The recent letter by FedEx executive Richard Smith critiquing the work of the Economic Development Growth Engine (EDGE) will hopefully provoke a long overdue and fact-based conversation about why the city-county agency hasn’t fulfilled its highest priority of creating an actual economic development plan, why tax freezes are now entitlements, why we continue to conflate real estate development with economic development, why we fight to keep every low-paying distribution job in Shelby County instead of letting them go to DeSoto County where its taxpayers can foot the bill for infrastructure, and why there has been no fine-tuning of the PILOT program as it waives taxes while city and county services need more funding and the number of jobs being created lags significantly behind 15 years ago.
If we want to have the kind of wide-ranging, deep discussion that this community needs about economic development and its incentives, here are a few of our questions:
When the modern tax freeze program was created about four decades ago, it was said that they would be a stop-gap tool used until Memphis and Shelby County could upgrade its workforce and recruit jobs on the basis of quality rather than cheapness. When is there a real plan to get us there?
Why do Memphis and Shelby County need to dole out tax waivers to distribution companies which should recognize the benefits of being adjacent and accessible to FedEx? At what point can we stop offering incentives for these low-wage jobs?
More Q’s Seeking A’s
When do we quit acting like the construction costs of distribution centers like the one for Amazon is the ultimate indicator for success? When do our officials understand that real estate development is not economic development?
What are major distribution operations in our community doing to avoid providing a living wage and benefits envisioned by local elected officials? How pervasive is the policy of hiring temporary workers in warehouse and distribution facilities and firing them to prevent the legal requirements of full-time employees?
What do the trend lines look like for the amount of tax waivers given each year and the cost of each job that is created?
Doesn’t the new 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 distribution centers to locate in DeSoto County? Why not let DeSoto County bear some of the cost of the regional economy for a change?
Why are we so obsessed with North Mississippi since about 75% of the jobs and earnings are here in Shelby County? We say that Nissan located to Nashville when it’s actually in Franklin/Cool Springs, and we say Dell located to Nashville when it’s Lebanon. Hernando is Memphis in the eyes of everyone but us. How do we walk the walk of regionalism instead of just talking the talk?
Wanted: Answers
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 with tax freezes in the first place? Are these really the companies on which we want to base the future of our economy?
What is our strategy for attracting good jobs by leveraging existing high-quality assets by enlightened leadership with a visionary ownership of opportunity? What do we do 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 our own region?
Since EDGE has been delegated the power to waive taxes by the City Council and Shelby County Board of Commissioners and those legislative bodies could have retained the power, does the Council and Commission have priorities that should be incorporated into the current criteria for a tax freeze? How does the IDB align its objectives with the priorities of the Greater Memphis Chamber?
The former head of Nashville’s economic development office said, “Incentives should incentivize. Once it becomes an entitlement, it’s no longer an incentive.” How do we make PILOTs incentives rather than entitlements?
And There Are More
What is the average cost of public services to these companies that are shifted to property owners because the companies don’t pay their fair share of taxes?
Why not review the 2005 city and county government-funded report by URS Corporation and NexGen Corporation that called for a “but for” test to see if their recommendations could result in smarter investment of incentives and the George Mason University’s Mercatus Center’s 2006 study that concluded that the PILOT program violates the principles of good tax policy? Could a more disciplined, strategically targeted PILOT program increase public confidence in the program?
What is the logic of retention PILOTs that are based on an overstated return on investments and do not include factors like the cost of a company moving from Memphis? What is the logic of retention PILOTs that allow giant corporations with annual revenues in the billions of dollars to avoid paying their fair share of taxes when small businesses and startups – the source of most new jobs – don’t have this luxury?
How do we dislodge the PILOT program from 1980s thinking and move it into the 21st century?
Why not hire a third party independent analyst to develop the facts and statistical context for the PILOT program? We have an overabundance of talking points and a paucity of facts.
If tax freezes are working, why have we not returned to the 10,000 jobs level we were experiencing annually as the 20th century was drawing to a close (and at a time when the Greater Memphis Chamber was responsible for jobs recruitment and incentives negotiations)? Why does our economy continue to languish near the bottom of the ranking of 50 largest metros in the economic indicators that matter most if the PILOTs program is working so well?
Old Economy Thinking
Too often, it seems that our economic development thinking is built on “old economy” beliefs rather than the realities of the “new economy.” The old economy is about being a place where it is the cheapest to do business, but the new economy is about being a place rich in ideas with talent as the driver.
In the old economy, chasing companies was the priority, but in the new economy, attracting educated people is. In the old economy, high-quality amenities were a barrier for cost-conscious businesses, but in the new economy, physical and cultural amenities are keys to attracting knowledge workers and young adults which in turn attract jobs.
In the old economy, regions won if they possessed a fixed competitive advantage, but in the new economy, regions succeed if organizations and individuals have the ability to learn and adapt. In the old economy, minority workers were the sources of low-wage jobs, but in the new economy, African American entrepreneurs and businesses are the paths to prosperity.
In other words, we are often having an outdated conversation when it comes to economic development, even as the income disparity between African Americans and whites remain the same as it was about 40 years ago and 40,000 Shelby County Schools students live in families earning less than $10,000.
