“Double dipping” is the finding, as research into the PILOT Extension Fund (PEF) continues. Local developers in Carlisle (One Beale), Puke, Prosterman (Wonder Bakery) and Orgel (Brewery) have leveraged the PEF for long term loans to finance construction on private “public” parking garages, while then getting 20 year 80%+ property tax abatements, on the overall development, that includes tax abatements on the parking garage !

Also, just an aside on an unrelated matter, Prosterman is the beneficiary of $2M in TnInvestco state funds, for a startup called Hapten Sciences, that has only resulted in 2 employees over 10 yrs.   

Anyway, approved loans for private “public” parking garages total $22M. And the term lengths of these taxpayer funded private loans are like 45 years. A low interest long term loan, using taxpayer money from abatements + another 80% abatement for the finished project = A DOUBLE DIP !! (See above table with data sourced from the DMC Database).

Further, based on a review of the DMC financials, its unclear if loans are being repaid to the Downtown Mobility Authority (DMA). And Carlisle got a garage loan, a 20 yr abatement and a $1m grant for One Beale. This does not include the new 30 yr PILOT for the Grand Hyatt or the benefit of the planned $42M mobility center across the street from the One Beale development. 

The PEF is a restricted public parking  fund, funded with extended corporate/real estate tax abatements. And its also true that, over the years, Downtown Memphis Commission CEOs, have asserted a false belief, that this abatement money is NOT the taxpayer’s money, but the DMCs money, based on an Attorney General’s opinion issued in 1997. The actual legality of the fund remains an open question. 

Wonder why no local traditional or non-traditional publications have questioned the $62M PILOT Extension Fund expenditure? Its strange that no one is asking what would $62M do for affordable housing or public transit? Or why there is a parking plan and no economic development plan? At the same time, with no formal working definition of “economic development”, it’s clear local “visionaries” have defined economic development as corporate, real estate AND now parking development. 

PEF Private “Public” Parking Garage Loan Process

Basically, these loans are publicly funded loans, for parking garage construction for private developments, that allow publicparking, whether or not there is demand for public parking in the area.  Here clickable graphic and the PEF loan process:

1. DMC Center City Revenue Finance Corporation (CCRFC) approves a PEF request and seeks local legislative approval. 
2. Once legislative approval occurs, the CCRFC arranges financing and provides funds to the Downtown Mobility Authority (DMA) for administration and distribution
3. DMA loans the funds to private developer
4. Private developer builds and manages the “public” garage on their private development
5. Developer repays DMA loan over 45 years or so
6. Developer benefits from Double Dip of taxpayer funded low interest loans and 20 yr 80% property tax abatement on the garage and their private development. 

Now, after the above, the DMC is going to spend anther $62M on public parking, when in 2019, DMC’s DMA only generated $2M in revenue, before expenses, on 5,500 public parking spaces. At a conservative $10 per day, that is only a 10% occupancy rate. During COVID, DMA 2020 revenue was off $400K, down to $1.6M.

But based on the 2019 analysis, a bunch of folks are not paying for parking or there are a bunch of empty spaces, which negates the need for additional public parking. So much for any funding focus on needed public transit, affordable housing or education. All total, the PEF plan is to finance $111M in public parking.

PEF Analysis Update 

As new information on the PEF is obtained, the above table is updated. For example, we do not know how much money has flowed into the PEF over time. The above estimates are based on public testimony and DMC public information requests that are cross referenced with the County Trustee Report. For example, as of today 12/30, based on a public information request to the City of Memphis on 12/8/20, the City has no idea how much was contributed to the PEF in 2019, much less over the last 20 years. 

To that extent, the new information discerned, from the DMC financial statement and website, were the private “public” garage assets, that provided the information to adjust the unaccounted funds down by $22M, resulting in an estimated $6M surplus in 2019 and $5.6M deficit in 2020. 

PEF Open Due Diligence Questions

Besides the outrageous Double Dipping and $62M priority put on downtown parking, at a huge cost to everything else, these open due diligence questions remain:

1. Legal authority of the PEF ?
2. Historic contributions to the PEF ?
3. Valid lease agreements to support future fund inflows and corresponding debt service ?

Maybe we will find out the above…..

At their  last meeting (1:27:30) , The Shelby County Commission overtly COCKBLOCKED due diligence on a $62M public funding allocation, for downtown parking, to then adopt the measure in a 11-2 vote. The Commission had previously scheduled due diligence, to be conducted by County officials Chief Financial Officer Mathilde Crosby, Trustee Regina Newman and Assessor Melvin Burgess. Due diligence findings were to be presented at the January 6, 2021 Commission Economic Development Committee meeting. 

Alarmingly, this COCKBLOCK, effectively obstructs County officials from doing their jobs, while such concerns go wholly unreported by the local press. This non-reporting highlights the rigged Memphis system and  institutional failure of the press that keeps the public in the dark, on matters of elitist led taxpayer injustice.

The former is just an extension of the archaic and elitist Crump era culture, of days gone by, forwarded by idiots Blackjack Fred Smith and Puke Pitt Hyde. It’s commonplace for the elitists, through local legislative bodies, to dismiss the public at large. But this is a new low, with the Commission dismissing its own officials, as County officials make the public appeal to Commissioners, to allow them to do their jobs in supporting the public good. 

