Commissioner Mick Wright’s recent policy blog is recommended reading for taxpayers. Instructive for all, Wright relates, in layman terms, the County budget to the household budget by clearly defining County property tax revenue as income, the County general fund balance as a savings account and County debt as a credit card. 

Through the welcome use of data and focused on spending management, Wright further proposes a conservative approach in addressing Shelby County’s current budget challenge. While admirable and data supported, Wright unfortunately ignores Shelby County Government’s structural revenue problem.

Currently and perhaps unknowingly, both “progressive” and “conservative” Commissioners are following the “government efficiency” policy script of the Memphis Tomorrow public – private complex. The script is that of cutting both public expenditures and tax revenues through excessive and fiscally liberal  economic development incentives. Cutting and managing spending works in budget development, but not alone, in the face of a structural revenue problem. 

A structural public revenue problem exists when improving economic conditions will not solve the budget problem.  In Memphis, solving the budget problem requires a policy restructuring that ignores the script of Memphis Tomorrow. 

Commissioner Wright and other Commissioners could perhaps serve their budget review, with a categorical breakout of historical property tax revenues, coming from residential and commercial property taxes. Current or historically published County budget documentation do not break out property tax revenue by category.

In this way, Commissioners could see that promised economic development, following the Memphis Tomorrow “government efficiency” policy script, is not working for resident taxpayers. This concern was recently revealed in Orange Mound, where falling residential property values got the attention of former County Commissioner and now County Assessor Melvin Burgess.

Correcting years of misdirected  economic development efforts, requires a policy intervention in support of Shelby County taxpayers, while getting the Memphis Tomorrow elephant out of the room. 

The Structural Revenue Problem Revealed

The above chart breaks out Shelby County property tax revenue growth by residential, commercial and total property tax revenue categories. The data was obtained through a County public information request on June 7, 2019.  Only the revenue data in the linked spreadsheet was obtained from the County, with the percentage analysis and combined commercial tax revenue column constructed by MCCLM. 

Over a period of 10 years, the above chart reveals, that Shelby County residents are not participating in local economic development, as expressed through increased home values that drive higher property tax revenue. EDGE uses increased residential tax revenue, that occurs from projected wage growth, as part of their justification for abating commercial real estate taxes. But residential property tax revenues are not increasing, while excessive corporate/real estate tax abatements roar for the benefit of the small few.

Consequently, structural revenue problems result from 1) excessive corporate/real estate tax abatements and 2) deficient economic development as evidenced by flat residential property tax revenue.

Based on an analysis using requested Shelby County public information, Downtown Memphis Commission (DMC) and EDGE data referenced in previous blogs, the following conclusions result:

Residential property tax revenues grew annually at .02% and .2% over 10 years

Commercial property tax revenues grew annually at 2.29% and 22.9% over 10 years

Total property tax revenue grew annually at .92% and  9.2% over 10 years

EDGE/IDB revenue projections includes an estimated  $165M increase in County residential property tax revenue or approximately $16.5M per year. This would equate to roughly a 4.0% increase in annual County residential property tax revenues as compared to .02% that was achieved per year and 82K per year.

EDGE and DMC tax abatements, when benchmarked against research and other cities, are $25M per year in excess for County government alone, resulting in an accrued public County policy debt of approximately $300M.

Excessive abatements and economic development, that did not materialize, result in a structural Shelby County revenue problem/shortfall in excess of $50M per year when considering all tax revenue sources beyond just property taxes. The above conclusion is further informed by lagging and below average wage growth and employment growth that stem from disconnected workforce development efforts. 

In the end, County budget solutions will need to solve both spending management and structural revenue problems through improved economic development.

