VOL. 8 | NO. 13 | Saturday, March 21, 2015
EMPHASIS Economic Development
EDGE Developing Guidelines for Destination Retail Incentives
By Amos Maki
Mayor A C Wharton Jr. held a City Hall press conference in December to announce the news that Ikea would open a Memphis megastore. Ikea was able to land a tax break in spite of EDGE's policy not to grant them to retailers. Now a consulting firm is working to draft guidelines for a destination retail payment-in-lieu-of tax incentive EDGE can use in recruiting large retailers.
(Memphis News/Andrew J. Breig)
When Swedish furniture retail giant Ikea announced it wanted to build one of its destination retail centers in Memphis, the company was greeted with open arms.
Mayor A C Wharton Jr. even held a City Hall press conference to announce the news in December.
But when it came time for the city and county to provide tax breaks to the retailer, civic and economic development leaders were faced with a problem.
EDGE and its predecessor, the Industrial Development Board, had a policy of not granting payment-in-lieu-of-tax incentives to retailers. EDGE has not traditionally granted incentives to retailers, but the Center City Revenue Finance Corp., a wing of the Downtown Memphis Commission, has.
Citing the unusual nature of the project – instead of renting a big box Ikea was buying the site of its planned $64 million, 269,000-square-foot store near Interstate 40 and Germantown Parkway and paying employees an average annual salary of $41,000 – EDGE board members approved the PILOT for Ikea.
“I think the board recognized the uniqueness of Ikea but we need good, appropriate, sound policies going forward,” said EDGE board member Mark Halperin, executive vice president and COO of Memphis-based Boyle Investment Co., at the time of the Ikea vote.
Now, Younger Associates LLC has drafted guidelines for a proposed destination retail PILOT that could become part of EDGE’s incentives arsenal. Younger is an economic research and strategic planning firm that provides services to businesses, economic development organizations and transportation agencies.
For a project to qualify for a destination retail PILOT, it must be the retailer’s first location in Shelby County and the only location within 200 miles, a key factor since a store of that nature would draw people from outside the Memphis area into Shelby County.
“The 200-mile radius is to help ensure that the new retail is an attraction that brings in visitors from the region who may potentially spend money with other businesses while in Shelby County,” said Sharon Younger, founder of Younger Associates. “The item about the first location in Shelby County is essentially for the same reason. “
The retailer’s capital investment must be at least $50 million and the company must provide benefits to 100 employees and an annual average wage of $38,000 or more, higher than typical retail job wages.
“The requirement of 100 full-time jobs is intended to focus the incentive on retailers large enough to be a significant regional draw,” Younger said. “Also, the primary focus of the overall PILOT program is the creation of jobs for Memphis/Shelby County. The destination retail PILOT has the same wage and benefit requirements that are proposed for industrial PILOTs, so the destination retail PILOT is to act as an incentive for creating retail jobs that pay above the current average wage for retail jobs.”
Council member Wanda Halbert agreed with the need for rules but wished they had been in place prior to the Ikea vote.
“I agree there needs to be rules and regulations in place, however, this should have been done before the surprise announcement which caught council and commission by surprise,” said Halbert.
EDGE and Younger Associates last year launched a sweeping review of the PILOT incentive program that could lead to the most significant reforms in its history.
The PILOT has been used to land everything from the corporate headquarters of International Paper and ServiceMaster to the Electrolux and Mitsubishi Electric Power Products Inc. manufacturing plants.
But it has also been a lightning rod for criticism. Some residents and elected officials paint the incentive as corporate welfare, and public employee unions have blasted the tax breaks, saying city and county governments have slashed public employee salaries, reduced benefits and cut services while doling out lucrative tax breaks to often-profitable businesses.
The debate over incentives exploded last year after the Memphis City Council voted to slash some benefits to city workers and retirees, igniting a backlash of criticism over the PILOT program and other incentives.
Other changes proposed for the PILOT program include a new community builder PILOT program that targets inner-city neighborhoods and allows neighborhood stakeholders to become part of the process. It’s a five-year trial program that allows Community Development Corporations to nominate 15 sites for specific retail, office, industrial, distribution and tourism/hospitality projects that could improve the community.
Other changes are intended to streamline a process that developers and business officials have claimed for years was too laborious, especially when compared to neighboring DeSoto County.