Tuesday, November 17, 2009

No DeTox For Addiction To Tax Freezes







Here we go again.

It seems that Memphis economic development officials have an addiction to tax freezes that the Betty Ford Clinic couldn’t cure.

Meanwhile, they have an obsession with North Mississippi that Sigmund Freud couldn’t have shaken.

As a result, real reform of our community’s Payment-in-lieu-of-tax (PILOT) program always seems just out of reach, and even when loosely grasped, it’s only a matter of time before the hoary justifications for giving away taxes are trotted out once again.

This time around, it's about giving tax breaks to businesses already in Memphis who are threatening to leave Shelby County. They have to have been here 10 years, to be investing $10 million and retaining 100 jobs. Someone should lock the key to the city and county vaults, because we predict a run on the bank by companies who say they are now thinking about leaving.

Unchecked And Unbalanced

Most troubling of all this is the fact that there are no meaningful checks and balances in deliberations like the one today before Memphis City Council to loosen up tax freeze policy again. Advocates for the change in policy are the same economic development officials who benefit from the change itself, and once again, in the absence of a comprehensive plan to shift our incentives from cheapness to quality, City Council members are susceptible to the self-serving analyses and recommendations.

Curiously, the only outside assessment of the city and county policies on tax freezes – which recommended common sense and reasonable reform – was forgotten almost before it was officially submitted for consideration. And although some of its recommendations were approved, the full impact of the well thought out report was never realized, and campaigns to water down the changes began almost before the ink had dried on the government resolutions.

The tax freeze program was so out of control that it was criticized by everyone from pro-business Forbes magazine to researchers, and most of all by city and county governments’ own consultants, URS Corporation and NexGen Advisors, who called for major overhaul of the program in its 97-page report issued December 1, 2005. Even then, it took more than a year for local government to get around to reforming the PILOT program, which has always been more about real estate than economic development.

But, most importantly, the tax freeze program lost public support and credibility because of the Memphis and Shelby County Industrial Development Board’s pro forma approval of any application whose paperwork was filled out correctly. But most damning of all, in a 10-year period, for every tax freeze approved in Nashville, Memphis approved 83 totaling about $60 million, a total that was more than the other major cities combined.

Quality Counts

These days, economic development officials act as if we all have amnesia and that our opinions about the overuse of this incentive have changed. While we’ve tried to give away the store, 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 make it today a magnet for young college-educated workers and skilled jobs. It identified key public investments to make this happen. It rejected the notion that it should sell itself at a discount to get jobs and people to move there.

Memphis took another road. It was rooted in “old school” economic development programs that sold our city 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.

Forbes magazine held up our PILOT program as the poster child for tax incentives run 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 politicians 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.”

No But’s

The third strike for the program was the thoughtful report by the city-county consultants. One of those recommendations – the so-called “but for” test - was for companies asking for tax freezes to prove that they need the public investment (and that’s what it is) to make their projects work.

It seems a good time to remember what the consultants wrote: “The current matrix approach (the score sheet now being used to award tax freezes and set their terms) for awarding PILOTs should be abandoned and replaced by a ‘but for’ test or the true economic need of the project.”

This was what was always missing from the PILOT process. Instead of an emphasis on facts, there was an emphasis on rhetoric that is being resurrected once again: “The company will move to Mississippi if it doesn’t get the PILOT” or “This company is looking at locations in Indianapolis right now,” or “This company wants a sign from government that Memphis values its presence.”

In truth, this strict “but for” test was straightforward and encouraged good stewardship of scarcer and scarcer tax dollars. The consultants define “but for” as a business investment that isn’t reasonably expected without the public tax freezes, and it can be proven by a “gap analysis, a competitive cost analysis for competing sites, or a combination of the two,” the report states.

Getting It Right

“The establishment of a ‘but for’ test is the whole premise of any public investment or the need for it from a logical, moral and legislative standpoint,” the report said. “Most, if not all, business incentive programs across the country imply a ‘but for’ test in their intent and enabling legislation.”

Previously, we’ve expressed our concern about the pervasive feeling of unworthiness that is found in Memphis, and which is mirrored in public policy like the PILOT program. It embodies the attitude that we aren’t worthy to have new business and business expansions without bribing them. Is it at all possible that unlike the other cities who sell their cities on their quality, we come off looking desperate and unsophisticated, and a result, we give more than necessary?

We think David Birch, former Harvard and MIT academician and now president of a company that advises companies on where to locate, said it best: "The cities growing fastest right now have the highest taxes, most expensive workers, most expensive land...To say you want the cheapest worker is an old way of thinking. What you really want is a talented labor force, not the least expensive labor force."

Or as Professor John Eger puts it: "The effort to create a 21st century city is not so much about technology as it is about jobs, dollars and quality of life. In short, it is about organizing one's community to reinvent itself for the new, knowledge-based economy and society; preparing its citizens to take ownership of their community; and educating the next generation of leaders and workers to meet these global challenges...At the heart of this effort is ultimately defining a 'creative community.'"

