The Health, Educational and Housing Facility Board

 MINUTES OF SPECIAL MEETING OF

THE HEALTH, EDUCATIONAL AND HOUSING FACILITY BOARD

OF THE CITY OF MEMPHIS, TENNESSEE

Monday, November 4, 2024

The special meeting of The Health, Educational and Housing Facility Board of the City of Memphis, Tennessee (the “Board”) was held pursuant to public notice published in The Daily News on Tuesday, October 29, 2024, and posted on the Board’s website at: www.memphishehf.com. The published meeting time was 12:00 PM. The meeting was held at Holiday Inn Memphis – University of Memphis (Overton Room) located at 3700 Central Avenue, Memphis, TN 38111

          The following Directors were present:

               Daniel T. Reid, Chairman                              Monice Hagler, Secretary

               Buckner Wellford                                                           Cliff Henderson

               Howard Eddings, Jr.                                                    Vincent Sawyer             

Staff and others attending: Stephanie Bryant, JP Townsend and Nikki Abraham; Charles E. Carpenter and Corbin I. Carpenter, General Counsel; Katrina Shephard, legal assistant to General Counsel; Janika White, Memphis City Council Liaison.

Also participating in person were Shirley Bondon of the Black Clergy Collaborative of Memphis and Simeon Ike of Greater Memphis Housing Justice Project.

With a quorum present, the regular meeting of the Board was called to order at 12:00 Noon by Daniel T. Reid, Chairman.

Chairman Reid stated that in compliance with the Open Meetings Law codified in Section 8-44-101 to 8-44-108 inclusive of the Tennessee Code Annotated, as amended, The Health, Educational and Housing Facility Board of the City of Memphis, Tennessee is holding its special meeting on Tuesday, October 29, 2024 @ Noon as an open public meeting at Holiday Inn Memphis – University of Memphis (Overton Room) located at 3700 Central Avenue, Memphis, TN 38111.

Chairman Reid further stated the agenda for this Special Meeting will not contain any regular action items to be considered for approval by the Board. The intent of the Special Meeting is solely for strategic planning purposes with the intent of evaluating its current policies and practices, and to ensure continuing compliance with its statutory and public purpose as set forth in Tennessee Code Annotated Section 48-101-301 et seq., as amended, and with other applicable provisions of Tennessee law and delegated authority. 

The purpose of the Special Meeting is to allow the Board an opportunity to consider, evaluate and strategically discuss emerging issues regarding health, education, muti-family housing financing opportunities and the administration of the payment in lieu of tax programs available to the residents of the City of Memphis. As the Special Meeting will have no action items and will only address items on the agenda below, including all other business of the Board, including any ongoing items, new business or old business will properly come before the Board at its next regularly scheduled meeting on Wednesday November 6, 2024.   

Chairman Reid thanked Board members for their willingness to meet today, stated that staff has planned well for this meeting, and stated there has been a lot of discussion about what the Board is going to look like as it moves forward. Chairman Reid stated that Executive Director Trey McKnight will not be present at today’s meeting due to a family emergency. Chairman Reid also announced that Board member Katie Shotts has submitted her resignation from the Board. This resignation is a result of a change in job duties and employers, which has affected Shotts's ability to attend Board Meetings moving forward. Chairman Reid expressed his gratitude for Shotts’s service to the Board but advised that this brings total number of Board member vacancies to three (3) vacancies. Chairman Reid stated that staff has already been provided several recommendations but asked that Board members be vigilant in recommending persons that would have the willingness to serve on this Board.

The following topics were discussed by the Board as follows:

 1. Review of Board Meeting Attendance

Chairman Reid presented this agenda item, stating that with the recent resignations that attendance is of the utmost importance to establish a quorum for each Board meeting. Reid stated Board attendance records for 2023 and 2024 have been included in Board Special Meeting materials for review. Chairman Reid stated that Zoom attendance should only be extended to Board members in the event of an emergency, stating that Board members should be present in person. Reid stated the Board considers important issues that require Board members to be at the table for the best results for clear and concise communication. There were no other questions or comments.

2. Board of Director Vacancies (3)

Chairman Reid addressed this agenda item in his opening remarks during the announcement of Board Member Katie Shotts’s resignation. Chairman Reid encouraged all Board members to submit recommendations for the vacancies so that vacancies can be filled promptly. There were no further questions or comments.

3. Review of Board Committees

Chairman Reid introduced this agenda item stating that there are several vacancies on Board committees, including the Personnel Committee Chair and Nominating Committee Chair. Reid stated that it is preferred that each Board Member serve on a minimum of two (2) committees and encouraged Board members to advise staff of any preferences for which committees they would like to serve on, and those vacancies would be reconstituted promptly. Reid stated the PILOT Committee is one that will be discussed further in today’s meeting agenda.

Charles Carpenter advised that the process that is followed for Board vacancies is as follows: Board Member recommendations approved by the Board’s Nominating Committee are submitted to the City of Memphis Mayor’s Office, the Mayor would then make a nomination to Memphis City Council, and the Memphis City Council will consider the nomination. If the nomination is approved by Memphis City Council, that person would then be installed as a member of the Board. Chairman Reid stated that Mayor Young is aware of two (2) vacancies, as the third is a recent development, but he will be made aware of that also. Reid further stated that Mayor Young does not have a recommendation for the Board at this time and is accepting recommendations from the Board’s Nominating Committee. There were no other questions or comments.

