It was the first time I have witnessed deliberation on a Memphis tax abating board, but it works. At least it worked with the Memphis Health, Educational and Housing Facility Board (MHEHF).  On Wednesday, the MHEHF Board reconsidered a payment in lieu of taxes (PILOT) application for the high end Oak Edge Senior Living project.

The Economic Development Growth Engine (EDGE) decided against hearing the Oak Edge application late last year while the MHEHF Board initially approved an Oak Edge PILOT in the Spring of 2020. MHEHF later rescinded its approval based on information received after the initial Oak Edge approval. 

On Wednesday, the Oak Edge application was again presented to the MHEHF Board. The motion to approve the PILOT application, failed due to the lack of a seconding motion. Board members had insufficient information to award a PILOT to serve local affordable housing needs and discussed hearing the application again upon the submission of specific rents to be charged for affordable housing units. 

Deliberative questioning was led by MHEHF Board members Buckner Wellford and James Jalenak. Wellford expressed concerns about MHEHF considering high end market rate projects while deviating from its primary charge of facilitating public funding resources for affordable housing. And Jalenak pressed the applicant to disclose the projected rents for the target 20% of the tenant households that make 50% or less of the  Memphis area’s median income ($37,200).

MHEHF PILOT projects must satisfy a 20% affordable housing requirement for tenant households at 50% or less of the Memphis area’s median income. Given this requirement, an analysis can be done based on the Oak Edge application. 

The below analysis extracts from the application a rent range for various tenant housing products in the proposed Oak Edge development. The products are supplemented with senior living community support services which are included in the rent. The supplemental services represent approximately 30% of the monthly rent value based on applicant testimony. 

To that extent and based on the application, a household with monthly disposable income of $1,240 per month, could not afford apartment rent of $1,355 per month. The $1,240 monthly income figure is derived from 50% of $37,200 annual income less 20% for taxes to arrive at $1,240 in monthly disposable income. The $1,355 in monthly apartment rent comes as a result of subsidizing market rents by 50%. See below table analysis:

While the above deliberative inquiry was productive in seeking additional information to protect taxpayer interests, the proceedings of the MHEHF raised several questions when compared to other Shelby County abating boards.

Questions For MHEHF Board

Daniel Reid Chairs the MHEHF Board and Charles Carpenter is the Board’s attorney. MHEHF is 1 of 9 abating boards in Shelby County and is specifically charged with serving Memphis’ affordable housing needs. Several procedural questions arose from this Wednesday’s meeting and events surrounding the meeting. Addressing these questions may help better inform taxpayer participation in future MHEHF proceedings. These are the questions:

What is the maximum allowable tenant rent for affordable housing at 50% and 60% of Memphis median income. 

Percentage tax abatement amounts are not disclosed in MHEHF requirements. And based on a review of the Shelby County Trustee report, historic abatement amounts of Health Education Boards average 85%. Is there a program abatement percentage standard?

Resolutions to be considered by MHEHF, which include PILOT project abatement percentages, abatement dollar amounts over the PILOT term and term lengths, are not published for public consumption, prior to the meeting, to help inform the public. Could publication of such resolutions, with the above detail, be provided to better inform the public on MHEHF proceedings ?

There is no provision on the agenda for public comment. On Wednesday, public comment was invited at the end of the meeting by the Chair, Daniel Reid. Could public comment be noted on the agenda and  allowed at the beginning of the meeting so that public dissent or support for MHEHF Board matters be heard and considered?

Is there a portal that displays all of MHEHF approvals and active contracts with abatement percentages, projected abatement amounts, term lengths and project descriptions ?

Why does the  MHEHF Board have so much cash and investments per their financial report ?

The answers to the above could help better inform the taxpayer. 

Conclusion

While Board deliberation helps, Memphis and Shelby County has a nightmarish 9 abating boards and an excessive $50M of approximately $120M per year in excessive incentives when benchmarked against other communities. The former excesses are a product of the elitist Memphis Tomorrow public-private complex that results in a structural revenue problem for local government. 