Policy and Practice Solutions

After acknowledging both spending and structural revenue challenges, convergent policy and practice solutions, for both progressives and conservatives, are as follows: 

Smart budget cuts

Increase the property tax rate to fill  the budget gap from years of excessive incentives and deficient economic development outcomes

Reform incentives in accordance with research while benchmarking against other cities and implementing the TIFNI measurement platform

Practice oversight of the public-private complex to insure publicly funded economic development work occurs for the benefit of taxpayers 

Both progressives and conservatives have their roles to play in the current County budget process. There is plenty of work to go around…..

Healthy ignorance often brings communities a breath of fresh air. And that potential resides with Ronnie Ramos, Executive Editor of the Daily Memphian who is from Indianapolis. After all, ignorance is what results in people asking questions that no one else asks. 

Healthy ignorance is why Ramos may have stumbled into the All News Is Local Facebook Group with the following challenge: “Joe B Kent and Fergus Nolan I’d love just one actual example where a rich person is controlling me and what we [The Daily Memphian] publish.” Ramos received plenty of responses that focused on the slant in and what the Daily Memphian (DM) CHOOSES Not to publish. 

Jack and The Daily Memphian – Can Hold No Jockstraps

The social media exchange followed The DM published story on this Wednesday’s EDGE meeting. The story slant trumpeted the successful testimony of Jack Sammons that resulted in an awarded EDGE tax incentive for Jack’s locally booming Ampro business, now in the newly lucrative hand sanitizer business. As a local businessman, Jack is looking for ways to increase his booming bottom line. And, as one might expect, Jack shows up at an EDGE Board meeting. 

Now in Jack’s former policymaking role, as a City Councilman, let’s be honest. Jack could hold no one’s jockstrap in defending, as economic development, policy that awards a $270K job tax incentive for a booming local business going nowhere and 15 new low wage jobs.  And neither can The Daily Memphian hold a jockstrap in defending the slant of the DM regarding this Ampro “economic development” incentive. 

And besides, Jack as a businessman and civic leader, had the opportunity to reform EDGE in 2018-19. Jack was appointed to serve on the County EDGE Task Force. At Jack’s first and only meeting, Jack talked big saying, “leave no stone unturned” and was never seen again at any further EDGE Task Force meetings. 

All of that to say, leaving “no stone unturned” would lead a civic leader to question the Memphis Tomorrow CEO organization that birthed EDGE. Memphis Tomorrow, founded by Pitt Hyde and Daily Memphian donor, is down in ALL of its selected community betterment categories over 20 years while using Federal, State and Local tax dollars.  

Now Jack clearly did not want to turn any stones related to Memphis Tomorrow or reform EDGE for that matter. After all, like many other local CEOs,  Jack needs a “go to” to  increase his booming bottom line with nothing other than a local taxpayer funded “free market” subsidy. You can’t make this stuff up !

And at the same time, with their donor base, nonprofit status and partnerships with numerous publicly funded entities, the Daily Memphian has failed to confront the horrific deficiencies of the Memphis Tomorrow public-private complex or question excessive local tax incentives. The type of journalistic effort required is that of Edward Meeman who persistently and relentlessly confornted the Crump Machine of days gone by. But that is unlikely to occur with The Daily Memphian regarding the Memphis Tomorrow public-private complex.

The former, is not to mention The Daily Memphian’s very own Eric Barnes won’t even read, for publishing consideration, a citizen’s  opinion submission on excessive incentives. This nonreading occurred about the same time the New York Times published an editorial from the Taliban. 

But The Daily Memphian does have employed staff columnists that CHOOSE to write about the Civil War, for no apparent reason, taking down the statues 3 years ago, political commentary from those employed by The University of Memphis and a superior website than the Commercial Appeal.

Then again, as far as local journalism, its more of the same after hefty DM promises of investigative journalism. So needless to say, there are a whole bunch of questions. 