If EDGE and other agencies are to treat incentives as entitlements, they must at least set performance standards that define its success in an increase in income, decrease in poverty, and an increase in higher-wage jobs.
If the letter by Mr. Smith about EDGE could stimulate this kind of honest analysis and candid conversation, he would have moved this community a major step forward in actually competing for the kinds of jobs that we have long coveted. We would all owe him a debt of gratitude.
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I would hope overall that someone would move to involve new people and ideas that know who the CUSTOMER is in customer taxpayer funded community and economic development initiatives. The questions raised in this article challenge community development leaders to do just that while moving away from the “informal networks” as identified in the Memphis diversity study and the closed compact thinking of the past. While the political prowess of The Memphis Tomorrow Executive Committee which birthed EDGE is impressive, it does not appear that the current implementation has done much to serve the local business community or the community in general. The business community and its employees lose when tax abatements sacrifice safer streets, a better workforce and needed public transit for example. I believe data and quantification in the form of tax dollars adds needed context to the current conversation. See http://mcclmeasured.net/mt
One of the most tired and misreported narratives in the region. For example, Mitsubishi. The Belz property, where Mitsubishi built their cutting edge plant, had sat idle for something like 50+ years, generating about $50,000 in annual property taxes to the City. Do the math. Along comes evil Mitsubishi, the Chamber and EDGE. Total investment in the new plant, reportedly $250,000,000, 300+/- employees with average wages of $50-55,000, a poverty wage no doubt, wink, wink. Total annual payroll, do the math. With the dreaded PILOT in place, Mit payed something like $600,000 in property taxes, compared to the $50,000 the property had generated. Do the math. What was the construction payroll. How many indirect and induced jobs were created? Stay with me…$50,000 per year empty field with weeds to $600,000 property taxes with PILOT, new jobs, etc., etc….how is this bad? Most, if not all PILOT’s have similar scenarios. From empty fields and buildings generating little to new creations generating much, much more.
So, you really believe that this company with $60B in revenues a year made a decision to building Memphis because of the tax freeze?
Your talking points are based on the assumption that companies make these kinds of big investments based on tax freezes. All research and event corporate executives own statements contradict that theory. The PILOTs are mere lagniappe for decisions that are already made.
The PILOTs don’t transform empty fields into tax-generating operations. Companies do. The task is to disburse PILOTs where they are actually needed – the so-called “but for” test recommended more than a decade ago by city and county government’s own consultants – to make a project work rather than just the entitlement that it is now. It requires leadership and honest conversations about what attracts jobs. Hint: it isn’t PILOTs in the vast majority of cases.
You’re not very well-researched, Well-Researched. Why are startups and small businesses dying for lack of any help from government but it’s ok to throw millions away to giant corporations? It’s the startups and small businesses that create the jobs. If they had the money given away to multi-national companies, our community’s economy would be a dynamo. But when it comes time to really support startups and small businesses, it’s all happy talk about how important we are but no financial support.
The research proves that investments in startups and small businesses pay really, really big dividends. They taxes given to these giant corporations is just money throw away so politians can go to ribboncuttings.
PS, Well-Researched, don’t give me the average salaries. Give me the median salaries. EDGE and the Chamber have been hiding the real number that matters for years.
You guys always argue about what these incentives take away, the negative impact, lost revenues…Barbara Streisand. What was there before, what was it generating, what is there now, with a PILOT, what is it now generating? Pretty simple math equation(s) really. Take the recently announced Amazon Receive Center…that building has sat empty, that means that there is zero going on there, no jobs, little of no property tax revenues, no construction jobs, nothing, moth balls, crickets. here comers Amazon, with incentives…renovate a 500,000 sf building (ask those sub contractors how their Christmas was….), 500+ new jobs. “oh, those are low wage jobs, poverty jobs!!!” If dad is making $35,000 there, and mom is making $35,000 there, I would hazard to guess that $70,000 annually works in Shelby County? No? What have the property taxes been over these last 15 years? That is revenue to the City..$8000 pr year? $10,000? New property tax revs to Memphis, WITH a PILOT…what? $350,000 per year? $400,000?
Matt you are absolutely right on small business ! When the EDGE retention PILOTS started small business vitality tanked in Memphis. See my page at http://mcclmeasured.net/edge . Well Researched, based on the PILOTS that you have identified, you seem to be referring to and defending EXPANSION PILOTS. Expansion PILOTS are needed, although some of the expansion PILOTS for lower paying warehouse jobs may use overly generous economic multipliers based on a recent study by the Economic Institute. The problem is with RETENTION PILOTS where the taxpayer is paying abatements on jobs that already exist and renewing PILOTS resulting in 30 year abatements. Further, the EDGE Board in economic impact studies does not account for the a) the probability that a company will stay without a retention PILOT and avoid risk and hefty relocation costs 2) economic impact of existing workforce or 3) forgone economic impact if tax abatements were invested in the local vs the global community. This lack of accounting on retention PILOTS therefore does not accurately reflect the cost of retention PILOTS to the community. So Well Researched I agree responsible Expansion PILOTS are needed but not Retention PILOTS.
