Memphis economy needs a better EDGE plan in place
The Memphis and Shelby County Economic Development Growth Engine (EDGE) stakes its credibility and reputation on the analysis it prepares to justify each of its tax freezes.
But I find the way it calculates its retention PILOTs (payment-in-lieu-oftaxes) to be a case study in flawed and incomplete accounting.
Because of those flaws, both Memphis and Shelby County governments are receiving less tax revenue than they deserve, and the tax burden is unfairly shifted from corporations to homeowners and small businesses.
In a real sense, our community is “overpaying” for companies to stay here, and the lack of urgency by our legislative leaders to take up the important work of economic development is as concerning as the poor trajectory of the Memphis economy itself.
In fact, they are opposite sides of the same coin.
On March 1, amid growing concern about workforce and economic development, a joint committee of the Memphis City Council and Shelby County Commission was formed to spearhead a fresh and candid look into these issues.
On April 20, it met in a sparsely attended meeting that underscored its disturbing lack of urgency to tackle issues that have an impact on funding for everything from safe streets to education, from small and minority business development to public transit, libraries to community centers, and more.
This comes at a time when local legislative leadership and oversight have never been more needed to get our economic development efforts on the right footing and improve our economic indicators.
Soon after formation of the joint committee, Richard Smith, board chairman of the Greater Memphis Chamber of Commerce, sounded the alarm, calling for the restructuring of EDGE to improve local economic performance.
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His concern was well-placed. Over the course of seven years and under the heading of “economic development,” EDGE has been systematically undermining the funding of local government through the abatement of existing taxes.
This undermining occurs through EDGE’s retention payment-in-lieu of taxes (PILOTs) program that abates taxes for corporations to keep their operations in Shelby County, generally after the corporation already has received a generous tax freeze.
Years ago, the EDGE board adopted economic modeling for retention PILOTs that uses incomplete accounting at best and misleading accounting at worst to justify giving tax abatements to corporations with existing local operations.
This flawed accounting, which has persisted for seven years with no oversight or curiosity by local legislative bodies, does not account for the following:
❚ Any probability that a company will remain in Shelby County without a retention PILOT rather than paying hefty relocation costs.
❚ The economic impact on the remaining workforce even if a company does leave.
❚ The economic impact of forgone community investments from abated taxes.
By not considering these three factors, EDGE treats already existing revenue as “Total New Tax Revenue Generated” and shows significant tax revenue gains that do not exist.
This questionable practice has justified the abatement of taxes for corporations on the back of a community in need of funds for vital government services.
By my estimates, the cost to Memphis/Shelby County taxpayers is $281 million, or $22 million per year.
The council and commission members should immediately reconvene their joint committee and provide the needed leadership to support local
In a real sense, our community is “overpaying” for companies to stay here, and the lack of urgency by our legislative leaders to take up the important work of economic development is as concerning as the poor trajectory of the Memphis economy itself.
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economic development efforts by:
❚ Restructuring the EDGE board so it is equally comprised of voting members from small business, local legislative branches, and corporations, and empowered to choose, evaluate and supervise EDGE’s CEO.
❚ Working with the Greater Memphis Chamber to create an economic development plan that can jump-start an economy that creates new and better paying jobs and reduces income disparities.
This stepped-up local legislative leadership and oversight are arguably seven years overdue. But it is never too late to do right. This advocacy for the public and overall business community is key to propelling our economic development.
Joe B. Kent is a Memphis researcher with a BBA in Finance and an MA of Science in Curriculum, Instruction and Technology.