Commissioner Mark Billingsley, who previously championed due diligence on this “important decision” matter, strangely reversed his position to champion immediate December 21, reconsideration of the $62M PILOT/Parking Extension Fund matter, without scheduled due diligence. The scheduled outstanding due diligence concerned: 1) legal authority of the PILOT Extension Fund (PEF), 2) Binding lease agreements to support $62M PEF for public parking and 3) historic PEF activity over the last 20 yrs. 

While leaving the above outstanding due diligence unaddressed, Billingsley justified his position favoring the $62M request, based on having received a letter from AutoZone CEO, Bill Rhodes. And Commissioner Brandon Morrison favored the $62M measure, in honor of the work of Jennifer Oswalt, who is departing the Downtown Memphis Commission. 

Billingsley further asserted that the corporate beneficiaries of publicly incented downtown parking in AutoZone and FedEx, cannot be taken for granted, as they can leave Shelby County anytime. Billingsley seemed ignorant to the fact that both downtown projects for FedEx and AutoZone have already received excessive local incentives, that total an estimated $64M. And that is $64M in local incentives, prior to any consideration of additional local incentives for downtown parking, all while not including $12.3M in state incentives for these corporate downtown developments.  

Analysis – Parking Plan but No Economic Development Plan

Anyone find it weird that there is a Memphis downtown parking plan but no economic development plan ? Its because elitists,  like Puke, have proven they don’t know what “economic development” is. Prior to COVID, when parking demand was higher, I never had a problem finding a parking place downtown. In fact, the DMC County Commission parking presentation documents this as fact, with the admission of available parking in both photographs (Orpheum Lot) and in written testimony (Front Street garage). So, there is no parking crisis, as was asserted by some County Commissioners at their December 21, 2020 meeting. 

Enabled by a lack of governmental oversight and an non-investigative press, Memphians live in a bubble. Remember, the elitist Poplar TIF was approved, based in part, to relieve traffic congestion. Has anyone advocating for this stuff ever been to Nashville, Atlanta or Washington DC ? Trust me. There is no downtown parking crisis or East Poplar traffic congestion problem. Both of the former illusions come from an unchecked elitist narrative, designed to exploit, through taxpayer injustice, a majority Black Memphis community in need.   

Further, review of the DMC parking presentation reveals clues to the the drivers behind downtown parking reconfiguration. Both of those drivers point to Puke’s pet projects in the Brooks Art Museum and the Riverfront. This $62M for the downtown “parking crisis” is actually more money for already previously funded projects, in the Riverfront and additional corporate incentives for downtown parking, to accommodate for the reduction in parking, for the Brooks Art Museum project. And then there there is also the Carlisle One Beale project beneficiary.  

The $62M measure includes immediate access to $16M in funds that have piled up, over a number of years, largely out of public view, at the Downtown Memphis Commission. The mystery surrounding the existence of the fund, is a product of historically failed governmental oversight, that has persisted for years, in not reviewing annual industrial development board (IDB) financial reports. Besides DMC, funds seemed to have also piled up at other IDBs, such as EDGE, where EDGE has $22M in unrestricted cash assets. 

When Blackjack was pursuing his FedEx Downtown incentive package, he recognized all of the public funds piling on IDB balance sheets and went after them getting $2M from EDGE and $1M from DMC’s Center City Development Corporation. Mayor Strickland has said, that local incentive awards do not include cash grants. But that is not the case for local companies, like FedEx, moving across town. 

At any rate, in the end, there are too many open questions, related to the PEF, for this matter to be over. The public deserves answers. 

Unfinished Business and Good News 

With so much unfinished business regarding the PEF, local legislative bodies owe the public answers. The due diligence scheduled for January 6, 2021, on the PEF, should occur in Commission Economic Development committee as scheduled. If not that committee, some other committee.

Originally, the PEF matter was rightly referred back to Commission committee, because there was no available public documentation to support a quantitatively informed discussion around a $62M public funding request. But when Commissioners reconsidered the matter, on December 21, 2020, the dollar amounts discussed, were pulled out of thin air and based on nothing. 

The fact is, there was never any hurry for the County Commission to approve the $62M public parking measure. In fact, Commissioner Tami Sawyer exposed this by asking Jennifer Oswalt, what the hurry was on the Union Row consideration when the project has yet to start 2 years after being approved. What the hurry was on this $62M parking project, involved local elitists wanting to control the agenda and narrative, while getting immediate access to $16M (based on Oswalt testimony), in DMC cash assets, without needed due diligence.

Due diligence of the PEF will likely reveal significant problems, and perhaps, even fund insolvency, based on the fund’s historical performance liabilities to the public. And that’s not to mention, to begin with, the implementation of the fund may never have been legal.

The good news is that, Chairman Eddie Jones and Commissioner Tami Sawyer voted against the $62M PEF, with support from County officials Crosby, Burgess and Newman. Lets hope, these public stewards, demand answers regarding the PEF, on January 6, 2021 and beyond…..

NOTICE: With clarifying information, this blog can be modified for the benefit of informed community discussion with revised assumptions. This table has been corrected, since its original publication, in favor of the fund, by adding $10M in estimated interest payments, for use of funds, over 20 yrs. This lessens the amount in estimated unaccounted funds.

Based on an analysis of the 2019 Downtown Memphis Commission (DMC) audited financials and information obtained via a public information request to the DMC, the DMC PIL Extension Fund (PEF) appears to be $26-38M short. 

The DMC staff was helpful in providing information related to the PEF. DMC provided information to include PILOT parcel, project name, PILOT begin date, original term, extension date, extension term and PILOT end date. That information was cross referenced with the 2019 Shelby County Trustee PILOT report to derive total historical “scheduled” contributions to the PEF in City and County taxes.  

