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A resolution amending Exhibit A of Ordinance No. BL2022-1170 to adjust the Mixed Income PILOT Program.
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WHEREAS, increasing demand for affordable rental housing and tight rental market conditions continues to exist in the Metropolitan Government of Nashville and Davidson County (“Metropolitan Government” or “Nashville”) area; and
WHEREAS, housing affordability is a primary concern of the citizens of Nashville, as it continues to be a major barrier to economic progress for many individuals in Nashville; and
WHEREAS, increasing the supply of housing for low and moderate-income persons supports economic growth and is an important tool in reducing poverty in Nashville; and
WHEREAS, the Affordable Housing Task Force Report published on June 8, 2021 recommended the creation and expansion of tools and resources to address the City’s housing affordability challenges, including the creation of a payment-in-lieu of taxes (“PILOT”) to support non-low income housing tax credit developments to fund long-term housing options in partnership with nonprofit and private developers; and
WHEREAS, mixed-income housing in market rate developments creates affordability options that may not otherwise exist and, therefore, increases the supply of housing for low and moderate-income persons; and
WHEREAS, the Health and Educational Facilities Board (“HEFB”) was created pursuant of Chapter 101 of Title 48 of the Tennessee Code Annotated (the “Act”) with a public purpose, among other things to provide for safe and sanitary low- and moderate-income multi-family housing facilities; and
WHEREAS, Tennessee Code Annotated § 48-101-312 provides that the HEFB performs a public function on behalf of the Metropolitan Government and is a public instrumentality of the Metropolitan Government and, therefore, exempt from taxation in the state of Tennessee; and
WHEREAS, the Act allows the Metropolitan Government to delegate to the HEFB the authority to negotiate and accept payments-in-lieu of ad valorem taxes from the HEFB’s lessees operating multifamily housing facilities upon finding that the payments are in furtherance of the public purpose of the HEFB; and
WHEREAS, on May 5, 2022, the Metropolitan Council adopted Ordinance No. BL2022-1170 (the “PILOT Ordinance”) that established the Mixed-Income PILOT Program, which delegated to the Board the authority to negotiate and enter into payment-in-lieu-of-tax agreements with qualifying multifamily housing property owners who agree to provide a certain percentage of income-restricted housing units at affordable rates in accordance with Mixed Income PILOT Program’s requirements; and
WHEREAS, Section 7 of the PILOT Ordinance allows for the Metropolitan Housing Division to review the performance of the Mixed-Income PILOT Program with the HEFB and the Metropolitan Council and make adjustments by resolution; and
WHEREAS, there continues to be great need for housing and a desire to use this tool to provide housing in areas of opportunity, and adjusting the Mixed Income PILOT Program requirements can increase the economic feasibility of proposed projects; and
WHEREAS, RS2023-2252 approved an Interlocal Agreement between The Metropolitan Government of Nashville and Davidson County and The Health and Educational Facilities Board of the Metropolitan Government of Nashville and Davidson County for administrative, financial, and legal services for the Mixed-Income PILOT Program; and
WHEREAS, Action 16b of the Unified Housing Strategy recommends the Mixed-Income PILOT should be recalibrated to be more adaptable and responsive to market conditions while still targeting the creation of units at or below 80% area median income.
NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY:
SECTION 1. That Exhibit A of Ordinance No. BL2022-1170 is hereby amended by deleting the Exhibit, in its entirety, and replacing it with the revised Exhibit, a copy of which is attached and incorporated herein.
SECTION 2. That all other reporting and administrative requirements and services remain as stated in Ordinance No. BL2022-1170 and Resolution No. RS2023-2252.
SECTION 3. That this Resolution shall take effect from and after its final passage, the welfare of The Metropolitan Government of Nashville and Davidson County requiring it.
Agenda Analysis
Analysis
This resolution approves an adjustment to the Mixed-Income PILOT program, previously authorized by the Metropolitan Council pursuant to Ordinance No. BL2022-1170.
BL2022-1170 authorized the Health and Educational Facilities Board (“HEFB”) of the Metropolitan Government to negotiate and accept payments in lieu of ad valorem taxes (“PILOT”) from its lessees operating mixed-income multifamily housing facilities, including housing for low and moderate-income persons. The ordinance allowed a PILOT program for non-Low Income Housing Tax Credit properties. Adjustments to the program may be approved by Council resolution, according to BL2022-1170.
This Mixed-Income PILOT program incentivizes mixed-income housing that is affordable to households with incomes between 50% and 80% of the area median income (“AMI”) for the Nashville-Davidson Metropolitan Statistical Area in multifamily properties that otherwise would not have any income-restricted units. Program applicants apply to receive a property tax abatement for a specified number of years where the abatement value is determined by a tiered programmatic structure based on specific AMI levels and percentage of reduced rent units proposed in the development. The total annual abatement amount for Mixed-Income PILOT program projects is capped at $3,000,000.
The resolution under consideration would make adjustments to Exhibit A, the General Program Description, to replace the tiered approach with a calculation-based approach. The revised Exhibit A would eliminate the program tiers and limit the total annual abatement amount to $2,000,000
A new section entitled “PILOT Abatement Calculation” would be added to Exhibit A, which states that the abatement for the PILOT will be determined by estimating the difference between the projected market rents and the income-restricted rents, up to the maximum allowable abatement for Year 1 of the PILOT term.
The effective abatement percentage would be equal to the share of the difference between the estimated tax levy and the current tax levy that is abated in Year 1. The full PILOT schedule is created by applying an escalation factor to estimate the tax levy for each subsequent year of the 15-year term. The difference between the estimated tax levy for each year and the current tax levy is then multiplied by the effective abatement percentage to determine the annual PILOT amount.
All factors used to estimate the rent difference and to generate the PILOT schedule will be published in the supporting materials on the Housing Division’s webpage following each annual review. Other housekeeping changes would be made to reflect the calculation-based approach.