The local hack elitist “visionaries” of the Memphis Tomorrow cartel, apparently don’t know business loses when the taxpayer loses. When the taxpayer loses, business loses millions in various ways to include deficient workforce, public transit, inadequate roadways and public safety concerns. But in their defense,  many businesses that are beneficiaries of excessive incentives are just participating in the locally promoted incentive program. They don’t know, through excessive corporate/real estate incentives, that public policy has been stupidly constructed to undermine the very ecosystem that supports their success. 

And at the State level, The Shelby County Delegation doesn’t seem to question anything regarding tax incentives brought before them that impacts the local taxpayer. Take for example the $21M FedEx sales tax break for hub expansion. Local taxpayers will shoulder $5M of that and there is no published economic impact plan to justify the incentive. Why not ?

And further, the Delegation seems content with the residential PILOTs where Shelby County is the only County in the State that offers any tax incentive for residential construction. What’s more alarming, even if Shelby County had a unique need for a residential tax incentive, the delegation did not bother to protect the local taxpayer with implementation guidelines that would limit the abatement amount. Hence, local taxpayers are getting hammered with excessive 75% abatements on select residential developments.

Underwriting all of this excess, is the lack of reliable economic and fiscal impact analysis resulting in excessive tax incentives. All occurring where excessive incentives are needed least in a nationally low business cost environment in Memphis. If legislators, the public and business had reliable economic and fiscal impact analysis, they would have a basis to reform incentives while also informing smarter economic and community investments. The solution is a tax incentive fiscal note impact (TIFNI) for every abatement which affords independent public measurement of the economic development complex housed within a centralized tax incentive repository. 

And for the record, The Beacon Center, in their recent report, missed the total amount of state and local tax incentives slushed out to FedEx occurring without any economic impact analysis. The total amount was $66M for Downtown and hub modernization not $14M. 

The Worst PILOTs

Below, using a fairly liberal standard of taxpayers just breaking even at the end of the abatement term, the worst EDGE job PILOTs are listed sorted first by amount and then by percentage. The initial listings are followed by a listing of right sized PILOT awards. In the current economic development environment, there are examples of responsible PILOT awards. The listings below show the PILOT awarded and a generous business friendly right size PILOT award in its place based on reliable economic and fiscal impact analysis. The problem is not the existence of PILOTs but excessive PILOTs enabled by bogus projection accounting and a lack of legislative and press oversight. 

Based on the sizing of incentives in other cities, it is clear that other cities are practicing some degree of restraint and someone somewhere is doing the math related to reliable economic and fiscal impact analysis. But this work is irresponsibly not occurring in Memphis. 

What’s interesting about the listing are many PILOTs that don’t make the headlines like Raymond James, FedEx, AutoZone and etc. are shown below. Huge taxpayer losses are routinely occurring without public knowledge due to a non-investigative press and lack of rigorous legislative oversight while a community in need suffers and the small few benefit. 

The more than 100% loss occurs within fiscal impact analysis as a result of egregiously abating existing real property taxes in addition taxes that occur from new capital investment. 

Best PILOTs

In  a City plagued with excessive incentives, there is no help from the local media. On Behind The Headlines, Eric Barnes and Bill Dries hosted Richard Smith of FedEx who is outgoing board chair of the Greater Memphis Chamber. 

Barnes and Dries could have asked about return on investment (ROI) of incentives or potential incentive excessiveness. But instead, they just confirmed all cities offer economic development incentives without probing deeper on for example inflated bogus projection accounting that has gone to justify excessive incentives leaving the Memphis/Shelby taxpayer holding the bag. The ROI question would have potentially revealed that there is no reliable ROI methodology for measuring tax incentives for the customer taxpayer.

As far as FedEx, they have received $66M in state and local incentives for moving to a different local zip code downtown, promising 340 new jobs and investing $1.5B in hub modernization. Barnes and Dries could have asked Smith about the projected economic impact for $66M in state and local incentives given that there is no published economic impact plan. But that question was not raised.