A consolidated portal, managed by Shelby County Government, is needed to efficiently distribute and manage information for 9 abating boards. In this way and while using research, tax incentives can be appropriately sized, measured and better understood for community benefit…

Stunning was recently to see, the entire Memphis Tomorrow public private complex trot out in local press opinion, to offer no specific public policy recommendations in the wake of the horrific George Floyd murder. Much less than police defunding, local police reforms, such as CLERB with subpoena power, have been on the table for some time. Why doesn’t someone from the UofM and/or The Memphis Tomorrow public private complex tee that up ? 

Instead, as an example, the U of M Hooks Center for Social Change comes out with a Daily Memphian opinion piece that looked like a middle school social studies lesson. Without any specific policy recommendation, the piece stressed the following: 1) Learn with an open mind, 2) Grow where you are planted, 3) Donate, 4) Vote, 5) Meet with your elected officials and 6) Prepare for a marathon, not a sprint. This #6 is one that the stone age, backwards and elitist Memphis Tomorrow really likes. With their vast resources to do so, they just starve everyone into submission and as a result nothing ever changes in Memphis.

And based on a Daily Memphian piece, when it comes to the availability of compiled data, to support conversations on police reforms, there is none ! This comes with the caveat, of a host of publicly funded public safety organizations that should already have data at their finger tips. These organizations include CLERB, The Memphis Crime Commission and the UofM Public Safety Institute. 

It was also reported by the Commercial Appeal, that any of the resolutions being considered by the City Council would need the Mayor’s administration support. With respect to data, this could unfortunately involve, the Memphis Tomorrow CEO organization. After all, on their website, Memphis Tomorrow takes credit for City / County data systems to support performance management. 

Concerns on this blog come from someone that hates to see middle class police pitted against working class citizens while police seemingly get blamed for all of society’s ills. But with all of these publicly funded public safety agencies, the data should already be available to support a conversation around opportunities to improve policing. Don’t you think ???

Data and public measurement are a major problem locally and sadly both Memphis Tomorrow and The University of Memphis appear to be major obstacles to public measurement. 

THE PUBLIC-PRIVATE  BLOB

The wholly unmeasured Memphis Tomorrow public-private complex, which includes The University of Memphis, moves as a big publicly funded blob. They speak in platitudes, while not advocating specific policy positions or producing the needed data to inform honest conversations around social change.

In fact, the University of Memphis, while in partnership with EDGE, completely dismantled their economic development measurement platform housed at the UofM’s Memphis Economy project that compared Memphis to its peers.  No reason was given for the data platform dismantling and subsequent public obstruction. 

And one would think, with education as routinely cited as a solution for reducing crime, that the Memphis Crime Commission would have publicly objected to the systemic 5 year botching of the local workforce development system. Even though Bill Gibbons knew about the botching, no advocacy from the Crime Commission, on course correction to connect the workforce development, has ever occurred. The workforce development system botching was administered, by none other, than the Memphis Tomorrow public private complex. 

Sadly, its just a fact.  Under the new local UofM Board of Trustees, there has been no policy advocacy for social change or economic transformation. Instead, the UofM is routinely seen lobbying in legislative chambers for tax incentives or grants for themselves. The former robs the Memphis community of independent and needed public university thought leadership to drive social change. 

Conclusion

The Memphis public-private complex moves as a blob with many of the same Memphis Tomorrow entities represented on local boards. Everybody “stays in their lane”, which really sucks for the community, while local “advocacy” organizations don’t independently publicly raise questions or check one another. Its just a big unmeasured publicly funded and elitist blob that feeds on a majority black community in need. 

All of the above occurs while public measurement systems are in shambles, costing taxpayers in a majority black community in need millions, as excessive tax incentives for the small few roar. 

Fine, protest police. But there is more blame needed elsewhere, like the unmeasured Memphis Tomorrow public-private complex…..

Contrary to popular belief, I am corporate/real estate developers best friend by posing the next question. What if Memphis overspent on workforce development ? There is nothing better for corporate/real estate developers than the organic economic growth brought by real workforce development. 