4. Executive Director Vision for the future; Preliminary Economic Impact Report

Stephanie Bryant introduced this agenda item stating that due to Trey McKnight’s absence, she would defer the Executive Director Vision for the future to a later date. Bryant advised that the Board meeting materials include a Preliminary Economic Impact Report Overview that McKnight has worked hard on and is very proud of the preliminary findings, which show the incredible impact of the Board in the community. Bryant advised that the report includes data from 2004 through 2024 and McKnight will be working to confirm final assumptions, details and accuracy in calculations used and will present the final version of the Economic Impact Report to the Board at a regular Board Meeting for its consideration, as well as for public consumption, at a later date. There were no other questions or comments.

5. Board Member Vision for the future

Charles Carpenter introduced this agenda item stating that some Board members have served for many years, while others are newer to the role and the purpose of this Board Training and Discussion Session is to answer questions that the Board members may have as it has gone through its various meetings and agenda items. Carpenter stated that the Board has been heavily laden with PILOT Legal Defaults and had a lot of interaction with the various components, including the PILOT Lessees, property managers, agents of ownership and management, limited partners, and others. Carpenter stated there has also been bond financing and related bond matters recently brought before the Board. Carpenter stated that the purpose of this session today is to fill in those gaps as Board members go forward and to discuss and analyze different situations. Carpenter stated the remainder of the agenda items should be a robust question and answering questions from the Board members as opposed to a typical Board meeting where HEHF staff and legal counsel are presenting to the Board. Carpenter encouraged the Board members to be fully engaged and ask any questions they may have, and staff and legal counsel will do their best to respond and to provide the orientation that will be helpful to Board Members as they go forward.

Stephanie Bryant advised that a Board Member Questionnaire was sent out to all Board members prior to today to encourage conversation and topics that were important to the Board members to be discussed in today’s session. The first question asked Board members, “What is your understanding of the Board’s mission and how do you believe the Board members can best fulfil its mission?”. Bryant stated the main idea in each response was that the mission of the Board is to provide affordable, clean, and safe housing to qualified tenants and the way to fulfill the mission is to ensure projects meet guidelines, guidelines are applied consistently, and a robust compliance process. Following a robust and thorough discussion followed.

6. Strategic Use of Funds to further the MISSION of the Board

Chairman Reid stated that as the Board discusses its vision, it is important that it also discuss the strategic use of funds and how to deploy funds in a way that supports the mission of the Board. Reid stated that in his discussions with Mayor Young, Mayor Young has indicated his peak concerns are blight and crime as it relates to where PILOT properties in the Board’s portfolio are located. Reid stated that Mayor Young’s task force that he is sending into communities across the city on Fridays for cleanup has had a direct impact on crime. Cliff Henderson stated that of the twenty-four (24) zip codes that Mayor Young has deemed the most offensive and the Board has PILOTs in seventy-five percent (75%) of those zip codes. Henderson stated that as the Board moves forward and partners with Code Enforcement, Memphis Police Department, and others, it will be an opportunity for the Board to coordinate with Mayor Young’s resources and initiative developing into those areas. Howard Eddings, Jr. indicated that Shelby County Division of Community Services is also putting forth an effort in the same areas by holding a networking event for blight and public safety in coordination with Memphis Police Department. Carpenter commented that unfortunately, to date, there has been little coordination between the City of Memphis and Shelby County, as they tend to operate separately; hopefully, that can change going forward.

Carpenter continued by stating that while most of the Board’s work has been with housing, the Board also has authority to participate with tax-exempt funding of educational facilities and health facilities. Carpenter suggested that from his conversations with Trey McKnight, he has expressed interest in implementing ways that the Board could utilize its financing authority with educational and health facilities, in addition to involving healthcare facilities with the housing PILOTs. Carpenter stated that McKnight has mentioned ideas like health fairs and mobile health units that could come into PILOT property communities that could be coordinated by HEHF. These services could be coordinated with the PILOT Lessees to make sure that they would have these benefits on hand for the tenants that are residing there and provide services that would be coordinated based on the demographics of the community, whether it is adults and families, children, or seniors. Carpenter stated that there is also coordination that could be established with other established 501c3 non-profit entities that already have a connection with certain PILOT Lessees, and to make those opportunities more comprehensive. While crime reduction will remain a central issue, there are other tenant services that could be accomplished as well.

Stephanie Bryant stated that in the Board’s current policies and procedures, safety is a part of Tenant Benefits and recommended that safety be removed from Tenant Benefits and be an item that is addressed on its own with a set level of requirements established by the Board. Bryant stated that safety should not be considered a Tenant Benefit but should be a stand-alone requirement as part of PILOT Policies and Procedures and required of each PILOT Lessee as being a participant in the Board’s PILOT program. There was a consensus that this should be a revision to Board policies and procedures. Staff agreed to begin work on a proposal for Board consideration at an upcoming regular Board Meeting.

Howard Eddings, Jr. asked if there are any maps staff is aware of regarding crime statistics by zip code. Bryant stated the only crime data she has been made aware of is a service offered through Safeways. Bryant stated that Safeways works directly with Memphis Police Department and received crime data that is geocoded to apartment complexes and communities, but the Board does not have a formal working relationship with Safeways at this time. There was further discussion on ways the Board could access crime data and statistics moving forward.

