“Students lose out as cities and states give billions in property tax breaks to businesses – draining school budgets and especially hurting the poorest students.”

That was the headline in The Conversation.  It could just as easily apply here to Shelby County Government because it’s guilty of taking property taxes from education, particularly the majority African American Memphis and Shelby County School District, and giving them instead to businesses and real estate developers in the form of tax breaks. 

Every time a tax break, aka PILOT (Payment-in-lieu-of-Taxes), is doled out by one of the nine public agencies with the power to waive taxes, it is giving permission for companies and real estate developers not to pay their full obligation for as long as 25 years. 

Here’s the dirty little secret about PILOTs: every time a tax break is approved, about one-third of the taxes being abated is coming from education funding.  Over 10 years, it means that $183.4 million that would otherwise go to fund schools is instead being used to abate taxes for companies and real estate developers.

Forgotten Schools

The consequences are obvious.  As The Conversation wrote after a three-month investigation  “At the local level, tax abatements and exemptions often come at the cost of critical funding for school districts that disproportionately serve students from low-income households and who are racial minorities.”

That said, the problem is exacerbated by a willingness of politicians to trade lack of serious PILOTs oversight with the opportunity for good political stories – to make announcements about new companies.

It’s not just that approval here of more PILOTs than any of the other 94 other counties in Tennessee is defended and extolled but how taking money from schools is treated cavalierly and without discussion.

The bulk of research concludes that most companies would have made the same decision without being subsidized by taxpayers.  However, with an estimated 95% of cities giving tax breaks, companies know they can wring tax breaks out of communities like ours but it’s merely lagniappe for most of them. 

And they know well how to manipulate significant tax breaks from desperate cities with low self-worth.  The pitch generally goes like this: we like your city and you are one of the finalists for these jobs but with all things being equal, the tax break will be what will tip the scales for Memphis.

It’s at this point the rubber stamp usually comes out.  And no one ever asks: what can we do to make education whole?

It Doesn’t Have To Be This Way

The inequity of giving away school funding by boards like EDGE, Downtown Memphis, and Memphis Health, Educational and Housing Facilities Board – and without even a vote by elected school boards – is attracting more and more attention in cities whose citizens believe that schools should be made whole when tax holidays for businesses are doled out. 

One of the Industrial Development Boards that is carving out the taxes for schools from every tax break is in Hamilton County so that education is never short changed when companies are being recruited to Chattanooga.  Tax break reforms have also helped schools, like in Philadelphia, where 100% tax abatements are reduced 10% a year until exhausted

Of course that begs the question in Shelby County where PILOTs are not used just for recruiting new jobs and subsidizing downtown real estate development.  There are also “retention PILOTs” where companies already here – think FedEx and International Paper – can get a PILOT of 15 years and more from EDGE – can come back later to get yet another one. 

Sadly, the underlying message sent to other companies by EDGE’s retention PILOTs is that the companies that are here and know us best still don’t value us enough to pay their full tax responsibilities so why should they. 

Investing In Our Competitive Advantage

A study found that a 10% increase in per-pupil spending each years for 12 years results in more education, 7.7% higher wages, and 3.2% reduction in adult poverty.  Shelby County’s education funding has been flat for four years.

Most of all, while Memphis is not one of the handful of cities that are attracting college-educated workers – in fact, Memphis, Shelby County, and the Memphis MSA are losing population – our future workers are sitting in our classrooms today.

There has never been a time when it has been more important to invest in education than now.  In The Conservation, Greg LeRoy, executive director of Good Jobs First, an advocacy group that’s critical of tax abatements and tracks public subsidies of businesses, said: “There’s a head-on collision here between private gain and the future quality of America’s workforce.”

So much in our lives is being influenced by the way that private gain is taking priority over public value.  It’s already happened in our state universities and the pressure in the public schools is for them to see themselves as being in the talent business and for Memphis to do more than give lip service to how the students are our workforce.

 If we can do this, while cities are fighting for young college-educated professionals, we will compete but we already have them in our classrooms if we can prime our educational system to create more college graduations.  It is the percentage of college-educated workers that account for 60% of a city’s economic health, and in the ranking of the 50 largest MSAs, we are at the bottom of the list.

To understand the potential our community has, consider that within its city limits, Nashville has 50,000 more people but Memphis has 15,000 more of its population younger than 18.  In other words, investing in school as talent pipelines is in our own self-interests because these students are our competitive advantage.

Keeping $18.3 Million A Year From Schools

But as often is the case, I digress. Back to the main point: 

About 30 years or so ago, PILOTs were reduced from 100% to 75%.  It was reduced out of concern about school funding – and because of school complaints – and the 25% of property tax not waived with each PILOT would go to schools.

No one could foresee that after reducing its PILOT benefit from 100% to 75%, City of Memphis would quit funding schools, but that’s a topic for another day.

As for Shelby County, the 25% still dramatically  shortchanges school districts in Shelby County.   That’s because 59.5% of the county’s property taxes is spent on education. 

Nationally, at least $2.4 billion in taxes are diverted yearly from schools to fund tax incentives. 

In Shelby County, that amount is $18.3 million a year, or $183 million in school funding over 10 years are being waived in tax breaks when that amount should be removed from PILOTs and given to schools.    

The amount of the PILOT shortfall in funding for school districts is based on my calculation.  The amount of taxes taken from schools because of the PILOT program is not calculated by Shelby County Government and incredibly, it is not calculated by the school systems in Shelby County.


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