Small Correction to the former post: “2) economic impact of remaining workforce upon company departure”
Well-Researched: You seem to be blind to the elephant in the room. $70 million of tax money is being waived every year – and some for companies who get a second 15-year PILOT (show us another city who is doing this) – and there is no assurance that the tax freezes are smart investments, which means the PILOT isn’t needed because the company is coming here anyway.
In other words, it is anything but a simple math equation because you don’t have any idea of the variable involved in it. And within the past 12 months, a tax freeze was approved for jobs paying $12 an hour. There is no defense to it, because it serves no real public purpose. If the public is going to invest its tax money in these companies, there has to be a public purpose.
It’s time to think of community benefits agreements and in some cases like hotels and apartment complexes, the public should get an equity position for putting in its money just like the real investor that we are.
Didn’t FedEx get a retention PILOT in Collierville or Germantown? How many people work there? How many visitors do they have annually? What is the economic impact of having that operation in eastern Shelby County? How much in property taxes where they paying before the retention deal, how much will they be paying after? What would happen in that part of town if they moved to Dallas, Atlanta or Denver, who offered incentives? Heck, Texas gave Toyota $17,000,000 in incentives to move to Plano. Are the “Smart City Dallas” folks gnashing there teeth this morning? Doubtful. Speaking of elephants, you seem to be somewhat blind to our workforce, poverty, crime, education, etc., etc…I firmly believe that without incentives, no one in their right mind could look their board in the eye and say, “We’re moving to Memphis, folks!!” Really?!? Why!!?!
Lots of opinions. Fewer facts.
No city/county has turned tax freezes into entitlements like Memphis or relegated its incentives to a single one.
You continue to ignore the question. What evidence do you have that FedEx was going to incur the significant expense of relocating the FedEx Technology Center? This is the poster child for what is wrong with retention PILOTs. Why should massive corporations with billions of annual revenues never pay their fair share of property taxes? Why should their costs for public services be shifted to small businesses, startups, and homeowners?
Perhaps, if corporations paid their fair share, we would have the money to invest in fighting crime and poverty and improving education.
The state of Indiana was prepared to give FedEx $40,000,000 to relocate to Indy. Would that cover it? How many fire / police trips are made to the FedEx facility on an annual basis? 400? 30? and at what cost? What is the new retention deal for FedEx? I believe FedEx will be making a significant PILOT according to reporting in the CA. Does the PILOT / retention PILOT in Germantown – Collierville create a situation of high crime, poverty and poor schools?
Well Researched FedEx has 2 PILOTS. 1 is a retention PILOT another is a small 87 job expansion PILOT. This is just my opinion, I feel that FedEx sought a retention PILOT at the beginning of the EDGE retention PILOT program in an attempt to be supportive of local economic development policy. Relatively speaking to FedEx, it was a small retention PILOT that shows significant restraint. As far as their expansion PILOT, generally speaking, I do not have concerns with responsible expansion PILOTS. The 2 PILOTS coming up this week at the EDGE meeting in Oynx and Barrett appear to be reasonable expansion PILOTS. Now Technicolor a lower wage retention PILOT on the agenda this week, in its initial application as a retention PILOT to me seemed problematic. Well Researched all of this to say, it would help for me if you would distinguish between a “Retention PILOT” (tax abatements for existing jobs) or “Expansion PILOT” (tax abatements for new jobs). Whats most challenging to me is paying tax abatements for jobs that already exist in the form of a “Retention PILOT” and not properly fully accounting for the lost tax impact. This is as local business ask for safer streets, a better workforce and public transit.
Toyota gets $40,000,000 to move from Torrance to Plano
Chiquita Brands got $20,000,000 to move from Cincy to Charlotte
Chicago has offered Amazon $2,000,000,000!
Cox in ATL gets $1.5mm per year in tax abatements
EVERYBODY does it like Memphis.
Those cities treat business incentives as the exceptions to the rule, and not as entitlements to everything down to warehouses paying $12 an hour like we do. Also, the kind of incentives matters, and states with income taxes use those as significant abatements rather that giving away a city’s property taxes alone. Chicago has used TIFs for years for hundreds of projects while we over-rely on PILOTs. At least with TIFS, the company is paying the cost of its own infrastructure.
Last time the state comptroller did an audit of state PILOTs, the office discovered that Memphis/Shelby County had granted more PILOTs than all the other major cities combined times four. When you say that everybody does it, apparently nobody in Tennessee does it like we do (to the point that the state comptroller included their overuse in a letter to former Mayor Wharton). We haven’t said never use PILOTs, but to use them judiciously, in a targeted way for the industries identified in a real economic development plan, and with the purpose of moving us to a higher skill economy.
This is the core of the reason for my campaign to replace Steve Baser on the Commission.
A key component of the “Sprawl and Blight” policy of our sub-rosa regional governance is the new sewer plant. If a majority of the commission refuses to advance that project, there is a greater possibility of preserving the remnant of our agricultural heritage and getting developers to refocus on preservation and restoration of our existing neighborhoods.
Thank you for a cogent article that brings a lot of these issues into focus.