To that extent, Smith played his Chamber and FedEx executive role while accurately describing the Chamber as a “business association” with the mission of economic recruitment, policy advocacy and workforce development and pitching the benefits of an incentive supported ($34M) Fortune 100 FedEx headquarters downtown. 

Smith went on to accurately identify business recruitment prospects as the “customer” of the taxpayer when using public incentives in the work of economic development. At the same time, Smith did not identify the taxpayer as an “investment customer” in the use of economic development incentives just as shareholders are investment customers of corporations. This points to a problem in the current environment where there is no reliable independent public measurement of the public-private economic-workforce development complex. This leaves a Memphis/Shelby customer taxpayer dismissed in the midst of excessive corporate/real estate incentives. 

Smith mentioned the known loss of Electrolux. But Electrolux can be defended as a one time bad deal. What can’t be defended, and the local media in a rigged system is doing little to help, is the systemic implementation of bogus projection accounting over 8 years to justify excessive  tax incentives ($250M+) for the benefit of corporate/real estate interests. This occurs while dismissing a Memphis community in need and true economic development in small business and workforce development.

Based on an Evanoff CA article, it appears that FedEx may be feeling the effects of a botched disconnected workforce development system. Its a botched system that has systemically occurred over the past 5 years under the publicly unmeasured FedEx/Memphis Tomorrow corporate community leadership cartel. The botched workforce development system has cost local business and taxpayers millions while excessive incentives have roared for the benefit of the small few and corporate/real estate interests. 

So is FedEx Downtown a Good Deal for Taxpayers ?

No one really knows if the FedEx package of incentives is a good deal for taxpayers. There has not been a reliable economic impact summary published on the $66M in  state and local incentives. Local taxpayers will shoulder about $34M for the downtown and $5M for the hub project.

But we have enough data on the FedEx Downtown project to bust out a fiscal note to evaluate the incentive using responsible assumptions. Using a 2.0 multiplier for economic impact, over 22 years, the net fiscal impact for 340 new jobs is $12M. Based on the total incentive of $34M, that equates to a -11.9% annual return. This type of arrangement points to one of the causes of flat property tax revenue growth. 

A more customer taxpayer centric total abatement amount, while being generous to the opportunity of locating downtown a cherished Fortune 100 FedEx Downtown headquarters would be a $23M abatement over 22 years or $10M less. This abatement amount would have insured taxpayers recaptured their abatement proceeds after a generous 22 year term. See below fiscal note:

Conclusion

The local media is not helping to expose the story of a Memphis community in need that has been systematically hung out by excessive corporate/real estate incentives using bogus projection accounting. The only solution to helping Memphis move forward is independent public measurement that recognizes the taxpayer as the investment customer in public-private initiatives. 

And besides, right sizing incentives is not a pro or anti-business endeavor. Its just a math equation to size incentives while recognizing the taxpayer as the investment customer in public-private economic development work. 

Here we go again. More of the same faces carouselling through Memphis corporate community leadership cartel. Public officials need to give Willie Gregory, as the new Greater Memphis Board Chairman, a chance at success in moving Memphis forward with independent public measurement of the public-private complex. Without independent public measurement, public-private initiatives will leave taxpayers holding the bag. 

In the recent past, without independent public measurement, Gregory led the botching of the Memphis workforce development system as the initial Board Chairman of the Greater Memphis Alliance for Competitive Workforce (GMACW). GMACW was a Greater Memphis Chamber “Moon Mission”. But it went nowhere, as GMACW was taken over by EDGE who then sustained the botch leaving Memphis 5 years behind schedule on connected workforce development efforts costing local businesses and taxpayers millions.  

Pageantry

In fact, in a sea of pageantry, Gregory and team seemed to celebrate the botch with a Nike – GMACW event at the National Civil Rights Museum on April 4, 2016, when GMACW was already a year behind schedule in delivering needed connected workforce development services. The event was entitled “Have We Achieved Dr. King’s Dream?” Nope, you certainly have not achieved the dream if you are botching the workforce development system, wasting taxpayer money and leaving a community in need with disconnected workforce development services. For whatever reason, pageantry events are often mistaken as implementation in Memphis. 