Overspending on workforce is worth proposing. After all, through excessive incentives, Memphis/Shelby taxpayers have overspent on corporate/real estate development for years while hypocritically clamoring “workforce as the #1 priority”. And Memphians know the answer to overspending on tax incentives results in below average economic growth and structural revenue problems. Besides, Memphis has a youthful population asset advantage over its peers, as cities across the country struggle with an aging workforce. So why not overspend on workforce development ?

Postsecondary completion data reveals Indianapolis may have overspent on workforce development (above chart). Indianapolis had 4,400 completers per 100K of population compared to its peer average of 2,000. Memphis had 1,200 completers per 100K. In fact, Indianapolis had 1,986 below Associate level awards which is the sweet spot for Memphis in increasing postsecondary completion rates. 

I said to myself that “Indy is overspending on education” as I worked in Indianapolis in 2014. This was because television advertisement was non-stop for local colleges. It seemed, Ivy Tech, the local Southwest Community College, was advertising in virtually every time slot. 

But while overspending on anything is not a good idea, what is the worst that can happen with spending excessively on workforce while unleashing the area’s youthful population advantage? It may seem strange but overspending on workforce may help address Shelby County’s structural revenue problem. To get an idea of this, we can examine what happened in Indianapolis. 

Indy’s Workforce Overspending Results

First, with about average total wage growth Indy is not a boom town. So we can get direct and unfair Nashville comparisons out of the way.

Had Memphis/Shelby’s total wages grew at the rate of Indianapolis/Marion County, local government in Memphis/Shelby would have generated $200M more between 2010-18 and currently $40M more annually. That’s what overspending on workforce could mean for Memphis/Shelby’s structural revenue problem…..

Corporate/real estate incentives in Memphis and Shelby County approach $120M per year. $50M of the $120M per year in incentives can be shown to be excessive, resulting in $500M in deficient public investments over the last 10 years. This formula is a design for community decline.

This blog will discuss lacking governmental oversight of Memphis/Shelby tax incentives, while through research, conclusively proving excessive corporate/real estate incentives occurring on the back of majority black community in need. 

Lacking Governmental Oversight

Reid Dulberger testified before the County Commission on June 3rd regarding the Economic Development Growth Engine’s (EDGE) quarterly report. No specific questions were asked by Commissioners about the contents of the report. The report included an excessive $38M UPS incentive award and a Blues City award. Al Bight, EDGE Board Chair, recused himself from voting on Blues City, indicating a conflict of interest. 

Blues City was awarded a second $3.6M payment-in-lieu of taxes (PILOT) incentive, even though Blues City had not met employment targets in their existing PILOT. Additionally, with the new PILOT, the committed MWBE spend was less than 1% on a $50M Blues City project. Unfortunately, Commissioners did not ask any specific questions regarding the former facts. 

Commissioner Michael Whaley did ask EDGE to provide comparative data on other cities PILOT practices and amounts. Dulberger’s response was effectively, that he would see what he could find, while referencing EDGE’s commendable transparent database.

While Dulberger is a highly competent bureaucratic administrator, he is unlikely to provide any data that would, in any way, indict the policies and practices of EDGE. Besides, his Board would not want him to provide such documentation as it would be foolish to do so.

To that extent, Dulberger’s legitimate defense is to point local legislators to the legislatively unquestioned data that has been regularly published for years. With comparable data, the EDGE database is the very data that Commissioners could use to prove excessive corporate/real estate awards occurring on the back of a majority black community in need.  

So comparable reliable tax incentive data and improved oversight is needed in the public discourse. 

About Tax Incentives and Comparable Data

Given the above reality, in concert with EDGE available data, below are some reliable data sources that local legislators can use to prove taxpayer injustice as administered through excessive corporate/real estate incentives. And the excesses extends beyond just EDGE, with 8 other abating boards, whose data is not transparent as EDGE data.

Nine local abatement boards in Shelby County administer all or a subset of job tax incentives, real estate development incentives and tax increment financing (TIF). Job tax incentives, exercised through payment-in-lieu of taxes (PILOT), are used to induce job growth. Job PILOTs are administered by EDGE and 5 municipal industrial development boards.

