Tuesday, January 03, 2006

PILOT Program Overhaul Deserves Renewed Council Commitment

It’s becoming evident that taxpayers may have missed their best chance for getting control of tax freezes when Memphis Councilman Tom Marshall’s motion to implement immediately the recommendations of the study on tax freezes went nowhere in City Council. It seems that in the intervening weeks, as often happens, the Council’s resolve is dissolving in the face of withering lobbying by the development industry.

So, before political dynamics obscure the crux of this important issue, let’s recap a few highlights of the comprehensive report about the PILOTs (payment-in-lieu-of-taxes given out chiefly by the Center City Revenue Finance Corporation and the Memphis and Shelby County Industrial Development Board).

Here’s just a few sentences from the report:

• The idea and process of preparing an economic impact analysis and evaluation matrix as the sole measures of whether to grant a PILOT should be abandoned.

• A general and very flexible framework, based upon business and market criteria, should be developed.

• The PILOT award should be based on each project’s own merit and should not be confined to an annual PILOT award budget.

• The onus of responsibility of justifying the need for public assistance for each project should be shifted to the private sector.

• The matrix approach to awarding PILOTs should be abandoned and replaced by a “but for” test or the true economic need of a project.

• The City and Shelby County should create an overriding policy to include: 1) what types of businesses should be attracted, retained and thereby induced via public investment; and 2) where these businesses should be encouraged to locate and invest to achieve the greatest social benefit.

• The PILOT program alone cannot solve every issue. Memphis/Shelby County needs to develop more economic development tools.

• A standard project will not fit every situation. Each project should be negotiated individually and individual business terms should be set forth.

• The PILOT program needs refocus on different evaluating criteria and provide more flexibility in the program such that it can be more appropriately targeted and used to better leverage private investment in the community.

• The current contract language does not substantively protect Memphis/Shelby County’s downside risk of the potential move of operations.

• PILOT monitoring is on an honor system. The PILOT recipients basically self-audit. There are no controls in place to ensure that the information reported by the company is accurate.

Any one of these points is reason enough to retool the PILOT program of the Industrial Development Board and Center City Revenue Finance Corporation, but taken together, they paint the picture of a program that is clearly out of touch with economic development realities and with the opinions of taxpayers who have to make up the gap in property taxes that are waived for any company that can fill out the PILOT application form.

With about $60 million in waived taxes, it seems clear that any checks and balances that were supposed to be in the system have vanished. The outrage by the City Council that greeted the report on the PILOT program has waned, and its members are likely to brush off the report’s recommendation for it and the Shelby County Board of Commissioners to become the approving bodies for the tax freezes. There is talk too about ignoring some of the other key recommendations of the report.

One City Councilman began the year with an apology, and let’s hope that we won’t deserve another one because the Council fails to implement the much-needed changes to the tax freeze programs.

And if the conclusions of the 97-page report are not compelling enough to motivate Council members, let’s hope they keep in mind the advice in The Commercial Appeal from Tom Jurkovich, the director of Nashville Mayor Bill Purcell’s office of economic and community development. He said it best: “Incentives should incentivize. Once it becomes an entitlement, it’s no longer an incentive.”

That’s a sentiment worthy of becoming the Industrial Development Board and Center City Revenue Finance Corporation’s new slogan once the PILOT program is overhauled.