The debate about the PILOT program has taken on a rancorous tone that now defies constructive resolution and whose effects extend far beyond the issue itself.
It is producing deep fault lines in our community that are never good: businesses vs. neighborhood leaders, unions vs. government, and government workers vs. the city they serve. There have been clumsy scare tactics, deliberate mangling of facts, and outrageous threats to local business owners and a dismissive attitude by some to the expressed concerns from the public about tax fairness and tax burdens.
Memphis and Shelby County are not alone in their controversies over where the line between economic development and corporate welfare is drawn. Even the bellicose economic development officials in the state of Texas are now being confronted with hard questions about whether their incentives are paying off, and multiple cities across the U.S. are now being questioned about the ability of cash-starved local governments to continue their largesse when it comes to business incentives.
We have the opportunity to get ahead of the game, to quit playing defense, and to join together to advance a more helpful discussion on a serious subject: whether Memphis can compete for jobs in today’s economy.
Symptoms, Not The Problem
The issues bubbling up in the political cauldron of pension and health care benefits are nothing compared to this seminal concern, because it is a test about whether we can turn around the troubling economic indicators that have bedeviled Memphis and Shelby County for a decade. Surely even the most ardent union firebrands aren’t interested in working for a city that is declining and can’t pull out of its descent.
Here’s the thing: our overreliance on PILOTs are symptoms of a problem. No other city in Tennessee relies on them as much, even those whose metros include other states, and we can’t find a city our size that relies on them as much or grants them for as long as we do here.
As a result, the ultimate question is about finding the way to create the kind of city and economy that doesn’t require us to have the PILOT program to compete. As we begin, we can all agree on this central premise: none of us like the PILOT’s tax freezes – not the public sector, not the economic development organizations, and not the taxpayers.
Backed by that shared understanding, surely, we can come together to determine what the underlying problems are, conduct an analysis about why we have not solved them, and set out to address them to get to a day when we don’t have to rely on tax waivers to get companies to love us.
Workers That Can Compete
So what are the problems that we are forced to mask by PILOTs? The culprits most often mentioned are our severe workforce shortcomings, our lack of a competitive set of statewide incentives, the need for more well-rounded group of local incentives, and a thick labor market.
It seems possible that by focusing on addressing these long-term issues, we can agree that we will live with PILOTs in the shorter term while we put together a plan for the future. That said, it is hard to imagine a way to wean ourselves of PILOTs without the active help and imagination of the Haslam Administration.
For more than 20 years, we’ve heard how bad the Memphis and Shelby County workforce is, and despite some attempts to create a model workforce development program, the horror stories from major employers trying to ramp up expanded operations here are enough to concern every one of us.
Periodically, someone will set a higher skilled workforce as a priority, but we don’t sustain it long enough to make a difference or we can’t get everyone to the table to help out. There are some encouraging things going on to train Memphians for jobs that exist and lack applicants while the link between education and job skills needs to be strengthened and scaled up.
Better State Support
It’s time for us to quit treating workforce as an unchangeable fact of life here and set in motion a process to develop an ambitious plan to turn things around. There’s no argument that most important capital in today’s economy is human capital, and our problems with it are a major reason we are having to dole out financial capital in tax freezes as a substitute.
Research shows that healthy social and emotional development of our youngest children is key to successful adulthood (an even greater indicator of success than test scores). That’s why Pre-K matters so much. Because the payoff for Pre-K will be almost two decades from now, we have to attack both ends of the human capital challenge – adult workers who need job training and children being prepared to succeed later in life.
Another major reason given for the need for the local PILOT program is the lack of an effective toolkit of State of Tennessee business incentives. We know about the need for research and development tax credits, more support for community college programs for job-specific training, and retention incentives for companies considering moves out of Tennessee. The latter is especially needed since Mississippi’s economic development plan at this point is to get a Memphis phone book, dial local companies, and offer them bribes to move south.
We do not profess to know what a well-rounded, effective state incentives toolkit looks like, but we do know that there is no lack of knowledge and experience here that can develop recommendations for one. More to the point, there is the potential for connecting with other Tennessee economic development organization and mayors to develop a politically influential team to lobby state government to do more and to be smarter with their incentives. Like workforce issues, we’ve been talking about the inadequacy of state incentives for decades, and once and for all, we need to see if we can put together a coalition to do something about it.
Act Locally
Meanwhile, here at home, we should consider what other incentives we need so we’re not a one-trick pony with our PILOT program. We could begin by conducting a national scan of what other cities are doing, particularly those in Tennessee that are on state borders.
We should get much more aggressive about recruiting companies into our Foreign Trade Zones and we should consider whether we should add Tax Increment Financing (TIF) as a business incentive. TIFs are already a primary tool in numerous U.S. cities, including Nashville and Knoxville. Whereas PILOTs waive property taxes altogether, in a TIF district, the incremental increase in taxes created by the redeveloped property is used to help finance the project and pay for improvements and infrastructure.
While there is no business incentive that is uncontroversial, and that goes for TIFs, we find them superior to PILOTs because at least the company is paying its taxes which are used for things like improved roads and infrastructure that they need. Today, a company can get a PILOT and if a company needs infrastructure improvements, those costs are borne by local government’s CIP programs.
Ironically, some of the same City Council members who advocate for the PILOT program have in the past opposed TIF districts. It’s time to take a new look at how Memphis and Shelby County could use them as another and better incentive for companies.
The Long-Range View
The ultimate indicator of success is a thicker labor market in our community and it’s going to take a concerted effort over a long period of time to get to that point. It’s a long-term problem for Memphis and Shelby County and it can only be corrected brick by brick with a sustained program of action. Key to it is a serious investment program to give Memphis a quality of life that competes with comparable cities.
It’s a vicious cycle: local government does not get the new revenues that come from a robust economy and therefore, it can’t invest in important quality of life opportunities which in turn fail to retain and attract young talented workers which in turn reduces the economic vitality that provides new revenues for local government.
The road to a highly functioning economy for our city and county is a difficult – if not perilous – one. But expending all our energy fighting over the PILOT program is ultimately taking our eye off the ball and debating the wrong issues. We’ve been dealing with economic development for too long with a short-range view, and if anything, the current debate about tax freezes can be a wake-up call for us to think of a time when we won’t need PILOTs and what it would take for us to get there.
We’ll know when we get there, because we will have created a community that can compete with others on the basis of its quality of life, its skilled workforce, its education to job continuum, and more, all of which will be supported by the highly effective business incentives of state government and balanced with the more nuanced business incentives of local government.
I read this article moments after reading a breezy innocuous profile of our mayor in the CA.
We must judge our current trajectory and if we are not pleased we must seek better leadership. At what point do we, as a community, seek younger, better educated , progressive leadership at the helm and on the council.
Our current Mayor should be judged by job creation and the quality and cost of those jobs.
He should not stop speaking out for pre-k.
In short he should act like a Democrat.
PILOTs and TIFs serve completely different purposes.
No, they are both business incentives. They are different vehicles and they have different methodologies, but they have identical purposes — to stimulate business investment and create jobs. We are too wed to tax freezes when tax increment financing might be just as acceptable to businesses, if they deserve an incentive at all.