Real estate tax incentive PILOTs are used to induce development for blight reduction, market rate residential multifamily housing and affordable housing. EDGE, Downtown Memphis Commission and 2 Health Education Facility Boards, all administer some form of real estate development incentives. 

TIFs are administered by various agencies, some of which, are not discussed in this blog. TIFs direct additional incremental tax revenue from development, to a predefined area or TIF district, to offset the cost of public infrastructure in support TIF area development. TIFs will not be discussed below, as there is unfortunately, no governmental publication that quantitatively discloses TIF development subsidies. 

Historic Shelby County Trustee Reports and Budget Documents –  Compilation of the data for all types of tax incentives, contained in the above linked documents, reveals that between 2008-18, that in exchange for promised tax revenue growth, $497M in tax incentives were provided for only $114M in year over year Shelby County tax revenue growth. This would result in a structural revenue problem with a $383M difference based on active PILOT contracts. Or, for the Shelby County taxpayer to merely breakeven with abatements, a $192M tax revenue shortfall results. 

A similar analysis can be extrapolated for Memphis, from historic Shelby County Trustee reports and using historic City of Memphis Budget documents. The City of Memphis does not have historic PILOT reports published. Given this, the following extrapolation can be conducted using the historic Shelby County Trustee PILOT reports. From 2010-18, in exchange for an estimated $348M in tax incentives, the City of Memphis generated $120M in total year over year tax revenue growth. The former results in a $228M difference and a Memphis taxpayer breakeven shortfall of $114M.

Therefore, a total $306M Memphis/Shelby taxpayer breakeven revenue shortfall results between 2010-18 ($192+114M=$306M). This blog consistently states a recurring estimated annual $50M taxpayer revenue shortfall results from excessive Memphis/Shelby County tax incentives. If some tax revenue growth above granted incentives is expected, the findings of this analysis, using actual data, would support a $50M annual tax revenue shortfall from excessive incentives. This shortfall results in a structural revenue problem for local government.  

State of TN Comptroller PILOT Report – By counting the number of parcels under PILOT contract, for all types of incentives and abating boards, Shelby County has 512 parcels under contract, Davidson-35, Knox-68 and Hamilton-37. Additionally, Shelby County is the only County in the state offering residential PILOTs. The local excess is clear with these active PILOT contracts. The following link is an extract of above counties from the 2019 State of TN Comptroller PILOT report. See below comparison graphic which has been adjusted for population:

Research and Making Sense of Incentives – If economist Dr. Timothy Bartik’s Upjohn sponsored tax incentive research were applied to approved job tax incentives, it would reduce EDGE projected revenues from $1.44B to $183M for incentives approved through June 2020. Applying Bartik’s research requires multiplying EDGE’s $1.44B by 12.5% and results in an approximate  $1.26B EDGE revenue overstatement. And based on $619M in abated taxes, would result in a Memphis and Shelby County tax revenue shortfall of $436M ($183M-$619M) over the entire life of EDGE abatement awards. That would be $243M to Shelby County and $193M to Memphis in shortfalls. This data is based on EDGE approvals and represents both active and potentially active contracts.

As shown in the first section, using actual data over 8 years, there already exists evidence of a $306M Memphis/Shelby County tax revenue breakeven shortfall, from active incentive contracts, for all abating boards. This actual data observation would lend strong support to Bartik’s research findings for active and approved job incentives given typical abatement life terms exceeding 10 years.

As for EDGE, they use the Bureau of Economic Analysis RIMS II  research base for economic projections. However EDGE, in their use of RIMS, does not account for 1) some probability that the economic impact would happen without a 75% incentive, 2) the economic impact of the remaining workforce upon a company departure when projecting impact for retained jobs or 3) the economic impact of investing existing taxes abated into the community. Close reading of the RIMS technical material will reveal these deficiencies in EDGE’s economic impact modeling and use of RIMS II. See video demonstration:

Further, recent research from Slattery and The Economic Policy Institute, aggressively question the throughput of projections that use economic multipliers, as EDGE does with RIMS II, especially for low wage warehouse jobs. 

