Hot-Button Issue

Calls for discussion on incentives grow as city fights for jobs

By Amos Maki

When the Economic Development Growth Engine of Memphis and Shelby County was formed in 2011, president and CEO Reid Dulberger knew it would take the organization a little time to gain its footing.

Electrolux is one of the companies that invested in Memphis thanks to a PILOT. Despite a handful of success stories, some local business executives say real and perceived political problems in the incentive process still weigh on economic development efforts.

(Daily News File/Lance Murphey)

At first, EDGE did not have its own staff or its own office, and it lacked financial and operational control of several key component parts, such as the Port of Memphis and Shelby County and the Depot Area Development Corp.

“EDGE did not spring forth fully formed,” Dulberger said. “It evolved into the organization it was created to become. In general, the birth of EDGE was a challenge for the board members and staff of EDGE, who deserve credit for putting in long hours under some difficult circumstances.”

The idea behind EDGE was to “streamline” the city and county incentives and business recruitment processes. Since it was formed, EDGE has integrated the Port of Memphis and Shelby County and Depot Development Corp. and guided the incentives process involving several major employers, including International Paper, Wright Medical Group, Electrolux and Mitsubishi Power Products Inc.

“Given the number of deals we’re able to do and the quality of companies we’ve been able to attract to Memphis and Shelby, and the companies we’ve been able to retain in Memphis and Shelby County, it has been successful,” Dulberger said.

However, some local business executives say real and perceived political problems still act as a weight on economic development efforts, sometimes dragging down the best efforts of job recruiters and reforms to the city and county incentive process.

“I believe there needs to be a change in attitude in leadership in government and other agencies,” said Jason Polley, managing leasing director for Stonecrest Investments LLC. “To be able to move forward to greater successes there has to be more of an attitude of how do we bring more businesses here to create jobs? It appears some of our priorities are misplaced.”

Part of the problem is the sometimes-politicized atmosphere that surrounds using public incentives to lure companies to Memphis and Shelby County, a practice critics often describe as little more than corporate welfare sucking away vital tax dollars.

The main incentive offered by the city and county is the payment-in-lieu-of-taxes (PILOT) program administered by EDGE. The program works by abating taxes – 90 percent on the city side and 75 percent on the county side – for real and personal property improvements. Companies also pay the full amount of taxes on the pre-developed land.

The PILOT program had been criticized for years as too generous and came under heavy attack again from municipal unions and their supporters on the City Council during this year’s city budget process.

“It’s always about us giving something away instead of looking at the jobs coming in,” said Brad Kornegay, president of Colliers International Memphis’ asset services division. “The focus is on the negative and not the positive.”

Critics say the city and county are effectively “giving away” tax revenue when tax freezes are issued. But EDGE staff and business officials strongly dispute that notion, saying a cost-benefit matrix ensures the city and county at least break even and, in the vast majority of cases, bring in more tax revenue than the amount that is abated.

“We believe the cost part of this is a little overstated,” Dulberger said. “We believe that is false. We have new tax dollars that otherwise would not be coming into the community. The old saying is that 25 percent of something is a lot better than 100 percent of nothing.”

While many “back office” changes have been implemented by EDGE, much of the incentive application process remains as it was under the old Industrial Development Board.

Memphis and Shelby County, and their incentives process, have clearly fallen out of favor with industrial real estate developers, as no speculative industrial buildings have been built in Memphis since 2007.

Industrial Developments International remains focused on DeSoto County, where the company has launched an expansion of the 478-acre Crossroads Distribution Center, while Panattoni Development Co. is building a speculative warehouse in the Marshall County, Miss., portion of the 1,500-acre Gateway Global Logistics Center industrial development.

Dulburger said part of the reason is because the current PILOT program focuses heavily on the proposed number of jobs that will be created, which developers can have a hard time projecting without significant risk.

Multiple business officials said the process in Memphis and Shelby County remains much more complex than in DeSoto County, where companies seeking incentives have only to fill out a two-page application.

“The process is still the same,” Kornegay said. “The lease document is still the same.”

Dulberger said part of the reason many of the same processes are in place is because of the state law, which allows for the use of PILOTs. For example, state law requires that companies must go through the bureaucratic hassle of deeding their property to a government agency, the IDB, to qualify for a PILOT, a step that isn’t necessary to qualify for economic incentives offered in neighboring Mississippi.

However, EDGE staff will explore efficiencies in the application process as long as that doesn’t mean compromising the integrity of the program.

“As we go forward can we take out a few of the questions?” Dulberger said. “I’m sure we will. To whatever extent we can make it easier, we will.”

The debate over the use of incentives is not unique to Memphis and Shelby County. Communities across the country wrestle with the need to use public incentives to lure private businesses. Dulberger, for one, believes the community needs to have an honest, public debate about what sort of incentive program the city and county should use.

“We see there is a wide range of viewpoints in the community,” Dulberger said. “I believe it would be in our communal best interest to have that discussion. What are we wanting to accomplish and what are we willing to spend, directly or indirectly, to accomplish it? It would be a healthy debate, perhaps a messy debate, but a healthy one.”