This is a video blog that attempts to define excessive incentives using Memphis Business Journal press accounts, EDGE endorsed documentation and tools. Much of the excess is afforded by a lack of fiscal conservatism and a false corporate “trickle down” mantra with the promise of a better tomorrow for all. This excessive incentive policy environment has gone to stifle local small business and economic growth for all in Memphis/Shelby County.

The output of the EDGE Board project estimator, used in the video, can be found below the video where it shows both the Mark Anthony and FedEx PILOTs were excessive based on a review of EDGE documentation and the EDGE Board standard found in the project estimator tool.

Additionally, not addressed in the video, was the lack of use of the “Tax Incentive Eligibility Analysis” tool by the EDGE Board, that would have only resulted in a 4 year PILOT for Mark Anthony as opposed to 10 years, saving taxpayers almost $1.4M.

Responsible incentives like JNJ, Indigo Ag and Agilent help the entire business community and community as a whole. Excessive incentives, for the benefit of the small local few, erode the societal foundation on which commerce thrives making it more challenging to attract new industry to the Memphis area and for small business to thrive.

The video also further discloses excesses that can result from multiple abating boards participating in a single project (FedEx). FedEx says “Memphis got a good deal”; compared to what ? All of this points to the need for more quantitatively informed oversight by local legislators and examination of local abating board rules and rule making authority. See video:

Mark Anthony EDGE Board Project Estimator Output

FedEx EDGE Board Project Estimator Output

MCCL Measured is designed to inform a quantitative conversation related to the effectiveness of public-private initiatives. Please send questions related to this blog or any findings by MCCL Measured to jkent@pathtrek.net .

Shelby County Commission:

Thank you for deferring the “more of the same” Economic Advisory Board resolution today. Funding this effort is needed, perhaps even at a higher amount. But fundamental definition, which is lacking in the resolution, is needed to help direct the work of the advisory board from a public perspective.

Please know that YOU are the chief architects of local economic development work and not the economic development complex. And, don’t get distracted by terms like “research based”, because the best research is already available in “what does not work” in local economic development.

In order to earn your support for these amendments, I have removed a number of rhetorical devices while focusing on fundamental definition and needed course correction based on local results for the Memphis Business Attraction and Retention/Expansion Joint Venture Agreement ..

Resolution Amendments

WHEREAS, The vision of Shelby County Government for economic development is to provide nation leading connected workforce development programming and to achieve above peer average total wage growth; and

WHEREAS, The Amazon Road Map policy pronouncement of the University of Memphis shall be adopted as a framework to guide economic development efforts in Shelby County; and

WHEREAS, “Economic Development” is defined as “a process to improve the social well being of people” and will be measured by Shelby County Government using total wage data as provided by the Bureau of Labor Statistics (BLS) Quarterly Census of Employment Wages (QCEW) versus Shelby County peers as identified by The University of Memphis and The Memphis Economy; and

WHEREAS, a career ready workforce is vital to economic development efforts, a “career ready” individual will be based on the completion of a high school equivalency and/or post-secondary credential, a Silver level ACT National Career Readiness Certificate (NCRC) and the completion of a  career plan; and

WHEREAS, more voices from the Memphis general public, that are informed on incentives, outside of the corporate/real estate/political establishment are needed on the Economic Development Advisory Board to present dissenting argument for the benefit of small business and the overall public good as the named members have historically represented corporate/real estate interests and rarely if ever opposed a specific tax incentive on the record; and

WHEREAS, a representative for Shelby County municipalities outside of Memphis is needed on the Economic Development Advisory Board; and

WHEREAS, “small business” and “workforce development”, typically the primary drivers of economic growth, should be emphasized in the Memphis Business Attraction and Retention/Expansion Joint Venture Agreement and are not, which  further underscores the lack of emphasis on small business and workforce development as corporate/real estate incentives have been historically overemphasized by the Memphis economic development complex in the work of economic development; and