When the above is factored into current EDGE projection modeling, one easily arrives at a figure similar to the 12.5% Bartik concludes in his research regarding tax revenue projections from job incentives. Couple the former with an examination of actual Memphis/Shelby public revenue growth, since 2010 and strong support for applying Bartik’s research is shown. 

Applying a version of Bartik’s research is shown below against $703M in locally approved job incentives to include EDGE, Collierville Industrial Development Board and Downtown Memphis Commission’s FedEx Downtown award. Under Bartik, $344M would have been approved as opposed to $703M in job tax incentives. And for that matter, $344M in approved job incentives is hardly anti tax incentive. 

The following linked full reports, that apply Bartik, rank the most excessive incentives by percentage and dollar amount.  To view the smaller print in the below report images, click on the image. 

Comparative Nashville and Indianapolis Data – Comparative incentive policy can be discerned by reviewing these 2 data sources. These 2 linked data sources, combined with Bureau of Labor and Statistics data, result in the comparative data charts in this blog.This analysis results in the discovery of $320M in excess EDGE job incentives when factoring in the higher Memphis/Shelby property tax rate. 

Atlanta, Louisville and Memphis UPS incentives – This comparative analysis was done on similar UPS expansion approvals in 3 hub cities. By comparing the total jobs, wages, capital investment and adjusting for the higher Memphis/Shelby tax rate, it can be determined, based on incentive awards in other cities, that the EDGE UPS Memphis $38M award is in excess by $24M and should be $14M. 

It further appears, that Atlanta and Louisville, use something similar to Bartik’s research findings to more responsibly size their tax incentives. To see, the tax incentive fiscal note impact (TIFNI) tool and Bartik in action, review the following sizing reports for the UPS Atlanta, Louisville and Memphis projects.

The TIFNI Bartik tool, used to generate the above reports, recommends an incentive close to the Atlanta and Louisville awards, while the Memphis UPS incentive award is $24M in excess. It shows that other cities are using some approach similar to Bartik in sizing their job incentives. 

Keep in mind, through fee revenue, Memphis/Shelby abating boards are rewarded for offering as many and as large incentives as possible. For example, EDGE will pocket, upon closing, $300K for the excessive UPS Memphis PILOT award. This fee structure is a design for community decline. 

Conclusion and Solutions

The data is conclusive to support $50M in recurring Memphis/Shelby annual tax revenue shortfalls and $500M in deficient public investments, over 10 years, from elitist and excessive tax incentives. To summarize, five different research based methods were used to expose excessive Memphis/Shelby tax incentive policy implementation. The summary findings are as follows:

A $306M Memphis/Shelby breakeven tax revenue shortfall results, when using actual data from 2010-18, for all types of active incentive contracts from all abating boards

Per the 2019 State of TN Comptroller PILOT report, Shelby County exceeds its municipal peers by more that 3x, on parcels under active PILOT contract.

In 2 applications of Dr. Timothy Bartik’s Making Sense of Incentive research, a $359-$436M tax revenue shortfall results, from excessive job incentive approvals, which include both active contracts and approvals. Approvals will potentially become active contracts. 

In a benchmarking that adjusts for the higher local property tax rate, while comparing Memphis, Nashville and Indianapolis job incentives through 2018, a $320M tax revenue shortfall is revealed for EDGE incentives.  

While adjusting for the higher Memphis/Shelby property tax rate, an excessive EDGE UPS Memphis incentive approval occurred, by $24M, when compared to similar projects in Atlanta and Louisville.

Overall concerning, is the number of PILOTs granted for existing local businesses and the fee structure that rewards abating boards for offering excessive incentives. Solutions to manage, size, measure and publicly communicate information regarding tax incentives, include the following:

An implementation of Dr. Timothy Bartik’s research to size job incentives

A fiscal note for every abatement, otherwise known as tax incentive fiscal note impact (TIFNI)

A Shelby County Government administered consolidated database to size incentives, house and standardize all incentive information for 9 abating boards, to facilitate oversight, transparency and community measurement.

Shelby County Commissioners and the public are blindfolded during this budgeting process. Both Commissioners and the Community lack the public documentation to inform budget decisions related to the massive structural revenue problem facing Shelby County. Its a structural revenue problem brought by the previous Mark Luttrell administration through failed economic development.

