We wrote last week about our hope that the newly-created EDGE organization will bring some new thinking to Memphis and Shelby County’s over-reliance on tax giveaways as the only arrow in our quiver, but we also hope they will consider some new concepts that ensure that the community does receive benefits if tax freezes are granted.
It’s a buyer’s market for companies looking to locate in Memphis. About $50 million in tax waivers given out by Memphis and Shelby County remain in effect. More tax freezes have been approved here than in seven other major Tennessee counties combined, and it’s hard to find a city with a similar over-reliance on them.
Economic development officials have said for 25 years that these financial inducements are necessary to bring new jobs to Memphis because of problems with our workforce, but little has been done to improve the workforce over the same period of time. More to the point, local government has a history of approving property-tax freezes for companies with the low-skill, low-wage jobs that are more and more headed for third-world countries.
All that said, it’s still hard to argue with the decision to open the city, county, and state government cash registers for Electrolux and Mitsubishi.
It’s All About Context
There has been some political blowback as a result of the $179 million for 1,240 direct jobs at Electrolux paying an average of $31,000 and $34 million for 281 jobs at Mitsubishi paying an average salary of $50,000, because the average incentive per job is about $140,000 — a number normally associated more with incentives for auto manufacturing jobs. (In essence, government is building the plant for Electrolux.)
And yet, incentives for new jobs have to be considered within current economic realities, and times have been hard for Memphis. As the Greater Memphis Chamber of Commerce pursued these companies, it was not lost on them that our economy had lost almost 35,000 jobs in the past nine years and in a ranking of the 100 largest regions, our region was ranked 89th in private sector jobs growth.
Job loss often begets more job loss because a city is seen by companies as in decline and it becomes a self-fulfilling prophecy. That’s why Chamber officials were desperate to change our narrative. But the really good news is that, supported by former Tennessee Governor Phil Bredesen, Memphis Mayor A C Wharton, and Shelby County Mayor Mark Luttrell, they were able to do more than just add 1,521 direct jobs and about twice that many indirect jobs.
Reasons
First, these jobs are in the urban core where existing infrastructure can be used without expensive new investments by taxpayers. Second, these are 1,521 manufacturing jobs, which continue to be the gold standard for cities like ours without a deep knowledge economy and with the need for jobs that pay more than just a living wage.
Third, these two plants — Electrolux will build ranges, wall ovens, and cooktops in 700,000 square feet, and Mitsubishi will build 400-ton, boxcar-sized electrical transformers in 330,000 square feet — could expand Memphis’ export economy beyond our traditional trading partners of Canada, Mexico, United Kingdom, Japan, and Germany into the emerging markets in South America, India, and China.
Memphis and Shelby County governments agreed to split $44 million in local incentives, and once again, our Noah’s Ark approach to funding projects means that Memphians pay a disproportionate share, paying 100 percent of the city’s $22 million and then paying about 70 percent of the county’s $22 million.
Tourniquet
Simply put, Memphis and Shelby County needed to do something dramatic to stop the bleeding of jobs and combat the negative trend lines for our economy. There’s no question that these kinds of large subsidies and incentives are unsustainable as long-range economic development policy, but on these two projects, the Greater Memphis Chamber of Commerce had little option but to adopt the approach that if you find yourself in a hole, the best thing to do is stop digging.
That said, if Memphis and Shelby County are to continue their over-reliance on tax freezes, it’s time to consider Community Benefits Agreements for companies that receive public incentives. These agreements — contracts between a company and a community coalition — set out the benefits that the city will get in return for its incentives. The most common benefits are living wages, local hiring, job training, environmental remediation, and funding for community programs.
For example, in an agreement in Washington, D.C., a company agreed to hold a job fair, to sponsor field trips for students, create hiring preferences for neighborhood residents, support for an arts festival, and internships. In cities like Atlanta, Los Angeles, Minneapolis, Milwaukee, and Seattle, these agreements have come from a grassroots movement demanding a reciprocal arrangement with new businesses. Memphis could be a pioneer by making these community benefits agreements part of the public approval process for tax freezes and subsidies.
Previously published in the May issue of Memphis magazine.
Not to nitpick, but it should be “arrow in our quiver.” Quivers are used to hold arrows. The bow is used for firing arrows. The bow and quiver never meet.
Sorry, grew up playing Dungeons & Dragons.
I like the idea of adding requirements for companies like you mentioned in other cities, but you have to be careful.
