Thawing Out The Logic About Tax Freezes

At the risk of being burned at the stake for heresy, we just have to say it: we don’t care if warehouses are moving from Memphis to Mississippi.

And while we’re at it, let’s be honest about one more thing: tax freezes are more about land development than economic development.

But as long as our economic development officials measure success by giving tax waivers rather than limiting them, we’ll continue to chase distribution jobs and pretend that they somehow are positioning Memphis to succeed in a knowledge economy.

As long as we talk the talk about the power of a regional economy and but can’t walk the walk, our obsession with North Mississippi will continue to erode a healthy, balanced economic development strategy.

It’s An Entitlement

Maybe, just maybe, North Mississippi is luring the kinds of companies we shouldn’t really worry about, because the vast majority of employers who are still here are the value-added kinds – those that pay good salaries for good jobs.

And maybe, just maybe, we should be focused on keeping people, and it starts by doing a better job of explaining that taxes in North Mississippi are higher than taxes in many parts of Shelby County. Perhaps, we should let Mississippi pay for the infrastructure that distribution facilities want and we should do our best to keep the people who work there.

But that’s not what we do and because of it, to this day, no one has adequately explained why over a 10-year period, Memphis and Shelby County approved more than half of the state’s tax freezes – 809 of them – while Nashville approved only five. Or put another way, Memphis approved more tax freezes than Nashville, Chattanooga, Jackson and Knoxville combined.

A former director of the Nashville mayor’s office of economic and community development put it best: “Incentives should incentivize. Once it becomes an entitlement, it’s no longer an incentive.” It’s easy enough to know which noun applies to tax incentives here.

Why Do We Fight For Them?

For 15 years, it’s been real estate development interests that have driven the lobbying that turned tax freezes into entitlements, and they took them to the point that warehouses may never again pay taxes in this city. It is sobering to drive down Shelby Drive and Holmes Road in Southeast Shelby County and realize that a handful of the hundreds of warehouses covering the landscape are paying property taxes.

It almost defies logic. If a company doesn’t understand the added competitive power that comes from being in the world headquarters of FedEx, perhaps they’re simply too stupid to care about in the first place.

But if we don’t give taxes away, we’re told we’ll lose the “logistics business” to Fayette County or DeSoto County. The key question regarding warehouses is this: why should Memphis taxpayers care where they locate? If they locate in Shelby County and get tax freezes, it just perpetuates the disproportionate share of local property taxes being paid by homeowners and small businesses.

Years ago, city and county governments hired a firm to analyze land use and taxes. After inputting the data, he called officials to say that he could not deliver the final report on time because his computer malfunctioned. He was given extra time.

Error Message

A few weeks later, he called again. He reported that the computer hadn’t malfunctioned after all. Because so many large swaths of property were off the tax rolls – particularly mile after mile of warehouses in South Shelby County – the computer “thought” that the data must be faulty and sent an error message. Shelby County was not similar to what was normally found in other metros like ours.

As syndicated columnist on urban affairs Neal Peirce has written: “Call it, if you will, the crack cocaine of state and local governments’ economic development practices — their endless flow of tax breaks and outright gifts to private corporations they either want to land, or figure they have to pay off to stay put.”

Today the practice runs so deep, pervading such a huge number of corporate location moves, that officials — even those who privately admit it’s an insane, zero-sum system — keep on forking out the cash, no matter how incredibly costly the addiction. For years Greg LeRoy has been America’s chief whistle blower on the subsidies, which he estimates add up nationally to $50 billion a year.

So what should be done? First, says Mr. LeRoy, “disclosure-disclosure-disclosure.” When the public is informed, the jobs blackmail diminishes. As we have frequently said, this begins by posting every tax freeze on the city and county websites. Then set up serious “clawback” recapture provisions when a subsidized firm doesn’t fulfill its job-producing promises. And stop all subsidies for retail deals, except in truly-depressed inner-city neighborhoods.

Reinvestment Needed

And, let governments, Mr. LeRoy proposes, start registering and regulating the site location consultants who make often negotiate the public subsidies. This would stop them from double-dealing (and driving up subsidy costs) by requiring that they take payment from just one party to any transaction.

But the really fresh ground LeRoy plows is a big reminder to us that the scramble for jobs that ignited the subsidy wars will soon be pointless — and simply unaffordable. With baby-boomers headed toward retirement, we’re likely to face an enormous shortage of skilled workers. From 1980 to 2000, the pool of prime-age (25-to-54-year old) workers increased by 35 million. But from 2000 to 2020, the expansion will be just 3 million. Teachers, nurses, expert workers of all sorts will be in desperately short supply. Huge new efforts (and spending) for workforce development will be critical to stop a slide in the United States’ standard of living.

At the same time, America’s physical plant is suffering from serious disinvestment and deterioration. Traffic congestion is costing our economy $67.5 billion a year; thousands of bridges need replacement; wastewater systems are in bad shape; almost 2,600 dams are now deemed unsafe; transit spending is far below what’s needed to maintain even the inadequate systems we now have. The American Society of Civil Engineers totals the repair bill at $1.6 trillion. Discount that 50 percent and the pending bills are still staggering.

The bottom line, says Mr. LeRoy: “We need reinvestment, not disinvestment.” It’s time, he asserts, to take a “fine-tooth comb” to the $50 billion states and cities are now spending for corporate promises of jobs. Any subsidy that doesn’t serve compelling public need by creating more skilled labor, or doesn’t provide a “carrot” for companies to invest in new skills development, should go on a list for likely elimination.

It’s time, Mr. LeRoy concludes (as if speaking for Memphis taxpayers), for sweeping reform of the subsidy policies and to recognize them for what they are: “wasteful handouts we can no longer afford.”