In yet another pageantry event, in May of 2016, The City and County announced an ACT National Career Readiness Certificate initiative to improve workforce development efforts. But it was never implemented. So damn strange. But non-implementation is normal in Memphis. Other cities measure local improvement initiatives and when work goes off track as it often does, they course correct. But course correction does not happen in Memphis which is largely enabled by a lack of public measurement and oversight. 

Gregory in his acceptance remarks said, “Our mayor is a Memphian, both county and city. Beverly Robertson is a Memphian. I’m a Memphian, Richard [Smith] is a Memphian,” he said. “I’m saying that to say we grow our own here in Memphis”. What’s concerning about what Gregory said is that those from Memphis only  know systems of decline after 20 years under the Memphis Tomorrow CEO cartel. Memphis Tomorrow is the City’s #1 problem while being down in all categories over almost 20 years as their publicly unmeasured initiatives use taxpayer money.

In many ways, it seems folks that come from outside to perform transformative work become confused and leave. Perhaps because of the lack of implementation focus. Glen Fenter, an accomplished executive educator and initial CEO of GMACW came and left as did Eric Miller, Chamber Economic Development SVP. I know I have been confused after having worked in communities across the country at the lack of local implementation when it involves taxpayer money in Memphis. 

But the Memphis cartel doesn’t know how to process dissent or course correcting innovation thus leaving the City to stagnate and decline. The Chamber after 3 years of knowing funding is the challenge with transit has yet to publish a transit funding position. And everyone has been waiting 2 years for their economic development plan and now workforce development plan.

But in reality, business development is the work of the Chamber and economic and workforce development are core public government functions.  Local government should be publishing their own economic and workforce development plans while independently measuring public-private partnerships and indeed recognizing the Chamber as an influential stakeholder along with taxpayers. 

Excessive Incentives Undermine Economic Development

Gregory touted workforce development in his acceptance remarks. But excessive corporate/real estate incentives have dominated local economic development efforts while undermining needed funding for workforce development.

This incentive excessiveness can even be shown to be anti-business with declining small business vitality and below peer average total wage growth. EDGE, who is now over GMACW, never holds public meetings while they meet practically every month to approve excessive corporate/real estate incentives for jobs that cannot be filled. And this occurs in a city with nationally low overall business operational costs making excessive incentives less necessary. 

Gregory’s own Nike can be used as an example of an excessive incentive. Memphis abated $57M in taxes to transfer wealth from one of the most impoverished areas in the country in Memphis to one of the least impoverished in the Portland, Oregon area where the Nike headquarters is located. 

Upon figuring economic and fiscal impact, using responsible assumptions, the Nike abatement generates $13M in net fiscal impact after 15 years for Memphis/Shelby taxpayers on the $57M abatement. That is a 1.5% simple interest annual return.

The right size Nike abatement, when considering average wages and new capital investment is $13M not $57M, resulting in a $45M excess abatement. Keep in mind, with greater job growth, Indianapolis had $135M in job tax incentives on 110 projects whereas Nike was $57M for one project and overall EDGE has awarded $500M+ in job tax incentives. EDGE projects, using inflated accounting to justify the excessive abatement, $47M in net revenue without fiscal impact analysis for Nike. 

Clearly, Indianapolis is doing the real math of economic and fiscal impact in sizing their incentives. But the math on incentives isn’t being done in Memphis while awarding everyone the same 75% abatement and in some cases abating existing property taxes. See below Nike fiscal note using the tax incentive fiscal note impact (TIFNI) platform:

Sadly Memphis/Shelby has no way of measuring their return on investment of incentives. There is no reliable economic and fiscal impact analysis and even if public officials decided to undertake an evaluation, they could not do it as there is no central repository for housing tax incentive data for 9 abating boards. This results in both a measurement and data problem. 

Conclusion

Local public officials should support Willie Gregory and the public-private complex with independent public measurement. Without independent public measurement, Gregory won’t be successful and Memphis won’t move forward….

From the top of the ecosystem, Memphis culturally does not know how to grow and evolve. After all, it has been almost 20 years of competitive decline under the cartel of Memphis Tomorrow which has consistently promised a better tomorrow. Memphis Tomorrow is a CEO organization whose initiatives use your Federal, State and Local tax dollars for community betterment. Problem is the unmeasured Memphis Tomorrow is down in every category over almost 20 years while using taxpayer money.