WHEREAS, it must be understood that the majority of the Memphis/Shelby deficiency in total wage growth can be attributed to a struggling small business sector and disconnected workforce development efforts and that appropriate informed representation is needed on the Advisory Board to represent small business and workforce development; and

WHEREAS, effective measurement is critical to economic development efforts, a rescoring of the EDGE Scorecard should be undertaken to apply complete accounting methodologies for retention PILOTs and potentially other matters which may include a rescoring for warehouse expansion PILOTs based on research of the Economic Institute; and

WHEREAS, a Shelby County Commission review of all 9 abating boards will commence in April 2019 and the findings of the Commission will be put on record with the Economic Development Advisory Board; and

WHEREAS, a new EDGE Board is immediately needed that reflects more professional balance from across the economic development spectrum to include education, workforce, small business and transit; and

WHEREAS, Shelby County already has a research base that should supersede any external research base in knowing what does not work which would end retention PILOTS, residential PILOTs and unneeded TIFs in affluent unblighted areas with responsible PILOTs for industry recruitment and large local expansions continuing.

Conclusion

These amendments will provide the Memphis/Shelby Economic Development Advisory Board with better and more specific direction from Shelby County government.

Greater public sector leadership is needed in defining economic and workforce development for the public good  within the context of public-private partnerships and the funding for the Memphis Business Attraction and Retention/Expansion Joint Venture Agreement .

Strong corporate executive leadership and vision have often been touted as a defining differentiator in such economic development work but has fallen flat in Memphis/Shelby County. Fallen flat with botched economic development efforts over the past 8 years that have stifled the primary drivers of any local economy in small business and workforce development as corporate/real estate and nonprofit interests are prioritized for the benefit of the small few.

It’s a fact that economic development agencies, over the past 8 years, in the  Greater Memphis Chamber (GMC) and Economic Development Growth Engine (EDGE), have yet to articulate a joint definition for “economic development” or “career readiness” to support economic / workforce development. This goes back to the question raised by Ron Belz in EDGE Ad Hoc where he asked “What is the definition of your goal and how are you going to measure it?”. With this question still unanswered, direction by the public sector is needed.

Unfortunately, public officials have yet to take up an on the record discussion in defining the former. The discussion surrounding or answers to the questions of “Why has Memphis fallen so far behind in the very global economy it cradles?”, “What is economic development?” and “What is career ready?” seem thus far to be a mystery in Memphis/Shelby County. Not taking up the former questions on the record, leads the community down the path of listening to the same incompetent voices and more of the same.

To that extent, the current resolution of $150,000 in support of EDGE lacks definition, guidance and lessons learned rationale to serve the public good.

Recent Headlines

Given recent headlines, greater definition and defined measurement is needed in a public-private landscape that is rich with “clerical errors” based on under assessed property and MWBE with the City of Memphis data, HUD, non-disclosures of elected officials, broken rules by abating boards, and bogus incomplete accounting as featured by the EDGE Scorecard regarding retention PILOTs.  Headlines signal a public-private landscape void of values and ill equipped to serve any community and more specifically a Memphis community in need.

Further, the closed Memphis system and fake economic development “disruption” is evident in the membership of the Economic Development Advisory Board with no change in the players and none of the members ever having gone on record against a specific public incentive with the exception of, on rare occasion, Councilman Martavius Jones.

And with regard to the recent Chamber reports and headlines regarding the Memphis Metropolitan Statistical Area (MSA) that includes parts of Arkansas and Mississippi regarding employment gains, the latest report of the Bureau and Labor and Statistics (BLS) Quarterly Census of Employment Wages (QCEW) tells another below average trend line story.

The BLS QCEW data ending in Q3 2018, that includes both employment and wages paid which results in tax revenue, reveals the following accumulated wage and tax revenue shortfalls versus Shelby County’s peer average and national data growth rates:

See spreadsheet here and tab “031819”

The above accumulated tax revenue shortfalls reveals the source of  a declining Memphis/Shelby ecosystem over time due to deficient total wage growth and subsequent tax revenue funded community investments under a closed FedEx/Memphis Tomorrow/GMC decline by design economic development system. These tax revenue shortfalls are further irritated by an additional estimated $200M in total tax losses that come from an excessive EDGE retention PILOT program that transfers challenged community wealth to corporate/real estate interests justified using bogus incomplete accounting.

