Wednesday, November 23, 2005

Kicking The Addiction to Tax Freezes

The continuing controversy about tax freezes is about to come to a climax with the release of the long-awaited consultant's report on Memphis and Shelby County's economic development strategies and its overreliance on PILOTs (payment-in-lieu-of-taxes) in the recruitment of new business.

The report will be released in early December, but already, its rumored conclusions are producing intense lobbying of elected officials by developers to water down options. In Tuesday's op-ed column, Shelby County Mayor A C Wharton for the first time sent a strong public signal that a change is gonna come.

Essentially, he concluded that it's time for more targeted tax freeze policies, more emphasis on workforce development and a more coherent economic development strategy overall. It was welcome impetus for the changes that are long overdue in tax freeze policies, which have lulled us to sleep when we should have been making the investments that create a more skilled workforce linked efficiently to a global economy and that create the higher quality of life that is a greater factor in recruitment than tax breaks.

In light of the impending report and recent developments, we reprise a blog on these subjects:

The U.S. Supreme Court has agreed to determine if tax incentives for business are legal, and taxpayers are crossing their fingers that finally the courts will do what the politicians don't have the will to do.

It was back on June 14 that we wrote that we might be “witnessing the beginning of the end of “the escalating bidding wars that cost cities and states millions of tax dollars for incentives to attract new companies…”

“Already, a federal appeals court in Cincinnati has struck down Ohio's $281 million incentive package for Daimler Chrysler, and because it is a district court, its ruling applies also to Kentucky, Michigan and Tennessee…The governor of Ohio argues that incentives are needed to compete in a global economy, although it's pretty hard for Ohio to compete with Bangladesh on the basis of cheapness.”

Unfortunately, the Ohio governor is not alone. Despite growing public impatience with tax freezes as entitlements and rumbling concerns from local legislative bodies, some Memphis real estate investors continue to extol the virtues of Payment In Lieu of Taxes (PILOT’s) that allow companies to eliminate their property tax payments for years, if not decades.

Clearly, they are in deep denial. One said in The Commercial Appeal that tax freezes are absolutely essential for Memphis to have a level playing field. For about 20 years, Memphis and Shelby County have been waiving property taxes, and if the playing field is still this unlevel, perhaps we should spend more time trying to fix the field than eating our seed corn.

Rather than sell themselves at a discount -- cheap land, cheap labor, cheap taxes – cities that succeed are investing in better workers, high-quality universities, an enriching quality of life and efficient, economical public services.

So, what would we have done if we go back in time – some things that we should start doing right now:

Investments in Universities and Technology. Universities and teaching hospitals are the playing field for the Knowledge Economy. Cities that compete in this economy will be those that maximize these assets and invest in them to create quality research.

Redevelopment in the Urban Core. Memphis has significant underdeveloped and vacant land. The infrastructure in these older areas has been paid for and their reuse makes the wisest investment of scarce public funds.

Balanced Transportation Policy. Memphis should lobby federal and state government to revamp its allocation regulations for urban areas. Too often, federal funding has continued traditional patterns of spending on new roads in suburban areas while neglecting the importance of investing in urban redevelopment and mass transit. Local government should encourage maximum flexibility for the use of these federal funds.

Technology Clusters. Wise cities develop an area of specialization within the technology field based upon university research, biomedical assets, etc. Clusters provide a competitive edge and a critical mass that are important to economic growth. That’s why when we want to see the future, we need to look toward the Bioworks Foundation.

Local Innovation. The best answers to the future begin on our own Main Street today. Solutions from another city transplanted or replicated are less successful because they are artificial. Our best answers are our own, produced organically from a reservoir of innovation and creativity that is embedded throughout Memphis.

Understanding Our Competitive Context. Cities that succeed base their decisions on research and development. Memphis starts by understanding its competitive context, including market and demographic trends in the region and its strengths and liabilities. It can find its distinctive niche to succeed, but it must be based on solid research.

Fixing the Basics. Local government needs to fix the basics, such as safety, taxes, services, land, infrastructure and schools. Governments must look for ways to streamline its structure and improve public services. The foundation of efficient, effective public services are what successful economic development programs are built upon. To support business, particularly small business, local government should reduce redtape and paperwork, particularly in permitting, planning and engineering.

Acting (As Well As Talking) Regionally. Memphis talks a good game of regionalism, but we’ve not truly engrained regional thinking into our plans and actions. Too often, we lapse into a “we versus them” mentality and a “if you’re winning, we must be losing” attitude when it comes to our neighboring counties. Economic activity and innovation occur in a regional context, and we ignore this at our peril. It is increasingly clear that cities and suburbs are inextricably linked into a single economic unit.

Vibrant Culture and Entertainment Centers. To compete, Memphis must be an attractive place to work, live and play. Vibrant arts and cultural offerings are powerful tools in creating the appealing, enjoyable quality of life needed to attract and retain the best and brightest young workers. Too often, we treat these cultural and entertainment centers largely as tourist amenities, but in truth, their value is much broader since quality of life is a chief determinant in workforce growth.

Thinking and Acting Collaboratively. This requires a shift in leadership styles from traditional authoritarian models to a new environment of inclusion, mutual influence and community building. Opening the door widely to all segments of the community and inviting new voices to engage in decision-making is the mark of a mature and competitive city.

A 21st Century Workforce. For Memphis to win in the race for economic prosperity, it needs smart and skilled workers producing goods and services marked by innovation, knowledge and quality. If we are content to compete in the global economy by offering cheap wages, cheap land and cheap taxes, we are fighting for the bottom rungs of the economy. What’s needed is a team of public and private sector partners dedicated to building the skills needed for quality jobs, providing lifelong learning opportunities, improving the competitiveness of all workers and employers, connecting workforce development to economic needs and building a stronger education pipeline to produce skilled workers in the global economy.

Competition on a Global Scale. To succeed, Memphis needs to develop cooperative networks and more sophisticated strategies for the global marketplace. Too often, international business is treated as an extension of traditional domestic economic development programs, and as a result, they often fail. Memphis needs a strategic plan of action tailored for the new world marketplace, and this must include helping business clusters gain access to global markets, finding opportunities for trade, investment and international partnerships and lobbying for federal policies that protect workers at high-risk for dislocation.

Developing a Powerful Brand. Cities are no different from business. They need a brand that tells the world who they are and what they stand for. Place marketing is a major challenges that needs to be faced by Memphis, because before a sound business strategy can be developed, a powerful branding strategy must be in place.

High-Quality Eco-Assets. In competing for the workers of the Knowledge Economy, few factors seem as important as maximizing Memphis’ “green assets.” Preserved and protected open spaces, safe and attractive public spaces, greenbelts, clean air and water and outdoor recreation are not just wonderful public assets. More precisely, they are competitive advantages.

A Reputation for Tolerance. Today, new workers are recruited just as often from India as Indiana. Memphis is competing as much with the country of Georgia as the state of Georgia. In order to compete, Memphis must have a well-founded reputation for tolerance and respect for various cultures, races, and religions. Cities known for their low levels of tolerance will also become known for their low levels of economic growth.

Targeted Incentives. Incentives for new business have become entitlements unrelated to any priorities set by the community for its own development. Incentives often emphasize relocating businesses to the detriment of existing business, particularly small businesses where most jobs growth takes place. This is a playing field that deserves to be leveled.

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