New Facility Capital Investment (2)

SERVICEMASTER and WRIGHT MEDICAL / 40% RETENTION PROBABILITY / CATEGORY GRADE – B (85)

The below companies pursued thoughtful for profit motives by constructing new facilities with their capital investment avoiding the hefty cost  of employee and distant relocation. These thoughtful for profit motives would still have been served without the benefit of a tax abatement for existing jobs and with a tax abatement offered outside of Shelby County equal to the locally offered EDGE retention abatement. Because the capital investment involves the construction risk of an entire new facility, there is a higher degree of disruption which may result in a company more aggressively considering geographic relocation in concert with new facility construction more than for example renovation and relocation into an existing known local facility. For this reason, a lower retention probability of 40% is applied to the below quantitative analysis without the benefit of a tax abatement for existing job (retention) but assumes an expansion PILOT abatement for new jobs. When responsible accounting is applied to economic modeling for a retention PILOT, complete and responsible tax revenue accounting starts with EDGE Reported Revenue (ER) less a probability of retention times reported revenue (RP) less remaining workforce upon company departure as a percentage of retention probability (RP) less forgone tax revenue impact for local investment in jobs and resources that directly serve the local community (LI). In the below EDGE Company Retention Profiles, the previously mentioned accounting equation is applied to arrive at an estimated Memphis/Shelby County tax revenue figure for a given company PILOT. The assigned grades are evaluating the Retention PILOT; not the company. See below EDGE Company Retention PILOT profiles for this capital investment category:

Company Retention / Expansion PILOT Profiles: 

ServiceMaster – Grade A: The ServiceMaster retention PILOT supported the construction of a new facility in Shelby County avoiding the hefty cost of employee and distant relocation. The EDGE Board reported $76.5M in tax revenue generated. When modeling in complete accounting, estimated taxpayer revenue is significantly less. Modeling in EDGE reported revenue using complete accounting, the following taxpayer estimated revenue generated can be derived for ServiceMaster: (ER $76.5M) – (RP $30.5M) – (RW $22.5M) – (LI $1.5M) = $22M revenue gain less $850k retention tax abatement results in a $21M gain or $1.4M per year Memphis/Shelby County taxpayer gain. Estimated EDGE Overstated Revenue Generated: $54.5M

Raw Data Source (absent above calculations): http://database.growth-engine.org/pilots/ServiceMaster+Global+Holdings%2C+Inc.

Wright Medical – Grade C: The Wright Medical retention PILOT supported the construction of a new facility in Shelby County avoiding the hefty cost of employee and distant relocation. The EDGE Board reported $19M in tax revenue generated. When modeling in complete accounting, estimated taxpayer revenue is significantly less. Modeling in EDGE reported revenue using complete accounting, the following taxpayer estimated revenue generated can be derived for Wright: (ER $19M) – (RP $7.5M) – (RW $5M) – (LI $4.5M) = $2M revenue gain less $3.5M retention tax abatement results in a $1.5M loss or $100k per year Memphis/Shelby County taxpayer loss. Estimated EDGE Overstated Revenue Generated: $17M

Raw Data Source (absent above calculations): http://database.growth-engine.org/pilots/Wright+Medical+