quality of life and is highly dependent on the vigilance and standards of the current property manager. Developer Kent Leach has said he plans to use the same property manager as Gate Manor Apartments – a company from out-of-state.
LIHTC credits for renovation / repair of properties already in use are at the less lucrative 4% rate rather than the 9% rate for properties being placed into subsidized housing service for the first time. Open literature says this further disincentivizes property maintenance downstream.
Director Perrey said LIHTC is “not a HUD” program, instead an IRS program. However, LIHTC housing formulas and criteria use HUD standards and definitions, such as “Adjusted Median Income” (to set income limits). So, LIHTC projects are not independent of HUD requirements.
LIHTC project managers must accept federal section 8 and state vouchers when and if presented, subject only to screening of the potential tenant (criminality, etc.).

LET'S DREAM BIGGER FOR CLINTON!

What would you like to see in our historic downtown? Imagine the possibilities for this building!

Continued commercial use with apartments or lofts on the upper floors
Reinvigoration as a department store, with offices on the upper floors
Housing for teachers, nurses, policemen, and firemen (an initial talking point by the City, when in fact the developers have confirmed in City meetings that the salaries of those professions rule them out for the current development)
A boutique hotel with grand lobby (with hotel tax income for the city, boost to our downtown shops, restaurants, and businesses, and increase in tourism)