EDGE pioneered in the transparency of corporate business incentives, and although it slipped very slightly in the latest ranking, it needs to give some pointers to the Downtown Memphis Commission.
That’s the conclusion to be drawn from the latest report from Good Jobs First about economic development agencies’ commitment to providing detailed information about business incentives like PILOTs (payment-in-lieu-of-taxes).
It is estimated that across the U.S., more than $70 billion in public tax waivers or tax money is given to companies in the name of economic development.
Whether you think tax waivers are corporate welfare that merely pad the bottom line of corporations and drain much-needed revenues from local government or that they are crucial investments that are absolute necessities for the Memphis economy to grow or if you are in the middle like us, thinking they should be more strategic, targeted, and infrequent, EDGE deserves credit for setting the standard in 2013 for similar economic development agencies in revealing data to the public.
Nashville Brings Up The Rear
After all, half of the largest 50 cities and counties do not disclosure information at all. Only New York City’s Industrial Incentive Program got 100, but its other program got a zero. Meanwhile, EDGE received an 85 and was tied for second place – behind Austin and tied with Franklin County (Columbus), Ohio; Nassau County (Long Island), New York, and Suffolk County (Long Island), New York. Nashville received a grade of 20 and among the cities with some transparency, it finished last.
Downtown Memphis Commission got a 45.
Factors evaluated were facility address, date of award, approved dollar value of subsidy, jobs projected and/or required, annual subsidy provided/claimed, actual jobs created, wages/payroll, multiple years of data, accessibility and user friendliness, and downloadable data.
The report said: “Memphis-Shelby County PILOT’s program, which tied for best in our last study, ranked lower this time because it does not provide adequate information on the actual subsidy provided to companies, does not have an option to download the data, and presents details of disclosed awards in a rather complex way. Still, the level of disclosed information is impressive.
“The Economic Development Growth Engine (EDGE) for Memphis and Shelby County hosts a database on PILOTs agreements. The database includes a lot of useful information on the awards. One of the lowest-scoring programs, Nashville Davidson County’s PILOT, is also from Tennessee. Contrary to its counterpart, the program is disclosed through a state agency and includes only basic information on recipients.”
As for the Downtown Memphis Commission, the report said: “The Commission also hosts a website with basic project summary pages but those do not list developer names. The Commission table does not include subsidy data but this information is partially included in Annual PILOT Reports published by the Shelby County Trustee on its website.”
The report added a “word of caution.” “A program may be transparent and provide a wealth of information, but that does not mean that it’s effective or should exist,” it said. “Chicago’s Tax Increment Financing program, though very transparent, is a highly problematic program and is known to harm the city’s finances. And finally: a big unknown is the cost of various subsidy programs to local (and state) jurisdictions.”
This will change to a degree with a new accounting rule, Governmental Accounting Standards Board Statement No. 77 on Tax Abatement Disclosures, because state and local governments will be required soon to report how much revenue they lose to each economic development tax-break program. Even though the new rule will not require disclosure of grants or loans or the names of subsidy recipients, simply receiving cost data from an estimated 50,000 governmental units will improve transparency and our understanding of subsidy programs.
It’s a start.
Incentives Not Pivotal
Business incentive believers are a lot like climate change deniers. It’s easier to ignore the conclusions that are reached in study after study.
We thought of this again last week with the release of yet another study, this one by W.E. Upjohn Institute for Employment Research’s Timothy Bartik, a leading student of incentives and economic development, that concludes that tax breaks are worse than useless.
“Incentives are still far too broadly provided to many firms that do not pay high wages, do not provide many jobs, and are unlikely to have research spinoffs,” Mr. Bartik wrote. “Too many incentives excessively sacrifice the long-term tax base of state and local economies. Too many incentives are refundable and without real budget limits. States devote relatively few resources to incentives that are services, such as customized job training. Based on past research, such services may be more cost-effective than case in encouraging local job growth.”
But the proverbial bottom line is this: “The broad body of evidence on incentives…finds that incentives do not actually cause companies to choose certain locations over others. Rather companies typically select locations based on factors such as workforce, proximity to markets, and access to qualified suppliers, and then pit jurisdictions against one another to extract tax benefits and other incentives. A 2011 Lincoln Institute of Land Policy study found property tax incentives to be counterproductive, being all too frequently given to companies that would have chosen the same location anyway. So instead of creating new jobs or spurring employment, the main effect of incentives is simply to deplete a community’s tax base. Since poorer states and communities are more likely to use incentives in the first place, the end result is to undermine the resources and revenues of the places that can least afford it.”
