A Modest Proposal For Openness About Tax Freezes

It’s time for a modest proposal regarding the controversial city-county PILOT program waiving $60 million in property taxes this year.

“Modest” being the operative word, since it seems obvious at this point that is what government officials are going for as they study the tax freeze programs to death and seem poised to water down substantive changes recommended by the city and county’s own consultants.

Here’s the idea. While this issue drags on, post on the websites of Memphis and Shelby County Governments all existing tax freezes and every new one approved by the Memphis and Shelby County Industrial Development Board and the Center City Commission Revenue Finance Corporation.

It seems only fair that the citizens whose taxes are being waived know why.

Inertia

Mayor Herenton has been an outspoken defender of the tax freeze program, and at times seems to point to it as the answer to all that ails his city. Economic development officials claim that Memphis cannot compete unless it gives away its taxes. Mayor Wharton’s committee is eerily quiet. Memphis City Council rattles its saber, but takes no real action to improve things. The Shelby County Board of Commissioners avoids the subject like the plague, because after all, it’s election season and the real estate interests pushing for this program just happen to be major campaign contributors.

All forces seem to be in alignment – for complete inaction.

In light of the staunch defenders of the PILOT program and arguments about its important role in economic development, surely they would welcome the chance to post information about the tax freezes to the Web.

At this point, it’s as easy to find Shane Battier at a Grizzlies team meeting as to find information about the tax freezes on a local government website. In fact, the only place to find information is on the State of Tennessee website and there it is outdated.

Transparency

It would prove instructive to the public to see the length of each PILOT, how much in city and county taxes are being waived, the number of jobs being created and their average wages, and the recipients. Surely, there’s no reason that advocates of the status quo with the PILOT program wouldn’t object, since they confidently praise the program’s worth and tell the public that it’s good public policy.

It would be productive if we actually allowed the public to have the information to reach their own decision and to have a voice in the reforms that are needed for the program.

Accountability and transparency are the cornerstones for good government and the support by the people it serves. They are sadly lacking qualities when it comes to the tax freezes approved by the IDB and CCRFC.

Perhaps, we could learn from the state of Illinois, which now has a public website where any citizen can track which companies are receiving tax breaks, how much they amount to, the promises made by the businesses to get them and whether the company is delivering. Already, it’s been a revelation: 60 percent of the jobs supported by these public incentives pay less that what it takes for families to live on.

Sunset

Other states are looking into sunset provisions that mandate periodic evaluation of tax incentives to determine if their true costs are being calculated and if policy makers fully understand the trade-offs that they are making.

Ohio, for example, has a bill pending in the state legislature that would require the review of tax incentives every five years to guard against abuses and to ensure the wisest possible investments.

Already, we have the warning signs. Two researchers at George Mason University pointed out in a detailed analysis of the local PILOT program that tax freezes are regularly increased by the addition of discretionary points recommended without clear justification by the staff and awarded by the IDB.

The professors also poked holes in the economic impact study commissioned by the IDB that contends that the tax freezes generate monumental returns on investment. Of course the same firm predicted that the Grizzlies’ presence in Memphis would create $1.5 billion in economic impact.

Flaws

According to the George Mason professors, the economic impact study for the IDB had fatal flaws, such as erroneous calculations, fallacious assumptions and errors in fact.

This recent independent analysis, coupled with the indictment issued by local governments’ own consultants in December, should be enough to jump start changes in the PILOT program. And yet, city and county governments continue to dole out tax freezes to one and all if they can complete the application and check the right boxes.

Often, it’s a case of the rich get richer because small businesses get no such financial incentives. It’s also often a case of the poor staying poor, because some of the companies that enjoy the largesse of government pay so little that its employees also qualify for food stamps.

It’s a sad commentary on the state of local public policy analysis. Officials have watched as the freezes have mounted, now equating to $60 million in property taxes a year. And yet, we are still to wait. As we do, we should keep in mind that if city and county governments had those tax revenues, they could pay for the FedExForum in four years, or they could support enough bonds to pay for all new schools and school renovations requested by Memphis City Schools and Shelby County Schools or execute plans to upgrade city parks and improve Shelby Farms Park.

Tax Reduction

Or the city and county tax rates could both be reduced, possibly the most compelling action to make Memphis and Shelby County more competitive.

In other words, this is an issue that deserves serious consideration based on its public policy implications rather than its political implications. In the meantime, if people want to argue that the PILOT program should be protected from the fundamental reform that it needs, the least they can do is show us what they are talking about.

This begins with the posting of the PILOT’s on city and county websites, but there’s no need to get our hopes up. The detailed report by the consultants hired by city and county governments was made in December and only a couple of weeks ago did this report find its way onto the Shelby County website.