Buckner Wellford stated that he is interested in ways the Board can use funds on things that would directly benefit PILOT properties. Wellford stated while others have made the point that the Board will have ongoing compliance costs associated with the longer terms of the PILOTs in the Board’s program. Wellford continued, stating that the Board will need to be able to operate with an aggressive compliance program associated with the increasing number of PILOT properties and the increased timeframes, and holding PILOT Lessees accountable when they are not meeting their obligations and commitments made. Wellford stated he would like to know what the projected cost is likely to be so that the Board has a sense of what it needs to operate in the coming years as the Board looks at other areas of available spending. Wellford stated that as ideas gathered and distilled into a process, it is important that guard rails are set and consider a “not-to-exceed” amount or fund to test some of these ideas and see what is working before trying to do too many things.

Monice Hagler stated that funds could also be used for assessing security. Hagler stated Safeways performs an assessment as part of an initial inspection to indicate lighting and environmental needs that have been shown to prevent crime. Hagler asked Bryant to confirm the amount of compliance fees collected by the Board. Bryant stated that the Board charges each PILOT Lessee an annual compliance fee of $14 per unit per year, which covers both internal and external compliance costs of the Board. Bryant indicated that the fee was increased in 2022 as a result of increased external compliance costs. There was further discussion on whether the Board should consider a modification to this fee in the future.

7. Discussion of Policies and Procedures for PILOTs in Legal Default

Councilwoman White asked what the internal compliance process is that PILOT Lessee’s go through now, how often those inspections take place, and if PILOT Applicants are required to submit a security plan. Bryant reviewed the internal process that each PILOT applicant goes through, beginning with the submission of the application, then a submittal conference is held with HEHF Staff and legal counsel, an initial inspection is performed of the property by both internal and external compliance inspectors, and then the application is presented to the Board at a regular Board Meeting. Bryant stated that security plans and tenant benefits are included in the discussion during the submittal conference. Bryant stated that following this, if all items are in order, the application is then presented to the Board for consideration. If approved, the transaction goes through a closing process and the PILOT status is applied to the property, which initiates compliance monitoring and oversight. Bryant reviewed the Board’s internal levels of compliance oversight as well as inspection expectations of internal and external inspections throughout each year and the Board minimum standard of occupancy.

Councilwoman White asked what information the Board receives internally or externally regarding crime analysis and statistics or incident reports. Bryant responded that the Board does not have access to crime analysis or statistics at this point. Councilwoman White asked if there is a current safety requirement that is part of the Board’s policies and procedures. Charles Carpenter stated there is, and HEHF staff is currently planning a conference for all PILOT Lessees in the first quarter of 2025. Carpenter advised this will be a mandatory meeting for all PILOT Lessees to attend, and the Board staff has spoken with Memphis Police Department, Shelby Country Trustee, City Treasurer, and all the components of the PILOT oversight and they all plan to attend so that the PILOT Lessees will receive information from each of them and know how to work cooperatively.

Carpenter stated this is an evolutionary process and recently, Board staff and legal counsel have implemented a comprehensive overview by creating a working relationship with Code Enforcement and Environmental Court representatives, because prior to this, the Board relied on self-reporting by the PILOT Lessee. Under the Board’s current policies and procedures, Carpenter stated that it is the PILOT Lessees obligation to self-report crime, fire, and other incidents to the Board, but that has not been effective. Carpenter stated that as the Board continues to evolve and refine its policies and procedures, the Board will be implementing other steps to ensure efficient and effective oversight. Councilwoman White asked if there is a time that each PILOT Lessee presents information to the Board each year to show that their project is in compliance. Chairman Reid responded that the Board’s compliance oversight is ongoing because Board experience has shown that these properties can take a turn very quickly and require constant oversight. Chairman Reid also stated that the lines of communication being opened between the Board and other city entities, such as Code Enforcement and Environment Court, also assists in compliance oversight.

Chairman Reid stated the challenge the Board has is that it only has one (1) remedy, which is a termination of a PILOT, and he hopes that there is some direction established in today’s meeting on whether the Board can make Board legal expenses punitive on PILOT Lessees when they are placed in legal default. Corbin Carpenter added that each PILOT Lessee is required to submit quarterly reports to Board staff which includes occupancy, as well as self-reporting on any defaults the PILOT Lessee has experienced with lenders, crime incidents, fires, and tenant benefit changes.

Bryant reviewed how the Board reviews security commitments by PILOT Lessees at the time of the PILOT Application Submittal Conference. Bryant also described additional initiatives that Board Staff is looking to implement that would require an on-site walkthrough of each property annually by internal HEHF compliance staff that would review compliance of Tenant Benefit commitments for each PILOT Lessee annually. Bryant stated the Board’s authority only includes external observations of a property, and HEHF Compliance staff is not allowed to enter occupied units at any PILOT property, but with the new implementation of annual Tenant Benefit reviews, it would allow HEHF Compliance staff to review a rent-ready unit or model unit to inspect internal Tenant Benefit commitments, such as high-efficiency appliance commitments. Discussion continued with brainstorming options that the Board could consider for PILOTs placed in legal default status that would give the Board other options short of termination. Charles Carpenter responded to the legality of some of the options mentioned. Carpenter stated that the Board is not the only entity that oversees the properties in its portfolio, but other entities could include Housing and Urban Development (HUD), Tennessee Housing Development Agency (THDA), Internal Revenue Code issues, among others, and many times there is no communication among these entities, with the exception of THDA, but each entity has its own role of oversight. Carpenter stated the Board staff and legal counsel continue to work to improve these communications.

