The timing is right for Memphis and Shelby County to determine what tools it needs in its toolkit if we are to compete in economic development.
Then again, we should more often use some tools that we already have — Tax Increment Financing, Business Improvement Districts, and other state-authorized incentives created to attract investment and pay for infrastructure and improvements in targeted areas.
The timing is right because of the establishment of EDGE, the city-county economic development organization, and the Memphis Shelby Growth Alliance, successor to Memphis Fast Forward’s Memphis ED initiative. With a strong economic development infrastructure in place, we need an inventory of the incentives and tools found in cities where the economy is moving in the right direction, we need to see where the gaps are, and we need as a unified community to lobby the governor and the legislature for changes in the law to respond to our needs.
After all, this administration and this legislature are intent on doing whatever they can to help business. A good step in that direction is to give communities like ours stronger tools to attract and expand jobs and business investment.
Getting on the EDGE
It is the lack of a cohesive set of state incentives that led to our community’s overreliance on tax freezes, because without adequate options from the state level, the responsibility for coming up with a successful package of incentives was pushed down to local government. There’s no denying that we have used tax freezes in a way that has been more about real estate development than economic development and we have gone overboard with the rubber stamping of tax freeze applications and the dubious economic impact reports to justify them.
As the keeper of public incentives, EDGE needs to reassess all existing incentives objectively and carefully to ensure that they are invested and targeted as wisely and strategically as possible. Meanwhile, the Growth Alliance, representing every city in Shelby County, should help with this assessment by telling EDGE members what they need in their toolkits to be more competitive in the battle for jobs and investment.
If they start by comparing our list of incentives to those in other cities, we predict they will be surprised at the array found there. That said, we need also to use the incentives already on the books like Tax Increment Financing (TIF).
There are now only two TIF districts in Memphis. There is the Uptown TIF which embraces a district and there is the site-specific TIF at Highland Row for the yet-to-be-developed project at what will become the new front door for the University of Memphis.
Ripe for TIFs
Over the years, there have been other suggestions for TIF districts but local government has been reluctant to approve them. We’ve even raised questions ourselves at times, but we have none now. The challenges are too serious and the need too great to delay in putting every incentive to work for Memphis.
There are two reasons Memphis is ripe for TIF districts. With 27% of mortgages here upside-down, next year’s reappraisal will show drastically reduced property values in Shelby County. Because TIF districts only make sense when there is obvious and documented upside potential for increased property taxes, the low water mark for valuations means that as the economy improves, there is significant potential for increased property taxes.
Secondly, interest rates are less than 3% for government bonds, so the price of debt service payments is half of what it was three years ago and reduces any risk appreciably. There is of course the third reason: Memphis has to do something because the consequences of refusing to reinvest in the city means that we have no one to blame but ourselves for a continuing downward spiral.
When the hole you’re in is getting deeper and deeper, you have to try something drastic and dramatic. That’s why despite our general distaste for our rampant tax freeze policies, we thought the Electrolux deal was warranted. We think the same applies to our neighborhoods, and in particular, we think a TIF district should be considered as the way to pay for the garage at Overton Square that will trigger new investments that in the end means that the reinvented Square will overshadow its former glory.
Kicking the PILOT Habit
TIF is the favored business incentive in Nashville, and it is a major reason that our capital city issued only five tax freezes in a 10-year period, while we were handing out 415 of them. Meanwhile, in Chicago, the TIF is credited with the city’s economic turnaround of recent years. On the city’s list of available financial incentives, TIFs are first, and the city has used them heavily to its advantage. Chicago has tailored strategies around tax increment financing to create TIFWorks, which allows businesses in the TIF district to get up to 75 percent of workforce development costs; Small Business Improvement Fund, which uses TIF revenues to fund improvements to small business properties; and the Laboratory Facilities Fund Program, which uses the TIF to attract lab space and technology companies.
Nashville and Chicago, where they have witnessed a renaissance in economic growth, there’s been almost no mention of tax freezes. Instead, it’s about the TIF, which allows government to borrow money and build the public infrastructure that a business prospect needs, such as roads and utilities. Government then pays off the debt by taxing the higher values of the development. In other words, business gets the benefits, but not by shifting the tax burden to existing taxpayers.
We think Soulsville is prime for a TIF district or a BID or we should lobby state government to apply the philosophy of the Tourism Development Zone to neighborhood reinvestment. The only TDZ in Memphis is the Memphis Cook Convention Center district but city government intends to seek one for the Fairgrounds where the “qualified public use facility” is Liberty Bowl Memorial Stadium. There is also discussion about seeking a TDZ in Whitehaven to fuel improvements to the Graceland area.
Looking to the Future
As we wrote in our last post, we need an all-hands-on-deck approach to improve Whitehaven. While we understand why state government’s TDZ legislation focuses on large-scale facilities, tourism attractors like Soulsville need support too. But Memphis has also not taken full advantage of Business Improvement Districts (BID), and this and a TIF seem a mechanism worth considering for Broad Street.
No business incentive is perfect, but it’s time to look beyond PILOTs to a time when we have a more balanced, diverse mix of business incentives in Memphis and Shelby County. In leading this review and in creating a new system of incentives, our economic development experts demonstrate their concern to the taxpayers who are in the end responsible for all these incentives in the first place.