Jul 19 2006
09:39 am
By: R. Neal

Today's front page headline talks about the complexity of the case and more arrests. It appears crime beat reporter Jamie Satterfield has hit the mother lode. Maybe this story will even push cockfighting out of the spotlight.

Yesterday's business section had a report on issues relating to possible seizure of the properties involved. According to the article, the city's Industrial Development Board holds title to the properties under the "City Life" Payment in Lieu of Taxes (PILOT) program. It also mentions that city and county taxes are in arrears for more than $14,000 since 2003, and mentions possible issues with beer and liquor permits (according to the City's website, licenses are not permitted for anyone convicted of "crimes involving moral turpitude" and the applications ask if there are any such charges pending.)

According to the same article, the federal government has filed a protective order with the Knox County Register of Deeds which "prevents any of the defendants from selling the businesses or taking 'any action that would affect or diminish the marketability or value' of the property.

Read more after the jump...

According to federal law, in addition to the order of protection already filed it appears that property can be seized even without a conviction:

(f) Warrant of seizure

The Government may request the issuance of a warrant authorizing the seizure of property subject to forfeiture under this section in the same manner as provided for a search warrant. If the court determines that there is probable cause to believe that the property to be seized would, in the event of conviction, be subject to forfeiture and that an order under subsection (e) of this section may not be sufficient to assure the availability of the property for forfeiture, the court shall issue a warrant authorizing the seizure of such property.

A previous article notes statements to the city that could be a signal of their intent in this regard:

Margie Nichols, spokeswoman for the city of Knoxville, said the city does not condone any alleged illegal activity but would like to see the businesses remain open.

"Yes, and I think the federal government, it's their intent, too, if at all possible, to have the businesses remain viable," Nichols said. "That's what they told us. They'll make every effort to keep them operating."

(Ed. note: I am not a lawyer and I don't play one on the internets. These are just observations based on media reports that should be taken for what they are worth, which is not much.)

Regarding the complication of the IDB's title and interest in the property, City of Knoxville Senior Director for Policy Development Bill Lyons explains the City Life PILOT program and what might happen:

The Wests have a PILOT (Payment in Lieu of Taxes) on the property. PILOTs are similar to TIFs, but rather than having the taxes paid and then routed to pay off a construction loan, the taxes (above that portion of the tax rate that goes to debt retirement, which they still have to pay) are just not paid at all for a period of time over the amount of the taxes before the improvement. In essence the taxes are frozen.

Under Tennessee state law property technically has to be held by a government entity during the period of time the taxes are abated. Following the end of the period (10 years in this case) the title goes back to the owner and taxes are paid as usual from then on out. This was an incentive for rehabbing that building under the city life program (residences in the downtown area). The incentive is the abatement of taxes for the ten year period.

PILOTs basically work for rentals while TIFs work for ownership. That is because if someone is going to build a building and sell of the residences it would not help the original owner making the investment if the later owners did not pay property taxes, assuming you could transfer the PILOT anyway, which one could not assume. But if you were going to build units for rent and retain ownership it would help your business plan work if you did not have to pay property taxes for a set number of years. TIFs work for resale because the subsequent owners pay the taxes as usual but the increment between the pre and post development amount is diverted into a fund to retire part of a construction loan taken out by the first owner. In either case the city is "out" the property taxes for a period of time.

I am a little hazy on the legalities of property seizure so an attorney may need to correct this. My understanding is that they would sell the properties and pay off those holding liens, etc. It is in their interest to preserve the value of the assets in doing all of this.

So to summarize, today's article is correct. This is a complex case. It will likely get even more complex as more details emerge. Story fatigue will likely set in, which is probably good because it is best to let the courts and the parties involved work their way through this. As interesting as it might be to guess the arc of a Law and Order episode, this isn't TV. It's real life. It is serious business that affects a lot of people and their families, not to mention the community, and there is a lot at stake for everyone involved.


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