Exactly how many studies and research reports have said the same thing? It’s not possible to count them all, but it’s stunning how our local lack of self-confidence and self-worth feed our need to believe we have to bribe companies to create jobs here – even companies that have been part of this community for decades.
Economists’ Answers To Questions, Not Just Data
We are pleased that EDGE recently announced that it is partnering with the University of Memphis Sparks Bureau of Business and Economic Research to develop a data warehouse, web portal, and editorial content. This new arrangement brings an academic rigor to EDGE’s data and analysis, and for data junkies like us, it offers exciting prospects.
According to Sparks Bureau officials, they will create “curated data that will describes the Memphis and Shelby County MSA’s economic condition and provides comparisons to peer metros throughout the country.” We can only hope that the new partnership provides us with the incentives in other cities, the per job cost of incentives, etc. These answers would go a long way to inject facts into the PILOT debate.
As EDGE and the Sparks Center considers their future, we hope that the expertise and knowledge of the U of M economists will be used to provide professional insight into understanding business incentives. That’s probably beyond their agreement, but like its work on transparency, EDGE has shown an interest in serving the public interest, and as a result, we hope some of the following questions are addressed:
When the tax freeze program was created, it was said that they would be a temporary, stop-gap policy used until Memphis and Shelby County could recruit jobs on the basis of quality rather than cheapness. When and how do we get to that point?
Why do Memphis and Shelby County need to dole out tax waivers to distribution companies who should recognize the benefits of being adjacent and accessible to FedEx? At what point can we stop offering incentives for these low-wage distribution jobs?
What are major distribution operations in our community doing to avoid providing a living wage and benefits envisioned by the PILOT program? How pervasive is the policy of hiring temporary workers in warehouse and distribution facilities and releasing them to prevent the legal requirements of fulltime employees?
Doesn’t the policy of giving waivers for people to keep jobs in Memphis and Shelby County make the threats of moving them to Mississippi now pro forma? What harm does it really do to Memphis and Shelby County for businesses to locate just over the county line in DeSoto County? How do we walk the walk of regionalism instead of just talking the talk?
If a company is not viable enough to pay decent salaries and provide basic benefits, why is it in the public interest of Memphis and Shelby County taxpayers to subsidize them in the first place with a tax freeze? What is our strategy for attracting good jobs by leveraging existing competitive assets to shift our focus to high-value, nonreplicable global class assets?
Often our economic development strategies seem to be akin to fishing downstream and whatever comes by, we fight mightily to pull ashore. What could we do to move upstream where we can compete for the really big fish? What can we do to compete with other regions of the U.S. rather than compete with North Mississippi?
What is the average cost of public services to these companies that have to be shifted to property owners because the companies pay no taxes? Doesn’t it make more sense to measure median job salaries rather than average salaries?
Hope Springs Eternal
It’s been 11 years since we put forth some modest principles for economic development:
#1 – Quit selling Memphis at a discount.
#2 – Exhibit loyalty to Memphis taxpayers rather than to corporations.
#3 – Define success by measuring benefits to people, not construction and real estate.
#4 – Abandon commodity economic development.
#5 – Set national standards in economic development.
#6 – Don’t wait for the game to come to us.
Here’s the main thing about PILOTs: the public might be supportive of them if economic development officials are trying to create a context where success is defined by how few tax freezes are handed out, not by how many.
We believe that the most successful cities in the knowledge economy are selling themselves on the basis of quality. We continue to sell Memphis on the cheap. For 12 years on this blog, we’ve been asking if there is a plan to move us to the quality category.
We asked it when we were the first to report that Memphis and Shelby County gives away more tax freezes than all the other large urban counties in Tennessee combined. We asked it when the city-county’s own consultants reported that the IDB procedures were badly flawed and that reform of the program was temporary at best. We asked it when professors and Forbes criticized our tax freeze program as counterproductive and illogical.
This is not merely EDGE’s responsibility, but all of the public, private, and nonprofit sectors. We admit it will be a heavy lift because we’ve dug the hole pretty deep but doing more and expecting different results, well, you know the rest..***
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