Carpenter stated well-vetted applications followed by comprehensive oversight and compliance is key. Carpenter advised of the challenges of imposing punitive monetary fees on PILOT Lessees in legal default presents but stated that the Board does have the legal authority to impose monetary fees. Board members, staff, and legal counsel continued discussion of other options, aside from termination, for PILOTs in legal default, including monetary fees or types of performance or surety bonds in the event of default that could be imposed by the Board, including the legal impediments, if any, and the challenges that could be associated with those options.

Vincent Sawyer stated he would like to explore options the Board may have to incentivize compliance. Carpenter stated that out of the Board’s PILOT portfolio, over ninety percent (90%) of PILOT Lessees are in compliance and doing well, and the Board could consider a reward program or something to highlight the positive models of the PILOT program. Carpenter stated that too many times the troubled properties, which make up a small percentage of the PILOT portfolio, dominate the media headlines. Sawyer stated he would like to discuss options that the Board could build in as incentives for compliance throughout a PILOT term.

Howard Eddings, Jr. asked how the incentives would increase the benefit to the tenants at the end of the day, other than being in compliance and providing a place for tenants to live. Eddings stated that as far as the Board using its resources to add additional benefit or enhance the benefit that the tenants might receive, there was discussion about non-profits in the community that may be able to leverage resources, as well as services that they provide in a neighborhood, and perhaps may have a healthier and more productive relationship with the families that live at the PILOT property than the owner or PILOT Lessee might have the ability to deliver, so it would be good to use the Board’s resources to leverage non-profit capacity, which may help sustain or create  some productive activities on the property that may add value in the long run. Eddings used an example of Alco Management, Inc. investing in the Neighborhood Christian Center, and in the end the management company benefits because they now have a more stable tenant that has access to more resources. Eddings stated this would be an alternative approach versus using funds to create additional incentives for PILOT Lessees who are already receiving incentives through participation in the PILOT program.

Eddings asked how the Board would best use its resources to get to the end user, the tenant. Carpenter stated the first way the Board does that is to ensure that the PILOT Lessee has a basic level of competency and basic level of services. Once the basic level of support and success has been established under the PILOT program, then the Board can enhance those benefits for the tenants, but that would work with occupancy rates as well. Carpenter advised that the Board would best serve tenants by using its resources for those PILOT Lessees that are in compliance, but not as a bail-out option. Carpenter stated today’s session is an important brainstorming session to discuss ways the Board can deploy its resources to best help tenants and their families within its statutory authority. There was further discussion on options for PILOTs in legal default, the complexities of financing for these projects, and possibilities of policy revisions and legal document revisions that could help in those circumstances, while also shielding the Board and the City of Memphis from any potential liability. Charles Carpenter reminded the Board that it is providing a public function to abate a percentage of ad valorum property taxes in return for the developer preserving or constructing new affordable housing. Carpenter also reminded the Board that its PILOTs fall under the Internal Revenue Code, and Board PILOT policies and procedures require 40% of a project’s units to be set aside for residents at or below 60% of the area median income (AMI). While this approach allows for a mixed use development, many of the PILOT portfolio properties consists of projects that provide 100% of its units to low-income residents at affordable rents.

Councilwoman White stated that there is a stigma that PILOT properties are affordable, but not safe, and asked if the PILOT program is working the way it is designed, or if other options could be discussed and considered that would make it work better. Bryant stated that many PILOTs legal defaults that have been before the Board up to this point have been a result of tremendous growth in a short period of time, as well as the result of implementation of more robust compliance oversight. Bryant stated the Board’s current compliance oversight levels were designed because of the experiences through the recent PILOTs in legal default but has proven effective in many circumstances already. Bryant advised that current Board PILOT policies and procedures allow for fees to be charges to a PILOT Lessee following a PILOT property being in legal default status after a three (3) month period, and this may be used to build from, knowing that tit is already included. Bryant advised the staff and legal counsel have also discussed, as an option during the Annual PILOT Lessee meeting, for the most successful PILOT Lessees to speak at that time to other PILOT Lessees and provide their experience and what has worked from a management perspective and give the opportunity for a question and answer session as part of that Annual PILOT Lessee meeting.

Corbin Carpenter stated that the Board has experienced challenges with out-of-town property owners more often than local owners because the intent of ownership may be different. Corbin Carpenter stated that tenants that live in Memphis, TN have different needs than those of other parts of the country and this can be a challenge for out-of-town owners. Corbin Carpenter stated that in addition to successful PILOT Lessees, the Board would encourage local non-profits that provide social services to also attend the Annual PILOT Lessee meeting to introduce those organizations and services to out-of-town owners that may not be aware of the organizations and services available in their PILOT property’s area. Corbin Carpenter stated HEHF staff and legal counsel will be working in the coming months to put that portion of the Annual PILOT Lessee meeting together to add that other component of assistance.

