Here's Hoping The Moratorium Inspires New Thinking On Other Fronts

In a week when the Shelby County Board of Commissioners took a landmark vote to end “business as usual” and enact a moratorium on development, it was disappointing to see more of the same on two other fronts -- the Memphis Regional Chamber and the Memphis City Schools Board.

The week began with the first fracture line – albeit a faint one – beginning to show between developers and politicians. In a unanimous vote and despite all predictions to the contrary, the board of commissioners sent a message that will reverberate in political circles for some time. It sent the message that things have to change and the silence of the homebuilders seemed to underscore the import of that message.

For the cynically minded (which is a frequent result of our bouts of idealism in the face of political realities), it is possible to minimize the impact of the vote by pointing out that development interests largely sat this one out. They are not hurt by a six-month moratorium, and their concerns and the concerns of homebuilders are not overlapping.

But still it was enough to raise feelings of hopefulness. Perhaps, finally (and hopefully, not too late) local government seems finally willing to come face to face with the unsustainability – both in land use and public finances – that sprawl ushers in.

Actually, it was business as usual on two other fronts that dampened the mood of the week and the sense that finally the times are changing.

The first deals with tax freezes, or in government parlance, payment in lieu of taxes (PILOT’s). Faced with the growing restlessness about how tax freezes have become entitlements in Memphis, some economic development officials seem to equate the end of the tax waivers with the End of Days.

While a more modulated approach is needed than the elimination of the business incentives, it is easy to sympathize with legislative officials who have to brave the anger of the public over property tax increases while more than $60 million in property taxes is taken off the table before they even begin budget hearings. Most of all, it takes place without city and county legislators –who are in charge of setting the tax rate - even having a voice in the decisions.

As we have written here, the Tennessee Advisory Commission on Intergovernmental Relations reported that our city and county give more tax freezes than all of the other 94 counties in Tennessee combined. This amount includes the taxes waived by the Memphis and Shelby County Industrial Development Board and the Center City Revenue Finance Corporation. It does not include tax breaks received from sports authorities; enterprise zone development corporations; health, education and housing facility boards; tax increment financing projects; and from enterprises located on city and county property.

While it sends shivers up the spines of some local Chamber officials, it seems like it’s time for tax freezes to be presented to the Board of Commissioners and City Council for their votes, at least in the short-term, until some rationality is brought to the system. And with the IDB staff refusing to release to the media the file of a company who has asked for a waiver of taxes (in violation of the Tennessee Open Records law), it seems that the process now also demands more transparency.

Tax freezes were intended to be a support for economic development. Instead, it’s become a crutch. Other major Tennessee cities – who must work with the same tax structure, business incentives programs and state policies – do not give a tax freeze to any company who can fill out the forms, as happens here.

Nashville, for example, only stamped approved on 5 applications for tax freezes in a 10-year period, while Memphis/Shelby County approved 415 tax freezes. And, no, that’s not a typo. It’s 5 compared to 415.

No wonder Chamber officials' pleas for continuation of the tax freezes are falling more and more on deaf ears. It’s also no wonder that county commissioners and city council members are more and more suspicious about the way that tax freezes are handed out here.

Rather than defend the tax freezes unilaterally and liken their end to an economic Armageddon, a position that marginalizes their influence over potential changes in procedures and enforces the view by some that it's elitist, Chamber officials should end its sometimes hysterical defenses of tax giveaways and recommend changes that could keep tax freezes as a weapon in economic development.

But it requires moderation and more concern for the impact of tax freezes on homeowners’ tax bills. If the Chamber continues to take its present position that absolutely nothing is wrong with the current tax freeze program and refuses to look for middle ground, it increases the real risk that the PILOTs will be eliminated all together.

So, what should the Chamber propose that would keep tax freezes alive, but make their use more strategic and reasonable?

First, economic development officials should adopt a compelling position: they should advocate the end of tax freezes as entitlements.

There’s the joke in local government that if a baboon escaped from the zoo and wandered into the IDB office in City Hall and managed to check a few boxes on the tax freeze application form, it would get at least a five-year tax freeze.

To gain some credibility for itself in the policy debate, the Chamber should propose some much-needed reforms of the policy:

1) Target people, not buildings.

Now, any one asking for a tax freeze is rewarded for creating a building about as much as they are for creating jobs. This traditional measurement for success must be turned on its head. The yearly press conference touting the success of our economic development activities should be based on new jobs, not on new construction. Creating temporary construction jobs is not as important as the creation of long-term, new jobs. Period. End of sentence.

With the current tax freeze program, the IDB matrix gives as many points for a $40 million building as for 250 jobs. The importance of construction costs in the program should be drastically reduced to shift the focus to people, where it belongs.

2) Target certain industries.

The distribution industry has been a major beneficiary of tax freezes, and local elected officials need only look in the mirror to see how that happened. At a time when the first grumblings about tax freezes were being heard, developers went to local government and got even more concessions that directly benefitted the owners of warehouses.

As we have written: “Sometimes it’s like the (IDB) board is saying, to heck with the global battle for knowledge workers, we’re sticking with a strategy to see if Memphis can compete with Bangladesh for cheap workers. The weakness in this approach was shown in the recent decision by International Paper to close its call center in Memphis and move it to Krackow, Poland.”

