Exciting news for the Whitehaven community! As the new Interim Executive Director of the Whitehaven Economic Redevelopment Corporation, Michael O. Harris is already out of the gate with a small business grant program. Harris identifies as a data driven fiscal conservative, who wants to maximize return on investment for the residents of Whitehaven by expanding opportunity through small, medium and large business expansion in the area.

Given Harris’ current work as Director of Corporate and Government relations with Junior Achievement, which encourages entrepreneurship through youth development, getting out of the gate with a focus on small business is a natural for Harris. But, with a vision to increase opportunity for the area, Harris knows that small business alone will not get the job done.

Beyond small business, Harris will leverage his platform with the Greater Memphis Chamber to recruit medium and large enterprises to Whitehaven. This will be done while networking with the Rotary Club of Whitehaven Memphis-South, where Harris serves as President, to build even a stronger community framework for economic and workforce development to serve Whitehaven area businesses and residents.

Harris is committed to bringing his Rotary roots of “service above self” into this role as a servant leader. His desire is to work “inclusively, and honestly with the residents, businesses, churches and agencies of the community for the overall revitalization efforts of the Whitehaven Community.” Displaying his collaborative spirit, Harris has already partnered with Pearl Walker, President of the I Love Whitehaven Neighborhood and Business Association.

It’s just the beginning, but Harris is out of the gate supporting small business with tangible results. Next, under Harris for Whitehaven, is continued support for small business while building a pipeline of medium and large business to locate and grow the Whitehaven community for years to come.

While Cognate BioServices is a high quality economic development project, is anyone going to ask if a $52M corporate tax incentive is too much? After all, one can pay too much for a good thing. $52M is just too much. 

Think about it. In 2007, without tax incentives, of all the places in the United States, Cognate Bioservices smartly chose Memphis for manufacturing. In addition to manufacturing, Cognate also lists Memphis as it’s “US logistics hub“. A unique geographical location is the reason many companies select Memphis as its logistics hub. But why Memphis for manufacturing as well?

Cognate Bioservices manufactures biological and medicinal products regulated by the United States Food and Drug Administration (FDA). This FDA document testifies to the need for high quality water in the manufacturing of biological and medicinal products. While I am far removed from being a science expert, I suspect that Cognate’s decision to locate a biological manufacturing facility in Memphis was based on the plentiful availability of high quality ground water. 

IF the former is true, Memphis geography for Cognate’s distribution and high quality ground water for manufacturing is hard, if not an impossible value combination to beat. At the same time, its up to economic developers to extract that information from a project, in concert with a target industry strategy, to arrive at an appropriate tax incentive price for an economic development project.

Sadly, in Memphis, this economic development work does not seem to happen, with 75% tax abatements for all, while at times abating existing property taxes. This behavior has unfortunately created a market condition for excessive tax incentives, while undermining the tax base for a Memphis community in need. 

Market Condition and Analysis

First, given local market conditions and what other far less desirable projects than Cognate have received, Cognate is more than deserving of a $52M tax incentive. But is the incentive too much when benchmarked against research? Yes it is. 

In Cognate’s payment in lieu of taxes (PILOT) application, Cognate cited Baltimore and Dallas as alternative sites for their expansion project. If Cognate moved to Baltimore or Dallas, the cost alone would be huge, while additionally potentially sacrificing a high quality water resource with a natural filtration system in the Memphis sand aquifer. And moving to Baltimore would mean sacrificing a central geographic location when moving from Memphis. 

If my suspicion is true about Cognate’s need for a high quality water source, I don’t think Cognate is going anywhere with or without an incentive. After all, they located and expanded in Memphis without any incentive whatsoever.

Again, it is the work of economic developers to mine this information in determining the price to be paid for economic development. But that work is not being done in Memphis, because economic developers are, in effect, financially fee incented to represent corporations instead of the taxpayer ! So what is the right price?

