The EDGE board and its president, Reid Dulberger, have shown admirable restraint in the face of special interests calling for them to expand the tax freeze program that is at the heart of Memphis and Shelby County’s business incentives.
EDGE brought thoughtful evaluation to the frantic rush for a PILOT for a spec building at the old Mall of Memphis site, they created the Community Builder PILOT to encourage development in distressed neighborhoods, and they appear serious about their role in creating more minority business participation and higher wages. It is encouraging that EDGE is exhibiting the same, deliberative approach to the proposal by real estate owners for a new “Fast Track PILOT” program.
Put forth by 20 members of the Commercial Real Estate Owners Alliance, they say the new tax freezes are an attempt to mirror the Desoto County’s tax incentives that have proven so successful in head-to-head competition with Memphis and Shelby County. Its minimum thresholds are only $500,000 in capital investment and 15 jobs. It could apply to existing buildings and it does not set a wage threshold like the regular PILOT program, which raised its minimum from $10 to $12 an hour about four months ago.
While the Fast Track PILOT is said to target manufacturing, distribution, and office projects, it feels much more about big box warehouses. The advocates say the new PILOTs – the old ones already waive about $80 million a year in city and county taxes – are needed “because we need economic growth in the worst way.” For many, this overreliance on tax giveaways is indeed the worst way.
While advocates for the new PILOT offer explanations for their points of view, what’s been missing so far is an explanation of why the new PILOTs are in the public’s best interest or benefit. After all, Shelby Drive or Holmes Road have a glut of “For Sale” and “For Lease” signs, but more to the point, the loosening of PILOT regulations means that taxpayers will have to pick up the tab for more projects that won’t pay taxes for the public services they use, and the projects are likely to continue the disproportionate percentage of low skill, low wage jobs that we have in Memphis and Shelby County.
Who Benefits?
It’s akin to the same logic that said every road was a good road, and over 25 years, produced unsustainable sprawl that brought Shelby County Government to a fiscal abyss. Today, it’s as if any job is a good job, but more and more, it feels like a race to the bottom in a knowledge economy that rewards high-skill workforces.
It is possible that distribution centers will select North Mississippi over Shelby County, but the fundamental question is: should we care? After all, because we don’t have a culture of transit, only about 5% of residents don’t have access to a car. As a result, the vast majority of Memphians can just as easily travel to DeSoto County to work and live in Shelby County as the about 70,000 commuters doing the opposite. Like it or not (and we don’t), our community has a car culture and that weakens the arguments about why distribution jobs have to be located in Shelby County.
More to the point, if someone is going to pay the costs of infrastructure for these kinds of developments, wouldn’t we prefer it to be Mississippi taxpayers? If Memphis taxpayers have to pay for the public services for these companies while they pay nothing and if the jobs don’t pay a living wage, where is the public benefit that mandates their location on this side of the county line?
Then again, as long as we talk the talk about the power of a regional economy, but can’t walk the walk, our obsession with North Mississippi will continue to erode a healthy, more balanced economic mix.
The poster child for our concerns is the angst that greeted McKesson’s decision to move from Shelby County to North Mississippi in 2011. The threat from McKesson was accompanied by news stories that Shelby County was losing jobs to North Mississippi, but since the company was moving five miles south, it’s not as if employees on the north side of our county line couldn’t get to them.
Who Pays?
On both sides of the line, real estate development is regularly treated as economic development, and it has led to tens of millions of tax breaks in Memphis and Shelby County for warehouses and distribution centers.
We know the quick answer will be that Memphis needs growth and jobs, but at what cost. If Memphis is to compete in a global economy, it needs to shift to economic development based on quality rather than cheapness. Our concern is that the Fast Track PILOT proposal continues to sell our community at a discount.
Nobody understands this better than EDGE and in listening to the public’s concerns during its strategic planning process, Mr. Dulberger and others are right to say that changes like the Fast Track PILOT should involve a conversation with the community. After all, EDGE took a year evaluating its processes, and Mr. Dulberger said changes were based on community consensus. Chief among the questions that deserve to be discussed is why the Fast Track PILOTs don’t have minority business goals at the precise time that there is wide consensus that minority business participation should be a top priority here.
Advocates of the Fast Track PILOT say that Memphis needs it to compete with Atlanta, Columbus, and Cincinnati for industrial projects, but left unsaid is that it’s the Atlanta region, Columbus region, and Cincinnati region that are our competitors, not merely the cities themselves.
Either we’re a regional economy or we’re not.
Time For A Cease Fire
The axiom is true: every system is perfectly designed to create the results it produces. For Memphis and Shelby County to create different results, it can’t keep chasing the same kinds of projects with the same system. It needs disruption, and at this point, doubling down on industrial and warehouse projects needs a great deal more thought and examination.
What would be really encouraging if our leadership could emulate the recent breakthrough between Kansas and Missouri calling for a cease fire on the payment of huge tax breaks for companies to relocate just across a state line. For the first time in history, two states are close to a legally binding end to job poaching.
Change in the relationship between Kansas and Missouri came after 17 powerful companies intervened, calling for the states to stop allowing companies to move across state lines and calling it “new jobs.” The companies said in a statement: “At a time of severe fiscal constraint, the effect to the states is that one state loses tax revenues while the other forgives it. The states are being pitted against each other and the only real winner is the business who is ‘incentive shopping’ to reduce costs. The losers are the taxpayers who must provide services to those who are not paying for them.”
The companies put their muscle where their mouths were, and they lobbied legislators in Missouri officials to jump start the process. While the agreement is not yet perfect, it’s an impressive start, most of all for the political will displayed by Kansas City business leaders.
It seems that here, we have been complaining about the interstate job piracy for decades, but there has never been a serious discussion between governors about how to stop it. Then again, it’s not like Tennessee’s hands are exactly clean.
Getting The Target Right
Greg LeRoy, head of Good Jobs First, said: “There’s a popular myth that’s promulgated by companies and their consultants and their public relations machines suggesting that tax breaks are responsible for companies locating or relocating or expanding. I think that’s just not true because all state and local taxes combined have a cost of doing business for the average company in this country of less than one percent of their cost structure.
“Tax breaks, therefore, comprising some fraction of less than one percent of a company’s costs can’t create markets, can’t drive innovation, can’t drive skilled labor. It’s really become a way for elected officials to take credit for things that are already going to happen in the market. And by letting these programs become so loose and allowing them to become pro-sprawl, we’ve also allowed these incentive programs to turn into things that are really harming our land use, undermining our public schools, forcing people away from transit…
“We hope elected officials look at the broader policy issues about how policies affect everybody paying taxes to the city, to the county, to the state, and what’s really going on is a burden shift in which companies that are foot loose, or threaten to be foot loose, are getting lots of other people to pay for their public services, because when a company doesn’t pay its fair share of the cost of public services it uses, everybody else either has to pay higher taxes or get lousier public services.”
Equally important, we have to get our economic targets right. As Professor John Eger said: “The effort to create a 21st century city is not so much about technology as it is about jobs, dollars and quality of life. In short, it is about organizing one’s community to reinvent itself for the new, knowledge-based economy and society; preparing its citizens to take ownership of their community; and educating the next generation of leaders and workers to meet these global challenges…At the heart of this effort is ultimately defining a ‘creative community.’”
Ultimately, that should be our goal here, and we’d be much more excited about Fast Track PILOTs if it was aimed at hitting that target.
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