The DMC provided parcels currently contributing to the PEF, but did not provide 19 parcels that had participated in the fund since 1997, that have since returned to the tax rolls. Methodologies for this analysis will be defined below. But first, what is the PILOT Extension Fund and the questions surrounding it?

Parking Extension Fund (PEF)

The Parking Extension Fund (PEF) was birthed in 1997 based on a State Attorney General’s opinion regarding local government’s authority in approving the extension of payment in lieu of taxes (PILOT) for community betterment. PILOTs are reduced commercial property taxes designed to encourage increased commercial investment.

Based on recent on the record County Commission testimony (see item 27 at 2:09:45 in video), the PEF would extend commercial PILOTs, with the abated portion being dedicated to a restricted DMC administered fund, known today as the PEF, to support the development of downtown parking. The availability of public parking assets would,  in theory, encourage commercial investment. 

Public knowledge of the PEF, is sparse with many local legislators learning about the fund, which has existed since the late 1990s, for the first time in December 2020. This learning comes as the DMC attempts to get legislative approval for a $62M downtown public parking project. Given the sparse knowledge base having inherited the PEF years ago, both appointed and elected officials are raising questions.

Questions by Rock Star Public Servants

Leading questioning and facilitating discussion regarding the PEF before the County Commission, were Shelby County Chief Financial Officer Mathilde Crosby and County Trustee Regina Newman. Both are highly skilled rock star professionals, with collectively, needed financial and legal backgrounds to facilitate PEF inquiry for the public good. 

Primary areas of questioning and discussion by Crosby and Newman concerned: 1) legal authority for the existence of the fund as properly authorized by local government, 2) the availability of contractual lease agreements to support the revenue requirements of the PEF and 3) how much has historically been contributed to the fund. All of these questions remain open with the Shelby County Commission, led by Chairman Eddie Jones, smartly deferring action on the $62M PEF request and referring the matter back to the January 6, 2021 Economic Development Committee. 

Based on public testimony, public information requests and 2019 DMC financials, this blog is concerned with helping to facilitate the discussion around historic contributions to the fund and corresponding downtown public parking assets.  

$25-40M Estimated PEF Deficit and Methodology

As stated earlier, the deficit for the PEF is estimated, based on this analysis, to be between $26-$38M. Further, in contradiction to public testimony, PILOT extensions have occurred robustly in the 2010s, with some extensions, preapproved to take effect after 2020. But what about the deficit and how was this estimated deficit derived ?

SOURCE OF FUNDS

Estimated PEF Total Scheduled Inflows from 60 Total Parcels – DMC’s Jennifer Oswalt testified before Commission, that there were at one point, 60 abated parcels contributing to the fund. DMC provided 41 parcels via public information request. Those 41 parcels were then cross referenced with the 2019 Trustee Report to derive, from the DMC provided extension dates, historic contribution amounts to the fund. 

Then, the County amounts were multiplied by 1.79 to derive a City/County total amount. And finally, to account for the missing 19 parcels, that had participated in the fund in the past, the total City/County amount for 2019 and 2020 was multiplied by 1.49. From the late 1990s, as of 2019, the total estimated amount of scheduled contributions is $66,993,189 and $75,796,810 for 2020.

USE OF FUNDS

Parking Garage Assets – Using the 2019 DMC financials, page 28 states $29.4M in buildings, with the DMC office building, per the Assessor website, having an appraised value of $2.8M. That results in a net of $26.6M, which in this analysis, is assigned to parking garage assets. 

PILOT Extension Trust Fund Cash – For the PILOT Trust Fund, page 18 of the 2019 DMC financials states $20M and per Oswalt public testimony $16M for 2020.

Interest Paid – Estimates interest paid over 20 years, using a 5% interest rate, on $26.6M in parking garage assets. 

Parking Garage Liabilities – Page 30 of 2019 DMC Financials, $15.9M in debt and accrued interest. From that, the 2020 estimate is $15M.

Net Parking Assets – Calculation of (Parking Garage Assets + Interest Paid +PEF Cash) – (Parking Garage Liabilities)

Unaccounted for Funds – Calculation of (Estimated Total Scheduled PEF Inflows) – (Net Parking Assets) arriving at -26M for 2019 and -$38M for 2020. 

Conclusion

As information emerges, there will probably be additional blogs on the PEF. Please send comments, feedback and concerns to me at jkent@pathtrek.net. 

Operating in the image of Boss Crump and elitist spooners Blackjack and Pitiful, the Shelby County Commission COCKBLOCKED the public out of attending and participating in Commission proceedings today. Through public comment in Commission proceedings,  I am currently trying to verify the corporate contribution, if any, of corporate parking fees for the corporate use of public parking garages, outside of public funds as contained in the DMC PILOT Extension Fund. There is some good news at the end of this blog, involving Trustee Regina Newman and Chief Mathilde Crosby. 

At any rate, in fairness and in my attempt to have the DMC prepared for my public questioning, on Friday night, I sent DMC’s Jennifer Oswalt my questions on the PILOT Extension Fund which involved a Monday Commission $62M consideration. Some of the questions were addressed in my recent blog.