Vincent Sawyer asked if there is an option worth exploring that would allow the Board to hold parent companies responsible for tenant benefit commitments. In brief response, Charles Carpenter advised the Board of the legal structure of a PILOT, stating that in order to take the property off the regular tax rolls, the bare title is transferred to the Board through a Quit Claim Deed, and then the Board enters into a PILOT Agreement and a PILOT Lease Agreement where the assessed value is frozen at that point. Carpenter stated that the improvements that are added as part of the property renovations or construction provides the real benefit to the PILOT Lessee, and in return for those savings, the PILOT Lessee provides the Tenant Benefits. Additionally, Carpenter stated the Board receives a PILOT Closing Fee at the inception of closing of each PILOT and an annual PILOT Compliance Fee, but there is no other financial obligations paid. Carpenter stated the PILOT Lessee then pays an annual payment in lieu of tax (PILOT) to the City and County taxing authorities for the term of the PILOT, so the PILOT is not a complete abatement, but a reduced abatement of ad valorum taxes in turn for the PILOT.

Councilwoman White inquired if there is a key person or party that manages the PILOT program. Carpenter stated to Councilwoman White’s question, that there are other entities that issue PILOT  such as the Economic Development Growth Engine (EDGE) and the Center City Revenue Finance Corporation (CCRFC) and that is no one head person that oversees PILOTs and each of the various PILOT programs have different metrics of evaluation. As to the Board’s PILOT Program, that is why coordination is so important, and without it, the Board would not be aware of many other issues or defaults outside of its scope of authority. Monice Hagler stated that in fact it was the tenants that brought the internal conditions of some PILOT properties to the attention of the Board, because most of the problems were within the units. Carpenter agreed, stating that without that information, the Board would not have been aware because that is beyond the scope of the Board’s purview and there was no direct communication with Code Enforcement and limited communication with Environmental Court. Following, there was a discussion of the development of the tenant benefit expectations, that tenant benefits are designed to be in place for the full term of the PILOT, and how they have evolved to the Board’s current PILOT policies and procedures.

There was a ten (10) minute intermission at this point.

Chairman Reid began this second portion of the meeting and stated that he was unaware the Board’s current PILOT policies and procedures included the ability to begin charging a fee after to PILOT Lessees that have been in legal default for three months. Bryant stated that to Buckner Wellford’s point made at the October 2, 2024 Board Meeting, although the PILOT policies and procedures include that measure, there has not been a defined process implemented of how that fee would be determined. Bryant also reminded the Board that it has the authority to waive fees in certain circumstances, if it was deemed appropriate by the Board, and recommended it is better to have the policy with the authority to waive it, rather than not have one in place. Bryant clarified that the current Board policy states that the Board has the authority to begin assessing fees once a PILOT has been in legal default status for a three (3) month period. Bryant advised the Board that a part of the robust compliance oversight and levels of compliance oversight that have been put into place includes a much higher level of communication between Board staff and PILOT Lessees. This communication includes progress reports emailed to ownership and management of a PILOT property following each internal compliance inspection. Bryant advised that these modifications have allowed for better understanding by PILOT Lessees of expectations, and repairs and issues are addressed much more quickly, helping to reduce compliance concerns and legal defaults.

Wellford stated that when a PILOT property is required to appear before the Board on an ongoing basis, it should be assessed some sort of fee for the time spent in a continuous reporting status. Wellford stated the fee does not necessarily need to be punitive, but enough that it would indicate the seriousness of the Board when a property is not in compliance. There was a discussion of how fees could be assessed at what amount, and when to begin implementation. Wellford stated that the funds collected could be placed in a separate fund that would be used to reward successful PILOT Lessees. Bryant stated there have been internal discussions regarding the Board presenting awards to successful PILOT Lessees at the Annual PILOT Lessee meeting, and Wellford’s comments would support that. There was a consensus that HEHF staff and legal counsel will begin work on crafting a policy based on discussion points and present the policy to the Board for consideration at a regular Board meeting.

Cliff Henderson asked where staff is on the internal scoring system that was being brainstormed. Bryant stated that staff could not find consistency on scoring when used in the field, and the compliance oversight levels in place are a result of working with the scoring system but putting something else in place that has been more effective from a compliance oversight standpoint. Henderson stated he mentions it because he would like to review data that shows the overall health of the portfolio, not just the bad actors. Henderson stated he would like to see a quartile ranking of participants in the Board’s PILOT portfolio, and scoring can be reviewed in different ways. Henderson stated that the ability to publish that information would have a great impact since much of the Board’s time is used discussing a handful of PILOT properties with compliance issues, and not the entire portfolio. Henderson stated he would like to see if there are trends indicated based on the performance of the portfolio. Henderson mentioned he would also be interested in if the Board can implement policies that would require commitments from PILOT applicants at the onset of the PILOT that would benefit the property from a safety standpoint. Wellford asked for clarification on Safeways. Bryant stated that Safeways is a local non-profit that focuses on crime prevention through environmental design (CPTED), and went through some of the different levels of participation Safeways offers to property owners and what some of those participation levels include, as well as aggregate crime data from the Memphis Police Department that is geo-coded by Safeways and distributed to property owners that participate in the program. There was discussion on how the Board could obtain the crime data and if this could be requested as a service provided by Safeways to the Board. Councilwoman White stated she would brainstorm and see how the Board and City Council can collectively approach this, even from the City of Memphis standpoint in terms of the oversight that other departments have. Councilwoman White described some of her experiences with Mayor Young’s initiative of his administration and Memphis City Council members getting together once a month on a Friday and going into high crime neighborhoods to see how they can assist with crime prevention in those areas. Councilwoman White stated she would like to see the development of a system that assesses the monitoring of incidents and assess the security measures that have already been taken at a PILOT property. Henderson stated that if the Board can gain access to crime data and see if there is a correlation between the areas of higher crime and problem PILOT properties, then that could guide the ability of the Board to determine what safety requirements to set for new incoming PILOT projects based off that information.