Incentive Sizing

Using an amplified version of Dr. Timothy Bartik’s incentive research, in favor of higher tax incentives for Memphis, and assuming that a high quality water source is not a variable in the project location, the maximum incentive that should be offered for this project is $39M. This makes the $52M incentive, $13M too much. 

The $13M in excessive incentives, includes approximately $7M in already existing property tax abatements, that would appear to serve the interest of three landlords in Thompson Logistics, A.L. Dougherty and Exeter. History shows EDGE Board loves Exeter. 

Unfortunately, excessive local tax incentives are proven to be an obstruction to competitive economic development outcomes, while undermining the tax base and public framework that supports local corporations and improving the quality of life. That is why corporations themselves should be against excessive incentives. 

Cognate Ask

If Cognate voluntarily reduced their tax incentive, they would be a beacon of corporate community leadership in Memphis, while serving Cognate’s private interests. At the same time, given current market conditions and such an attractive project for the area, Cognate is deserving of the requested $52M incentive, which would arguably fall short in optimizing Cognate shareholder value. 

Therefore, in order to serve the overall interest of Cognate, this blog requests Mr. J. Kelly Ganjei, CEO of Cognate, to please consider 1) reducing their requested incentive from 75% to 60% abatement thereby reducing their projected incentive by $13M or 2) removing the $15-17M in existing real property value from the incentive, while preserving the 75% tax abatement on new capital investment, which would reduce the projected incentive by approximately $7M.

If this was done, Cognate would be a heroes of corporate community leadership, while serving their private corporate interest. Its a win-win !

Who knows what Ted Townsend thinks. But I bet, based on hindsight, Blackjack himself would now want $25M to have been spent on wrap around services to improve post-secondary completion rates. No reason to ask, the public University of Memphis, because the Greater Memphis Chamber now speaks for the University of Memphis on economic development matters. 

Here is what is known now. Based on an analysis of TnInvestco and LaunchTN data of Memphis startup companies, with local active State of TN certificates of existence, 74 jobs are associated with those Memphis startups that have leveraged State of TN funding. Those 74 jobs have materialized over ramp up period of 10 years. If one assumes that 50% of those jobs would have happened anyway, without State funding and a 50% reduction to arrive at marginal average filled jobs for the 10 yr ramp up term, that equates to 18.5 jobs over the 10 year term. 

The above comes after $24M, in State funding, has been invested in startups statewide by Memphis based Innova and MB Ventures funds, supplemented with $1.5M, specifically for Memphis startups provided by LaunchTN. That’s $25M in eligible state funding for Memphis, which based on the above assumptions, has resulted in a marginal average of 19 jobs in Shelby County over 10 years. 

Further, since from previous blogs it has been shown that the distribution benefit from startups to taxpayers has been meager, that leaves the primary public benefit being jobs provided by startups. From this program, the longshot hope for taxpayers is a startup will result in an explosion in local jobs through the creation of, for example, the next AutoZone. Nothing even remotely close to this has materialized which will be shown in the next section. 

So that leaves us with, “what if” hindsight analysis. What if $2.5M per year had been invested in wrap around services at $1,000 per year for at-risk post-secondary students, what would the result have been ? 2,500 students could be served per year with $2.5M, while increasing local public post-secondary enrollment. Assuming 3 year postsecondary completion and a 20% marginal success rate, that would equate to 4,000 more filled jobs by the end of year 10 and a marginal average of 2,000 more filled jobs across the 10 yr term as compared to 19 local jobs from startups.  

So even though annual enrollment would have jumped for all post-secondary institutions, to include the UofM, still not sure what Ted Townsend would say, while speaking for the Chamber and UofM. But what would have been best for taxpayers, is pretty clear. And that is investing in workforce. 

But what about the state funding for the local startup community? How did that fare for individual companies?