Corporate Tax Dodging

In the end, it seems logical that the overriding question about tax freeze policies is whether they are encouraging the reinvention of Memphis into a creative community, a city of choice, known for its quality and innovation. The answer seems obvious, and so then is the rationale for expanding the basis for issuing yet more PILOTs.

As government officials consider what they’re going to do, we recommend that they 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.”

Amen. And we pray that no one thinks now is the time to return to policies that were key to creating the low-wage, low-skill economy on which we are too dependent.

23 comments:

Anonymous said...

All these academic theories sound good, but they're not practical.

Just look at North Mississippi's industrial growth. It was non-existant 10 years ago and now it's 20 million square feet, most of it Class A space. Also, the vast majority of new industrial development has been there. The main reason? Their tax freezes are much easier to obtain than Memphis and Shelby County's. Why don't you take them to task. DeSoto County has a three-sheet document in order to get a PILOT. Also, when they target a Memphis company, those jobs are new to Mississippi, meaning they can get state AND local incentives, whereas Tennessee doesn't offer incentives to keep companies. Memphis, with this retention program, will have a chance.
Also, it's cute to frame the debate by saying people are "obsessed" with North Mississippi, but it doesn't do much good. When companies like Williams Sonoma and Cardinal Health close Memphis operations and move to Mississippi, utilizing their tax abatements, it's not paranoia. Before you wrote this, maybe you should have taken some time to look at the numerous companies which have taken this path, instead of quoting some economics theory.

Smart City Consulting said...

We know this will be heresy in some circles, but we really don't care if distribution centers move to North Mississippi. Our emphasis should be about keeping the workers here where taxes are cheaper if you want to make the cheapness argument.

We've used up way too much of our land on warehouses and distribution centers that don't pay living wages and take up too much land that pays no taxes at all.

There's nothing in this for Memphians and that's the big problem.

If the problem is that the state of Mississippi has more incentives, then it would seem that our economic development folks and politicians should be in Nashville getting our state incentives straightened out instead of putting them on the back of Memphians.

Zippy the giver said...

Oh, if only they would listen.
But they won't, many people in government here are not listening because of vested interests. Look at the structure of the WWH/Bus station deal, then lok at the Buehler deal, then look at the money trail. It's the same people over and over. Most of what hey do is commit felonies and swear it's in the public's interest when it's really only in their own.
So, they won't listen. But, if people don't start reporting these crimes when they happen,
NOTHING WILL CHANGE HERE.

Chuck said...

Dear smart:

Anonymous 2:59 is either at the Chamber of Commerce or an owner of speculative warehouses. Chamber officials are the ones who said our taxes are not high enough to offer competitive incentives. Duh!

Location in north Mississippi is part of the Memphis economy, and the only losers are the real estate developers of warehouses and the staff they pay at the Chamber.

We should be focusing on livability in Memphis and Shelby County and eliminate PILOTS except in older parts of Memphis, where we could combine them with New Markets Tax Credits, HUB Zones, and CDBG support.

Chuck

Zippy the giver said...

Meanwhile, CHINA who has a plan that they have implemented years ago, decades ago, has moved out of the 18th-19th century and into the 22nd already, yeah, they have a highspeed maglev public transportation for their citizens.
We have a trolley.

Anonymous said...

BMP en PDF Convertisseur
GIF en PDF Convertisseur
PNG en PDF Convertisseur
PDF Creator

Quora Clone said...

Such a wonderful post. Thanks for sharing.
Web Development Company| Web Designing|

Dr Purva Pius said...

Hello Everybody,
My name is Mrs Sharon Sim. I live in Singapore and i am a happy woman today? and i told my self that any lender that rescue my family from our poor situation, i will refer any person that is looking for loan to him, he gave me happiness to me and my family, i was in need of a loan of S$250,000.00 to start my life all over as i am a single mother with 3 kids I met this honest and GOD fearing man loan lender that help me with a loan of S$250,000.00 SG. Dollar, he is a GOD fearing man, if you are in need of loan and you will pay back the loan please contact him tell him that is Mrs Sharon, that refer you to him. contact Dr Purva Pius,via email:(urgentloan22@gmail.com) Thank you.

BORROWERS APPLICATION DETAILS


1. Name Of Applicant in Full:……..
2. Telephone Numbers:……….
3. Address and Location:…….
4. Amount in request………..
5. Repayment Period:………..
6. Purpose Of Loan………….
7. country…………………
8. phone…………………..
9. occupation………………
10.age/sex…………………
11.Monthly Income…………..
12.Email……………..

Regards.
Managements
Email Kindly Contact: urgentloan22@gmail.com

RBS said...

Nice work.Smart City trends increase day by day. Lahore Smart City will also serve as state of the art residential project.

Anonymous said...

