Lee Harris, in only 17 months, has shown an openness to new thinking on old issues, so here’s our modest suggestion for a new decade: Shelby County Government should get out of the PILOT business.

After all, in the past decade, the 10 agencies with the power to waive taxes have subsidized companies to the tune of about $510 million in Shelby County’s taxes.

The loss of this amount of taxes has never come into starker relief than it does these days.

Shelby County struggles to find $9-10 million for public transit.  There is the yearly need – if not crisis – in school funding.

More money is needed for better salaries and parental leave for county workers. There are commissioners who would like to reduce the tax rate.

Shelby County needs better juvenile detention facilities and a new main jail.  More funds could allow more youths to participate in the Mayor’s Summer Work Experience Program.

Including PILOTs As An Option

In other words, there are a multitude of deep needs for more revenues for the programs mandated on county government by the state constitution and its own vital social net services.

And yet, time after time, year after year, when the discussions about the need for more revenues take place, the PILOT program is treated as untouchable and inevitably goes unmentioned.

For example, the county board of commissioners is on the verge of passing a $20 increase in the wheel tax to provide $9 million in new funds for MATA with the addition of a political deal sweetener of $3.8 million for the Shelby County Sheriff’s Office.

That same amount of money could be produced by reducing the percentage property taxes waived by PILOTs – from 75% to 60%.  And the Shelby County Board of Commissioners can do that at any time.

However, because of the lengthy terms given to many PILOTs, accruing money in this way would take years if it began now, it could be the source the next time funds for public transit – or schools – are needed.

Picking A Lane

But, back to our modest proposal: if cities in Shelby County want to give tax freezes for new companies, old companies, destination retail, and apartments, they should do it.

But Shelby County Government should save its PILOTs for projects that it considers truly transformative – those that pay more than a livable wage or those major employers in innovation and technology.

Rather than give up county taxes for PILOTs, we suggest that Mayor Harris and county government’s emphasis should be on the other side of the economic development coin – workforce development.

As a result of the mayor’s work as chairman of the Workforce Investment Network, he has a passion about improving Shelby County workforce programs, which, despite decades of talk, remains challenging, if not bordering on ineffectual.

In its way, it could be directly related to our success in weaning ourselves from our addiction to tax freezes.  That’s because for decades, one of the prime justifications for PILOTs has been that our workforce is so poor that we have to give away taxes to offset it.

A Distinction Without A Difference

We know that there are those in City Hall who get incensed by people who say that companies are being given cash as part of the economic development program.  They are correct that no check is being written to companies that receive a PILOT, but in truth, it is a distinction without a difference.

Whether you give a developer or company cash or tell them they don’t have to pay millions in taxes, it’s essentially the same thing.  It goes directly to the bottom line.

As we’ve pointed out before, as a City Councilman, Mr. Harris once suggested that taxpayers should have an equity position if these investments pay off, and that is especially true for the f apartment PILOTs approved by EDGE and Center City Revenue Finance Corporation.

At this point, we are hammered with the talking points that we should be excited to get $1 in new taxes at the same time that we give up $3.  Tax incentive advocates say often that the PILOTs make projects possible that would otherwise not take place.

However, we were told recently by someone who has prepared applications for tax freezes that he “can make the spreadsheets say whatever it needs to say” to justify the tax waiver.  The fact that it sounds credible speaks to the need for an independent, third party expert to analyze applications to create more taxpayer confidence that every tax waiver is truly needed.

Schools Lose Money

No local government has more reason to change its philosophy toward PILOTs than Shelby County.  Every time a PILOT is approved, schools lose money, and 61% of county government’s property taxes are spent on education.

The 75% maximum threshold that governs PILOTs today was set decades ago as a response to complaints that tax freezes were shortchanging schools.  That continues today, and now, each year, schools lose about $10-15 million, and there is no explanation for why Shelby County, like Hamilton County, doesn’t ensure that schools are made whole when tax incentives are approved.

As part of Hamilton County’s contracts for PILOTs from its Industrial Development Board, each company agrees that the tax incentive excludes school funding.

That said, Chattanooga and Hamilton County’s policies are more defensible than the ones here.  There, it’s a rare PILOT that’s more than 10 years and some are for only two or three years.  In addition, after protecting school funding, the amount of the PILOT descends in value over the years.

For example, the PILOT for FedEx in Hamilton County was for eight years.  In the first year, 100% of the company’s taxes will be waived; in the second year, FedEx will pay 25% of its taxes; in the third year, the company will pay 40%; and in the remaining five years, FedEx will pay 50% of its taxes.

There Is Another Way

It’s an interesting comparison since like Shelby County, Hamilton County sits on a state line and has to compete with a major competitor.  In Hamilton County’s case, it’s the significant gravitation pull of Atlanta, and yet, it manages to balance its competitive instincts with the obligations to its taxpayers.

One more thing: Both Chattanooga and Hamilton County are transparent, listing information, tax freezes, and company contracts on their data sites.

All in all, it’s a reminder of the report by Tennessee Advisory Commission on Intergovernmental Relations that questions the effectiveness of tax freezes as a recruitment tool.  Of course, there are dozens and dozens of studies that conclude that tax abatements are not the most important determinant in site selection, and while their advocates claim economic benefits, it is often hard to prove.

As the TACIR report wrote: “It is unclear whether PILOTs offer much in the way of economic benefit…and some research has shown them not to be cost effective. They pull public spending away from things like education and infrastructure that could benefit businesses.”

That seems to be a direct message to Shelby County to rethink its PILOT policies.

It is also a reminder of the study years ago about the economic health of Memphis and Nashville.  It said Nashville uses PILOT incentives sparingly, but it has done well economically. In comparing the economic activity and poverty of these two cities, Nashville typically performs better than Memphis…this comparison does not necessarily suggest that Nashville excels because it operates without as many PILOTs, but rather, it suggests that the PILOT-style programs are not a necessary component of economic growth.


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