Can a Tennessee county add race-conscious 'culturally-competent community engagement' criteria to its tax-increment-financing approval process?

Plain-English summary

The Shelby County Board of Commissioners passed a resolution adding a "Culturally-Competent Community Engagement" requirement to its tax-increment-financing approval process. Among other things, applicants would have to disclose minority and women-owned firms tied to the project and report quarterly on minority-owned contractor participation, all under an "Equitable Development" framework focused on "eliminating racial inequities."

Attorney General Jonathan Skrmetti concluded that if the Commission actually considers race when deciding whether to approve TIF projects, the policy almost certainly violates the federal Equal Protection Clause and the parallel guarantees in the Tennessee Constitution. After Students for Fair Admissions, every racial classification, even a benign one, faces strict scrutiny, and the Commission would struggle to identify a compelling interest narrow enough to justify race-based criteria for selecting development projects.

What this means for you

If you sit on a county commission or local TIF board

Read the resolution and the policy carefully. Race-neutral language on the surface does not save a program if the operative criteria, reporting requirements, or evaluation framework end up making race a factor. The AG flagged three features as red flags: an "Equitable Development" framing focused on "racial inequities," required reporting of minority and women-owned firms, and required quarterly reporting of "minority-owned contractor" participation. If any of these feed into the decision to approve or deny a TIF, expect a court to apply strict scrutiny. Generic appeals to remedying past "societal discrimination" will not satisfy that test under current Sixth Circuit and Supreme Court precedent.

If the goal is broader community input on TIF projects, the safe redesign is to use race-neutral participation criteria, like requiring engagement with affected residents, public hearings, or local-vendor preferences not tied to ownership demographics.

If you are a developer applying for TIF

You can refuse to provide race or sex-based ownership data without admitting your project does not qualify. The AG opinion gives you persuasive support for arguing the requirement is unconstitutional as applied. If a county denies your application after collecting that data, you have a colorable equal-protection claim. Document the request and the role the data played in any denial.

If you are a civil-rights or constitutional-law attorney

The opinion is a useful citation when challenging local DEI-style procurement and economic-development requirements. The AG ties the analysis directly to SFFA and Vitolo, treating the Sixth Circuit's narrow reading of "compelling interest" as controlling. Pair this with Drabik when challenging local set-aside or preference programs grounded in general references to historical discrimination rather than identified episodes the government itself participated in.

If you sit on a community advisory board created under the Resolution

The opinion does not invalidate the Resolution outright. Its conclusion is conditional: race-conscious application would likely violate equal protection. A community board that operates on race-neutral criteria, like geographic proximity, affected-resident status, or specific harms tied to the project, can continue to function. Consider documenting decision criteria explicitly so they cannot be characterized as race proxies later.

Common questions

Q: Did the AG say the entire Shelby County resolution is unconstitutional?
A: No. The opinion is conditional. It says that if the Commission considers race in TIF decisions, that consideration "would likely violate equal protection." A community-engagement framework that operates without race as a factor could survive.

Q: What about minority-owned and women-owned business reporting requirements?
A: The AG flagged the disclosure requirements as evidence that the Commission "may consider race." The opinion does not say the disclosures alone are unconstitutional, but it treats them as a strong signal that race is in play, which is enough to trigger strict scrutiny over the program as a whole.

Q: Why does Students for Fair Admissions matter to a tax-financing case?
A: SFFA held that all racial classifications, even those framed as benign, face strict scrutiny. That standard now governs any race-conscious government program, including economic-development decisions, not just university admissions. The Sixth Circuit had already applied strict scrutiny to a federal restaurant grant program in Vitolo v. Guzman. SFFA reinforced that line.

Q: Could the Commission justify the policy as a remedy for past discrimination?
A: Probably not. The Sixth Circuit requires a specific, identified episode of intentional discrimination that the government itself "actively or passively participated in." General references to "historical legacies" of discrimination, like the language in the Shelby Resolution, do not meet that bar.

Q: Does the Tennessee Constitution allow what the federal Constitution forbids?
A: No. The Tennessee Supreme Court in State v. Tester held that Article I, Section 8 and Article XI, Section 8 of the Tennessee Constitution provide protections similar to the federal Equal Protection Clause. So the federal analysis controls the state analysis here.