The lack of public data rigs the system for more of the same. Commissioners and the public lack breakout data of historic residential property tax revenue, a current Shelby County Trustee report for projected total abatements for 2019 and into the future, any data at all on tax increment financing and the public availability of the EDGE quarterly report to be considered in the upcoming Commission meeting. 

If Commissioners had such public data, they would see that Luttrell’s 8 year Memphis Tomorrow economic development agenda, currently implemented, has failed. Needed breakout data would show flat residential property tax revenue over 10 years (above chart). Increasing home values, that have not occurred, is one of the primary ways that low to moderate income individuals build wealth. And to make matters worse, locally excessive economic development incentives are justified based on increasing County residential property tax revenues. 

Now, get ready for this data point which will be ruled incoherent by the local and non-reporting journalist community. After being ridiculed, shut out and even cursed by some local journalists, it’s clear they are jealous while not leading and pursuing my line of innovative and investigative inquiry regarding deficient economic development. Anyway, this data point is simple and coherent as it gets. The following data point was derived from published Shelby County Trustee reports:

From 2008-18, in exchange for promised County tax revenue increases and the abatment of $497M in taxes, Shelby County tax and other revenue only increased by $114M. 

See the excessive tax abatements and the catastrophic structural revenue problem ? The structural revenue problem is the product of the Mark Luttrell Memphis Tomorrow “economic development” agenda. The implementation of the former has resulted in a wealth transfer program occurring on the back of an impoverished community in need. 

Political Cake: Blame Luttrell

Blame Luttrell for the structural revenue problem. Its stunning, to see local government officials argue over what happened years ago, on the City Council, when a piece of political cake sits right in front of them in the Lutrrell administration.

After all, throughout the country, blaming previous administrations is politically done even when such blame is not true. In this case, blaming Luttrell for the structural revenue problem facing County government provides a political pathway forward while being honest with the public. Its win-win !

Over the weekend, Luttrell wrote an opinion piece in the Daily Memphian on current County budget deliberations focused on spending managaement. Luttrell said, “Economic development is critical as a remedy for the chronic underemployment and poverty that plagues our community.” Does anyone even know what Luttrell or anybody in this town means when they use the term of “economic development”? 

It’s a question worth asking because Luttrell went on to talk down County involvement in the Memphis Area Transit Authority. The fact is many communities consider getting people to work a vital component in economic development. So what does Luttrell mean by public participation in “economic development”?

Well, looking at what happened with Luttrell’s economic development agenda may provide insight.  Luttrell’s economic development agenda has resulted in the current County structural revenue problem. 

First Luttrell worked with the elitist Memphis Tomorrow complex to create the Economic Development Growth Engine (EDGE). He, in effect, helped to create an organization that is financially incented to award as many excessive tax abatements as possible. 

These fiscally liberal incentives are justified with the promise of increasing local tax revenues and spending with minority women business enterprises (MWBEs). Unfortunately, both excessive incentives and MWBE programming have lacked sufficient controls, systemically using bogus accounting to justify excessive corporrate/real estatte incentives, while out of town and locally affluent participants enjoy the fruits of MWBE programming. And there is more.

In 2014, Luttrell was a co-chair of the Brookings FOCUS Economic Development initiative. The plan set out to prioritize workforce development while targeting the industries of professional technical, manufacturing and agriculture while deemphasizing distribution. The plan was never measured or implemented while excessive tax incentives exploded for low wage warehouse jobs. Meanwhile, connected workforce development programming failed over a 5 year term, on the back of a foreign contract award, while dismissing small business and a community in need. 

So planned economic development was never implemented, excessive incentives exploded and workforce development failed. Any questions of why there is a structural revenue problem ?

Conclusion

Getting away from arguing over what happened on the City Council, and blaming Luttrell is expeditious. It’s honest while providing a political pathway forward in confronting Shelby County’s  structural revenue problem for the benefit of taxpayers. 

The policy solution would result in spending management, responsible tax/fee increases and research based economic development reform, far away from current day runaway elitism….