VOL. 130 | NO. 185 | Wednesday, September 23, 2015
Tax Incentive Changes Causing Headaches for Memphis Mayoral Candidates
By Bill Dries
The four major candidates for Memphis mayor all have some version of the same basic answer to questions about tax incentives for economic development.
The answer: Tax incentives, and particularly payment-in-lieu-of-taxes incentives, are not the best way to grow the city’s economy and perhaps should be examined and changed. All four agree that they can’t be done away with entirely, even though the candidates’ opinions on potential changes differ.
The issue has become the very definition of political peril; it continues to morph as the race for mayor moves toward election day. And the movement has affected some of the economic development plums the candidates are name dropping as good and bad examples of the tax breaks.
Those granting the PILOTs, the board of the Economic Development Growth Engine, also are starting to question the changing terms with millions of dollars in property tax revenue at stake.
A difference of opinion over several years about the value of the Cordova land bordering Interstate 240 at Germantown Parkway – where Ikea is to build its $64 million Memphis store, the first in the region – resurfaced last week.
The Shelby County Assessor of Property’s office puts the appraised value at $5 million. Ikea and its attorneys took that appraisal to the Shelby County Board of Equalization; the board saw it Ikea’s way with a value of $1.2 million. The assessor’s office plans to appeal to the board’s appraisal.
The value affects the amount of property tax Ikea would save with its 11-year PILOT.
Ikea executives so far have stopped short of saying specifically what effect, if any, the appeal will have on the project, which has a fall 2016 opening date.
Meanwhile, EDGE has twice delayed a vote on a PILOT application for the Mall of Memphis site.
Huntington Industrial Partners and Johnson Development Associates want to construct a speculative, five-building logistics and distribution facility on the site.
The 15-year, $24 million PILOT deal sought by the companies is unusual because such tax incentives are usually not given for “spec” development.
The information in PILOT applications that usually gets the most attention is how many jobs the development will produce and what those jobs will pay. In this case, those aren’t pledges but estimates based on industry averages, including the average number of employees for such square footage.
Huntington and Johnson executives told the EDGE board after the second delay this month that they might consider selling the property before the next scheduled vote in October.
“Let’s see how it goes, and you can build a policy later,” David McDaniel, a principal of Huntington, told the EDGE board this month.
But Steve Guinn, vice president of Highwoods Properties, argued that granting the tax break on the mall property would turn incentives to create jobs into “a lease-up program.”
“Effectively, you’re kind of throwing out the rules,” he said.
At the August meeting where EDGE delayed a vote on the mall site for the first time, the board approved an 11-year retention PILOT agreement for Solae LLC to expand its warehouse on Holmescrest Road, just north of the Mississippi state line, as well as its headquarters on Mendenhall Road in East Memphis.
Solae, a subsidiary of DuPont, makes food, feed and industrial ingredients using soy, including the base for baby formula. The expansions are a total $20 million investment by the company to keep 276 jobs in Memphis.
EDGE’s board questioned the Solae deal before granting approval. The questions centered on property tax revenue.
It was an important point given the insistence of PILOT advocates that the tax breaks, in most cases, come out of a property value increase. Solae is the exception in that regard.
The property is worth $724,608 in annual property tax revenue, as is. The PILOT reduces that to $131,824 by the data EDGE board members reviewed from their own staff.
“I have a duty to the county,” Shelby County commissioner Steve Basar said as he asked for verification of the dollar figures several times. “We’re losing $500,000 a year based on what you are saying today.”
EDGE president Reid Dulberger pointed out that at the end of the PILOT agreement, in 2026, the tax revenue will go up to $1.2 million annually.
“The total tax revenue is going up,” he told Basar. “You are better off with them here and growing.”
Before the EDGE board approved the PILOT, board member Charles Goforth asked if Solae would be back in 2026 seeking an extension of the tax break. The executives said no.
Referring to a day when the tax abatement ends, Goforth said: “We want to make sure there is a day coming.”