Q: Can a county still target TIF spending at low-income or distressed neighborhoods?
A: Yes, if the criteria are economic rather than racial. Targeting blighted areas, low-median-income census tracts, or specific industrial zones does not trigger strict scrutiny. The constitutional risk is in using race itself, or in disguising race-based criteria as neutral ones.

Q: What should a developer do if asked to submit minority-ownership data?
A: At minimum, document the request and ask the county how that data will be used in the approval decision. If the county represents that the data is for compliance reporting only and not part of the approval criteria, that is a meaningful safeguard. If the data feeds into approval scoring, you have a basis to challenge.

Background and statutory framework

Tax increment financing in Tennessee is authorized under three separate frameworks: housing authority redevelopment plans under Title 13, Chapter 20; industrial development corporation economic impact plans under Title 7, Chapter 53; and community redevelopment plans under the Community Redevelopment Act of 1998. The Uniformity in Tax Increment Financing Act of 2012, codified at Tenn. Code Ann. §§ 9-23-101 to -108, sets baseline procedures. Local governments and tax increment agencies may add their own policies and procedures so long as those do not conflict with the underlying TIF statutes. § 9-23-107.

That local-flexibility clause is the source of authority Shelby County invoked when adopting its "Culturally-Competent Community Engagement" requirements. The AG opinion does not dispute that counties have wide latitude to add procedural overlays to TIF approval. The constitutional question is what kind of factors those overlays may rest on. Race is an outlier under modern equal-protection doctrine. After Adarand in 1995 and SFFA in 2023, race-based government action faces "daunting" strict scrutiny that "few programs will survive" (Vitolo).

The Tennessee Supreme Court's reading of the state's parallel equal-protection guarantees in State v. Tester incorporates the federal standard into state-law analysis. That makes the Tennessee Constitution analysis essentially identical to the federal analysis here.

Citations and references

Statutes:
- Tenn. Code Ann. § 13-20-205 (Housing authority redevelopment plan)
- Tenn. Code Ann. § 7-53-312, -314 (Industrial development corporation TIF)
- Tenn. Code Ann. §§ 9-23-101 to -108 (Uniformity in Tax Increment Financing Act of 2012)
- U.S. Const. amend. XIV, § 1
- Tenn. Const. art. I, § 8; art. XI, § 8

Cases:
- Students for Fair Admissions, Inc. v. President and Fellows of Harvard Coll., 600 U.S. 181 (2023), racial classifications face strict scrutiny
- Rice v. Cayetano, 528 U.S. 495 (2000), distinctions based on ancestry are "odious"
- Adarand Constructors v. Pena, 515 U.S. 200 (1995), strict scrutiny applies to all racial classifications, benign or otherwise
- Vitolo v. Guzman, 999 F.3d 353 (6th Cir. 2021), Sixth Circuit strict-scrutiny standard applied to race-based federal grant program
- Associated Gen. Contractors of Ohio, Inc. v. Drabik, 214 F.3d 730 (6th Cir. 2000), government must "identify precisely" the compelling interest justifying race-based policy
- State v. Tester, 879 S.W.2d 823 (Tenn. 1994), Tennessee equal-protection provisions track federal standard