Most of the deficient total wage growth can be attributed to a culturally closed social construct that prioritizes corporate/real estate and nonprofit interests for the benefit of the small few while closing out the primary economic driver of  small business and minimizing education and workforce development. To that extent, the following recommended amendments are suggested for the resolution to better support more robust, balanced economic and workforce development efforts with supporting lessons learned rationale:

Resolution Amendments

WHEREAS,  “Economic Development” is defined as “a process to improve the social well being of people” and will be measured by Shelby County Government using total wage data as provided by the Bureau of Labor Statistics (BLS) Quarterly Census of Employment Wages (QCEW) versus Shelby County peers as identified by The University of Memphis and The Memphis Economy; and

WHEREAS, a career ready workforce is vital to economic development efforts, a “career ready” individual will be based on the completion of a high school equivalency and/or post-secondary credential, a Silver level ACT National Career Readiness Certificate (NCRC) and the completion of a  career plan; and

WHEREAS, more voices from the public, that are informed on incentives,  outside of the corporate/real estate/political establishment are needed on the Economic Development Advisory Board to present dissenting argument for the benefit of small business and the overall public good as the named members have historically represented corporate/real estate interests and rarely if ever opposed a specific tax incentive on the record while the GMC has no small business growth goals and hasn’t for years; and

WHEREAS, the Advisory Board membership is a product of “more of the same” and fake economic development disruption and requires new voices to provide the community the vitality to grow which is the very vitality needed that the FedEx/Memphis Tomorrow/GMC complex routinely stifles; and

WHEREAS, “small business” is not mentioned in the Memphis Business Attraction and Retention/Expansion Joint Venture Agreement, which further underscores the lack of emphasis on small business as corporate/real estate and nonprofits are emphasized by the FedEx/Memphis Tomorrow / GMC complex; and

WHEREAS, it must be understood that the majority of the Memphis/Shelby deficiency in total wage growth can be attributed to a dismissed small business sector and botched workforce development efforts and that appropriate informed representation is needed on the Advisory Board to represent small business and workforce development; and

WHEREAS,  the FedEx/Memphis Tomorrow/Greater Memphis Chamber has botched workforce development in Shelby County over a period of 4 years by stifling small business proposals made by PathTrek, a local sole proprietorship, in favor of a foreign contract award and remote vendors; and

WHEREAS, to help both small business and workforce development efforts, the Shelby County Commission will direct private concerns to engage PathTrek, which is only one of  thousands locally shut out small businesses by the closed Memphis business culture, to facilitate connected workforce development efforts based on the PathTrek proposal submitted to Commissioner Willie Brooks per his request; and

WHEREAS, effective measurement is critical to economic development efforts, a rescoring of the EDGE Scorecard should be undertaken to apply complete accounting methodologies for retention PILOTs and potentially other matters which may include a rescoring for warehouse expansion PILOTs based on research of the Economic Institute; and

WHEREAS, a Shelby County Commission review of all 9 abating boards will commence in April 2019 and the findings of the Commission will be put on record with the Economic Development Advisory Board; and

WHEREAS, as a new EDGE Board is immediately needed that reflects more professional balance from across the economic development spectrum to include education, workforce, small business and transit; and

WHEREAS, The Amazon Road Map policy pronouncement of the University of Memphis shall be adopted as a framework to guide economic development efforts while knowing that “strong corporate executive leadership” in matters of economic development policy development is entirely overrated in Memphis and Shelby County; and

WHEREAS, Shelby County already has a research base that should supersede any external research base in knowing what does not work which would end retention PILOTS, residential PILOTs and unneeded TIFs in affluent unblighted areas with responsible PILOTs for industry recruitment and large expansions continuing.

Conclusion

These amendments will provide the Memphis Economic Development Advisory Board with better and more specific direction from Shelby County government.

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