In the past, Memphis/Shelby County had residency and other restrictions and it blew up in their faces. Companies simply waiting until their PILOT was to expire and then they’d move their manufacturing/distribution operations five miles south to DeSoto County with fresh PILOTs and few restrictions. Employers can’t tell where future employees are going to live and they don’t want to try. You have to be careful with restrictions: it’s a fine line between adding requirements and being seen as anti-business. Shelby County hasn’t shown that delicacy yet in past PILOT requirements.
Thanks for the correction. That’s what we get for writing these posts so late with blurry eyes.
We know the anecdotes about the problem of residency and other requirements, but we’ve never seen any facts. We’d love some if you have them. As you say, it is a delicate dance.
Thanks so much.
If we had a payroll tax, we wouldn’t have to worry quite as much about residency. Ideally, companies here would hire 100 percent of their workforce from Memphis/Shelby Co. It’s difficult to compel a company to do that, however, especially when the company knows it holds all the cards. The least we could ask is for compensation for services (roads, streetlights, traffic lights, emergency services, etc.) from those who come into Memphis from elsewhere.
Keep wishing.
payroll taxes are not constitutional in Tennessee.
how about making expenditures match revenues you have?
what a concept.
If Memphians were to get jobs at Electrolux and Mitsubishi, they would soon move to Desoto County. It’s a trend all across America that doesn’t seem to have an end (only a pause now due to the housing recession). The proof comes from the 2010 census: Desoto County grew 50.4% (54,053) over the last decade and Shelby County grew 3.4% (30,172).
Elected officials in Desoto County and at the State and national levels are trying to cover all of Desoto County with roads and sewers to pull in more growth. Sadly the turmoil involving Memphis and Shelby schools will help push a southward migration. This is the classic push-pull scenario. The donut hole that is Detroit today gives a potential view of Shelby County in 30 years.
I hate to say this, but if Shelby County school system is able to freeze boundaries as a special school district, we might see more growth in areas like the Gray’s Creek basin and avoid the drain into Desoto County. This, however, raises issues about tax increases from urban sprawl in Shelby County instead of Desoto County.
Maybe a special school district could be created as a combination of the 6 small towns and their annexation reserve areas. This would create corridors of growth that would relieve Memphis and Shelby County of higher tax burdens, but it would create more segregation by race and/or class.
I hope our politicians can figure this out before the land developers come back with siren songs of “job creation housing projects”.
It’s possible to have something akin to a payroll tax by creating a privilege tax that could pass legal scrutiny. Without new revenues, city and county governments will be unable to make the investments in workforce and quality of place that will determine if we have an economic future in this economy.
I don’t know if you can track the number of companies which made internal decisions to move operations to DeSoto County after their Shelby County PILOT ran out. I’m pretty sure the executives would give another reason to the public.
That said, Shelby County can’t have those residency requirements or they simply lose those jobs directly to DeSoto County. Companies see Shelby County and DeSoto County as part of the same market, so if they can move half a mile south of the state line and not have any hiring requirements (must live in Shelby County, must hire XXX percent minorities, bonuses given for hiring convicts, etc.), these executives will just take the path of last resistance.
I think it would be interesting to see more coverage given on how many tax breaks and the like DeSoto County gives. Shelby County is above board, sending the information to the media and the public, and they get killed for it. DeSoto County does it quietly and the media and DeSoto County public are either too lazy or inept to fight through the bureaucratic red tape and find out how much it is giving away.
Without the “but for” test that we wrote about last week, it’s hard to quantify the impact of anything related to PILOTs, but we are a regional economy. It’s not enough to talk the talk. We have to walk the walk.
But we’ve said before, and we may be a majority of one, we don’t particularly care if warehousing jobs move to DeSoto County. Let taxpayers there pay for some of the regional infrastructure for awhile.
Thanks for the comments.
PS: One thing DeSoto does do well is that it has little to no bureaucracy so companies talking to them do not get a lot of bureaucracy and mounds of documents.
EDGE will never overcome the little minds and superficial enticements of the DeSoto County legislators and the emigrants from Memphis. And the companies looking to locate or relocate to the Mid-South will buy their “we are safe, we are educated, we are sophisticated mantra. Sophisticated, forward looking, 21st Century and Southaven have absolutely nothing in common.
It is going to take more than words and ads in commercial real estate publications to move us forward.
louise baby~
you got that right ! BINGO