The Call For Tax Freeze Changes Waits For Action...A Year Later

It’s that special time of the year when we celebrate the past and commemorate important things in our lives. In that vein, it’s time to pause and observe the first anniversary of an important event in our community’s life – issuance of the consultants’ report calling for a dramatic overhaul of our local tax freeze policies.

And in keeping with the anticipation that is such a fundamental part of this season, we’re still waiting for implementation of the sound recommendations in the December 1, 2005, 97-page report prepared by URS Corporation and NexGen Advisors.

Yes, it’s been a whole year since our community got the wake-up call about our tax freezes’ policies, but little has changed. It’s too bad, because the report deserves better, not to mention the fact that the citizens of Memphis and Shelby County do, too. After all, they’re the ones who stuff the stockings of the companies who get $60 million in waived taxes each year.

If there was any question that the consultants acted impulsively and recklessly, there’s been nothing during the past year to suggest it.

Supporting Evidence

First, two George Mason University professors studied the IDB program and concluded that it was characterized by fatal flaws, such as erroneous calculations, fallacious assumptions and errors in fact.

Then, Forbes magazine held up the local PILOT program as the poster child for tax incentives gone amok: “Targeted tax cuts aimed at attracting particular employers are bad policy. For decades now targeted tax incentives have been a favorite elixir of state and local politicans in depressed communities. But targeted tax incentives don’t spur real growth. Quite the contrary…tax incentives are inevitably financed at the expense of established businesses. Today’s winner of a targeted tax break is tomorrow’s victim of a broad increase in business taxes.”

So, we’re perplexed by the delay in taking final action to implement the recommendations of the city and county governments’ own consultants. It isn’t as if they recommended something revolutionary like blowing up the program. To the contrary, they simply want to strengthen it by making sure that tax freezes are absolutely necessary. Then again, perhaps that passes for revolutionary in the halls of government where the tax freezes long ago became entitlements.

The delay comes because the consultants’ recommendations have to be executed by both city and county governments, where a pledge to do something immediately apparently means, we’ll get to it someday. So far, Memphis City Council, after ruminating about the recommendations for months, took action to put some controls on the tax freezes. However, because the tax freezes are handed out by joint city/county agencies, most notably the Memphis/Shelby County Center City Revenue Finance Corporation and the Memphis/Shelby County Industrial Development Board, county action was also required.

Dragging Feet

There, a committee dominated by developers contemplated their navel for months and forwarded its report, but no one seems in any rush to act, and in the interim, more tax freezes are being approved.

As county government considers what it's going to do, we recommend that officials listen to the Smart City interview with Greg LeRoy, author of The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation. He said: “There’s a popular myth that’s promulgated by companies and their consultants and their public relations machines suggesting that tax breaks are responsible for companies locating or relocating or expanding. I think that’s just not true because all state and local taxes combined has a cost of doing business for the average company in this country of less than one percent of their cost structure.

“Tax breaks, therefore, comprising some fraction of less than one percent of a company’s costs can’t create markets, can’t drive innovation, can’t drive skilled labor. It’s really become a way for elected officials to take credit for things that are already going to happen in the market. And by letting these programs become so loose and allowing them to become pro-sprawl, we’ve also allowed these incentive programs to turn into things that are really harming our land use, undermining our public schools, forcing people away from transit…”

Mr. LeRoy suggests that programs like ours are in truth real estate development masquerading as economic development. “We hope elected officials look at the broader policy issues about how policies affect everybody paying taxes to the city, to the county, to the state, and what’s really going on is a burden shift in which companies that are foot loose, or threaten to be foot loose, are getting lots of other people to pay for their public services, because when a company doesn’t pay its fair share of the cost of public services it uses, everybody else either has to pay higher taxes or get lousier public services.”

Making Citizens Winners

He told of the economic development director in the Minneapolis-St. Paul region who sends a standard email to any one who asks for a tax break:
“He says, you know, we think everybody wins if we provide the best public services possible for the lowest possible tax rate. We want to have great public services, but we’re going to treat everybody fairly and equally so we’ll be sure. We’d love to have you here, we’re going to treat you just like everybody else, but we’re not going to…cut special deals for a few people…and short change everybody else.”

It’s an attitude best exemplified in our state by Nashville. In a 10-year period, it approved five tax freezes. During the same time, our community approved 415 waivers.

Decades ago, Nashville decided to send a message about quality government, quality of life, and quality of public investments. It set out to execute “quality strategies” that makes them a magnet for young college-educated workers and skilled jobs. It identified key public investments to make this happen. It rejected the notion that they had to give away taxes to get people to move there.

Even Dell Computers didn’t get a property tax freeze there. Instead, the company gets $500 for every worker in the city, a business incentive that is transparent and easily understood by the public.

The Road Less Traveled

Memphis, meanwhile, took another road. It was rooted in the economic development programs of the 1980’s when our city was sold on the basis of cheap land, cheap labor and cheap taxes. Ultimately, what we’ve learned is that throwing money at companies to convince them to love us is not only poor public policy, it is also counterproductive, stimulating higher tax rates that choke off the small businesses and the entrepreneurs who create most of the new jobs in the first place.

So, on the first anniversary of a compelling report indicting business as usual, we await final action to balance the public good and economic development. What we have now is nothing less than an entitlement, and as Tom Jurkovich, director of Nashville Mayor Bill Purcell’s office of economic and community development, put it: “Incentives should incentivize. Once it becomes an entitlement, it’s no longer an incentive.”

Now that’s a sentiment worth printing on our holiday cards.