Howard Eddings, Jr. stated that many times external factors have an impact on properties that is no fault of the property owner or manager. Eddings stated that in those circumstances, the property owners are upholding their commitments, but the surrounding areas are the challenge. Eddings stated that there are a lot of extenuating circumstances and external factors that impact owners which is the reality of the business in the neighborhoods where the Board serves. Carpenter stated that there are a lot of moving parts that must be managed, and Trey McKnight has been able to assist PILOT Lessees with certain external factors, such as Memphis Light Gas and Water (MLGW) issues, but all these factors are not the Board’s responsibility. Carpenter stated the Board tries to facilitate and do what it can to keep things moving forward and provide a delivery of services to the constituents.

Cliff Henderson stated anything the Board can do to go from detective to preventative measures in place regarding incidents that occur on PILOT properties, he would be in favor of, because there is power in getting in front of the curve. Henderson stated he would like to explore options of what the Board can do to move forward, including a review of acceptable tenant benefits and reset the bar. Carpenter stated that HEHF staff and legal counsel are working on those types of revisions now and there will be proposed revisions forthcoming for Board consideration. Bryant stated that the reimplementation of an Annual PILOT Lessee meeting will also assist to Henderson’s point, because not only will is assist the Board in providing the opportunity to advise PILOT Lessees of revisions and requirements, but it will also assist in reminding PILOT Lessees on an annual basis of the requirements and the commitments made as a participant in the Board’s PILOT program. Bryant stated it also provides an opportunity for PILOT Lessees to advise the Board of challenges they may be facing. There was further discussion of various types of reviews the Board could consider implementing that would provide additional oversight based on experience from the program. There was discussion on whether the Board can assign PILOT leases to other entities or receivership-type transactions in the event of legal default depending on the financial structures of projects. Chairman Reid asked if the Board is provided minority investor information as part of the application process. Bryant responded that applicants provide ownership structure as part of the application process and Charles Carpenter stated that all interested parties to the transaction are listed in the “Legal Notice” portion of the legal documents, so in the event of default, these are the people the Board is required to give notice to, but the Board is not always privy to the interactions among the group of investors and interested parties. Carpenter stated that bond structures could be different for each development and involves bond financing, senior and subordinate lending, tax credit investors, etc. Conventional financing with a PILOT transaction is simpler form of organization. However, in the event of default, Carpenter stated that as Board legal counsel, he provides timely notice to all parties, and it is up to the various members of each legal structure to take action to timely protect their legal rights in the matter after receiving that notice.

Carpenter stated there are examples of limited partners stepping up to protect their interests in the event of default, but there are also examples of limited partners that continue to work with the principal. Carpenter stated that once a PILOT Lessee is provided with timely legal notice, it is up to the principal and investors as to how they move forward to protect their investment and the level of direct participation elected. Carpenter stated that the responsibility of the Board is to provide timely notice to the PILOT Lessee and all interested parties provided, in writing, at the time of closing the PILOT. There was discussion about the different examples provided and the differing results in the actions of investors.

Henderson asked how the Board uses the examples discussed to determine how to move forward in future dealings with PILOTs in legal default. Bryant recommended specificity in Board motions to hold PILOT Lessees accountable to what Board members want to see, as well as accountability to what the PILOT Lessee commits to the Board through the legal default process and appearances before the Board. Carpenter stated there are specific areas of deficiencies identified in each PILOT Legal Default notice and the PILOT Lessee is given a very reasonable amount of time to cure those deficiencies, and if the PILOT Lessee is unable to cure those deficiencies in the reasonable amount of time given the Board can use this information and lack of performance to determine next steps.  Bryant recommended that HEHF Staff could specify the deficiencies identified in PILOT Legal Default Notices prior to any consideration by the Board moving forward to provide clarity at each meeting for the Board. Howard Eddings, Jr. stated the challenge with PILOT termination is considering the incredible need for affordable housing in the community and knowing that a PILOT termination will remove those units from the stock available. There was discussion of the impact on the tenants, the responsibilities of owners, and discussion on what is a reasonable amount of time to allow a PILOT Lessee to come into compliance and cure deficiencies.

Henderson asked Board members how will it conduct itself with timelines and govern itself as it manages these types of situations moving forward and what are the critical success factors the board will consider. Monice Hagler stated that each PILOT has its own set of facts and circumstances. Corbin Carpenter stated that with the examples discussed, the consideration of the Board was favorable to those PILOT Lessees that showed improvement each month, rather than continued discussion of what should be done with no improvement or progress. Charles Carpenter added that the Board must always consider credibility. Carpenter stated that throughout a legal default status, it is important that the PILOT Lessee maintain credibility with the Board. Bryant stated that accountability is also a factor of consideration. Buckner Wellford stated that the Board also must be accountable for the time spent and administrative resources spent on PILOTs in legal default and the PILOT Lessee should have to compensate the Board in those instances while in legal default status. There was further discussion on what an acceptable amount of time for a PILOT to remain in legal default status before the Board votes to terminate and how a fee structure could be implemented is correspondence with the amount of time a PILOT Lessee is in legal default status and the challenges the Board faces with those options.

