EDGE has taken roughly a year and a quarter to get organized and bring coherency to the incentives doled out to businesses, but so far, it feels a lot like business as usual.
More than anything, EDGE reliably churns out approvals of tax freezes under the PILOT (payment-in-lieu-of-taxes) program, and it has even managed to raise additional questions about whether the city-county board is overpaying for new jobs. In a few recent approvals, the cost of the incentive per job has been comparable to those given in other Southern states for automobile manufacturers, notably the 15-year tax break worth $57 million to International Paper, an international company with $26 billion in revenues a year.
Last week, EDGE approved a five-year tax free deal for $1 million for TJX, a company with $25.9 billion in sales last year. It’s the amount of money that the retailer, which operates T.J. Maxx, HomeGoods, and Marshalls stores, might keep in a cigar box forpetty cash, and yet, we’re to believe that the $1 million tax waiver was pivotal to getting this deal for Memphis and Shelby County.
Second Generation PILOT
The PILOT is for the lease of 207,024 square feet in a distribution center at 6100 E. Holmes Road and ramping up to 414,076 square feet in a couple of years. Based on the assessor’s records, the building wasn’t paying property taxes, but then again, few of the warehouses in Southeast Shelby County are contributing to city and county coffers. That’s because years ago, the Memphis and Shelby County Industrial Board loosened up tax freezes in 2003 even more by allowing new PILOTs every time a distribution building signed a new tenant.
At the time, a primary justification for “second generation PILOTs” was that it would be a way to revitalize parts of the urban core that have experienced disinvestment and declining property values. It was a persuasive argument for approve of the new policy, but instead, the majority of these PILOTs have not occurred in the urban core but on the periphery, where spec buildings were being built.
Of course, as usual, for the TJX distribution project, EDGE churned out a cost-benefit report that claimed that the tax freeze would create $1.23 for every $1 in waived taxes. EDGE trots out these reports dependably for every one of its projects, and we’re unaware of it ever producing a report that didn’t justify it waiving taxes.
That said, these ROI reports are merely subterfuge. Setting aside our dubious attitude toward their methodology and findings, the seminal questions are whether we should be waiving the taxes in the first place and why local government shouldn’t receive the property taxes that would normally be created by such a project. Also, if EDGE really wants to provide cost-benefit analyses that matter, they would include the cost of public services for the company that are shifted to other property taxpayers to pay.
More to the point, it’s always amazing that in one breath, we brag that we are the U.S.’s best and most sophisticated logistics center and that we have the company that invented modern world commerce, FedEx, and we do this all while paying companies to love us. The jobs at the TJX warehouse will pay $27,368, which means that a worker with a family of four can qualify for food stamps.
It’s a self-fulfilling prophecy. We create low-skill, low-wage jobs because we have a low-skill, low-wage economy, and we have a low-skill, low-wage economy because we continue to reward low-skill, low-wage jobs. When the PILOT program was created, it was said that we would rely on it to create jobs for our large underemployed population while we embarked on a program to create and attract the better-paying jobs of the knowledge economy.
In the end, we ended up doing the first half of the equation – creating low-wage, low-skill jobs — because it was the easy part, and we’ve never done what was necessary to accomplish the second half because it was harder to ramp up a program for higher-wage, higher-skill jobs. In other words, over the about 25 years of the PILOT program, we’ve not only over-relied on it as an incentive, but it’s become a crutch that we used to keep us from doing the harder work of preparing for a new economy and attracting, training, and retaining the talent to power it.
Forget the talking points about competing with Mississippi, about our poor workforce, and about the cost-benefit of tax freezes. What is lacking is any independent research or study to back up the claims. What is glaring today is the disconnect between the positive rhetoric about our momentum and our success and economic development policies anchored in the assumption that we have to pay companies to like us.
It would dispel suspicion if the public could see online the length of each PILOT, how much in city and county taxes are being waived, the number of jobs being created and their average wages, and the beneficiaries but also, the company’s application for a PILOT and the cost-benefit report. Surely, there’s no reason that advocates of the status quo with the PILOT program wouldn’t object, since they confidently praise the program’s worth and tell the public that it’s good public policy.
All of this deserves serious consideration based on its public policy implications rather than its political implications. In the end though, if people want to argue that the PILOT program should be protected from the fundamental reform that it needs, the least they can do is show us what they are talking about.
If the EDGE board is serious about serving the public interest, it should immediately approve a policy to put all of its records online. Both city and county mayors have taken strong public stands in favor of transparency. It’s time for this city-county board to join them.