My op-ed published in The Commercial Appeal February 2, 2021:
There’s little in our over reliance on PILOTs, Payment in lieu of taxes, in the past 20 years that suggests they are creating a stronger, more balanced, and more competitive economy.
By Tom Jones
It is an undeniable fact that despite more tax breaks being handed out in Memphis, key indicators for our economy have gotten worse.
We regularly overlook this by high fiving any announcement about a new project, ignoring that Memphis gives out three times more PILOTs, Payment in lieu of taxes, than the other major urban areas in Tennessee combined, according to the Tennessee comptroller, while wage growth and employment growth lag all of the others.
Memphis City Council and Shelby County Board of Commissioners can take important steps toward this goal with a few actions:
+ Require quarterly data-driven reports about each PILOT approved by the 10 agencies approving them: amount of the tax freeze, the length of term, the cumulative amount of taxes waived, and the per job cost. These should be posted on a public website.
+ Require the median rather than the average salary for new jobs because the average skews the number because of management salaries, and also, the breakdown of jobs by category and salaries for each category, and how and if the PILOT is closing the racial income gap, a $22 billion opportunity for the Memphis region.
+ They should know how much school funding is lost with each PILOT. Current PILOTs waive roughly $10 million a year that would otherwise go to schools. Well-funded education contributes directly to a stronger economy.
+ They should know what percentage of the total project cost is represented by the PILOT amount, and if that percentage exceeds a specified amount like 10%, City Council and Board of Commissioners have to approve it. Today, EDGE PILOTs for apartments amount to about 25% of the total project costs.
+ Require that their approval is needed if a project is to receive more than one incentive. There was a time when a prospect was given a menu of incentives—PILOT, tax increment financing, tourism development zone or direct funding from city and county—and one of them was selected. Now, the answer is often “all the above.” If more than one is chosen, legislative bodies should have a voice in the decision.
+ They should require a yearly report from each PILOT approving agency that shows their targets and priorities and a report card on whether they met them. They should require explanations about why strategic economic indicators flounder when compared to peer cities despite the large amounts of taxes being waived by PILOT programs.
+ They should require all PILOT-approving agencies and the Greater Memphis Chamber to produce a shared economic plan built on quality rather than selling our community at a discount and they should ask for a report card so the public can see if they are succeeding.
+ Examine the current matrix for calculating the term of PILOTs to determine if they agree with the weighting of the points which are in turn converted into the length of tax breaks. They should survey other urban cities in Tennessee and peer cities to see how they are able to issue significantly fewer PILOTs.
+ Consider setting a total amount of taxes that the various boards can approve each year and to approve more, the legislative bodies would have to receive approval.
+ Commission an independent study to determine if PILOT programs. It’s essential for public confidence.
After all, every dollar given in an excessive PILOT is a dollar that can’t be spent on workforce development, quality of life, public transit, and other drivers of a successful economy.
Tom Jones is principal at Smart City Consulting in Memphis.