On Saturday, I saw a County Commission press release disallowing public attendance at the County Commission proceedings posted on Commissioner Mick Wright’s page. Following that, I awaited its promotion in the local media. But that did not occur. Nor were there any notices disallowing the public on the County Commission Agenda. like the previous meeting notice that accommodated public attendance, The agenda states: “The meeting will be held at 160 N. Main Street, First Floor, in Chambers as well as online using GoToWebinar. ”

So, thinking Wright’s Facebook post may have been mistaken, given the lack of press publication and a published agenda that had accommodated public attendance for some time, I emailed Shelby County Commission Chief Administrator Quran Folsom for clarification on Sunday night. Folsom did not respond to my email.

Next, I called the Shelby County Commission at 11:23 AM on Monday in advance of the 3pm Commission meeting. I asked the polite Commission attendant if they were allowing public attendance at the Commission meeting and she said yes they are. I said, are you sure ? She said, let me check and came back and said yes, public attendance is allowed.  So down to the Commission meeting I went. 

At Commission

I entered the Shelby County Building and went through COVID protocol, where I received the above clearance bracelet. Then I went through security and headed to Chambers. Both health and security personnel, admitted me as a public participant as they always have and did not say anything about the public not being allowed. 

As I approached the Chamber doors, a Shelby County Deputy said, that the public was not allowed. I said, I called ahead and he said, that I was not allowed in Chambers due to COVID. So having been admitted into the building, I went and took a seat near the restrooms in the chamber lobby. Soon after, it seemed a SWAT Team of Deputies approached me saying that I was not allowed in the building after having been admitted.

So I left the building, where I ran into Katherine Burgess of the Commercial Appeal who inquired about my experience. Burgess, seemed somewhat baffled and was later allowed in County Commission, as a member of the press. We both exchanged notes and pleasantries, then went on about our business. 

Upon getting into my car, I wanted to make public comment, so I referred back to Commissioner Wright’s Facebook post, got the number  901-222-1234 and called it at 2:57pm  to log my public comment. The call went to a voice mail which was full. So my comment was not logged. 

Following that, upon returning home, I logged into the Commission meeting. The Commission had just finished introducing the new Budget Director and around 3:47pm, Commission Chairman Eddie Jones announced the public comment  procedure, which had an already past submission deadline of 3pm. The public comment procedures had 3 options, web, email and phone submission with the phone number of 901-222-1234 that I called at 2:57pm. So I called it again and the voice mail box was still full. 

The COVID Commission public comment procedure is a disservice and does not accommodate verbally reading public comments into the record or allowing the public to voice their concern from a remote location, at the time a measure is being considered. This procedure provides no assurance that the pubic is heard  and especially at the most critical time, when the measure is being considered. No doubt, its a Commission Cockblock, of the type, of an archaic and rigged elitist system, of Crump days gone by. 

After all, from experience, I know about the elitist Memphis cockblocks all to well. And they are cockblocks for all !

Good News

Trustee Regina Newman and Chief Financial Officer Mathilde Crosby exerted leadership testimony to get the Commission to refer the $62M PILOT extension fund (PEF) back to committee. It should never have been on the agenda without a PEF program description, audited DMC financials, business plan and supporting documentation. 

As the rigged local press covers social justice symbolism, we are going to have some time to dig into this to find out about the runaway corporate elitism and taxpayer injustice, that has been systemically occurring, on the back of a majority Black community in need. 

I already have proven, in Commission Chambers, a $5M EDGE overstatement of net property tax impact of the UofM supported Poplar Plaza PILOT. And then there is the needed testimony of MB Ventures, Innova and Epicenter with respect to state provided startup funding.

The elitists are idiots and that fact should be the resulting lesson for the public at large. Knowing this, is a path forward, while moving out of the Elitist Crump era stone age of the past…..

Does anyone find all of the historical social justice investigation of almost 100 years ago a bit much ? After all, such investigation occurs, as present day taxpayer injustice, on the back of a Memphis majority Black community in need, goes entirely uninvestigated by the local Memphis press.

At best, given trends and events, current social justice historical press investigation is an over resourced effort. At worst, its an active elitist conspiracy, to distract the public away from what is most important in addressing social justice, and that is taxpayer justice.   

There are numerous examples. But take for example the recent exhaustive investigation of almost 100 years ago, of the late Clifford Davis, only to provide a rationale for renaming the Federal building.  The over resourced effort was the work of the joke Daily Memphian / University of Memphis (UofM) Institute of Public Service Reporting’s “investigative” partnership.  

Meanwhile, the UofM Board of Trustees gets press for rolling out civil rights logos and renaming buildings for late social justice activists. Stunningly, the former comes on the heels of the UofM supporting the excessive $15M Poplar Plaza tax incentive, that used press unreported bogus EDGE financial justification, while losing taxpayers, in a majority Black community in need, $2M in existing taxes.  

And its no surprise, with no investigation of the elitist Memphis Tomorrow complex, that no one really knows what the Downtown Memphis Commission (DMC) PILOT Extension Fund really is, as a $62M consideration comes down the pike. To find out, this would only involve, merely, a 30 year historical investigation. But such investigation fails to occur. 

With that said and sparse available public documentation, this blog is going to take a shot at investigating the DMC PILOT Extension Fund (PEF) and figuring it out. 

PILOT Extension Fund Draft Explanation 

First, with little authoritative technical documentation, this is a draft of the DMC PILOT Extension Fund (PEF) process. The above was constructed based on helpful information obtained, via email, from the DMC. This process may be edited once more documentation is obtained from the DMC and/or local governmental bodies. 

