The Metro Development and Housing Agency could be forced to file bankruptcy on two affordable housing developments that have been much celebrated by city officials. The two, Ryman Lofts and Nance Place, sit on the Rolling Mill Hill site, which overlooks the Cumberland River.
The Davidson County Tax Assessor’s office has sent MDHA a tax bill of nearly $400,000 for Ryman Lofts, subsidized apartments for artists, and Nance Place, a workforce apartment complex.
MDHA maintains more than 5,000 affordable housing units citywide and none of them are taxed. When the projects in question were built, MDHA was expecting the same tax-exempt status to apply. MDHA Director Jim Harbison says the tax bill has put the agency in crisis mode.
“Nance Place and Ryman Lofts are in trouble,” he says. “It could mean possible bankruptcy and trying to sell the properties.”
Because the ownership of Ryman and Nance involve a for-profit partner, the assessor’s office is billing them for property taxes.
When Nance Place opened in 2011, former MDHA Director Phil Ryan said it represented “the latest in a number of projects MDHA has built and supported that create affordable housing opportunities for Nashvillians.” Similar overtures were made about Ryman Lofts when it launched in 2013 using federal Low Income Housing Tax Credit dollars, which were then also applied to Nance Place.
To build Ryman Lofts, MDHA worked with City Real Estate Advisors of Boston and financed the $7 million price tag through Fifth Third Bank and First Tennessee Bank.
The federal government gives the tax credits to private developers, who take on some financial risk for projects. Those developers then sell the credits to investors to raise money for building affordable housing. That money allows builders to avoid taking on additional debt from construction bonds.
The federally-prescribed arrangement with the two Rolling Mill Hill projects required that MDHA give up a small portion of the ownership to a for-profit partner. Harbison says the ownership level is around .01 percent.
These type of tax credits are popular among private developers, and have been used more than two dozen times in recent years for Nashville building projects, according to local tax records. But in order for MDHA to use the tax credits, each project had to form an ownership partnership that, according to Nashville tax officials, makes each project not a purely public endeavor and thus subject to taxes.
Thom Amdur researches low-income tax credits with the National Housing and Rehabilitation Association. He says the assessor’s stance surprised him. He calls the arrangement common, noting that public housing authorities around the country have used it while maintaining tax-exempt status.
“In order to get the tax credit, they need an investor that has tax liability.” Amdur says. “Typically a bank, or usually through a syndicator (a group of banks). They will, in essence, purchase the tax credit, which raises the equity.”
But Davidson County Tax Assessor George Rooker says having the private entity involved runs afoul of state tax law.
He says the city’s legal department has also determined that MDHA has to pay taxes on the two housing developments.
“Their issue is they got a tax bill they didn’t expect. A huge bill, and they don’t have any way to pay it,” Rooker says. “We understand their situation, and we’ve met with them. The law just doesn’t allow for them to be exempt,” he says, adding: “Going forward, if we do an analysis on the front end, we can make a determination of whether a property will become taxable based on a change they’re making.”
Ryman Lofts and Nance Place generate just about $10,000 a year for MDHA. Harbison says the combined tax bill of $376,364 is completely out of reach.
Margaret Darby, an attorney with Metro who wrote an opinion agreeing with the assessor, did not return a call seeking comment.
“The tax assessor is trying to generate more taxes to run government,” Harbison says. “And we’re trying to provide a low-income tax credit program. We’re all trying to do the right thing.”
Haribison says MDHA officials have met with the mayor’s office and the tax assessor’s office in search of a solution, but right now the future of both projects remains uncertain.