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2025/op25-002.pdf

Original opinion text

Constitutionality of Resolution on Tax Increment Financing
Question
Does a resolution passed by the Shelby County Board of Commissioners requiring
"Culturally-Competent Community Engagement" for the approval of tax increment financing
violate the equal protection guarantees of the United States or Tennessee Constitutions?
Opinion
If the Shelby County Board of Commissioners considers race in the tax-increment-
Tax increment financing (or TIF) is an economic-development tool used by local
governments to pay for community improvements with future property-tax revenues attributed to
a particular area. Housing authorities, industrial development corporations, and community
redevelopment agencies-often referred to as tax increment agencies-utilize tax increment
frequently private developers-with funding specific community projects.
To utilize tax increment financing, a tax increment agency must submit a tax-increment-
financing plan to the affected local governing body (or taxing agency) for approval. See Tenn.
identify the area subject to the plan, contain cost and revenue estimates, set out any statutorily
governing body approves a tax-increment-financing plan, it pays incremental tax revenues to the
1 Title 13, chapter 20, of the Tennessee Code Annotated governs housing authorities, and title 7, chapter 53, governs
industrial development corporations. The Community Redevelopment Act of 1998, as amended (the "CRA Act"),
governs community redevelopment agencies. See 1998 Tenn. Pub. Acts ch. 987. The CRA Act has not yet been
2 The TIF plan of a housing authority is known as a "redevelopment plan." Tenn. Code Ann. § 13-20-205. The TIF
plan of an industrial development corporation is known as an "economic impact plan." Id. §§ 7-53-312, -314. The
TIF plan of a community redevelopment agency is known as a "community redevelopment plan." CRA Act, § 2.
3 Id.
STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
January 9, 2025
Opinion No. 25-002
Constitutionality of Resolution on Tax Increment Financing
Question
Does a resolution passed by the Shelby County Board of Commissioners requiring
"Culturally-Competent Community Engagement" for the approval of tax increment financing
violate the equal protection guarantees of the United States or Tennessee Constitutions?
Opinion
If the Shelby County Board of Commissioners considers race in the tax-increment-
financing process, it would likely violate equal protection.
ANALYSIS
Tax increment financing (or TIF) is an economic-development tool used by local
governments to pay for community improvements with future property-tax revenues attributed to
a particular area. Housing authorities, industrial development corporations, and community
redevelopment agencies, often referred to as tax increment agencies, utilize tax increment
financing in Tennessee. These agencies use tax increment financing to assist applicants, frequently
private developers, with funding specific community projects.

To utilize tax increment financing, a tax increment agency must submit a tax-increment-
financing plan to the affected local governing body (or taxing agency) for approval. See Tenn.
Code Ann. §§ 13-20-205(a); 7-53-312(a), 7-53-314(a); CRA Act, § 11. Generally, the plans must
identify the area subject to the plan, contain cost and revenue estimates, set out any statutorily
required findings, and include details of the proposed tax increment allocation. Once a local
governing body approves a tax-increment-financing plan, it pays incremental tax revenues to the
tax increment agency for the permitted uses under the applicable statute.

Local governments and tax increment agencies are authorized to "agree upon, approve, and
amend policies and procedures" for implementing the applicable tax increment statute, so long as
those policies and procedures do not conflict with the Uniformity in Tax Increment Financing Act
of 2012, Tenn. Code Ann. §§ 9-23-101 to -108, or the applicable tax increment statute. See Tenn.
Code Ann. § 9-23-107. While the adoption of policies is not required, many local governments
and tax increment agencies have adopted policies to flesh out the TIF process. For example, the
City of Bristol has adopted Tax Increment Financing Policy and Guidelines for Redevelopment
Projects, Urban Renewal Projects, and Economic Impact Projects for use when evaluating TIF
applications, the City of Chattanooga has adopted Policies and Procedures Relating to Tax
Increment Incentives in coordination with the Industrial Development Board of the City of
Chattanooga that set forth application procedures and administration requirements for tax
increment financing, and the Industrial Development Board of the County of Knox has adopted
Tax Increment Financing Program Policies and Procedures that provide for the implementation
and administration of tax increment financing.

The Shelby County Board of Commissioners adopted a similar set of policies and
procedures. As part of its criteria for approval of tax increment financing, the Commission adopted
a resolution entitled, "Resolution Approving Additional Guidelines for a Culturally-Competent
Community Engagement Component in the Approval of the Application for the Tax Increment
Financing (TIF) Program" (the "Resolution"). The Resolution adopts "Culturally-Competent
Community Engagement" Guidelines (the "Guidelines") into the Commission's criteria for
approval of tax increment financing. See Resolution at 3-5. Under the Guidelines, a prospective
applicant must file a letter of intent with a tax increment agency. See Guidelines at 9. That filing
initiates the creation of a "Community Advisory Board" comprised of members of the affected
community. Id. at 9, 16. The community board collaborates with the applicant "during community
engagement meetings, public hearings, and throughout the implementation process on issues
affecting the community's well-being." Id. at 19. And the Guidelines require a two-thirds majority
vote of the community board before a tax-increment-financing project may move on to the tax
increment agency board for approval. See id. at 22.