Given the fact, that a $62M PEF funding measure is set to be voted on by the County Commission on Monday, this blog felt it imperative to get, at least a process draft published, in an attempt to have an informed consideration of the $62M measure. This because, like me,  it appears several Commissioners lack basic PEF understanding.  

Based on a preliminary review, the PEF was established approximately 30 years ago to fund downtown public parking and economic development. It appears corporations and developers stand to greatly benefit from this public parking subsidy.

40 PILOTs were extended in the late 1990s and FedEx joined just recently, to fund the PEF, while corporate PILOT beneficiaries enjoy, on average, extended term 85% real property tax abatements. Additionally, it appears the approximate 15% PILOT payment was used to create, yet another incentive, through a restricted TIF like fund for public parking development. 

Based on limited technical documentation, this is how the PEF process is suspected to work. The reduced PILOT payments accrue into a restricted fund. Then the following happens: DMC Center City Revenue Finance Corporation (CCRFC) requests legislative approval for fund use 2) Legislative consideration and approval 3) CCRFC uses funds to arrange loan financing for DMC Downtown Mobility Authority (DMA), 4) DMA constructs and manages parking garages, 5) PEF, Public and Taxpayers pay DMA for parking 6) DMA makes bond payments to CCRFC.  

Assuming this process is correct, these are questions for DMC regarding the Commission’s consideration of the $62M PEF measure:

Assuming a $47M loan based on a $15M current PEF balance (DMC Testimony), if borrowed today, total payments would be $80M over 40 years with a 3% interest rate. Using Trustee documentation and the 41 PILOT payments and term lengths, the PEF will generate an estimated $16M over the next 25 years. That represents a deficit of $64M. Perhaps those figures are not correct, so to the DMC:

• Based on the 41 PILOTS in the Extension Fund, how much funding are those PILOTs expected to generate for the PILOT extension fund until the PILOTs expire? 
• Is all of the future revenue from the PILOT Extension Fund dedicated to this $62M project or are there other liabilities ?
• The PILOT Extension Funds are public funds. Excluding any funding from the PILOT extension fund, how much are companies that are part of the PILOT extension fund, projected to pay in annual parking fees?
• What are the public’s annual projected revenues from public parking less DMC administration costs?
• What is the expected average loan term for borrowed funds to support parking garage development?
• How many public parking spaces does AutoZone currently have and what do they annually pay for them excluding PEF public funds?
• Will there be any further parking PILOTs granted as was done with Indigo Ag?
• Can I please get a copy of the document that was approved by the State Attorney General that facilitated the creation of the PILOT Extension Fund?

That’s all…..

Exciting news for the Whitehaven community! As the new Interim Executive Director of the Whitehaven Economic Redevelopment Corporation, Michael O. Harris is already out of the gate with a small business grant program. Harris identifies as a data driven fiscal conservative, who wants to maximize return on investment for the residents of Whitehaven by expanding opportunity through small, medium and large business expansion in the area.

Given Harris’ current work as Director of Corporate and Government relations with Junior Achievement, which encourages entrepreneurship through youth development, getting out of the gate with a focus on small business is a natural for Harris. But, with a vision to increase opportunity for the area, Harris knows that small business alone will not get the job done.

Beyond small business, Harris will leverage his platform with the Greater Memphis Chamber to recruit medium and large enterprises to Whitehaven. This will be done while networking with the Rotary Club of Whitehaven Memphis-South, where Harris serves as President, to build even a stronger community framework for economic and workforce development to serve Whitehaven area businesses and residents.

Harris is committed to bringing his Rotary roots of “service above self” into this role as a servant leader. His desire is to work “inclusively, and honestly with the residents, businesses, churches and agencies of the community for the overall revitalization efforts of the Whitehaven Community.” Displaying his collaborative spirit, Harris has already partnered with Pearl Walker, President of the I Love Whitehaven Neighborhood and Business Association.

It’s just the beginning, but Harris is out of the gate supporting small business with tangible results. Next, under Harris for Whitehaven, is continued support for small business while building a pipeline of medium and large business to locate and grow the Whitehaven community for years to come.

While Cognate BioServices is a high quality economic development project, is anyone going to ask if a $52M corporate tax incentive is too much? After all, one can pay too much for a good thing. $52M is just too much. 

Think about it. In 2007, without tax incentives, of all the places in the United States, Cognate Bioservices smartly chose Memphis for manufacturing. In addition to manufacturing, Cognate also lists Memphis as it’s “US logistics hub“. A unique geographical location is the reason many companies select Memphis as its logistics hub. But why Memphis for manufacturing as well?

Cognate Bioservices manufactures biological and medicinal products regulated by the United States Food and Drug Administration (FDA). This FDA document testifies to the need for high quality water in the manufacturing of biological and medicinal products. While I am far removed from being a science expert, I suspect that Cognate’s decision to locate a biological manufacturing facility in Memphis was based on the plentiful availability of high quality ground water. 

IF the former is true, Memphis geography for Cognate’s distribution and high quality ground water for manufacturing is hard, if not an impossible value combination to beat. At the same time, its up to economic developers to extract that information from a project, in concert with a target industry strategy, to arrive at an appropriate tax incentive price for an economic development project.

Sadly, in Memphis, this economic development work does not seem to happen, with 75% tax abatements for all, while at times abating existing property taxes. This behavior has unfortunately created a market condition for excessive tax incentives, while undermining the tax base for a Memphis community in need. 

