Higher wages for company tax breaks?
City leaders’ political will to be put to the test
The seven-plus hours the Memphis City Council and Shelby County Commission have spent in joint hearings about tax incentives could end in several key changes to how payments-inlieu-of-taxes, or PILOTS, are given out.
Or it could end after a lot of talking and not much else. That likely depends on the political will to change how tax incentives are given and administered.
The City Council and commission discussed a proposal Thursday that would require companies that want a new PILOT to pay employees at least $17 an hour to receive the full 75% property tax break the incentive entails.
At present, the joint city-county industrial development board, the Economic Development Growth Engine for Memphis and Shelby County, has a $13 an hour minimum wage for new PILOT recipients.
Another proposal would have a sliding scale for incentives. For example, if 43% of jobs an employer created paid $17 an hour or more, it would be eligible to receive a 57% property tax break.
And, under yet another proposal, employers would be required to give local government a census on how many of its employees live in Memphis. The council and commission also would vote on any incentive that could cost taxpayers as many dollars as it generates.
The wage minimum measure, which would have to pass both bodies, is being proposed by Memphis City Councilwoman Patrice Robinson, the past chair and a frequent swing vote. The fact that the proposal was discussed in a public meeting shows the political will is there for a vote on such an idea — though the details could be amended in the meantime.
It remains to be seen how much opposition the Greater Memphis Chamber would mount to raising the minimum wage for PILOTS in a city where the economy is driven by labor-intensive warehouse and distribution jobs.
The chamber spent the meeting Thursday highlighting the competition from northern Mississippi for industrial warehouse development and the hundreds of jobs that come with them. Those distribution centers across the state line use Memphis-based railroad hubs and Memphis International Airport to ship products and often employ Memphis workers, who pay Mississippi income tax.
Is the political will there?
The meeting Thursday and an earlier on March 25 could be pivotal in the effort to reshape how Memphis and Shelby County incentivize companies to do business in the county. The conversation has been sparked by progressive members of the council and commission — Commissioner Tami Sawyer and Councilman Martavius Jones. Jones is sponsoring the idea of council and commission voting on projects with low tax revenue benefits to the city and county.
Sawyer, Jones and others have argued against Memphis and Shelby County continuing to incentivize lowwage jobs. Dozens of employers, including much of the city’s industrial base, receive 75% property tax breaks for jobs that, depending on the size of someone’s family, don’t pay a living wage.
Members of the County Commission have stressed the importance of a living wage throughout the past several years. The City Council, a body that has tilted more progressive over the past year, has, too.
“Overall I don’t think this is in the best interest of Memphis and Shelby County to pass,” Councilman Worth Morgan said. “Everything that’s in this proposal makes it more difficult for a business to locate to Memphis.”
Morgan said that the city should not “turn up its nose” at low-wage jobs because a wide swath of the workforce needs them. He added he felt it would be a mistake to raise the floor for tax incentive hourly wages.
To Tom Jones, the owner of Smart City Consulting and veteran Memphis political observer, the measures in front of the two bodies are a start to what he hopes are broader reforms.
“It’s an encouraging step in the right direction. While it is incremental, best of all, there is the inescapable feeling from City Council that business as usual is no longer good enough and that a majority takes seriously their role of oversight,” Jones said. “There are many substantive questions remaining to be answered, more research to be made into what comparable cities are doing, more thought into the measurements of success.”
The Mississippi threat
There’s a telling stat about where a lot of economic growth in the Memphis metro area — at least in the form of jobs and capital investment — has, since 2011, occurred across the border.
About 75% of the new industrial space built in the metro area over the past 10 years has occurred in Marshall and Desoto counties in Mississippi, according to data from real estate firm Avison Young.
The Greater Memphis Chamber framed the debate over incentives as keeping Memphis competitive and advocated for more creative incentives, and tried to “reshape the narrative.”
“Mississippi is extremely competitive,” said Ted Townsend, the chamber’s head of economic development. He criticized how Mississippi incentivizes some jobs — collecting income tax from employees and then giving those taxes to their employers as a cash payment.
“That’s always frustrated me because they do have (an) income tax. They leverage that really off the backs of the employees that work for these operations and they put it right back in cash into these companies,” Townsend said.
The chamber also had a series of videos from economic development professionals, that, in part, noted the heavy competition and advocated for more incentives, not less.
Gray Swoope — president, and CEO of Visionfirst Advisors, a site selection firm — said he sold northern Mississippi sites as a “Memphis location” when he ran economic development efforts at the Mississippi Development Authority.
“We did everything we could to be aggressive and sell that side of the state . ... We brought everything to bear so that payroll, those jobs would be in Mississippi,” Swoope said.
Bob Rolfe, the commissioner of the Tennessee Department of Economic and Community Development and Townsend’s former boss, also noted the intense competition in the Memphis metro area and that Tennessee doesn’t have a good defense against it.
“We as a state don’t have a great defensive incentive program,” Rolfe said. “These other states can simply go across the line and poach great companies.”
Chamber criticizes council and commission discussion
The chamber’s messaging also seemed to criticize the council and commission for having the discussion at all.
Richard Smith, a Fedex Express executive and son of Fedex CEO Fred Smith and the former chair of the chamber’s board, appeared in a video that said economic development reform efforts of three years ago didn’t go far enough.
Smith repeated what is known as the ‘but for’ argument when it comes to economic development incentives —
the idea that the incentive dollars are bringing tax revenue and investment that would not have come without them. His comments appeared critical of the discussion.
“We are talking about tax incentives for dollars that won’t come at all if businesses choose to go elsewhere,” Smith said. “One hundred percent of nothing is still nothing after all . ... This is why you have to look at all aspects of a deal, not just broad generalizations about incentives extrapolated from data and other publicly available sources to attempt to apply to this particular community or to a particular deal that you don’t have the appropriate insight on.”
Rolfe and Swoope also advocated for a closed and confidential economic development process and criticized leaks about projects to the press, which are not common, but not infrequent, in Memphis and Shelby County.
“That is absolutely the recipe for being de-selected,” Rolfe said.
Swoope said the conversation and public discussion of whether incentives could put projects at risk. Townsend and Morgan did, too.
“The more you read about that and it’s out there in the press you’re starting in a position that’s already negative,” Swoope said.
Sawyer and Councilwoman Rhonda Logan countered the chamber’s criticism of the conversation by speaking at length about the need for the chamber to partner with local schools and nonprofits to improve education and make people feel valued.
On Thursday, Sawyer noted the persistent issues the city and county face with regard to race and class and how many children who grew up in certain neighborhoods aren’t exposed to the best the city has to offer.
“I don’t think we can not have these conversations at this point,” Sawyer said. “People need to see a city that they think can invest in them.”
What could happen next?
Much of the discussion among the council and the commission focused on whether the $17-an-hour minimum wage benefits for PILOT incentives would be the actual standard voted on or whether it would be adjusted.
Commissioner Edmund Ford Jr. asked the council and commission if there would be some “middle ground” depending on the project. He used the example of a grocery store in his district that might not have come if such a wage floor was in place.
Samuel Hardiman covers Memphis city government and politics for The Commercial Appeal. He can be reached by email at samuel.hardiman@commercialappeal.com or followed on Twitter at @samhardiman.