Consultants' Report on PILOT Program Calls For Overhaul

The long-anticipated study of the city-county PILOT (payment-in-lieu-of-taxes) program is finally finished and the conclusion couldn’t be more clear and unequivocal: the present system is broken and cannot be fixed.

The 97-page report (with twice that many pages as appendices) is the most unexpected ever delivered to Memphis City Council. As Council Member Tajuan Stout-Mitchell observed, it’s the first truly objective study ever received by that body. Without question, it was in fact equal parts courage and insight, and that alone makes it an unusual occurrence in the halls of government.

While the initial reaction from real estate developers was wisely to refrain from public comment, get ready, because before it’s over, there will probably be more howling than a Lon Chaney Jr. werewolf movie.

Already, some in the development community say that the mayors have promised to help them resolve some of their biggest objections, chief among them trying to prevent the transfer of tax freeze approval from the mayors to the Memphis City Council and the Shelby County Board of Commissioners.

Change is hard to accept by all of us, but for politically-connected people who have gotten everything they have wanted since the tax freeze program was created in 1987, it’s hard for developers not to look like shell-shocked recruits returning from Iraq.

After all, they led the battle in 1996 that restructured the PILOT program and increased the maximum term from 5 years to 15 years. Back then, they even helped to create the matrix that was supposed to bring rationality, sanity and fairness to the process. Then, about two years ago, they campaigned for and got an amendment to the PILOT program that actually allowed “second generation” PILOT’s for existing buildings. (City and county governments pitched the change as needed to rehabilitate older buildings within the urban core, but a check of the records shows that most of these PILOTs are on the city periphery.)

With about $60 million in taxes waived by essentially the Memphis and Shelby County Industrial Development Board and the Center City Revenue Finance Corporation, it seems clear that any checks and balances that were supposed to be in the system have evaporated.

The recommendation that the final approval for PILOT's be moved to the City Council and Board of Commissioners is being treated as the end of democracy by some, and Mayor Wharton passed on the opportunity with The Commercial Appeal to endorse the report. The most frequent criticism of the recommendation for legislative approval is that it would politicize the process, which is a bit like acting surprised that a Peter Jackson movie is full of special effects.

It is a political system. It is filled with elected officials. It is political already. The only difference is that now the political interests are the mayors, and if the report recommendation is approved, it would increase the politicians involved in the approval process from two to 28, and the naive among us hold out hopes that the number of political interests will deter the developers from playing political games, as they frequently do now, but will be forced to develop real analyses of their economic impact, the benefit to the community from its purchasing, etc.

Here's our suggestion for what should be done. The City Council and Board of Commissioners should take charge of the PILOTs for only a 9-12 month cooling off period, contingent on the mayors doing two things.

One, the mayors should gut the Industrial Development Board, removing all of the present members, some of whom have served for decades and who seem to have never met a tax freeze that they didn't like.

Second, the mayors should get serious about filling the vacant economic development director's job in city-county Office of Planning and Development. This is the chance to get someone with national credentials, someone qualified to develop a real, functioning, balanced economic development plan for the county and to execute it. This is a person who should be given autonomy to make decisions about economic development priorities and be free from political influence.

During the 9-12 months that the legislative bodies are directly controlling the process, the new economic development expert should analyze the options for the evaluative and approval process for tax freezes and should present findings and recommendations to the mayors and the local legislators for what the final restructured process should look like.

In the end, the best solution to tax freezes is to create a process known for its accountability, its transparence and its objectivity. Someone with national experience and credentials should be hired to get this done. Now.

Meanwhile, Memphis City Council yesterday, on the motion of Councilman Tom Marshall, who eloquently described the problem with tax freezes ("We have been slowly, as a council body, abdicating our responsibilities as the custodians of the city's coffers to boards which have removed accountability farther away from those who have a direct responsibility to constituents.") unanimously took the first step toward implementing all of the recommendations of the report. While some question the legisators' involvement in tax freeze policy, it is worth remembering that they, not the mayors, have the legal authority over PILOT's, and they have the power at anytime to take back the authority it delegated away 18 years ago to various boards.

As the county attorney's office opined about a decade ago, if the local legislative bodies giveth, they can also taketh away, and we believe that is precisely what they should do for a reasonable transition period. They should rescind the authority given to the various boards to waive city/county taxes and take back control.

While the city side of Main Street seems to be ready to act, the county side is less interested in quick action, or at least not until the end of February, which just happens to be after the qualifying deadline for the upcoming elections. There is the natural political tendency to put off issues that are as booby-trapped as effectively as this one is -- caught between the public whose patience for tax freezes is waning rapidly and developers whose contributions are critical to keeping the political coffers full. This kind of volatile issue is ready-made for a populist opponent who could use it this time around just like John Willingham used the FedEx Forum four years ago in his successful bid for county commission.

Regardless of whether the issue can be sidestepped for now on the county side of the street, it's clearly not a controversy that is going away. The City Council's vote yesterday was a direct reflection of the message that they are getting in their districts, where shutting down the number of tax freezes plays awfully well with their voters.