From Memphis Business Journal:
Memphis did not recruit much new industry to the area in 2010, which isn’t a surprise, given the economy is experiencing what Charles Gulotta calls the “worst economic downturn since the Great Depression.”
But as director of the Memphis and Shelby County Office of Economic Development, Gulotta is tasked with finding and securing new sources of employment in both fair and foul weather. The “securing” half of this task proved to be critical for 2010 as the majority of efforts by the OED and other regional economic development players were committed to retaining pre-existing local businesses.
Memphis and Shelby County’s principal tool for luring business comes in the form of a property tax incentive or tax freeze known locally as a PILOT, or “payment in lieu of taxes.“
Traditionally, the term “PILOT” refers to funds paid by a non-commercial property owner (think state parks, colleges, non-profit hospitals) to a local government to partially compensate for the property tax revenue that would normally have been generated by the property. But locally, a PILOT usually involves freezing or reducing a company’s property or equipment taxes for an agreed-upon length of time. The theory goes that granting tax abatements provides a bottom-line incentive for employers to stay in place. When an employer accepts such an agreement, the local government chalks it up as a win.
“If you can call them ‘wins,’ ” says County Commissioner Steve Mulroy, who spent three years on the PILOT Evaluation Committee of the Memphis and Shelby County Industrial Development Board, which rules on the majority of PILOT agreements in Shelby County.
Mulroy has not always felt certain that the employers asking for PILOTs have real plans to move away, but he emphatically supports the efforts of Gulotta and his staff, which provides the administrative support structure for the IDB.
“We don’t really know if the companies are leaving,” Mulroy says. “When we ask them what the other cities are offering, they can’t tell us because of
confidentiality agreements. But the OED director has stated in commission meetings that he’s seen concrete evidence the companies were seeking other locations.”
Gulotta points to the IDB members themselves to support his confidence in the validity of the companies’ intentions.
“The people on the IDB represent a great cross-section of talent: experts in law and industry,” said Gulotta. “They are very diligent at cross-examining the company representatives. And these companies have to make at least a $10 million investment and be in compliance with past PILOT agreements.”
Pinnacle Airlines Corp., which is expanding its national reach, was the highest profile “save” of the year. The effort to keep Pinnacle in Memphis was spearheaded by the Center City Commission. Pinnacle now plans to move its airport-area corporate headquarters into the foundering One Commerce Square Downtown instead of into an office park in Olive Branch, Miss., one of the sites it was considering. The win was achieved via a bundle of tax incentives and outright grants to both the new tenant and landlord.
Next was the eight-year tax freeze to help Cargill Inc. with a $72 million upgrade to its operations on Presidents Island. Granted by the IDB, the incentive will save Cargill an estimated $11.5 million over the term, provided that the company continues to employ 370 local workers with average salary/benefit package of $73,998.
Hardy Bottling Co., which operates the former Coors brewery in southeast Memphis, was given an eight-year, $4.5 million tax incentive from the IDB with the caveat that it hire 255 employees by April 2011. But this incentive contract was turned back following an announcement by beer brewer D.G. Yuengling & Son Inc., that it intended to purchase the massive plant.
There were smaller examples like Riviana Foods Inc., makers of Minute Rice, and American Esoteric Laboratories winning extensions to their existing PILOTs this year by a combined $1.1 million.
Both small and large, the tax abatements add up. The latest report by the Shelby County Trustee’s Office estimates that owners of 254 local in-lieu properties are keeping $32 million in property tax savings this year from contracts approved by the IDB alone. Tax abatements on 135 properties granted by the Center City Commission total $8.4 million.
“We have completed six major PILOT projects in 2010 with one more under review in December, including Lucite, Cargill and Technicolor, but all of them are important to the community.” said Gulotta, whose staff is currently processing more than 60 PILOT-related proposals going before the IDB, many of which take up to three years to come to fruition.
Tom Jones, principal of Memphis-based Smart City Consulting, is not impressed with these numbers at all. In fact, he seems outright embarrassed by the volume of PILOTs brokered by the IDB.
“From 1995 to 2005 we handed out seven times more tax freezes than all the other urban counties in Tennessee combined,” says Jones, citing data from the Tennessee Comptroller of the Treasury. “We’ve developed this addiction to them and the only way to change the game is to show that you are willing to play it differently. But all we are showing is that we are willing to give out more tax freezes.”
Jones would prefer that economic development efforts in Memphis focus on improvements and not on cost-cutting.
“Other cities are selling themselves on quality,” Jones says. “Memphis can sell itself as the birthplace — or even the center of the world — of global logistics, but we’re still willing to pay companies to come here.”
Research may bear out Jones’ contention. Earlier this year, the University of Tennessee Center for Business and Economic Research predicted that Tennessee’s prospective new employers in the automotive industry will place an increased focus on quality and value rather than on low costs in site selection.
According to the center’s 2010 annual Economic Report to the Governor, “low-cost land, low-cost labor, and tax incentives will be less important to attracting the industry in the future than in the past.”