Wednesday, March 29, 2006

Potential Harrah's PILOT Points Out The Need To Reform The Program...Now

Frequently, a government agency does something that just makes you shake your head and wonder, “Do they really think we’re that stupid?”

That’s a regular reaction when it comes to the actions of the Memphis and Shelby County Industrial Development Board. And it looks like we’re about to have it one more time.

This time it’s provoked by the IDB’s expected gift Wednesday to Harrah’s Entertainment – an eight-year waiver from paying property taxes on its new 285,000 square foot building for its Central Division Office.

As usual, it’s a real estate deal masquerading as economic development strategy. We’re supposed to be excited enough to believe that it’s worth eight years of waived taxes to get Harrah’s to move into the long-vacant Concord EFS building in Goodlett Farms.

“It’s one of the best Class A office buildings in the city,” John Lamberson, a vice president of CB Richard Ellis told The Commercial Appeal’s Amos Maki. “There’s really nothing else like it in the region.” “It’s truly an amazing facility,” echoed Wyatt Aiken of Commercial Advisors LLC.

Now would someone remind us why we need to waive eight years of taxes to make this office building attractive enough for Harrah’s to move into it?

It makes even less sense when you do the numbers.

The eight years of taxes that the IDB is expected to give away to Harrah’s amounts to $2.6 million. In other words, we’re supposed to believe that somehow Harrah’s remaining in Memphis and occupying this “amazing facility” rests on whether we, as a community, “invest” $325,000 a year in this enterprise.

By the way, $325,000 is what Harrah’s takes in as revenue every 24 minutes, 24 hours a day, 365 days a year.

It’s pretty hard to imagine a situation where this petty cash fund even factors into the massive casino company’s decision to move to new headquarters and hire 65 new employees in Memphis.

And yet, it’s probable that the Industrial Development Board has already brought out the rubber stamp.

Unfortunately, the well-reasoned recommended changes for the PILOT (Payment-in-lieu-of-taxes) program are still just that – recommendations. While Memphis and Shelby County engages one of their favorite stalling tactics – the appointment of an advisory committee – the approval of tax freezes continue.

One particular common sense recommendation by the consultants who evaluated the existing PILOT program comes to mind in Harrah’s case. It’s the that calls for abandoning the current matrix approach – which could award a five-year freeze to a chimpanzee that managed to scratch something in the right box – and replacing it with a “but for” test to determine the true economic need of a project.

In other words, the “but for” test, as explained by the consultants, means that private investment is not reasonably anticipated without public investment.

The current PILOT program doesn’t take into consideration whether the tax waiver is absolutely necessary to put Memphis and Shelby county on par with other locations or to make a Memphis project economically feasible. Because there is no emphasis on this, it’s impossible to tell if companies like Harrah’s would located elsewhere if the PILOT were not awarded.

In Harrah’s case, it’s hard to imagine that it is prepared to pay the huge moving costs associated with uprooting its Central Division office from Memphis and moving it somewhere else. It’s even harder to imagine that $325,000 in tax waivers is a deal killer.

It’s past time to quit studying the consultants’ recommendations on reforming the PILOT program and implement the changes. As we’ve mentioned before, the authority for granting these freezes actually rests with Memphis City Council and Shelby County Board of Commissioners, not the mayors, so it seems timely for the legislative bodies to regain control of this issue and pass the recommendations.

As city and county governments prepare to roll out their proposed budgets for the coming fiscal year, prepare yourself to hear the normal rhetoric about cutting government to the bone, about reducing the workforce and about increasing productivity. There will be the usual talk about the lack of adequate tax revenues to fund some services and cuts will be announced in others.

And all of this will take place while $60 million in taxes is being waived yearly by the IDB and Center City Commission Revenue Finance Corporation. It’s impossible to argue with the reasoning of the 97-page consultants report that sets out the much-needed changes to the processes that give away city and county taxes.

Throwing a $325,000 rock in Harrah’s $7.1 billion pond doesn’t even make a ripple. But $325,000 can make the difference between life and death for some public services.

Can’t somebody simply suggest to Harrah’s that they take this opportunity to make Memphis business history by withdrawing its application for a tax freeze?

Now that’s something that really deserves a headline in The Commercial Appeal. And in all the sections.


sherman said...

Maybe the Harrah's maintenance crew can cut the grass on the n. parkway median this summer.

Anonymous said...

It not taht I agree wiht this but they are not going to pay taxes on certain sq footage not the whole buildng. Also how about the bed and brekfast wine place on Mud Island about 3 yrs back - how are they doing? we get enough employees to handel that ?