Questions for Ronnie

These are questions for Ronnie Ramos who is locally new. Ramos may or may not want to ask these questions. And I say the former with experience, after my own local professional demise. After working in other communities for a number of years, I started asking the fundamental question, “What in the Hell is going on around here?” Anyway, here are the questions for Ronnie:

Using local public and Bureau of Labor and Statistics data, do you know unreported by staff writers, that Memphis/Shelby paid $14.5K for each new job created in the economy from 2010-18 while both Nashville and Indianapolis, where you are from, paid $2.5K for each new job?

Do you know that locally unreported by staff writers, according to the 2019 State of TN Comptroller PILOT Report that Shelby County has 512 parcels under PILOT contract, Davidson 35, Knox 68 and Hamilton 37 ?

Can you find, anywhere, a published public document or resource, that alerts local taxpayers of the total dollar amount of property tax abatements and tax increment financing (TIFs) occurring and administered by 9 abating boards across all of Shelby County and its municipalities ? If not, do you find this strange?

What would happen in Indianapolis, regarding a hypothetical civic organization, that is down in ALL of their selected categories, versus their peers, over 20 years while their initiatives use Federal, State and Local tax dollars ? Would there be any persistent reporting about it ?

Can you defend as “economic development”, policy, that awards job tax incentives to existing local companies in exchange for, in many cases, no new jobs or new low wage jobs ? Or job tax incentives that abate EXISTING taxes for low wage jobs ? Or what about urban renewal real estate development incentives with double the term length of peer cities ?

Those questions are just the beginning and, we hope, Ronnie, being new and a healthy type of ignorant will bring in a breath of fresh air and press these needed questions and several others. We’ll see…..

Ripping off taxpayers is rooted in flawed local assumptions. And with strapped local budgets and Shelby County the only County in the State offering residential tax incentives, the last thing taxpayers need is overly generous assumptions to justify a $5.2M residential tax incentive for a prime real estate location. But overly generous assumptions, is what is happening with the 2601 Central Apartments residential PILOT application. 

Further, this blog has written off Minority Women Business Enterprise (MWBE) and affordable housing programming as mere marketing to justify excessive incentives for corporate/real estate interests. Given the former and what will be disclosed in this blog, the 2601 Central Apartments payment-in-lieu of taxes (PILOT), should not be approved. 

And if an incentive is approved, it should be no more than 25% abatement. Sadly, The Economic Development Growth Engine (EDGE) is stuck on 75% abatements for all and not financially incented to represent the taxpayer but instead to represent corporate/real estate interests.

In this case, EDGE will pocket $300K in fees for awarding a $5.2M residential incentive which is $5.2M more than a developer would be awarded in any other County in the State of TN. See the problem ? And the fee design results in EDGE using overly generous assumptions and bogus accounting to award excessive incentives. If the 2601 Central incentive is granted, EDGE will have approved more than more than $700M in abatement awards since 2011. 

Problematic “But For” Assumptions

The 2601 Central Apartments application has several problematic assumptions which are shown below 

A -1.8% return on equity (ROE) without a PILOT and a 5.3% ROE with a 75% abatement is disclosed. The problem with the disclosure is that the disclosed ROE is for year 1 only, which is the lowest ROE over 15 years and does not average out ROE for the entire project. If returns, as shown in the application, are totaled for the entire project and averaged, the ROE is -.3% without and 7.2% with a PILOT. Disclosing lower projected ROE benefits, EDGE, the real estate developer in pursuit of a tax abatement and not the taxpayer.

The application uses a 5% interest rate. At the same time,  a bank letter in the application states that the permanent loan interest rate will be based on 10 year Treasury rate plus 225 basis points. As of Friday 5/16/20, the permanent loan rate would be 2.9%. Disclosing and assuming higher debt service costs from a higher interest rate benefits EDGE, the developer and not the taxpayer as it reduces ROE which further justifies the need for a tax abatement. 

The loan term assumed a 25 year term and not a more traditional 30 year term. The other EDGE residential applications use a 30 year term. The shorter loan term increases annual debt service costs and reduces ROE. The former further justifies the need for a tax abatement. 