StartUp Status

The managers of the local startup funds, that have been supplemented by State TNinvestco and LaunchTN programs are Ken Woody of Innova and Gary Stevenson of MB Ventures. David Waddell is Board Chair of the Epicenter, that partners with LaunchTN to develop the local entrepreneurial ecosystem while interacting with funds like Innova and MB Ventures. 

First, most startups fail. So going over all of the failed ventures would not be productive, only to say, on the front end, that most of them have in fact failed. At the same time, looking for successes in the data, as expressed in local jobs and peculiarities is worthwhile. So here are some facts about local startup investments, involving TNInvestco, MB Ventures and LaunchTN:

Crossroads, an MB Venture funding startup shows the most local Memphis jobs, with 39. That comes after a $200,000 state investment and $33M private investment allocated by MB Investment. 

IScreen Vision has 11 Memphis jobs, after a $1.7M State and a $9.7M private investment allocated by Innova.

Cagenix, the recipient of a $1.3M state and $2.1M private investment allocated by Innova, reports 12 local jobs

Hapten Science, as allocated by MB Venture, has the largest local State investment at $2.1M accompanied with a $7.3M MB private investment. Gary Prosterman serves as Board Chair. Raymod Hage is the CEO but his LinkedIn profile shows he lives in Malvern, PA. Hapten reports 2 local jobs. 

Veracity Medical Solutions, which received a $1.4M State and a $400K private investment, as allocated by MB Venture investment, reports 19 local jobs but their website shows an Indianapolis address. 

A range of state funded startups like Hera Health, Diatech Diabetes, Second Keys and others list 88 Union as their business address, but none of the companies are listed in the directory at the physical location. Notable occupants of 88 Union include KBG Technologies and Crone Law Firm. 

Shown as a Memphis investment, Better Walk, as allocated by Innova and MB received 150K State and $3M in total private investment, has an Atlanta address and reports 5 local jobs.

Nanophthalmics, as allocated by Innova and MB, received $150K in State funds and is shown to be a Memphis investment. But the Secretary of State shows a Nashville address. 

Cast21, as allocated by MB, received $25K in State funds and $2.1M in private funds, has a Chicago address, per their website. 

Interestingly, two Memphis music startups in Musistic and Soundstache were supported not by Memphis but Nashville investors in the Solidus investment group with a total of $30K in state and $950K in private funds. 

There have been some exits from investments with the acquiring company, at times, being far outside Shelby County and at other times being local. Those company departures would appear to severely diminish local filled jobs, a promised benefit of taxpayer funding of startups

Please advise me if there are any questions of , suggestions for, corrections or clarifications needed for the above data points.

Closing Question

This startup programming looks similar to MWBE with only a small few benefitting. 

So, again Ted Townsend, speaking for the UofM and Chamber, which would you have preferred $25M in state funds to go to startups around the state or $25M to increase post-secondary completion rates?

References

TnInvestco Report – 2019

LaunchTN Report – 2020

LaunchTN Incite Investments

LaunchTN Impact Investments

The Tennessee Department of Economic and Community Development (TNECD) is accelerating economic inequality, in their small business programming, for a measly 4.1% annual return for Tennessee taxpayers. More of the return analysis later. 

TNECD program design, using taxpayer dollars, has incented venture capitalists to chase market momentum, where it already exists, in Nashville ! Folks like polo player Orrin Ingram and Denny Bottorff of Ingram Industries benefit from public funds, in Nashville, where it is least needed. Bottorff’s, Nashville NuScriptrx, took down $7.3M in public funding across 5 different funds, from both the TnInvestco and LaunchTN programs. Ingram’s YouScience project took down $1.4M from LaunchTN. 

Again, from the previous blog and per Bureau of Labor and Statistics, Nashville’s Davidson County has 37 business establishments per 1K population, compared to Memphis/Shelby at 23. The need for small business funding is in Memphis, not Nashville. Further, venture capital funds are often used to gamble on the next large company and not Mom and Pop’s, which is what Memphis needs more of to power its local economy. Memphis lacks sufficient small business establishments, especially in the Black community, to competitively power the local economy. 

