Thumbnail: City and county elected officials have for years ignored the impact of excessive PILOTs on their governments’ budgets while regularly delivering up glib justifications of the $80 million in taxes waived each year to developers and big businesses.  At its Friday retreat, the Shelby County Board of Commissioners finally began to ask long overdue questions about tax breaks and to request data and facts about the programs.  If they are really serious, they will ask for independent economic analyses rather than simply relying on the usual suspects.

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It is an undeniable fact of life that despite more and more tax breaks being handed out in the form of PILOTs, key indicators for our economy have gotten worse.

Political and economic development officials – and often, the news media – have had the tendency to pretend this is not the case, papering over the truth by high fiving any announcement about tax breaks, but more importantly, they displayed a determination to get the answers.

There’s no time like the present.  After all, there’s not much in the performance of the economy in the past 20 years to suggest tax freezes are the magic answer to a stronger, more balanced economy.  In truth, the approximately $800 million in taxes that are waived every decade have played a role in depressing hourly wages to the fact that 51% of Black Memphians earn less than $15 an hour.

We can see clearly now that giving away taxes is not the force that produces a competitive economy, living wage jobs, and the kind of community that we all want.  For that reason, it is a welcome development to see the commissioners’ interest.  In the wake of the most serious economic crisis in the modern history of Shelby County Government, it is likely that their attention will not fade until they have the information they want.

Modest Proposals 

Because hope springs eternal, here are my modest proposals for commissioners fulfilling fiduciary duties, answering core questions: Who benefits, who pays the costs, and how can they be improved:

* Memphis City Council and Shelby County Board of Commissioners should require a quarterly report that provides data about each PILOT approved by the nine agencies given the authority to waive taxes.  These are the basics: the amount of the tax freeze and the length of its term, but there is also other data: the cumulative amount of taxes waived and the tax break per job cost with each PILOT.

* Memphis City Council and Shelby County Board of Commissioners should demand the median salary for new jobs to be created by every PILOT rather than the average salary that is now noted but skews the number higher because of management salaries.   The median income is a truer indicator of the actual per job salaries, but in addition, legislators should ask for a breakdown of the jobs by category and salaries for each category.  Finally, each PILOT should be weighed for its impact in closing the racial income gap and reducing poverty.

* Memphis City Council and Shelby County Board of Commissioners should demand to know how much school funding is lost with each PILOT.  Based on our rough calculations, the current PILOTs take away about $10 million a year that would otherwise go to schools.  The public deserves to know the amount of incentives that are being financed by cuts in education spending and as much as anything, we need to understand how less funding for schools can in the long run result in wage losses.

* Memphis City Council and Shelby County Board of Commissioners should demand to know what percentage of the total project is comprised by the PILOT amount, and if that percentage exceeds a specified amount, say 10%, the legislative bodies’ approval should be required.  Today, there are apartment projects where PILOTs amount to 25% of the total cost.

More Checks and Balances

* Memphis City Council and Shelby County Board of Commissioners should require that its approval is needed if a project is to receive more than one incentive.  For example, there was a time when a developer of a project was given a menu of incentives – PILOT, TIF (Tax Increment Financing), or direct city or county funding – and one of them was selected.  Now, developers say, “all the above.” Each project should select its primary incentive, if it deserves one.  If it wants more, the legislative bodies should have a voice in the decision.

* Memphis City Council and Shelby County Board of Commissioners should require a yearly report from each agency approving PILOTs about their targets and priorities for the coming year, and it should be followed yearly by an annual report that measures success against its objectives.  In addition, EDGE should report on the progress in the Memphis and Shelby County Regional Economic Development Plan which it was crucial in creating in 2014.  If that plan is no longer relevant, why do we not have an economic development plan of action?

* Memphis City Council and Shelby County Board of Commissioners should require all PILOT-approving agencies and Greater Memphis Chamber to produce a plan to reduce the reliance  on tax incentives and more on individualized incentives for small and medium-sized businesses, particularly minority-owned ones.  Smarter economic development encourages local job creation rather than the redistribution of business taxes to small businesses and away from large, often out-of-state, corporations.

* Memphis City Council and Shelby County Board of Commissioners should examine the current matrix used for calculating the amount and term of PILOTs to determine if they agree with the weighting and whether greater emphasis should be on people and salaries than construction and real estate.  In doing this, they should consult with the economists in our universities who are routinely ignored in the economic development process while every CEO is treated as an expert in economic growth.

More Public Information For The Public 

* Memphis City Council and Shelby County Board of Commissioners should consider setting a baseline amount of taxes that the various boards can approve each year and to approve more, they would have to receive approval by the legislative bodies.

* Memphis City Council and Shelby County Board of Commissioners should commission an independent analysis that determines if the PILOT programs are guilty of gaming its economic impact reports with indirect growth calculations, which produces $65.6 million in lost tax revenues for Memphis and Shelby County.   This doesn’t even take into consideration EDGE’s badly flawed retention PILOT program which means that some huge corporations will never pay their fair share of local property taxes at the same time they benefit from public services and infrastructure the rest of us have to pay for.

A core principle of tax incentives is that they should not be given at the expense of economic development factors that are just as important, such as workforce development, quality of life, public transit, and more.  The current PILOT programs today drain funding that is needed as investments in other transformative economic development factors that need to be in place for a successful local economy.

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