Thumbnail: Memphis and Shelby County PILOT programs raise questions on their return on investment, failing to improve key measurements of success. And yet, the programs remain largely unquestioned by elected officials and others who have fiduciary responsibilities for local government.
It is beyond baffling why so many politicians and economic development officials energetically defend the tax giveaways in our PILOT programs as our best and smartest competitive advantage.
It begs the question: would you put your own money into a business based on the results of this business plan? Of course, in truth, you are putting your own money into it in the form of waived taxes.
Those who like ribbon-cuttings and groundbreakings without considering whether the price we are paying as a community is self-defeating are willing to ignore reality. They certainly ignore trend lines that show that the return on investments from the $1.2 billion in tax breaks over the past 20 years have not improved the most important indicators of success.
These are not unintelligent people. They simply choose not to ask questions whose answers they don’t want to face.
That does not stop them from citing questionable data that defy common sense and sidestep the truth about the weaknesses in our economy.
Indications of Failure
So, what does our economic performance look like as a result of PILOTs being treated as our major economic development strategy?
It’s part and parcel of the “any job is a good job” attitude that our community has acted on for too long while digging the hole deeper when more Memphians deserve jobs that pay a living wage.
After all, in 2000, 61% of African American workers earned at least $15 an hour. That has now fallen one-fifth to 49%.
It’s no surprise that in selling our community at a discount, the PILOT programs are selling out Memphians by doubling down on low-wage jobs. Since 1990, 49% of the growth in jobs here has been in low-wage jobs and the increase in earnings for these workers has been less than 1% a year.
But that’s not the only indication that our economic development policies are failing. In 2000, the average hourly earnings of African American workers were $18. That has now fallen by $3 an hour. In 2000, the average household earnings for the 20th percentile was $18,833. That had fallen by 19% by 2017, to $15,244.
There’s more, but you get the picture. If the PILOT programs have not resulted in reducing concentrated poverty and low incomes, they are failures at their most fundamental level – the responsibility to create a healthy economy that benefits all Memphians by increasing opportunity and raising incomes.
So Much Money, So Few Questions
It’s mind-boggling that 11 different agencies can relinquish Shelby County taxes and three of them also waive Memphis taxes as well. The Health, Educational and Housing Facilities (HEHF) boards operate without any serious commitment to transparency and without media coverage of their work. Meanwhile, Memphis’ HEHF waives 11% of all PILOTs.
The most well-known city-county agencies waiving taxes are the Downtown Memphis Commission, through its Center City Revenue Finance Corporation, and EDGE (Economic Development Growth Engine). Together, they waive about 75% of all PILOTs.
The Downtown Memphis Commission celebrated that its tax break projects hit an all-time high last year – 52 projects which waived about $17 million. The apartment occupancy rate downtown is 98% but PILOTs continue. It has the highest rents in Memphis: for a two-bedroom unit, a renter needs to earn $25.58 an hour.
EDGE is responsible for about 45% of PILOTs and attracts the most attention. Politicians tie themselves in knots defending EDGE’s tax breaks, arguing that the waiver of taxes is a “victimless crime” because the taxes wouldn’t exist anyway without the corporation beneficiary.
They are quick to say that the public is confused because they think cash payments are being made to corporations as incentives. That, however, is a distinction without a difference, because the PILOTs are a windfall to a company’s bottom line.
At the same time, EDGE tells elected officials that in nine years, its PILOTs have produced $1.4 billion in local tax revenues…an average of $160.4 million a year.
You’d think that elected officials would question that number, which results from economic impact studies that defy methodological logic. After all, if the past nine years in local government have been characterized by anything, it has been extremely tight budgets and the lack of revenues to support government services that are threads holding together the fabric of our community.
And if local government really received $160.4 million a year, the property tax rate for Shelby County could have been reduced by about 55 cents and the property tax rate for City of Memphis by approximately 58 cents.
You’d think at the least elected officials – and finance officials juggling public budgets in these difficult days – would ask auditors to show them where the $1.4 billion in local tax revenues created by EDGE in the past nine years show up in city and county budgets.
In fact, not asking to track this money is a failure of their most basic responsibility – their fiduciary duties. That said, if they have any curiosity, they’d want to know why PILOTs here are excessive when compared to other cities our size.
Amazon Case Study
Amazon is both a case study in excessive tax breaks and symptom of low-wage jobs. Here, the behemoth – 2019 gross profit $115 billion – received a 15-year PILOT that waived $15.2 million in city and county property taxes – $8.6 million county and $6.6 million city – in return for 600 jobs.
However, across the state, Chattanooga’s incentive was $9 million for 11 years for 1,249 jobs.
Memphis now has an Amazon receiving center, a sortation center, a delivery station, and a fulfillment center, and we celebrate them as if they are accomplishing any of our most pressing priorities – raising incomes and upgrading worker skills.
It’s a serious price being paid by communities chasing Amazon facilities. According to a report by the Economic Policy Institute, “when Amazon opens a new fulfillment center, the host county gains roughly 30% more warehousing and storage jobs but no new net jobs overall, as the jobs created in warehousing and storage are likely offset by job losses in other industries.”
That said, Shelby County is hardly an average host county. We already have a disproportionate share of these kinds of jobs, and it is the major reason that are hourly wages are going in the wrong direction.
The opening of an Amazon fulfillment center does not lead to an increase in countywide employment, the study concluded, adding the Amazon fulfillment center is a “completely ineffective” way to boost employment. That said, it’s also an ineffective way to boost incomes.
Two years ago, the Upjohn Institute studied economic development incentives and recommended the following improvements – all of which would be relevant here:
- Target incentives at firms with high job multipliers.
- Target firms that pay a high wage premium.
- Target created jobs at the locally unemployed.
- Minimize long-term incentives.
- Don’t finance incentives by cutting education spending.
- Focus less on tax incentives and more on incentives that are customized services to small and medium-sized businesses.
In other words, tax breaks should be limited by being targeted and should not sacrifice a broader economic development strategy, which includes investmentments in workforce skills, small and medium-sized business development centers, customized job training, place-based development, and quality of life.
Back to the main point, the success of the PILOT programs should be based on their positive impact on incomes. It’s on that measurement that they are failing.
Change will only come when decisionmakers are not only interested in the number of jobs but more importantly, their quality.
Join us at the Smart City Memphis Facebook page for daily articles, reports, and commentaries relevant to Memphis.