Market Condition and Analysis

First, given local market conditions and what other far less desirable projects than Cognate have received, Cognate is more than deserving of a $52M tax incentive. But is the incentive too much when benchmarked against research? Yes it is. 

In Cognate’s payment in lieu of taxes (PILOT) application, Cognate cited Baltimore and Dallas as alternative sites for their expansion project. If Cognate moved to Baltimore or Dallas, the cost alone would be huge, while additionally potentially sacrificing a high quality water resource with a natural filtration system in the Memphis sand aquifer. And moving to Baltimore would mean sacrificing a central geographic location when moving from Memphis. 

If my suspicion is true about Cognate’s need for a high quality water source, I don’t think Cognate is going anywhere with or without an incentive. After all, they located and expanded in Memphis without any incentive whatsoever.

Again, it is the work of economic developers to mine this information in determining the price to be paid for economic development. But that work is not being done in Memphis, because economic developers are, in effect, financially fee incented to represent corporations instead of the taxpayer ! So what is the right price?

Incentive Sizing

Using an amplified version of Dr. Timothy Bartik’s incentive research, in favor of higher tax incentives for Memphis, and assuming that a high quality water source is not a variable in the project location, the maximum incentive that should be offered for this project is $39M. This makes the $52M incentive, $13M too much. 

The $13M in excessive incentives, includes approximately $7M in already existing property tax abatements, that would appear to serve the interest of three landlords in Thompson Logistics, A.L. Dougherty and Exeter. History shows EDGE Board loves Exeter. 

Unfortunately, excessive local tax incentives are proven to be an obstruction to competitive economic development outcomes, while undermining the tax base and public framework that supports local corporations and improving the quality of life. That is why corporations themselves should be against excessive incentives. 

Cognate Ask

If Cognate voluntarily reduced their tax incentive, they would be a beacon of corporate community leadership in Memphis, while serving Cognate’s private interests. At the same time, given current market conditions and such an attractive project for the area, Cognate is deserving of the requested $52M incentive, which would arguably fall short in optimizing Cognate shareholder value. 

Therefore, in order to serve the overall interest of Cognate, this blog requests Mr. J. Kelly Ganjei, CEO of Cognate, to please consider 1) reducing their requested incentive from 75% to 60% abatement thereby reducing their projected incentive by $13M or 2) removing the $15-17M in existing real property value from the incentive, while preserving the 75% tax abatement on new capital investment, which would reduce the projected incentive by approximately $7M.

If this was done, Cognate would be a heroes of corporate community leadership, while serving their private corporate interest. Its a win-win !

Who knows what Ted Townsend thinks. But I bet, based on hindsight, Blackjack himself would now want $25M to have been spent on wrap around services to improve post-secondary completion rates. No reason to ask, the public University of Memphis, because the Greater Memphis Chamber now speaks for the University of Memphis on economic development matters. 

Here is what is known now. Based on an analysis of TnInvestco and LaunchTN data of Memphis startup companies, with local active State of TN certificates of existence, 74 jobs are associated with those Memphis startups that have leveraged State of TN funding. Those 74 jobs have materialized over ramp up period of 10 years. If one assumes that 50% of those jobs would have happened anyway, without State funding and a 50% reduction to arrive at marginal average filled jobs for the 10 yr ramp up term, that equates to 18.5 jobs over the 10 year term. 

The above comes after $24M, in State funding, has been invested in startups statewide by Memphis based Innova and MB Ventures funds, supplemented with $1.5M, specifically for Memphis startups provided by LaunchTN. That’s $25M in eligible state funding for Memphis, which based on the above assumptions, has resulted in a marginal average of 19 jobs in Shelby County over 10 years. 

Further, since from previous blogs it has been shown that the distribution benefit from startups to taxpayers has been meager, that leaves the primary public benefit being jobs provided by startups. From this program, the longshot hope for taxpayers is a startup will result in an explosion in local jobs through the creation of, for example, the next AutoZone. Nothing even remotely close to this has materialized which will be shown in the next section. 

So that leaves us with, “what if” hindsight analysis. What if $2.5M per year had been invested in wrap around services at $1,000 per year for at-risk post-secondary students, what would the result have been ? 2,500 students could be served per year with $2.5M, while increasing local public post-secondary enrollment. Assuming 3 year postsecondary completion and a 20% marginal success rate, that would equate to 4,000 more filled jobs by the end of year 10 and a marginal average of 2,000 more filled jobs across the 10 yr term as compared to 19 local jobs from startups.  

So even though annual enrollment would have jumped for all post-secondary institutions, to include the UofM, still not sure what Ted Townsend would say, while speaking for the Chamber and UofM. But what would have been best for taxpayers, is pretty clear. And that is investing in workforce. 

But what about the state funding for the local startup community? How did that fare for individual companies?

StartUp Status

The managers of the local startup funds, that have been supplemented by State TNinvestco and LaunchTN programs are Ken Woody of Innova and Gary Stevenson of MB Ventures. David Waddell is Board Chair of the Epicenter, that partners with LaunchTN to develop the local entrepreneurial ecosystem while interacting with funds like Innova and MB Ventures. 

First, most startups fail. So going over all of the failed ventures would not be productive, only to say, on the front end, that most of them have in fact failed. At the same time, looking for successes in the data, as expressed in local jobs and peculiarities is worthwhile. So here are some facts about local startup investments, involving TNInvestco, MB Ventures and LaunchTN:

Crossroads, an MB Venture funding startup shows the most local Memphis jobs, with 39. That comes after a $200,000 state investment and $33M private investment allocated by MB Investment. 