Vincent Sawyer stated that when considering these options, the focus may need to be on what the Board should do in regard to the tenants that are affected by the termination. Wellford stated that if a PILOT Lessee is under additional compliance observation, that information should be published on the Board’s website and sent to Memphis City Council and Mayor Young’s office to make all parties aware of the issues. Vincent Sayer asked if the Board would be able to set aside funds for tenant relocations. Wellford stated that the Board should come up with a predetermined amount of funds to use to set aside, and the process would need to be tested, to be used for the benefit of the tenants of these properties. Wellford stated one of the appropriate uses of that fund would be when a PILOT is terminated and there are people that have relocation expenses or assist in connecting tenants with the proper resources to assist them. Corbin Carpenter stated that when dealing with HUD properties, HUD is legally and contractually obligated to reassign tenants to other housing, but when the property is not a HUD based property, the responsibility would fall on the ownership of the property to take care of tenants in that regard, but that is a social obligation and not a legal obligation. Corbin Carpenter stated the with HUD based properties, the Board would not be legally allowed to step in. There was further discussion, but the consensus was there would need to be further consideration of who would oversee the monitoring and distribution of that type of set-aside fund.

Monive Hagler asked how many properties in the Board’s portfolio now that are in legal default status, to which staff responded one property. Hagler asked the staff if there were any others that may be moving in that direction. JP Towsend responded that one additional property is being considered by staff to move up to Non-Compliance status, but not legal default at this time. Townsend stated that PILOT properties are now receiving progress reports after every inspection, and staff are also performing on-site walkthroughs with management and ownership when property conditions are observed to be declining. Townsend stated it is his understanding that in the history of the Board, the PILOT properties are receiving more communication from staff and staff are receiving more communication from PILOT Lessees than ever before. Townsend stated that moving forward from this point, with the compliance system that is in place, a property that is presented to the Board in legal default status is there because staff has used every tool at its disposal to incentivize and demand compliance to little or no avail. Townsend stated staff has met with ownership and management face-to-face and requested timelines of improvements or repairs to be made, and if those commitments are not met, staff then must refer the PILOT to legal default status because we have exercised all options at our disposal. Hagler stated that it sounds like from discussions that this current compliance system is working and alleviating the need for some PILOT properties to be referred to legal default because progress has been shown. Townsend agreed and stated that staff has seen great success and properties have been able to be stepping down through the system with additional oversight and communication. Townsend stated that the examples that have been discussed by the Board today did not go through this formal process that is in place today and that there have been several properties that have moved up the steps of compliance oversight, and then back down, and have not needed to appear before the Board to see improvement and action taken by the PILOT Lessee. Townsend stated that Whispering Pines, which will appear before the Board at the November 6, 2024 Board meeting will be the first property that will appear before the Board that has formally gone through the current process in place. Henderson asked that if that is that case, would the Board see the need to act more quickly in these cases moving forward. Townsend stated his recommendation to the Board would be yes, that the Board could act more quickly, because the PILOT Lessee would have been provided a much higher frequency of communication, on-site walkthroughs would have been performed, all internal compliance levels would have been gone through, and staff will have already exercised every option to get the PILOT property into compliance.

Townsend stated that the staff’s goal is to address the issues observed with the PILOT Lessee and see resolution to those deficiencies so that properties do not require Board oversight. Bryant clarified that PILOT’s will not appear before the Board, moving forward, until it is placed in a legal default status, meaning that PILOT property is appearing before the Board for consideration of termination of the PILOT and staff has moved through each level of compliance oversight, but has not observed acceptable progress and would require Board guidance at that point.  

Charles Carpenter stated that other PILOT Lessees did go through many of these same compliance oversight steps, but the process was not as formalized as it is now. Carpenter stated that with this formalized process, it is not an automatic PILOT Termination, but the Board would still listen to what the PILOT Lessee’s cure plan is at the time a PILOT property is placed in legal default and begins appearing before the Board. Carpenter stated that the cure plan would be required to be in writing and have it submitted to the Board prior to the Board meeting at which it is being considered. If there is not a cure plan submitted in writing, it would be up to the discretion of the Board to terminate the PILOT immediately, but if there is a plan submitted, the Board would review, ask questions about the plan submitted, establish a firm timetable for completion and require the PILOT Lessee to appear before the Board at a future date for a progress report that is verified by compliance monitors. If the PILOT Lessee has not kept to the commitment, it would be a loss of credibility, and the option would be to terminate at that time. Carpenter stated that time given would be at the Board’s discretion, but the documentation is better, the policies are better, and this still boils down to the balance the Board members would have to weigh at the time of consideration of termination.