Nashville and Memphis

In theory, TNECD programming, through TNInvestco and LaunchTN, supports capital formation for emerging small business entrepreneurs. But as one can see, public dollars are going to support established businessmen like Ingram and Bottorrf. Total State facilitated investments, from TNInvestco and LaunchTN programs, total $115M for Nashville and $24M for Memphis, while follow on private capital totals $768M for Nashville and $134M for Memphis. 

And to make matters worse, Memphis based INNOVA, of the TNInvestco program, redistributed $5.1M in state funding for investments outside of Memphis, while keeping $7.8M in Memphis. As far as INNOVA private capital, $42M was invested outside of Memphis, while $29M was invested in Memphis startups. Of the above, INNOVA invested $1.1M in state funds and $28.7M in private funds in Bottorrf’s NuScripts. See below table sourced from TnInvestco.

Unfortunately, Shelby County Government and Epicenter are both partnered with INNOVA. In a recent Daily Memphian article by Sam Stockard, Jan Bouten, INNOVA fund manager, was unavailable for comment. All that to say, on top of the elitist corporate socialist policy in Memphis, that favors large local corporations, it’s easy to see, from the above table, why Memphis struggles.

State ROI Analysis

Using public documentation, the above informal quantitative analysis was conducted, to facilitate initial policy discussions for greatly improving small business economic development programming. The above analysis is likely to change once TNECD answers questions posed by this blog. So far, TNECD has been unresponsive. 

To that extent, this blog welcomes suggested corrections to this analysis and feedback. Given the former disclaimer, a measly 4.1% Tennessee taxpayer annual return, over 10 years, was generated from TnInvestco and LaunchTN, seemingly to accelerate inequality, all while making risky startup investments and subsidizing select venture capitalists.

By comparison, the Tennessee Consolidated Retirement System generated a 9.4% annualized return in more conservative investments. And, not surprisingly, no one seems to know what private investors made on their investments. 

While building an ecosystem for entrepreneurship, TNInvestco and LaunchTN were sold to taxpayers based on increased tax revenue from more small business jobs and returns generated by investing in startups. Those benefits are included in the above analysis. 

To that extent, since several startup companies are participating in both TnInvestco and LaunchTN, both programs need to be evaluated together.  Given this, a total of 3,206 jobs was the outcome of the collective analysis, which took the highest number of jobs reported, per company, from both programs.

It was also assumed that investments, jobs and distributions, increased equally and linearly over the 10 yr. term. As far as economic multipliers, it is assumed that 50% of the investments would have occurred anyway without state funds, which in effect, imposes a 2.0 economic multiplier in the analysis. 

The analysis used conservative assumptions, based on public documentation, in favor of TNInvestco and LaunchTN. Based on this, it is more likely the 4.1% ROI will decrease than increase with informed feedback or additional information. The analysis included, for example, 356 jobs from the 40 year established, Nashville operating Gray Line Tours company. 

So please send me questions, feedback and suggested corrections to improve the analysis for the benefit of policy improvement, Tennessee taxpayers and small business. My email is jkent@pathtrek.net

References

TnInvestco Report – 2019

LaunchTN Report – 2020

LaunchTN Incite Investments

LaunchTN Impact Investments

BLS QCEW 

LaunchTN, a statewide small business program, appears to be a Nashville gang bang of the Shelby County taxpayer. Does anyone think small business in CEO and polo player Orrin Ingram? Ingram is CEO of the multibillion dollar Ingram Industries, SCORE Board member and polo player in his spare time. 

Seems Ingram Industries, their peers, and Nashville in general are getting the best of the LaunchTN small business program. LaunchTN is marketed as a statewide small business funding consortium  for entrepreneurs. But there is nothing in LaunchTN data to support that the public small business program is targeted toward areas of the most need. 

