Nothing is quite as confusing as government financing, and that’s never been truer than now.

There seems to be big numbers every where – the $110 million or so for The Pyramid and Pinch District retail project, there’s the idea of a new convention center likely to cost at least $500 million, there’s the tens of millions of dollars for Liberty Bowl Stadium improvements, and then, there’s the $66 million cut in funding for Memphis City Schools.

There are times when even insiders in government get confused by the blizzard of numbers, funding sources, legal restrictions and potential uses. That’s why it’s easy to understand why the Letters to the Editor use operating and capital amounts as if they are interchangeable or suggest that money for The Pyramid could be spent on schools instead.

Of course, they can’t be.

Here A Tax, There A Tax

There are property taxes that are paid by all Memphians who own property. Memphis has the highest cumulative city-county tax burden in the state, and both city and county governments have heavy dependency on property taxes, which fund the majority of city and county services (half of the county’s property taxes go to schools).

There are sales taxes collected every time we make a purchase in Memphis – 7% of it goes directly to Nashville and the 2.25% local option sales tax stays here. Half of the local option sales tax goes to the general fund of city government and the other half goes to public education.  Outside Memphis, the local sales tax goes to either a town or county government, depending on the location of the purchase.

There are the hotel-motel taxes that are added to the bills for rooms in Memphis hotels. Shelby County Government has a hotel-motel tax of 5% and City of Memphis has a hotel-motel tax of 1.7%. They are used to fund the Memphis Convention and Visitors Bureau and to pay off the bonds on the Memphis Cook Convention Center.

Alphabet Soup

There’s the Tourism Development Zone (TDZ) which takes in most of downtown. In this district, the incremental increase in sales taxes created by a large-scale tourism-oriented project is collected and used to pay off bonds issued for that project. Some TDZ’s collect all of the sales tax while others can only collect 45% (excluding the portion for public education). Another TDZ is likely to be created to fund infrastructure improvements for the Fairgrounds mixed-use development.  This is the source of money for the Pyramid/Pinch District costs, and if we didn’t have these projects, the money would instead go to Nashville and be spent by state government all across Tennessee.  State government has to establish these zones and in Memphis, there are two: the one downtown and the one at the Fairgrounds.

There’s Tax Increment Financing (TIF) which collects increases in city and county property taxes that take place following infrastructure improvements in a specified area. A baseline is set and anything above that baseline can be captured to pay for public improvements. Uptown is largely funded by a TIF district and there was another one created for the Highland Row project by Poag & McEwen near University of Memphis.  This is a financing mechanism used successfully in Nashville as a key incentive.

There’s the Payment-in-lieu-of-taxes (PILOT) program that freezes property taxes at the amount of the unimproved property, and as the property is improved and its value increases, it only pays taxes on the old  unimproved property rate.  Memphis and Shelby County have handed out more tax freezes than all metropolitan areas of Tennessee combined. PILOT’s are granted by the Industrial Development Board for new businesses and expansions and the Center City Revenue Finance Corporation for downtown projects.

And There’s More

There’s various incentives provided by the Center City Commission and funded from its special downtown tax and revenues.

There’s the state sales tax rebate that collects the sales taxes from the sale of tickets, concessions and merchandise at the games of professional sports teams. This funding was used at FedEx Forum and Autozone Park.  The tax rebate can only be spent to pay for professional sports facilities.

There’s the special rental car tax for vehicles rented at the airport and its proceeds are designated for FedExForum.

And these are just a few of the taxes collected and spent by our governments. Some taxes can only be spent for certain things – such as a convention center, an arena or street improvements. As a result, they are not interchangeable, but they often allow projects to proceed without using any local property taxes.

Pyramid Scheme

As a result, it’s little wonder that people ask why can’t the money being spent at The Pyramid and Pinch District be spent on schools instead, or fighting crime, or whatever.

The same sort of argument was heard when the FedEx Forum was approved, but the truth is that the taxes being used to pay for both of these projects can’t be spent on education. By law, they can only be spent for specific projects like a public tourism-related facility or a professional sports team.

Even if they wanted, city and county governments could not legally redirect revenues paying for The Pyramid or FedExForum to schools, whose capital funding normally comes from property taxes.

Confusion Reigns

Or said another way, even if the state law did allow this money to be redirected, it would not be $110 million sent to schools. It would be more like $6 million, hardly making a dent in the reduction in school funding. That’s because the annual payment on the bonds is about $6 million. That yearly payment eventually pays back the $110 million in bonds.

Totally confused?

Well, what about the suggestion about a new convention center?

It’s estimated to cost at least $500 million. Some ardent opponents of the cut in school funding immediately said that if city government could spend that much money on a convention center, it should give Memphis City Schools the $66 million that was cut.

Like The Pyramid (and FedEx Forum, for that matter), the funding sources that are available to pay for a new convention center – TDZ, TIF and hotel-motel taxes – cannot be spent on schools.

Such is the intricacies of putting together the financing for major projects in city government, and because of the complexities, it’s next to impossible for the public to grasp the facts about big ticket projects.