We’ve wrapped distribution in the new vocabulary of logistics, but too often, companies get their taxes waived while creating jobs that pay less than the average income, further creating the national perception of Memphis as a blue-collar, unskilled market.

It’s time to only give tax breaks to companies in targeted industries, such as biotechnology. If we can’t attract distribution companies on the logic of them being in the home of FedEx, the home of a regional hub of UPS, and the home of an airport touted as one of the world’s most efficient, we shouldn’t be investing our taxes in companies that are that stupid in the first place.

3) Target the end of low-wage jobs.

For too long, companies that pay less than the average income, much less a livable wage, have received tax incentives. Some economic development officials argue that it’s not fair to require distribution companies to pay the average income, because wages in the distribution are lower than other jobs.

Talk about a self-fulfilling prophecy.

Now, a company paying salaries that are only 70 percent of the per capita income for Shelby County still gets points for a tax freeze. In the poster boy for such cases, Jabil’s eight-year tax freeze was approved on the creation of new jobs, although most of the company’s jobs still allow its new employees to apply for food stamps.

When taxes are invested or waived, there should be serious discussion about their public policy benefits. Giving away citizens’ taxes to attract jobs that then pay these same citizens less than poverty wages simply doesn’t make any sense.

4)Deal with the problem, not its symptoms.

A regular refrain of Chamber and IDB officials is that tax freezes are necessities because of problems in the Memphis economy, such as the large number of low-skill workers and the lack of Knowledge Economy workers. Rather than argue for a continuation of policies that create this structural problem, our experts need to concentrate on addressing the cause of the problem, rather than its symptoms.

To be honest, there are a number of economic development professionals who believe that Memphis and Shelby County have an overreliance on tax freezes and that we need to rein them in. Also, they welcome the chance to prove that they are skilled enough to compete successfully with other cities on the merits of our city, rather than on our tendency to throw money at prospects to show that we love them.

In the end, however, we don’t convince companies that our city has value when we tell them that we don’t even deserve their taxes. What did your mother tell you about expecting to pay for the cow when you give away the milk for free? It’s simply time to stop sending the message to prospects that we are so unworthy and undeserving that we have to give them money to love us.

While economic development types were wringing their hands over the future of tax freezes, the Memphis City Schools board blinked, approving the questionable site for a high school picked by Shelby County Schools without consultation with the city schools district.

Over the past 15 years, county school officials have had the effect of throwing gas on the raging wildfire of sprawl that was burning in Shelby County. In fact, on more than one occasion, the county school district seemed to light the fire itself.

Strangely, Shelby County Schools has never been held accountable for its role, successfully portraying themselves as educators, rather than as instruments of the development industry.

At this point, city school officials have only agreed to the proposed site for the proposed high school, and a number of thorny issues remain to be addressed. As these issues play out, city schools officials should be more forceful, insisting that their policies on construction and school sizes should guide future decisions:

1) Build the schools to city schools specifications.

The schools built by the county system have the charm of a medium security prison. There is no sense of community importance, there is no sense of arrival and there is no inherent pride in creating a productive learning environment symbolized by a quality physical place. Rather, county schools seem primarily interested in warehousing kids in architecturally insignificant buildings.

Media attention has focused on city schools construction practices in the past, and Superintendent Johnson has moved mountains in bringing reason to the district’s building policies. In fact, construction costs have been cut about 25 percent in recent years.

Unlike its county counterpart, Memphis City Schools has a sense of the importance of schools as centers of community. City educators understand that the quality of the physical environment tell students volumes about the value that is placed on them by their community. City educators emphasize the building of schools that will last for decades. In fact, it's still using about three dozen schools built before 1935. The schools built by Shelby County Schools feel as disposable as the subdivisions they've inspired in high-sprawl areas.

That’s why Memphis City Schools, rather than allowing the county school system to be in charge of building a high school in Memphis’ annexation reserve areas, should do just the opposite. Memphis City Schools should build the school to its specifications, and then the county district could be allowed to use it until it’s annexed. This is precisely what the Memphis Fire Department did with the Hickory Hill fire station. It built it and then let Shelby County Fire Department use it until the area was annexed. That’s a model worth emulating.

2) Don’t warehouse students.

Superintendent Carol Johnson is a proponent of smaller high schools, rather than the 2,000-student megaliths that the county prefers. Her position is well-founded, because research supports the student achievement that is linked to smaller schools.

Supt. Johnson prefers a high school of about 800 students. County officials claim that the constructions costs of a larger school is more efficient. But that’s the wrong measurement for schools. The real test is in the measurements of students who attend smaller schools, and these back the city superintendent's philosophy of smaller schools.

Building larger schools may actually make sense as construction policy, but as educational policy, it is pennywise and pound foolish.

Despite the business as usual attitudes by some in the economic development and education communities, there is a genuine, hopeful feeling that the dam has finally burst. And perhaps, just perhaps, there is no holding back the progress that can come from doing something that we have much too little experience in doing – giving serious attention to substantive public policy issues.