IScreen Vision has 11 Memphis jobs, after a $1.7M State and a $9.7M private investment allocated by Innova.

Cagenix, the recipient of a $1.3M state and $2.1M private investment allocated by Innova, reports 12 local jobs

Hapten Science, as allocated by MB Venture, has the largest local State investment at $2.1M accompanied with a $7.3M MB private investment. Gary Prosterman serves as Board Chair. Raymod Hage is the CEO but his LinkedIn profile shows he lives in Malvern, PA. Hapten reports 2 local jobs. 

Veracity Medical Solutions, which received a $1.4M State and a $400K private investment, as allocated by MB Venture investment, reports 19 local jobs but their website shows an Indianapolis address. 

A range of state funded startups like Hera Health, Diatech Diabetes, Second Keys and others list 88 Union as their business address, but none of the companies are listed in the directory at the physical location. Notable occupants of 88 Union include KBG Technologies and Crone Law Firm. 

Shown as a Memphis investment, Better Walk, as allocated by Innova and MB received 150K State and $3M in total private investment, has an Atlanta address and reports 5 local jobs.

Nanophthalmics, as allocated by Innova and MB, received $150K in State funds and is shown to be a Memphis investment. But the Secretary of State shows a Nashville address. 

Cast21, as allocated by MB, received $25K in State funds and $2.1M in private funds, has a Chicago address, per their website. 

Interestingly, two Memphis music startups in Musistic and Soundstache were supported not by Memphis but Nashville investors in the Solidus investment group with a total of $30K in state and $950K in private funds. 

There have been some exits from investments with the acquiring company, at times, being far outside Shelby County and at other times being local. Those company departures would appear to severely diminish local filled jobs, a promised benefit of taxpayer funding of startups

Please advise me if there are any questions of , suggestions for, corrections or clarifications needed for the above data points.

Closing Question

This startup programming looks similar to MWBE with only a small few benefitting. 

So, again Ted Townsend, speaking for the UofM and Chamber, which would you have preferred $25M in state funds to go to startups around the state or $25M to increase post-secondary completion rates?

References

TnInvestco Report – 2019

LaunchTN Report – 2020

LaunchTN Incite Investments

LaunchTN Impact Investments

The Tennessee Department of Economic and Community Development (TNECD) is accelerating economic inequality, in their small business programming, for a measly 4.1% annual return for Tennessee taxpayers. More of the return analysis later. 

TNECD program design, using taxpayer dollars, has incented venture capitalists to chase market momentum, where it already exists, in Nashville ! Folks like polo player Orrin Ingram and Denny Bottorff of Ingram Industries benefit from public funds, in Nashville, where it is least needed. Bottorff’s, Nashville NuScriptrx, took down $7.3M in public funding across 5 different funds, from both the TnInvestco and LaunchTN programs. Ingram’s YouScience project took down $1.4M from LaunchTN. 

Again, from the previous blog and per Bureau of Labor and Statistics, Nashville’s Davidson County has 37 business establishments per 1K population, compared to Memphis/Shelby at 23. The need for small business funding is in Memphis, not Nashville. Further, venture capital funds are often used to gamble on the next large company and not Mom and Pop’s, which is what Memphis needs more of to power its local economy. Memphis lacks sufficient small business establishments, especially in the Black community, to competitively power the local economy. 

Nashville and Memphis

In theory, TNECD programming, through TNInvestco and LaunchTN, supports capital formation for emerging small business entrepreneurs. But as one can see, public dollars are going to support established businessmen like Ingram and Bottorrf. Total State facilitated investments, from TNInvestco and LaunchTN programs, total $115M for Nashville and $24M for Memphis, while follow on private capital totals $768M for Nashville and $134M for Memphis. 

And to make matters worse, Memphis based INNOVA, of the TNInvestco program, redistributed $5.1M in state funding for investments outside of Memphis, while keeping $7.8M in Memphis. As far as INNOVA private capital, $42M was invested outside of Memphis, while $29M was invested in Memphis startups. Of the above, INNOVA invested $1.1M in state funds and $28.7M in private funds in Bottorrf’s NuScripts. See below table sourced from TnInvestco.

Unfortunately, Shelby County Government and Epicenter are both partnered with INNOVA. In a recent Daily Memphian article by Sam Stockard, Jan Bouten, INNOVA fund manager, was unavailable for comment. All that to say, on top of the elitist corporate socialist policy in Memphis, that favors large local corporations, it’s easy to see, from the above table, why Memphis struggles.

State ROI Analysis

Using public documentation, the above informal quantitative analysis was conducted, to facilitate initial policy discussions for greatly improving small business economic development programming. The above analysis is likely to change once TNECD answers questions posed by this blog. So far, TNECD has been unresponsive. 

To that extent, this blog welcomes suggested corrections to this analysis and feedback. Given the former disclaimer, a measly 4.1% Tennessee taxpayer annual return, over 10 years, was generated from TnInvestco and LaunchTN, seemingly to accelerate inequality, all while making risky startup investments and subsidizing select venture capitalists.

By comparison, the Tennessee Consolidated Retirement System generated a 9.4% annualized return in more conservative investments. And, not surprisingly, no one seems to know what private investors made on their investments. 

While building an ecosystem for entrepreneurship, TNInvestco and LaunchTN were sold to taxpayers based on increased tax revenue from more small business jobs and returns generated by investing in startups. Those benefits are included in the above analysis. 