A cash out is not disclosed as was contained in the recent Link Apartment application. If a cash out is not disclosed, one should be as it provides insight into the developer’s project financial benefit. 

The above findings results in several questions. What interest rate and term should be used ? And what about a cash out to reveal the developer’s projected financial benefit ? 

“But For” Modeling Using Responsible Assumptions

“But for” analysis is used to justify public participation in economic development. It is derived from the clause “But for the incentive, the project supporting community economic development will not occur.” The tables above contain a “but for” analysis using more responsible assumptions derived from the proforma contained in the 2601 Central application. The analysis considers the mutual interest of the taxpayer and the developer in a “but for” return on equity (ROE) analysis. 

ROE is typically used to judge the need for  public participation. The lower the ROE, the more likely public participation through tax abatements is needed. At the same time, while accommodating generous assumptions, EDGE has never disclosed an ROE threshold standard for public participation in residential development. This is problematic.

Regarding the 2601 Central application, ROE of the above “but for” discloses multiple interest rate scenarios. In this analysis, the “but for” interest rate recommended is 4%. A 4% rate provides a 38% increase interest rate cushion from 2.9% to 4% for the developer while also representing the taxpayer and discarding the overly developer generous 5% rate. A 5% rate would provide the developer with a 72% cushion which would be excessive. 

Next, it is recommended that the more standard and traditional 30 year term should be used which has been the prevailing standard in other residential PILOT applications. Further, to get at the developer’s projected financial benefit, an 8 year cash out analysis is provided.

While rates and terms for multiple scenarios are disclosed above, the below findings will use a 4% rate which is higher and more generous to the developer than today’s rate of 2.9%. See below findings: 

Projected annual average ROE for the entire 15 year project operational life without a PILOT is 3.5% and not -1.8% as contained in the application. And with a PILOT, the annual average ROE is 11.1% and not 5.3%.  

Cash out in 8 years without a PILOT, the annual average ROE is 15.8% and with a PILOT it is 23.1%. This calculation includes average annual operational and cash out ROE over 8 years.

Without a PILOT, over 8 years, the developer would generate $6.3M  on the $5M equity investment. With a PILOT, the developer would generate $9.2M on the $5M equity investment. Based on this 8 year cash out, tax abatements of $2.8M would contribute to the developer’s $9.2M windfall.  

A 25% abatement would contribute 900K to the developer’s take leaving the developer with $7.3M and an 18.25% ROE on the $5M equity investment. In this case, EDGE would make a $120K fee as opposed to a $300K fee while taxpayers would increase tax revenue by $1.9M over 8 years and $3.4M over 15 years. 

All of the above supports rejection of the tax abatement for a prime real estate location or no more than a 25% abatement. 

Conclusion

EDGE has not slowed down at all during the Coronavirus awarding excessive corporate/real estate incentives. And this comes at a time, when local government and an impoverished community is strapped for cash. 

The solutions are the same as repeatedly recommended by this blog. Aggressive incentive reform is needed supported with publicly administered research based measurement to serve a majority black community in need…..

2

Folks in Memphis know about racism and social justice. After all, significant media coverage is dedicated to the former subject matter, all while ignoring the real problem of runaway elitism. And to add fuel to the fire, unnecessary rhetoric like “institutionalized racism’, pertaining to current day local governance, is routinely circulated in the local discourse presumably thereby giving sanction by way of excuse.

Circulating such rhetoric is irresponsible and unfortunate. As it typically divides the taxpaying public along racial lines when they should be united in pursuit of taxpayer justice for a majority black community in need. Besides, such terminology markets Memphis to the world as backwards in 2020. And while appropriate for the history books, institutionalized racism in current day local Memphis governance cannot be proven.

Connecting the Dots

At the same time, institutionalized elitism in local Memphis governance can be proven. The straightforward proof comes from connecting the dots between the racially diverse public-private complex and its resulting product. The public-private complex consists of local government, tax abating boards and non-profits.