For example, Ingram’s venture capital project, YouScience, received $1.4M from LaunchTN. YouScience is a web-based programming platform, to help individuals select their career pathway. This is nothing against the product. YouScience, while not perfect, turns out to be a well designed suite of assessment tools, based on personal experimentation.

But this is about the LaunchTN program, where there is more for Ingram cronies. Another Ingram peer, in Denny Bottorff, of ND Acquisitions Corporation, doing business as “NuScriptRx”, took down $1.9M in LaunchTN investments. Bottorff is on Ingram’s Board of Directors.

The numerical data in this blog was provided by Ms. Van Tucker, CEO of LaunchTN. Tucker, who is relatively new to LaunchTN, was accommodative in providing data and hasn’t had time to influence the direction of LaunchTN. Hopefully Tucker will influence LaunchTN to direct its efforts more toward areas of greater need like Memphis.

The LaunchTN Board, Chaired by the Commissioner of Tennessee Economic Development, Bob Rolfe, ultimately approves LaunchTN small business investments. And their historical work translates into a Nashville gang bang of the Shelby County taxpayer. Besides, Nashville doesn’t need the help.

Nashville is growing like gangbusters and has 37 business establishments per 1K population compared to 23 for Memphis. Memphis needs approximately 4,000 more small business establishments to power the local economy, to be competitive with those municipalities, with far less establishments per 1K than Nashville, like Knoxville with 29. The former, per 1k data analysis, is informed by the Bureau of Labor and Statistics. 

Since 2012, here is a summary of LaunchTN Board approved investments for Nashville and Memphis MSAs. The “COMPANIES” column is the number of companies that have received LaunchTN investments and just happens to also coincide with the number of business establishments per 1k in Nashville. See data:

Interestingly, from the raw data referenced at the end of this blog, 12 of the 37 Nashville companies have no corresponding private investment while being accompanied with $11.2M in public LaunchTN investments. Ingram’s Bottorff’s NuScriptRx is one of those companies, while also reporting no retained or newly created jobs. What can you say. Its a Nashville Gang Bang…..

At the same time, with the exception of Second Keys, which just received $150K from LaunchTN, Memphis six other companies have accompanying private investments to go along with their LaunchTN investments. 

At any rate, a whole host of folks need to be concerned with the lack of funding coming into Memphis for small business from LaunchTN. Folks like Mark Yates and Roby Williams of the Memphis Black Business Association or even the Society of Entrepreneurs need to be concerned. All of this makes one wonder, what the hell is up with Epicenter ? After all., Epicenter is the designate local network partner of LaunchTN. 

Knock, Knock, Anyone at Home Epicenter ?

Based on my analysis of Memphis data, corresponding public policy and lack of economic development course correction, the decline of the local Memphis ecosystem, seems to be an intentional, elitist and corporate socialist design for decline and sell of the Shelby County taxpayer. I can’t find any data to refute that conclusion.  

To further confirm this, its just damn strange to see Epicenter Board Chairman and Memphis Chamber Board officer, David Waddell, writing a glowing editorial in the Tennessean on the Nashville Economy. One would assume Waddell serves on the Nashville Chamber, not the Memphis Chamber. C’mon Man !

And further, Richard Smith served on the LaunchTN Board for 4 years up until last year and Calvin Anderson and Waddell currently serve on the LaunchTN Board. Are you serious ? Only $1.5M from LaunchTN?

Waddell and Anderson should tell Rolfe and LaunchTN not to give the Ingram crew another cent, ever. Because they don’t need it ! And also tell, LaunchTN not to give the Nashville MSA another cent until Memphis gets $30M, based on a higher level of need. 

In the meantime, I hope to see the Memphis Black Business Association come alive as well as the Society of Entrepreneurs in public forums….. 

REFERENCES

LaunchTN Incite Investments

LaunchTN Impact Investments

BLS QCEW