To that extent, since several startup companies are participating in both TnInvestco and LaunchTN, both programs need to be evaluated together.  Given this, a total of 3,206 jobs was the outcome of the collective analysis, which took the highest number of jobs reported, per company, from both programs.

It was also assumed that investments, jobs and distributions, increased equally and linearly over the 10 yr. term. As far as economic multipliers, it is assumed that 50% of the investments would have occurred anyway without state funds, which in effect, imposes a 2.0 economic multiplier in the analysis. 

The analysis used conservative assumptions, based on public documentation, in favor of TNInvestco and LaunchTN. Based on this, it is more likely the 4.1% ROI will decrease than increase with informed feedback or additional information. The analysis included, for example, 356 jobs from the 40 year established, Nashville operating Gray Line Tours company. 

So please send me questions, feedback and suggested corrections to improve the analysis for the benefit of policy improvement, Tennessee taxpayers and small business. My email is jkent@pathtrek.net

References

TnInvestco Report – 2019

LaunchTN Report – 2020

LaunchTN Incite Investments

LaunchTN Impact Investments

BLS QCEW 

LaunchTN, a statewide small business program, appears to be a Nashville gang bang of the Shelby County taxpayer. Does anyone think small business in CEO and polo player Orrin Ingram? Ingram is CEO of the multibillion dollar Ingram Industries, SCORE Board member and polo player in his spare time. 

Seems Ingram Industries, their peers, and Nashville in general are getting the best of the LaunchTN small business program. LaunchTN is marketed as a statewide small business funding consortium  for entrepreneurs. But there is nothing in LaunchTN data to support that the public small business program is targeted toward areas of the most need. 

For example, Ingram’s venture capital project, YouScience, received $1.4M from LaunchTN. YouScience is a web-based programming platform, to help individuals select their career pathway. This is nothing against the product. YouScience, while not perfect, turns out to be a well designed suite of assessment tools, based on personal experimentation.

But this is about the LaunchTN program, where there is more for Ingram cronies. Another Ingram peer, in Denny Bottorff, of ND Acquisitions Corporation, doing business as “NuScriptRx”, took down $1.9M in LaunchTN investments. Bottorff is on Ingram’s Board of Directors.

The numerical data in this blog was provided by Ms. Van Tucker, CEO of LaunchTN. Tucker, who is relatively new to LaunchTN, was accommodative in providing data and hasn’t had time to influence the direction of LaunchTN. Hopefully Tucker will influence LaunchTN to direct its efforts more toward areas of greater need like Memphis.

The LaunchTN Board, Chaired by the Commissioner of Tennessee Economic Development, Bob Rolfe, ultimately approves LaunchTN small business investments. And their historical work translates into a Nashville gang bang of the Shelby County taxpayer. Besides, Nashville doesn’t need the help.

Nashville is growing like gangbusters and has 37 business establishments per 1K population compared to 23 for Memphis. Memphis needs approximately 4,000 more small business establishments to power the local economy, to be competitive with those municipalities, with far less establishments per 1K than Nashville, like Knoxville with 29. The former, per 1k data analysis, is informed by the Bureau of Labor and Statistics. 

Since 2012, here is a summary of LaunchTN Board approved investments for Nashville and Memphis MSAs. The “COMPANIES” column is the number of companies that have received LaunchTN investments and just happens to also coincide with the number of business establishments per 1k in Nashville. See data:

Interestingly, from the raw data referenced at the end of this blog, 12 of the 37 Nashville companies have no corresponding private investment while being accompanied with $11.2M in public LaunchTN investments. Ingram’s Bottorff’s NuScriptRx is one of those companies, while also reporting no retained or newly created jobs. What can you say. Its a Nashville Gang Bang…..

At the same time, with the exception of Second Keys, which just received $150K from LaunchTN, Memphis six other companies have accompanying private investments to go along with their LaunchTN investments. 

At any rate, a whole host of folks need to be concerned with the lack of funding coming into Memphis for small business from LaunchTN. Folks like Mark Yates and Roby Williams of the Memphis Black Business Association or even the Society of Entrepreneurs need to be concerned. All of this makes one wonder, what the hell is up with Epicenter ? After all., Epicenter is the designate local network partner of LaunchTN. 

Knock, Knock, Anyone at Home Epicenter ?

Based on my analysis of Memphis data, corresponding public policy and lack of economic development course correction, the decline of the local Memphis ecosystem, seems to be an intentional, elitist and corporate socialist design for decline and sell of the Shelby County taxpayer. I can’t find any data to refute that conclusion.  

To further confirm this, its just damn strange to see Epicenter Board Chairman and Memphis Chamber Board officer, David Waddell, writing a glowing editorial in the Tennessean on the Nashville Economy. One would assume Waddell serves on the Nashville Chamber, not the Memphis Chamber. C’mon Man !

And further, Richard Smith served on the LaunchTN Board for 4 years up until last year and Calvin Anderson and Waddell currently serve on the LaunchTN Board. Are you serious ? Only $1.5M from LaunchTN?

Waddell and Anderson should tell Rolfe and LaunchTN not to give the Ingram crew another cent, ever. Because they don’t need it ! And also tell, LaunchTN not to give the Nashville MSA another cent until Memphis gets $30M, based on a higher level of need. 

In the meantime, I hope to see the Memphis Black Business Association come alive as well as the Society of Entrepreneurs in public forums….. 

REFERENCES

LaunchTN Incite Investments

LaunchTN Impact Investments

BLS QCEW