Best option for IP: Grow in Memphis

The grow-in-Memphis option. Keep those words top of mind as the debate begins in earnest over what this city and its leaders should rightfully and prudently offer International Paper to keep the company’s headquarters here.

The grow-in-Memphis option sums up the reason Mayors A C Wharton and Mark Luttrell are correct to invest their political capital toward finding more incentives to keep the world headquarters of IP in this city.

The very wording of this term suggests two things. First, that International Paper, a Fortune 500 company with its headquarters in Memphis, is planning to grow. Second, that the company has other options for where it will grow in the decade ahead.

Remember that IP started with 600 employees here. Now it employs 2,300 — many making six-figure salaries. Recall that International Paper moved its world headquarters once before, from New York to Memphis 25 years ago.

International Paper says it wants to grow in Memphis. But the company also says that expanding here may well be more expensive than simply moving to Mississippi or Texas.

To grow in Memphis, IP likely will ask for some new property tax reduction incentives. These PILOTS can reduce a company’s city property taxes by up to 90 percent, and its county property taxes by 75 percent, for as long as 15 years.

Memphis and many other cities have a love-hate relationship with PILOT programs. The reduction in property taxes does cut public revenues. Some companies that get PILOTS move anyway, or miss their estimates on creating new jobs, so they aren’t for everybody. But IP is exactly the kind of company for which PILOTS can and should be used.

IP and Memphis are now negotiating an incentive package because the company has both a plan to grow and an option to go.

If it stays, IP has said it will add a third multistory building to its world headquarters and bring a minimum of 100 more executives to Memphis as part of IP’s $4.5 billion purchase of a competitor in Texas, Temple-Inland Inc.

And imagine if IP’s growth curve in Memphis over the next 25 years matches the last 25 years — something Wall Street analysts say is entirely possible. By that measure, IP by 2040 could employ 10,000 people in Memphis and generate a billion-dollar payroll.

There is no way of knowing whether that rate of growth will occur. But we do know that IP’s corporate leadership has said it would prefer to stay in Memphis if a deal on future incentives tied to expansion of the company can be worked out.

It should be worked out. IP’s top-level talent and deep involvement in community affairs (it is a major sponsor of the Freedom Awards, for example) help Memphis rise above some of its challenges.

Expect much debate on whether to offer IP more incentives to stay.

Memphians have a hard time thinking about the interests of a multibillion-dollar international company against the backdrop of the city’s massive poverty and a business profile that includes far more hair salons and nail shops than Fortune 500 players.

But really, it’s no comparison. IP brings more than $300 million a year in salaries to Memphis and spends $60 million a year for local goods and services. Having its headquarters here is the equivalent of having 1,000 small businesses that employ 10 people who are paid $30,000 a year.

Keeping International Paper based in Memphis will pay huge dividends to the city for decades to come. So let’s make a deal.