If EDGE approves a tax holiday for a Mississippi bank that wants to build a new Memphis office, it should simply close its doors and put an ATM out front.
It now officially will approve anything, and because of it, since its creation in 2011, Memphis and Shelby County have essentially become like the frog boiling to death as the water gets hotter and hotter.
It can be argued that eight years ago – in the wake of the Great Recession which had damaged the Memphis economy as badly as any region in the country – that EDGE needed to be more aggressive. Ironically, today, as we hear about $15 billion in new construction and a record number of people working, agencies approving tax freezes don’t seem to reassess and recalibrate in light of improved conditions.
Lulled To Sleep
It’s similar to the Trump Administration’s bragging about the economy as the best in history but all while urging lower interest rates (“below zero”), more tax cuts, and rollbacks of water and air quality, protections of national forests and parks, and regulations that don’t slavishly serve the interests of big business. It begs the question: If the economy is going so well and you really believe in the market and free enterprise, why not let it work without artificial stimulus?
The same goes for EDGE.
While it’s lulled the news media to sleep with its exaggerated economic impact studies, with incomplete metrics to measure performance, and with excessive per job incentives when compared to peer cities, the city-county agency fails to consider if it should recalibrate in light of an economy that elicits so much bragging these days.
In recent years, as tax freezes evolved from incentives to entitlements, the kinds of companies that could apply and receive them were dramatically expanded. Meanwhile, the costs of the public services needed by these larger companies – some of which are international with tens of millions, if not billions, of dollars in revenues – were shifted to homeowners and the businesses who can’t ask for tax relief.
Adding insult to injury, there’s never a thank you to the people picking up the tab. Instead, taxpayers are insulted with the spurious talking point about the “new tax revenue” produced by every approved PILOT. The insulting part is that taxpayers are apparently supposed to be grateful that companies pay 25% of the taxes they owe when they could rightfully be paying 100% of their taxes if the application process, not to mention negotiations, was more rigorous.
Where’s the Qualitative?
It’s worth remembering that it wasn’t EDGE, Center City Revenue Finance Corporation, and the other agencies that can eliminate companies’ tax obligations that set the maximum tax freeze at 75%. That threshold was in fact set many years ago by Shelby County Government, and its motivation was to short circuit a growing political problem stemming from the way PILOTs were reducing funding for schools.
The new policy did in fact calm the political waters, but unfortunately, even at 75%, schools still lose about $10 million a year in county government funding as a result of PILOTs.
So, back to the application for a tax freeze by Renasant Bank: Its request asks for permission to not pay $1.7 million in taxes over nine years. If it is approved, it is stark evidence for how unbusinesslike our community is when it comes to tax incentives.
More and more, the PILOT process setting the terms of the PILOT feels like something a college business major could manage. That said, setting a PILOT should be as much qualitative as quantitative.
It’s not just about checking the right boxes and converting them into years and waived taxes. It should also be about the evaluation of market realities, conditions, and trend lines.
Put simply, it’s hard to imagine that Renasant Bank’s decision to build a new office building – they call it headquarters because that’s another favorite EDGE talking point – is based on Memphis’s potential as a growth market for the bank. It’s hard to blame the bank for asking for incentives that are given so freely and excessively here.
However, the bank wants the new building because it’s in its business interest. The PILOT is merely lagniappe, albeit $1.7 million worth of lagniappe
Selling Memphis At A Discount
If this isn’t enough, consider the fact that the office building – which will involve the demolition of two Loeb Properties buildings – is located at Yates and Poplar, a prime East Memphis location which also just happens to be within the Tax Increment Finance (TIF) district that has already been given $42 million in incentives.
Also, it’s a reminder that EDGE’s focus isn’t true economic development. It is in truth real estate development. The approval of this PILOT request by the Tupelo-headquartered bank makes it clear.
Memphis and Shelby County’s economy may have bounced back to its pre-Recession level but approval of this PILOT means that our self-confidence continues to languish. As long as we are willing to sell our community at a discount, we send the message that on its own, Memphis and Shelby County don’t deserve business investments – unless we pay them to love us.
In other words, at the precise time that we are spending millions of dollars on a new city branding program, we undercut it every year when public agencies allow companies not to pay $80 million in city and county taxes.
We’re not saying that the entire $80 million is a waste. We’re simply saying that we are overreliant on giving away taxes rather than executing the ambitious agenda that would create the core ingredients that are the keys to economic success.
After all, if the amount of PILOTs could be reduced by one-third, it would free up $27 million a year – or about the same amount being sought by MATA to elevate its services.
Old School
It often feels that too many of our economic development thinking is built on “old economy” beliefs rather than the realities of the “new economy.” The old economy is about being a place where it is cheapest to do business, but the new economy is about being a place rich in ideas with talent as the driver.
In the old economy, attracting companies was the priority, but in the new economy, it’s about attracting educated people. In the old economy, high-quality amenities were considered extra costs that we could do without, but in the new economy, physical and cultural amenities are keys to attracting knowledge workers and young adults.
In the old economy, regions won if they possessed a fixed competitive advantage, but in the new, regions succeed if organizations and individuals have the ability to learn and adapt. In the old economy, minority workers were sources for low-wage jobs, but in the new economy, African American entrepreneurs and businesses are the paths to prosperity.
In other words, we are often having an outdated conversation when it comes to economic development, even as the poverty rate remains roughly the same and 40,000 Shelby County Schools students live in families earning less than $10,000.
If EDGE and other agencies are to treat PILOTs as actual incentives, they must at least set performance standards that measure success by an increase in income, decreases in poverty, and an increase in higher-wage jobs. If we are treating tax freezes as public incentives, they should in fact produce public benefits.
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Nobody I know is screaming for the elimination of incentives but they are screaming for incentive reform. The problem is that EDGE and other agencies are incented to represent corporate/real estate interests while making greater fee revenue from larger incentives. EDGE pockets $85K on this deal. And you are correct, there are some good responsible incentives. Here is a listing when benchmarked against other cities more responsible incentives based on a proposed incentive reform formula of 50% on new capx only provided current job levels are maintained and 1% of total wages abated while maintaining EDGE investment and term requirements. Worst and Best of EDGE in this blog – http://mcclmeasured.net/uofmworstbest/
Time to build an ATM out front.