Elected officials need to have a greater quantitative and fundamental understanding of complex tax incentives to govern economic development work. This comes after the consideration of the County Ad Hoc Economic Development Growth Engine (EDGE) committee recommendations were deferred in Shelby County Commission Economic Development committee. The ad hoc committee is represented with a majority of private sector representatives along with publicly elected Shelby County Commissioners. The deferral was based on concerns raised by Commissioner Eddie Jones who did not serve on the ad hoc committee.
Jones concerns have to do with payment-in-lieu of taxes (PILOT) renewals for existing corporate operations. Mathematically, PILOT renewals have the same tax revenue impact as abating taxes for any existing company. This type of PILOT is known as a retention PILOT used for the purpose of retaining company operations in Shelby County while also locking in long term leases for commercial real estate interests.
This concern and deferral should not take away from the positive work of the ad hoc committee as led by Commissioner Willie Brooks and heralded by Commissioner Mark Billingsley. But rather, the deferral should serve as an opportunity for publicly elected officials to check and improve upon the work of the majority private sector represented ad hoc committee.
As they are paid to do, private sector representatives often view community and economic development through the lens of their private enterprises. Given this view, private sector recommendations need added balance and proper checking by informed elected officials to best serve customer taxpayers and the ENTIRE business community.
Better Understanding Needed
Confusion arose in the County Commission Economic Development committee on Wednesday over the approval process of payment-in-lieu of taxes (PILOT) tax abatements. Unlike tax increment financing (TIF), EDGE PILOTs and for that matter other economic development agency PILOTs do not require local legislative approval. Local economic development agencies have tax abating authority for PILOTs without local legislative approval.
Further, there are a range of different PILOT types that require different analysis. It’s not clear from local proceedings that legislators are effectively evaluating the complexities and impact of PILOTs on local tax revenue. And without training, legislators may never develop the needed evaluative ability.
For example, accounting for PILOTs for existing companies against existing taxes/jobs (retention PILOTs) requires a different quantitative analysis than does a new corporate recruitment/new job PILOT. Without a fundamental understanding of these nuances, elected officials cannot make informed decisions about taxpayer funded economic development policy.
Adding to the confusion, Memphis Tomorrow and The EDGE Board have not helped the matter with the EDGE Scorecard which fails to properly account for excessive retention PILOT incentives. Incentives, that when properly accounted for, are taxpayer losses and not gains as claimed on the EDGE Scorecard. Proper accounting for retention PILOTs can be seen in this video while the case is also made for a new EDGE Board.
While leveraging the good work of the County EDGE Ad Hoc committee and listening to the people, local legislators should seize this opportunity to learn about, speak to and develop a command of economic development policy and incentives. The last County Commission often complained about the Mayors having too much control of the economic development process. Given these Administrative concerns, legislators should give voice to economic development policy while developing a deeper understanding of tax incentives as they prepare to evaluate 9 other abating agencies per ad hoc recommendations.
A variety of final recommendation improvement opportunities exist which can be addressed through legislative amendment. Some of these opportunities are as follows: 1) new EDGE Board, 2) establish community investment benefit/cost ratio to serve as a hurdle ratio to future PILOT awards 3) formally define “economic development” to facilitate effective measurement 4) dump the EDGE Scorecard in favor of more accurate tax revenue projection measurement 5) end retention PILOTs for existing company operations 6) End residential PILOTs or at least allow the taxpayer to breakeven through the establishment of a community investment benefit/cost ratio 7) establish time frames for ordered reviews in the recommendations 8) seek legal opinion on the most expeditious path to curtail economic development agency abatement authority in the event of an emergency to clearly define legislative power over abatements and most importantly 9) after a 4 year hiatus, get started immediately with connected workforce development.
Since economic development impacts everything, legislators should take full advantage to develop an increased acumen for balanced economic development policy. Getting there, will perhaps involve training or even asking, what legislators may mistakenly think are “stupid” questions. Such legislative learning will support more informed oversight while better serving customer taxpayers and economic development outcomes.