The EDGE Board meeting today revealed the primary drivers of sizing local tax incentive awards. Additionally, a questionable EDGE Board transaction arose in public comment, and discussion was shut down, out of order, by non EDGE Board member and EDGE staff member, Reid Dulberger.
It is the view of this blog, that the overall size of the tax incentive packages were driven today by EDGE itself and highly sought after site selector, Mike Mullis and not the applicant company themselves. This conclusion comes after watching impressive presentations by applicant companies.
Matt Mulroy of Patterson warehouses presented first and articulated the company’s commitment to Memphis and how previous investments had worked out well for the community. Mulroy seemed committed to continuing the track record of success that Patterson had experienced in Memphis while seeking financial assistance for a meaningful $30M capital investment.
In approaching Mulroy after the meeting, I complemented him on his meaningful capital investment to Memphis and did not sense at all that he was fixed on a $3.7M abatement. In fact, if a lower market rate for abatements had been set, its my belief that the committed Memphis business in Patterson would have been content with a lower more responsible right size abatement – such as the $2.6M this blog proposed based on benchmarking analysis – which would give Patterson financial recognition as they developed the undeveloped land that has already been acquired by company owners.
Mulroy struck me as a responsible corporate citizen wanting to be treated fairly while I am certain wanting the best for the community. But Mulroy/Patterson is not setting the market abatement rate. That is being driven by an EDGE Board incented to maximize incentive awards persistently thru 75% abatements. Of course, as a good businessman, Mulroy is not going to walk away from the market rate but this project would likely have closed with a more responsible abatement sized at 50% of new capital investments and 1% of total new wages for the abatement term ($2.6M).
After the U of M residential PILOT presentation, FR8 Zone, an exciting startup blockchain logistics company presented. The FR8 presenter seemed most concerned with the availability of a technical computer programming talent pipeline to grow the startup and a low cost business operation environment in the Central United States. And then there was site selector Mullis, who demanded the abatement package of $2M which included the abatement of $1.1M in existing taxes for 32 jobs that paid an average of $33k.
Site selectors are often commissioned on the size of tax incentive packages which incents them to seek large abatements. Mullis, further made it clear at the meeting, this was a small deal for him which would point to an additional need to further maximize the abatement. This happens to correspond with EDGE’s unfortunate incentive structure which results in a toxic combination for taxpayers.
At the same time, FR8 can be comforted to know that the U of M, that I am at odds with but who also gave me a great education, will deliver the technical talent pipeline that FR8 needs within a low cost business operations environment and in the heart of distribution country.
And thanks to EDGE and Mullis, it looks like Memphis/Shelby taxpayers invested in a startup without getting any stock. The right size abatement recommended by this blog for FR8 was $750K down from $2M.
All of this to say, in the cases today, its not companies that were driving the size of incentives but an abatement industry incented to represent corporate/real estate interests as Memphis/Shelby tax revenues are depleted away from true economic development work in public safety, transit and workforce development.
Questionable Transaction
On another matter, the EDGE Board was questioned about a transaction where the Greater Memphis Alliance for Competitive Workforce (GMACW) was granted $843K from the EDGE Depot Board. Problem is a vote to appropriate the grant does not appear in Depot Board minutes and GMACW has not held a public board meeting to accept the grant funds. What was the approval process for the grant award?
In questioning in public comment on the transaction, Reid Dulberger, who is not a board member, out of order, interrupted proceedings to shut down any discussion on the matter. The Depot Board was set up to manage and dispose of the old Army depot property. It seems the money should have come back to local government or resided in an EDGE fund and not allocated for workforce without a Board vote or local government re-appropriation.
Oh, and they gutted the public record minutes of previous meeting public comments but that’s standard operating procedure for EDGE.
Conclusion
It was an active day with the EDGE where I always enthusiastically greet the EDGE Board. We are always glad to see each other and I got to interact with two applicant companies which I enjoyed. Can’t wait for the next EDGE Board meeting !!!