The Economic Development Growth Engine (EDGE) has just been nationally recognized by the Council of Development Financial Agencies (CFDA) for financial engineering in innovative tool development but not economic development. One of EDGE’s innovative tools includes the infamous EDGE Scorecard that claims a 150% taxpayer return on investment (ROI) generated from abating taxes. These tools are both innovative and bold to say the least.
It’s a deserved recognition from a peer like CFDA organization that mirrors, in many ways, EDGE, consisting of bankers, attorneys and financial engineers. After all, EDGE has a plethora of financial tools and programs, that for the most part, rig the system for the few in corporate/real estate interests. This is not to say that all EDGE programs are for the primary benefit of corporate / real estate interests. Examples include the Community Builder PILOT and the Inner City Economic Development Loan program. But relatively speaking, these financial tools serve small programs.
But financial tool development does not always result in the public benefit or economic development. Some will remember the financial tools that helped precipitate the Great Recession in collateralized debt obligations, credit default swaps and compromised ratings standards . Such tools are highly complex while often lacking credibility after thorough investigation and/or effectiveness in serving the public good. This was the case with the above-mentioned financial tools in the Great Recession and the same can be said for many of the current day EDGE financial tools.
In commenting on the award, EDGE Board Member, Jackson W. Moore said, “This award reflects the foresight of our community’s governing bodies in creating EDGE and letting EDGE do what it does so well – providing opportunities for all people in Memphis and Shelby County to access economic prosperity.”
Moore’s assessment is disconnected from reality based on local EDGE legislative oversight testimony, external data and press reports. Under EDGE, Memphis/Shelby County has experienced below peer average total wage growth, plummeting small business vitality, neglected workforce development efforts and site availability challenges while subjecting prospective client employers to an expensive and complex application process. External corporations have even found it challenging to navigate the EDGE process and access prosperity in Shelby County. While benefiting the entitled few, it appears the focus on financial engineering has distracted from the work of economic development which should be about improving the social well-being of people. See video.
Rooted in the arrogance of its unaccountable birthing Memphis Tomorrow CEO organization, like them, EDGE has engaged in programming that benefits largely the entitled few in corporate / real estate interests at the expense of taxpayers. One of the innovative EDGE tools used to do this includes their retention payment-in-lieu of taxes (PILOT) program. In a stunning act of financial recklessness, the program abates existing taxes and then recognizes existing tax revenue as new tax revenue on the EDGE Scorecard. See video.
Another financial innovation is the residential PILOT program which required state legislative approval for implementation with Shelby County as the ONLY county in the State of Tennessee offering residential PILOTs. But even if one believes there is a special need for residential PILOTs in Shelby County, the entitled excess in the local EDGE implementation should leave any taxpayer aghast.
At the June 20th EDGE meeting, two developers walked away with approximately twice as much as the taxpayer benefit with abatements totaling $19M in Memphis/Shelby County taxes. Shocking, this is $19M more than the developers would have received in any other county in the State and $9M more than the local taxpayer benefit. This occurs as even some residential developers have raised concerns as to why residential PILOTs are taking place in the midst of a robust market and housing shortage.
As for Jackson Moore and the EDGE Board, all were for the above residential PILOTs while not considering more restraint and compromises offered by taxpayers in public comment. And regarding public comment, if the EDGE Board does not like what one says, they just arrogantly gut the public record.
The former was done as Moore consistently met monthly with his EDGE Board to administer corporate / real estate tax abatements while refusing to hold and chair regular public Greater Memphis Alliance for Competitive Workforce Board meetings thereby obstructing access to prosperity through workforce development. This astounding arrogant disregard for the taxpayer occurs as workforce is the #1 economic development need throughout the country.
As discussed in recent legislative testimony, current economic development work has proceeded for some time without a plan, informed measurement or even an economic development definition to guide local work. This contributes to a lack of course correction resulting in a rigged condition while needed work is neglected. Something must change to reverse the rigged condition, trajectory and the arrogant disregard for taxpayers by Memphis corporate community leadership.
While legislative oversight has resulted in identifying problems with the local economic development ecosystem, legislators have yet to question the EDGE Scorecard or propose a specific measurable definition for economic development.
In testimony before the County Economic Development Committee on 10/24/18, Reid Dulberger, EDGE CEO, testified that for every dollar of abated taxes invested, approximately $2.50 is generated for taxpayers. That is a 150% ROI. Do any Commissioners think that a 150% ROI from abating taxes sounds too good to be true ? Anyone ??
In fact, based on data from EDGE, that $2.50 generated and 150% ROI is bolstered by claims that as of 12/31/17 – retention PILOTs used to retain existing company operations – which includes largely the abatement of existing taxes for 19 different companies – generates $3.80 for every dollar invested or a 280% ROI.
Again, through the practice of abating largely existing taxes, a 280% return for taxpayers is generated. Sound too good to be true ? IT IS TOO GOOD TO BE TRUE ! This reporting practice is nothing more than an exercise of the EDGE Board in “smoking their own dope” using their very own innovative financial tools.
And as far as a definition for economic development, one has yet to be established. It appears, based on press reports, that local economic developers would assert a “measure of the amount of capital investment” as an economic definition given the common mention of $15M in local capital investment. But the capital investment definition does not align to recent legislative testimony which has asserted a focus on improving the social well being of people as a definition for economic development.
In short, real estate development is not economic development nor is financial tool development.
While celebrated by financial wonks, financial engineering is not economic development. The good news is that legislative oversight and new thinking at the Greater Memphis Chamber may better direct the work of economic development. Unless the former happens, taxpayers should expect more of the same.
With the former in mind, legislative bodies should in no way delegate defining and measuring economic development to the EDGE Board. Legislators should represent the people while calling for a new EDGE Board and telling the new EDGE Board how legislative bodies will define and externally measure economic development progress. Taxpayer funded economic development efforts should be externally measured by legislative bodies and in alignment with improving the quality of life of its resident taxpayers.
In this way, effective oversight can occur. Without it, effective legislative oversight will not occur while being reduced to a polite and propagandized quarterly reporting exercise that fails to serve the taxpayer and a community in need.
About Memphis Corporate Community Leadership (MCCL) Measured
With a special focus on Memphis Tomorrow, MCCL Measured is the first ever and exclusive tool to attempt to measure the effectiveness of Memphis Corporate Community Leadership efforts that use taxpayer money. Additional videos and resources can be found by browsing the entire site or at http://mcclmeasured.net/resources .