True story – In November, The Economic Development Growth Engine (EDGE) cartel member elected to  lose taxpayers $3M to incent low wage warehouse jobs. These are the very jobs the current Memphis Brookings Focus economic development plan  de-emphasized. So why incent the jobs ? Because the cartel does not operate within a framework of community accountability. In this case, the math fact and community cost is $3M that could have tripled the Southwest Community College “wrap around” Foundation budget for the next 10 years ! 

On Behind the Headlines, Dr. Tracy Hall, Southwest President, stated the current annual foundation budget is $150K and not enough to serve wrap around student needs for expenses like books that that go beyond tuition costs. Such investments in workforce could help boost low post-secondary completion rates while increasing wages – something Shelby County Mayor Lee Harris and Dr. Elena Delavega are both advocating. In a city where Workforce Development is the #1 priority, this should be a slam dunk but not under the Memphis Tomorrow cartel. 

What’s even more alarming about the EDGE LeSaints approval, EDGE also oversees workforce in the Greater Memphis Alliance for a Competitive Workforce (GMACW). The EDGE/GMACW Board never meets thus dismissing workforce as an economic development strategy. In this way, the LeSaint approval is just typical as both EDGE and GMACW were birthed out of the Memphis Tomorrow decline by design cartel. So where is the legislative oversight ?

Legislators not Making The Workforce Business Case

A chief enabler of local competitive ecosystem decline is the lack of independent public measurement of the public-private complex. Some local legislators seem to draw comfort in partnering with the likes of the Memphis Tomorrow. But while this may feel cozy and familiar, its functionally incoherent as local government has a different customer in the taxpayer than does Memphis Tomorrow in local CEOs. This view would apply to any local government and business organization which is not unique to Memphis. And besides, public measurement, when it comes to taxpayer funded initiatives is good for the business community. 

But within the framework of economic development, as a consequence of this incoherence and without measurement tools, local legislators are not making the business case for increased investments in workforce to raise wages for the existing population. This is unfortunate as the only real economic development comes in the form of increasing wages for the existing population followed by recruiting new residents that make above average wages. 

Given this, local government needs their own taxpayer aligned economic and workforce development plans along with a platform to measure taxpayer return on investment in public-private partnerships. This will help insure better public policy development and implementation of taxpayer funded initatives. To that extent, going back to the LeSaint Logistics PILOT that lost $3M for taxpayers, the below table articulates what an alterative economic development investment in workforce looks like. 

Assuming a $300K annual investment over 10 years ($3M) in the Southwest CC Foundation fund and “wrap around” services, the below table assumes an increased 50% success rate for students in 1 and 2 year tracks resulting in a net increase in wages of $12.5K per student upon completion. 300 students get $1K per year with 150 increased completions per year. 

This results in a net increase of $76M in annual local wages and $2.3M in annual tax revenues while delivering a 76% return for taxpayers over 10 years. And this analysis does not include the use of economic multipliers. Problem is local legislators are not making business case for workforce development. See below table:

Solution

Without independent public measurement, Memphis public-private partnerships will not be successful. Private interests measure the effectiveness of their investments based on their shareholders and customers. Public concerns in Memphis should do the same. 

With respect to current public efforts, there is effectively no reliable measurement of public-private partnerships. This has resulted in cartel excesses, increased poverty and competitive decline of the Memphis ecosystem. For example, there is no centralized measurement platform for economic development incentives which can be shown to more than $250M in excess. 

At the same time, there is an LOSB solution on the table to address the problem in the Tax Incentive Fiscal Note Impact (TIFNI) platform. The TIFNI solution provides a fiscal note for each tax incentive while providing a methodology for right sizing incentives based on projected taxpayer return on investment. Additionally, TIFNI centralizes all tax incentives in a central repository for cost effective administration.

Without effective public measurement and administration, public-private partnerships will result in continued ecosystem decline leaving the Memphis/Shelby taxpayer holding the bag for years to come…..