While the Resolution contains no explicit race-based criteria for approving tax increment
financing, it nonetheless contemplates the consideration of race in the process. The Resolution
adopts its culturally-competent-community-engagement requirements as part of an "Equitable
Development" framework. Resolution at 3. The Resolution defines "Equitable Development" as
a "development strategy that ensures everyone participates in and benefits from the region's
catalytic investments, with an intentional focus on eliminating racial inequities and barriers, and
assuring that all residents benefit from economic transformation." Id. at 2 (emphasis added). The
Resolution further defines "Equity" as "both a process and an outcome" and "includes the process
of recognizing the historical legacies and the current realities of discrimination and prejudice that
people from marginalized communities experience; and the outcome is that one's identity does not
determine one's access to resources, opportunities, or disparities in outcomes." Id. at 2-4
(emphasis added). Additionally, the Guidelines require applicants, in at least two places, to
provide information on minority or women-owned firms. When a TIF applicant submits its letter
of intent to the tax increment agency, it must list "all minority and women-owned firms associated
with the applicant/developer or members of the development team and their percentage of
ownership in the project." See Guidelines, Ex. 1. Additionally, developers must report quarterly
on, among many other things, the "number of minority-owned contractors involved in the
redevelopment project and percentage of total project effort." See id. at 29. These commands
raise the concern that the Commission may consider race in its tax-increment-financing decisions.

The equal-protection guarantees of the U.S. and Tennessee Constitutions likely do not
allow the consideration of race in these circumstances. The Fourteenth Amendment to the United
States Constitution guarantees that no State may "deny to any person within its jurisdiction the
equal protection of the laws." U.S. Const. amend. XIV, § 1. "Distinctions between citizens solely
because of their ancestry are by their very nature odious to a free people whose institutions are
founded upon the doctrine of equality." Students for Fair Admissions, Inc. v. President and
Fellows of Harvard Coll., 600 U.S. 181, 208 (2023) (SFFA) (quoting Rice v. Cayetano, 528 U.S.
495, 517 (2000)). That being so, all racial classifications, benign or malevolent, face the
"daunting" strict-scrutiny standard, id. at 206. A racial classification will only satisfy strict
scrutiny review if it is narrowly tailored to serve a compelling government interest. Adarand
Constructors v. Pena, 515 U.S. 200, 227 (1995). "This is a very demanding standard, which few
programs will survive." Vitolo v. Guzman, 999 F.3d 353, 360 (6th Cir. 2021) (citations omitted).

Nothing in the Resolution indicates that the Commission could meet that demanding
standard. For one, the Commission seems unlikely to be able to "identify precisely" a "compelling
state interest" justifying a race-based policy. Associated Gen. Contractors of Ohio, Inc. v. Drabik,
214 F.3d 730, 734 (6th Cir. 2000). Under prevailing Supreme Court precedent, the Commission
could not rely on general "historical legacies" of "discrimination and prejudice," Resolution at 2,
to justify considering race in TIF-related decisions. A desire to "remedy the effects of societal
discrimination" in general is not a compelling state interest, SFFA, 600 U.S. at 226. And nothing
in the Resolution indicates the Commission has a goal of remedying "a specific episode of past"
intentional discrimination that the government "actively or passively participated in" and "now
seeks to remedy," as the Sixth Circuit requires. Vitolo, 999 F.3d at 361-62; see also Drabik, 214
F.3d at 735.

Even if the Commission could show a compelling state interest in remedying some specific
episode of discrimination, the use of race would need to be narrowly tailored. That means that any
use of race would be "necessary" to achieve the government's compelling interest. SFFA, 600
U.S. at 207. Any race-based policy could not be "overbroad or underinclusive in its use of" race.
Vitolo, 999 F.3d at 362.

Despite the very different language in the Tennessee Constitution, the Tennessee Supreme
Court has interpreted Article I, Section 8 and Article XI, Section 8 of the Tennessee Constitution
to confer similar protections. State v. Tester, 879 S.W.2d 823, 827 (Tenn. 1994).

The plain terms of the Resolution do not indicate that race is a required factor in decision-
making. But, as described above, applicants for tax increment financing must provide information
about minority-owned contractors that will work on their projects. This, combined with the
Resolution's call for an "intentional focus on eliminating racial inequities and barriers," indicates
that the Commission may consider race in some capacity. As discussed above, at this stage there
is nothing to indicate that the Commission could justify the consideration of race in this context.

JONATHAN SKRMETTI
Attorney General and Reporter

J. MATTHEW RICE
Solicitor General

Requested by:
The Honorable Mark White
State Representative
425 Rep. John Lewis Way N.
Suite 624 Cordell Hull Bldg.
Nashville, Tennessee 37243