Kingdom Valley Islamabad a project under the umbrella of the “Naya Pakistan Housing Scheme” solely for the reason to benefit average income people. To own a house is everyone’s dream but unfortunately not to everyone’s reach due to high inflation and fewer opportunities.

The Masters Real Estate said...

A good article is one that a person is aware of, to get something to learn from that article and your article is also one of them. We hope that you will share a similar article in the future and make us aware thank you.

Read more articles are as follow:

=> Smart City Lahore

=> Smart City

Victoria city Lahore said...

Nice post ! Top Residence in Lahore is the best housing society in Lahore and is situated on Raiwind Street. It is a top task of Association Designers. It is additionally close to Thokar Niaz Baig and the Lahore Ring Street. Etihad Town is a gated local area with 24-hour security. This general public is progressing well overall. Many individuals have assembled their homes with rich conveniences. Etihad Town Stage 1 improvement is 90% finished. There are only a couple of choices accessible for investment.

Anonymous said...

Good post ! DHA Peshawar is ideally located at the prime location of KPK. It is located at the best location as having many well-known societies in the proximity. Dha peshawar location is near Nasir Bagh road close to Askari 6. This society also enjoys a good connection to Islamabad –Peshawar Motorway as well as with the National Highway, N5. This society is also accessible from the Eastern and western routes of CPEC, making it an important development nearby. The housing societies in the proximity are Yaseen Town Peshawar, Hafiz Town Peshawar, and Regi Model Colony Peshawar

Urban City Lahore said...

Nice and good post ! Urban City Lahore Payment Plan provides you best opportunity to upgrade your life at the most affordable prices and in less time. It could be proved as the best investment of your life because installment is minimum and you will have possession just in 3 years. Here the detailed payment plan containing all the information and procedure is mentioned below for you.

Gulberg Executive said...

Thanks for share this post ! Gulberg Executive is a luxurious residential project located in the heart of Islamabad. Developed by IBEX Developers, this project offers a premium living experience to its residents. From state-of-the-art amenities to modern features, Gulberg Executive is designed to cater to the needs of those who seek an exquisite living experience.

Shahid Town Lahore Plots said...

Your blogs are so good and informative thanks for sharing. Another advantage of investing in Shahid Town Lahore Plots is the potential for high returns on investment. The society is relatively new, and the prices of the plots are still reasonable. As the society develops further, the prices of the plots are expected to rise, which means investors can expect to earn significant profits on their investment.

gulberg executive multan said...

Good post ! gulberg executive multan Are you looking for a luxurious and comfortable living experience in Multan? Look no further than Gulberg Executive Multan! This exclusive gated community is designed to cater to the discerning taste of individuals who desire a lavish lifestyle.

Property Street said...


Urab City Lahore is the project of the developers who can develop the wah city. Urban city offers both commercial and residential plots with an easy monthly installment plan.
If you are wondering about buying a home or plot in lahore, an urban city is the perfect housing scheme for you. It offers 3 marla , 5 marla and 10 marla plots with a low installment plan,

Nelson Homes said...

Good post ! Nelson Homes is equipped with modern facilities and amenities, making it a perfect place to live. The project features a 24/7 security system, CCTV surveillance, and a gated entrance to ensure the safety and security of the residents. There is also a fully equipped gym, swimming pool, and a spa, providing residents with a chance to stay fit and healthy. The project has a dedicated parking area, making it easy for residents to park their cars.

Lahore smart city said...

Nice post ! The Lahore Smart City project aims to revolutionize the way people live, work, and interact with the city. The project includes the development of smart infrastructure, such as smart transportation, smart energy, smart buildings, and smart waste management systems. These systems will be powered by cutting-edge technologies such as the Internet of Things (IoT), Artificial Intelligence (AI), and Big Data. One of the most exciting features of the Lahore Smart City project is the development of a smart transportation system. The system includes the construction of dedicated lanes for public transportation, the installation of intelligent traffic management systems, and the introduction of electric vehicles. The aim is to reduce traffic congestion and improve the efficiency and safety of the transportation system.

Gulberg executive multan said...

Good blog ! Gulberg executive multan is a modern and luxurious housing society that offers a high-end living experience in Multan. With its prime location, state-of-the-art facilities, and affordable pricing, Gulberg Executive Multan has become a popular choice for real estate investors and homebuyers alike. In this blog post, we will explore the key features and benefits of Gulberg Executive Multan that make it an ideal investment opportunity.

Anonymous said...

Nice and good post ! gulberg executive multan location For those looking for a place to call home, Gulberg Executive Multan offers luxurious apartments that are perfect for families and individuals alike. The apartments are spacious, well-designed, and equipped with all the modern amenities you need for a comfortable lifestyle. The project also features green spaces, parks, and other recreational facilities, making it an ideal place for families with children.

Farooq said...

Nice content about Smart City. You can add information about the Capital Smart City Islamabad because it is considered Pakistan's first smart city.