This blog was encouraged by Mayor Strickland’s weekly letter, Memphis Business Journal editorial and Behind the Headlines on Friday March 1, 2019. These entities did address some facts related to payment-in-lieu of taxes (PILOTs) and tax incentive awards, but they did not address ALL the facts to inform a balanced conversation about tax incentives.
Incentive discussions occur with the backdrop of the Electrolux loss, which on balance, can be chalked up as a a single event occurrence and bad front end deal. The much more important discussion should involve incentive reform that confronts, arguably, an out of control incentive system consisting of 9 abating boards which in many cases don’t represent the taxpayer in the work of economic development. Its often said that incentives are Memphis/Shelby’s only economic tool and incentives create jobs. Incentives are not the community’s only economic development tool and incentives alone do not create jobs.
Unfortunately, complete facts pertaining to incentives awards are not discussed on the record by local legislators because they only invite presenters from the pro tax abatement establishment (EDGE, DMC, Chamber and etc) to present in legislative hearings, leaving taxpayers without a recognized voice. These facts in this blog have been entered into the public record in legislative hearings through public comment but are dismissed by legislators without any legislative inquiry. Therefore, a robust and complete on the record discussion and debate on tax incentives never takes place, as legislators, as a matter of process, fail to engage all the facts pertaining to incentives while not engaging the content of public comment with legislative inquiry.
The local press further covers these tax abating organizations while not addressing all the facts related to incentives. All the facts are important in making economic development policy decisions. As this blog has continually stated, there is not a groundswell movement for ending ALL incentives.
At the same time, the following facts support balanced and pro-business tax incentive reform that discontinues retention and residential PILOTs and Tax Increment Financing (TIFs) for non blighted areas. And continues expansion PILOTs for new industry recruitment and large local expansions while continuing TIFs in truly blighted areas. Please see below:
FACTS
FACT: Regardless what anyone may tell you, payment-in-lieu of taxes (PILOTs) have the same value as cash payments
FACT: There are good PILOTs that result in net community investments, like JNJ, Indigo Ag, Agilent Technologies and Mimeo
FACT: There are bad excessive PILOTs that result in net community disinvestment while eroding the societal foundation on which commerce thrives resulting in lost economic development opportunity which is bad for the business community. Examples include: Valero, Nike and Mark Anthony
FACT: Different and individual projection accounting methodologies are required each for new job expansion and existing job retention PILOTs. An expansion job PILOT abates taxes against projected tax revenue from new jobs. A retention PILOT abates taxes against existing jobs based on potential company operations departure.
FACT: EDGE uses the same accounting methodology for expansion and retention PILOTs which is problematic.
FACT: The accounting methodology used by EDGE for retention PILOTs is incomplete.
FACT: Based on reviews of two entities in Beacon Center of Tennessee and MCCL Measured, using their respective complete accounting methodologies, it is estimated that EDGE revenue overstatements range from $759M to $917M for retention PILOTs.
FACT: When EDGE overstatements are adopted using the complete accounting methodologies above, estimated taxpayer losses range from $95M to $253M and not a $664M gain as claimed by EDGE for retention PILOTs
FACT: Small business vitality in Memphis plummeted after the introduction of retention PILOTs that serve primarily corporate/real estate interests. Plummeting small business vitality can be shown to result in 14K fewer jobs, $700K in total wage shortfalls and $20M in Memphis/Shelby tax revenue shortfalls since retention PILOTs began.
FACT: Baseless and ungrounded assumptions are used in tax abatement applications such as the 7,000 job creation claim found in the Poplar Corridor TIF (page 3)
FACT: Tax abatement boards don’t follow their own rules in awarding tax incentives. Examples include EDGE – Electrolux, EDGE – Mark Anthony and Downtown Memphis Commission (DMC) – FedEx
FACT: Shelby County is the only county in the State of Tennessee that awards residential PILOTs
FACT: In the implementation of the Broad and Thrive residential PILOTs, developers were afforded $19M more in abatements than they would have received in any other county in Tennessee and developers walked away with nearly twice as much as the Memphis/Shelby net taxpayer benefit
FACT: Incentive awards for the same project are now being awarded by multiple abating boards in EDGE and DMC. This will likely make incentive award evaluation more complicated for the general public
FACT: The Economic Institute published a study that in effect concluded that only direct revenue from lower wage warehousing projects should be considered for tax revenue projections and multipliers should not be used in projecting tax revenue. Multipliers increase projected tax revenue that results from PILOTs for economic activity beyond direct employment of the project. If only direct employment were considered for the Amazon PILOT projected revenue would drop from $37M to $19M
FACT: The Shelby County Commission has yet to schedule a review of all abating boards as stated in their resolution past in December 2018. See resolution (pdf page 5).
If you need references for any of the above facts, please email jkent@pathtrek.net
POLICY SOLUTIONS
New professionally balanced EDGE Board that represents all facets of the economic development equation
End retention PILOTs and abating taxes against the existing tax base. Retention PILOTs create a moral hazard while making true economic development efforts lazy.
End residential PILOTs as Shelby County is the only County that allows them in the State of Tennessee
End unneeded TIFs like the Poplar Corridor TIF in affluent unblighted areas. Use TIFs for only truly blight areas which does not include blight as defined by census tracts.
End the use of economic multipliers in projecting revenue for warehousing jobs
Continue responsible incentives for new industry recruitment and large local expansions. (The Mark Anthony expansion PILOT is an example of a stupid PILOT award that was nothing more than a real estate deal presented as “economic development” that lost taxpayers $500K as EDGE pocketed $50K in fees)
Legislative training for incentive evaluation
Shelby County Commission should schedule the evaluation of all 9 abating boards
A benefit / cost ratio in excess of 1.0 should be established to more accurately recognize the value of needed and competing public investments to inform PILOT awards
Recognized and scheduled presented taxpayer advocacy in legislative hearings regarding incentives as opposed to just 1 presented side and that of the Chamber/EDGE/DMC economic development complex
Fee reform to insure the taxpayer is being represented in economic development transactions as opposed to representing corporate/real estate interests