Thursday, November 17, 2005

Where's State Government When Memphis And Shelby County Business Incentives Are Paid?

Next time we’re recruiting an international corporate headquarters like International Paper to Memphis, maybe we should call the governor. In the case of Nissan North America, state government is giving almost $200 million in incentives over the next 20 years to lure the company to the Nashville area.

In case you’re counting, that means that Nissan will get about $155,000 per job in state money, according to yesterday's Nashville Tennessean. It’s enough to give you that good, old-fashioned Memphis “red-headed stepchild at the family reunion” feeling yet again.

The major ornaments on the state’s Christmas tree, Nissan – one of the 25 largest corporations in the world with sales of $57 billion – are relocation costs and tax credits. To attract the auto company headquarters and its 1,300 employees to Middle Tennessee, state government is paying $64 million in Nissan relocation costs. The payments are limited to $50,000 per job, if that makes you feel any better about them.

In addition to the relocation payments, Nissan will get a $5,000 annual tax credit for 20 years for every new job that it creates in Tennessee. By the way, if you’re a small business owner, don’t bother calling state government for help. The law creating the incentive was written to only apply to companies that spend at least $1 billion in capital costs and create more than 1,000 jobs.

In fact, the new state law that gave Nissan these generous benefits was passed without fanfare – or even explanation - in the last session of the Tennessee Legislature. It was essentially a special bill written for Nissan, and it was unanimously passed after being added on the Senate floor.

Now, state economic development officials contend that the secrecy was needed, because negotiations were under way. However, it’s difficult to suggest that legislators shouldn’t have known that they were voting to give away the most state money in history. Already, some legislators gasped when told the amount of the incentives made possible by their action. Arguing that our neighboring states offer relocation incentives, and we were simply not competitive, Governor Bredesen now says the new law was absolutely necessary to reel in Nissan.

In the parallel universe of corporate welfare that has sprung up around corporate relocations, such incentives have become the norm, even though Nissan was moving from California for some compelling business reasons that had nothing to do with Tennessee incentives. As we’ve written before, current lawsuits before federal courts could strike down the out-of-control bidding wars between states for corporations, and it’s high time, because it’s clear that elected officials at the local and state levels across the U.S. are incapable of reining in their largesse with the public purse.

When you add in Williamson County’s expected tax freeze for Nissan, the total amount of incentives for the carmaker is close to $180,000 per job. It makes local economic development officials look downright frugal with their incentives of $159,000 per job for the 94 executives being moved to Memphis with International Paper, the world’s largest forest products cmpany (revenues: $26 billion a year).

Unfortunately, state government officials stood on the sidelines with their checkbook in their pocket during the International Paper negotiations. It’s more than passing strange to some in economic development circles here that Middle Tennessee always seems to have a helping hand from state government when it comes time for its citizens to pay for big ticket projects.

Meanwhile, Franklin and Williamson Counties will vote in the coming weeks on their separate incentives package for Nissan, although Williamson County has already served notice that it will not waive the 53 percent of its tax rate that goes for education, according to the Nashville Scene. That said, the Williamson County officials say their piece of the incentives puzzle should be about $33 million over the same 20 years.

While it is tempting to conclude that this is just one more example of counties offering up tax freezes too generously, it’s worth noting that over the decade that our community was granting 415 tax freezes, Williamson County granted five and Franklin County granted four.

As they have said for years, unlike Memphis and Shelby County, they save their tax incentives for targeted, high-impact projects. Clearly, this is what they’ve been waiting on.

Meanwhile, here in Memphis and Shelby County, yet another tax freeze for 15 years was put before the always generous Memphis and Shelby County Industrial Development Board, this time, by Medtronic Sofamor Danek. While it’s tempting to ask a corporation with a civic-minded ethos and with $12 billion in revenue to forego the waiver of city and county taxes, it’s inarguable that it’s the kind of project that the PILOT program was made for – a major expansion of a target industry creating 600 jobs that pay 66 percent more than the per capita income.

To the company’s credit, it also commissioned an economic impact study that calculates economic impact, new taxes and the amount of money spent for local goods and services. While some of the amounts seem on the optimistic side, Medtronic Sofamor Danek is taking great pains to make a case for the tax freeze, and that’s a welcome change from the political muscle that so many applicants and their high-paid lawyers flex.

One last fact about the state incentives for Nissan: based on the normal sources of revenues in Tennessee, about $40 million or so of the total state incentives for Nissan will come from Shelby County.


MidsouthGambler said...

Ummm...I can read the articles on the Tennessean website, too. How about some original commentary, not just rehashing an article on a website you are hoping we haven't seen?

RedEd said...

I recently saw for the second time the documentary "Roger and Me" by now-famous Michael Moore about GM picking up and leaving Flint, MI, to wither away and all but die in the mid-80s. Seeing the documentary sparked a debate between me and my husband. He was furious that GM left the city to rot after - we're certain - Flint probably gave tax cuts and incentives galore to GM over the years. While I, too, thought it immoral and cold-hearted, I argued that it is no surprise, that, in the end, the goal of a corporation is profit at any expense. I say this because the same still holds true today. So 20 years later we're not only giving away the store, we're giving it to the wrong people. Just a thought that seems indirectly relevant to this post...

RedEd said...

By the way, midsouth gambler, the Tennessean Post mentioned nothing about Memphis getting left behind by the state while they held Nashville's hand, which was the point of the post.

Smart City Consulting said...

What we hoped we added to the conversation was the comparison of the state's involvement in Nissan to the lack of involvement in International Paper, the per job costs for Nissan compared to IP, the number of PILOTs given in Williamson and Franklin Counties, the burden for incentives that falls on our local government without state help, and the pending lawsuit on these kinds of incentives. But we appreciate the constructive criticism.

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