Elitism is most evident in the primary beneficiaries of the public-private complex in the elite small few. And to the extent that elements of elitism exist elsewhere, its far worse in Memphis when benchmarked against other cities.

Further, several players exist that allow elitism to persist, on the back of a majority black community in need in its authors, overseers and enablers. Some of these players are examined below:

Local governmental bodies that oversee and look the other way as taxpayer funded economic and workforce development efforts go unmeasured. The former occurs as $50 of $120M in annual recurring economic development tax incentives can be shown to be in excess when benchmarked against both research and tax incentive awards in other peer cities. To make the excesses even more unnecessary, Memphis already delivers some of the lowest business operational costs in the county.

Memphis Tomorrow facilitated botching of the workforce development system over a 5-year period while local small business solutions to fix the problem were systematically dismissed. The former results in deficient employment, wage, business and tax revenue growth. Memphis Tomorrow is the top CEO organization in Memphis that is down in all its selected categories over almost 20 years while their initiatives use your Federal, State and Local tax dollars.

While benefitting from excessive tax incentives and taxpayer injustice that undermines the tax base, in a majority black community in need , local elitists “smoke their own dope” participate in pageantry and serve on the National Civil Rights Museum Board (NCRM) Board. The NCRM has not generated any local public policy positions since the one that supported the symbolic gesture of taking down confederate statues 3 years ago.

A local press corps that chooses to not write about even the possibility of excessive tax incentives for the benefit of the small few occurring on the back of a black community in need. Proving excessive incentives can be done in a variety of ways. The simplest, is pulling the 2019 State of TN Comptroller  report which documents tax abatements across the state. The report reveals that Shelby County has 512 parcels under payment-in-lieu of taxes (PILOT) contract, Davidson 35, Knox 68 and Hamilton 37.

A Public University of Memphis, while in partnership with the Economic Development Growth Engine (EDGE), does not exercise thought leadership regarding economic development. One example of the former was, without explanation, the discontinuation of economic development measurement under the UofM Memphis Economy project during the 2019 City Mayoral election. Among other items, such measurement could have served to debunk claims of competitive momentum which would typically inform course correction for community benefit.

Of course, when connecting the dots and reporting on the above, enablers of elitism question one’s clarity in communication as well as their methodologies. This tactic is a common one while at the same time uncommon in American cities is the existence of runaway elitism coupled with an unmeasured public-private complex that is down in all its categories over almost 20 years.

And uncommon further, is a racially diverse and elitist public-private complex that feels no accountability to course correct when taxpayer funded work goes off track while the small few benefit. This reality is a design for community decline.

Solution: Community Actualization through Taxpayer and Social Justice

As one can see, the Memphis taxpayer is disconnected from reality. Without measurement, public university thought leadership, press and governmental oversight, the Memphis community is ignorant as the small few benefit on the back of a majority black community in need.

To that extent, non-traditional education, such as this blog, becomes necessary while knowing social justice will never happen without prerequisite taxpayer justice. Given this, public measurement provides the best opportunity to educate the taxpayer in a majority black community in need. With the aid of public measurement, a supporting framework is the Hierarchy of Community Actualization. The hierarchy, as shown above, prioritizes taxpayer justice for all in a majority black community in need.

Properly monitored social justice programming comes in addition to taxpayer justice for target populations. An example of social justice programming would be Minority Women Business Enterprise and Locally Owned Small Business (MWBE/LOSB) programming targeting small, less established businesses on the margin and not highly established businesses or businesses with locally affluent individuals at the helm.

Equipped with public measurement, taxpayer advocacy for all becomes the norm, in a majority black community in need, away from divisive and false claims of institutional racism in current day governance. The former work occurs, while checking runaway elitism using public measurement that all can understand. In this way and through public measurement, taxpayer and social justice can proceed with community actualization in mind.