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VOL. 129 | NO. 155 | Monday, August 11, 2014

Pressure Builds to Grant More Tax Breaks

By Bill Dries

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The head of the Economic Development Growth Engine organization says there is another side to the controversy over granting property tax abatements through payments-in-lieu-of-taxes that isn’t heard in the current civic discussion about the incentives.

Behind the Headlines 

VIDEO: PILOT development incentives: Part I

“Members of the real estate community and others in town believe that we are way too restrictive, way too conservative, that we are losing deals because we are not aggressive enough,” said Reid Dulberger, EDGE president and CEO, on the WKNO-TV program “Behind The Headlines.”

The program, hosted by Eric Barnes, publisher of The Daily News, can be seen on The Daily News Video page, video.memphisdailynews.com. It is the first of two discussions on the television program on the issue with critics of the PILOT process on the second discussion to air starting Aug. 17 on WKNO and later on The Daily News Video page.

Those critics, New Olivet Baptist Church Rev. Kenneth Whalum Jr. and Memphis Fire Fighters Association President Thomas Malone, say they are not opposed to the tax breaks outright but want more disclosure of the terms and performance of them to judge how well they are working.

The controversy is not new. But this summer it intersected with cuts to health insurance benefits of city employees and retirees approved by the Memphis City Council in June. Those employees and retirees question whether the benefit cuts would be necessary if the city didn’t give the property tax breaks.

Dexter Muller, vice president of the Greater Memphis Chamber, argues the impact of the liability to City Hall from the benefits on city government’s fiscal condition is not related to the tax breaks.

“The program generates new jobs immediately,” he said. “And it generates new investments in the city and new dollars immediately.”

Dulberger added that the property taxes abated are not revenue the city had coming in before an economic development project chose Memphis because of the tax incentives. The net additional tax revenue after the PILOT’s abatement, he argued, is greater than the city was getting without the project.

“People think that these projects would have happened anyway,” he said. “That’s just not the case. We wish it were the case quite frankly but it isn’t. If you don’t give the incentive we are not seeing the project.”

Steve Guinn, vice president of the Memphis region office of Highwoods Properties, said the need for incentives stems from the already high property tax rate in Shelby County – the highest in the state with commercial property taxed at a 40 percent rate instead of the 25 percent rate for residential.

“If you reduce your taxes, you are going to stimulate more real estate development,” he said. “From the city’s perspective and the county, they are really taking no risk in this. … It is a risk-free decision to give a company a PILOT to reduce the property taxes. They are investing no money.”

Memphis and Shelby County leaders use the tax incentives more than other parts of the state including Nashville, whose property tax rate is about a third of Shelby County’s. But Dulberger makes the argument that Nashville is using its property tax base as an incentive.

“They use tax increment financing, which is in essence the mirror image, the kissing cousin of a PILOT,” he said of Nashville, “and they have hundreds of millions of dollars in TIF (tax increment financing) districts that we don’t and so they do give incentives and they are aggressive and yet they don’t face the kind of competition being in the center of the state that we do in the border region.”

But some of the competition faced on the Memphis side of the state line with Mississippi is for prospects who simply don’t want to deal at the outset with the complex scoring matrix and other details of the PILOT process.

Dulberger said the tax breaks are tailored to particular projects by the EDGE board, which has approved 27 such agreements in three years.

“We can go 15 years on the term but our average is nine. We don’t max out the abatement,” he said. “There are some who say we should and we should do it automatically. And I understand that point of view. But we can certainly make it simpler.”

Critics want a closer look and inventory of the tax breaks granted before EDGE was created to gauge the cumulative impact of the program on tax revenues over several decades.

PROPERTY SALES 27 150 2,415
MORTGAGES 57 228 2,835
BUILDING PERMITS 157 441 6,509
BANKRUPTCIES 61 133 1,920