Corbin Carpenter stated that the COVID-19 pandemic, although no longer a factor, played a huge role in delays that the Board had given leniency to different PILOT Lessees because of the various issues caused with approvals, supply chain issues, etc. Corbin Carpenter also stated that during the diligence period when PILOT properties are referred to legal default status, staff and legal counsel will be reaching out to Environmental Court and Code Enforcement to confirm if the property is involved in Environmental Court, and if yes, then the Board can request Code Enforcement to come and give a presentation of said property of the code violations so the Board will have this first-hand information for its review. Corbin Carpenter stated that properties can be summoned to Environmental Court for various reasons, including permitting issues and nuisance issues, but when there is asbestos, sewage backup, and things of that nature, the Board should be made aware of that to be able to make a fully informed decision throughout that process.

Vincent Sawyer asked about how receiverships considered by Environmental Court could play a role in PILOT Lessees that are in legal default, and there has been a recent change in law in this regard. Preliminarily, there were several legal concerns discussed about how this could be considered or implemented by the Board, and it was determined that there would need to be additional discussions and legal research on the subject.

Charles Carpenter stated that staff and legal counsel have discussed implementing a renters training program as part of the PILOT Program Requirements that would require the PILOT Lessee to offer a course to tenants that would deal with renter’s rights as well as how renters deal with maintenance requests for their units, etc. Carpenter stated that housing has to be looked at from a wholistic approach and everyone wants the same outcomes, but everyone has to work together to accomplish those goals.

Buckner Wellford asked if other Board members have considered other meeting venues to help accommodate the recent increase in participation from the public at Board meetings. Wellford stated he would like to consider a venue that the Board would have access to free of charge, such as a City of Memphis meeting space that may be available. Wellford stated that he recognizes this may be a challenge for staff to accommodate a change in venue for meeting preparations, but Charles Carpenter stated that it would be up to the Board to consider moving forward. Chairman Reid stated they he does not have a preference on meeting venue, but it would be a question of audio-visual capabilities, Zoom capabilities for those that want to listen to the meetings via Zoom, but he has not thought through what that would entail. Stephanie Bryant stated that staff often do not have definitive knowledge of how many members of the public plan to attend each meeting in person, which presents a challenge at times. There were some venue recommendations, but Councilwoman White stated she would investigate some venues and provide the Board with a list of venues for consideration. Carpenter stated that space has not been an issue traditionally, and it was not until recent Board business with several PILOTs in legal default status began appearing on the agenda before the Board at one time that this challenge was created. Wellford agreed with Carpenter, stating that it is not only the public’s attendance for those PILOTs in legal default, but also the number of other representatives that appear before the Board in those instances.

8. Discussion of PILOT Committee Meetings

Stephanie Bryant introduced this agenda item stating that staff and legal counsel have discussed the idea of holding PILOT Committee Meetings, which would also be publicly noticed meetings, prior to each Board meeting to allow the PILOT Committee to review PILOT business that may help to reduce time and deliberation during the regular Board meetings. Bryant turned the meeting over to Corbin Carpenter for further comment. Corbin Carpenter stated that PILOT Committee meetings have not been held in some time, but traditionally, PILOT Committee meetings were held prior to the regular Board meeting and PILOTs that were on the agenda for the regular Board meeting that day would be discussed and recommendations could be determined and made during the regular Board meeting. Carpenter stated that the PILOT Committee used to be comprised of most of the Board members, but did not require a quorum to have the committee meeting versus the Board meeting. Corbin Carpenter stated the Board would take the recommendation of the PILOT Committee during the regular Board meeting and decide at that time on whether to approve, extend, terminate, or whatever was on the agenda for that meeting pertaining to the PILOT. This process cut the discussion time down substantially and Corbin Carpenter recommended the implementation of PILOT Committee Meetings moving forward.

Buckner Wellford stated that he liked this idea but feels that PILOTs in legal default status would be exempt from the PILOT Committee Meeting and be discussed only at the regular Board meeting, as they require further discussion and full Board input, but this would be a great practice for regular Board business and could move the regular Board meeting along more efficiently. Wellford stated regular Board business could be discussed at the PILOT Committee level and a recommendation made at the regular Board meeting and reserve the regular Board meeting discussion for PILOTs in legal default. Carpenter agreed that this approach would be more efficient. Bryant stated that this would also provide staff with an opportunity to review other PILOT properties that are included in the Board’s internal additional compliance oversight levels and keep the Board more abreast of the portfolio performance. It was determined by the Chairman of the Board that PILOT Committee meeting will be implemented prior to each Board meeting beginning with the first Board meeting of 2025.

9. Such other discussion

Final Comments

There was also discussion on venues for the Annual PILOT Lessee meeting, to which Stephanie Bryant advised the venue the meeting is being held at today would be an option, due to the hotel accommodations for out-of-town PILOT Lessees, meeting space accommodations, catering services, parking, and central location in the City. It was determined that this venue, the Holiday Inn- University of Memphis, would be the first choice, with other venue options to be considered, if necessary. The Annual PILOT Lessee meeting is anticipated to take place in late March 2025. There was a consensus for that timeframe, and Monice Hagler stated there are items surrounding safety and security that the Board needs to finalize in its policies prior to that meeting. Charles Carpenter stated that it will give staff and legal counsel the opportunity to distinguish the Board’s PILOT program from other PILOT programs that exist locally and around the state of Tennessee.

Chairman Reid thanked everyone for the time and dedication to the Board and the impact to the city.

Chairman Reid stated that the next meeting of the Board is scheduled for Wednesday, November 6, 2024 @ Noon. There being no further business, the meeting was adjourned by the Chairman at 03:44 p.m.