Guest column: Taxpayer-funded subsidies for corporate America shortchange citizens, small businesses By Greg LeRoy, Special to The Commercial Appeal Tuesday, July 15, 2014 The spending decisions that politicians make have real consequences for employers, taxpayers and the public services we all depend upon. In some cities, spending for economic development has gone haywire and could actually be undermining their economic futures. That’s the problem our organization, Good Jobs First, sees in Memphis, where our calculations show that $468 million in property tax abatements (known as payments in lieu of taxes, or PILOTs) have been granted by the city and Shelby County since 2009. These PILOTs allow up to a 90 percent reduction on a company’s real and personal property taxes for up to 15 years — and they can be extended. A recent report we issued, commissioned by the National Public Pension Coalition, an advocacy group for public-sector retirees, found that in 2013 alone the cost of PILOTs to Memphis was $42 million, or about 14 percent of the city’s property tax base. That’s about one out of every seven dollars that otherwise would support schools, public safety and infrastructure. In addition to such high costs, our organization has real questions about the public benefits of PILOTs. According to a 2013 compliance report commissioned by the Memphis and Shelby County Economic Development Growth Engine (EDGE) board that focused on Memphis’ 2011 PILOTs, 64 of the recipient companies that year were among the largest companies in the world, and some were not delivering. Our own Good Jobs First study found that, based on that compliance report for 2011, more than 63 percent of the deals were not meeting all of the job creation, wage and/or capital investment goals. For example, FedEx, International Paper, Nike and Cargill all had job-creation shortfalls on at least one of their PILOT agreements. Ford Motor Co., Johnson & Johnson, and Medtronic were also found to have various kinds of shortfalls. Six of the 10 companies whose PILOT agreements were audited as part of that compliance report self-reported that they were failing to meet either job-creation goals, wage commitments and/or capital investment commitments. Another EDGE board compliance study released in January of this year, which looked at Memphis’ 2012 PILOTs, found that many PILOT recipients failed to fully deliver on pledges to contract with Minority- or Women-owned Business Enterprises (MWBE) and/or Locally Owned Small Businesses (LOSB). Memphis has spent lavishly on stadium deals for the Redbirds and the Grizzlies, on a huge subsidy deal for Electrolux and another for Bass Pro Shops in the already-costly Pyramid arena redevelopment. Any city that spends so much on so few has to be sure it is balancing its economic development priorities. It has to be sure it is not undermining public education, infrastructure, public safety and other public goods that really matter to all employers. If Memphis undermines its tax base or takes on too much debt, it will be forced to lower the quality of public services, raise taxes on small businesses and families, or some of both — and that could harm the city’s economy. In the United States, according to Internal Revenue Service statistics, all state and local taxes combined come to less than 2 percent of the cost structure of a typical company. The business basics that comprise 98-plus percent of a company’s costs are the real drivers in determining where a company invests: skilled labor, efficient infrastructure, proximity to suppliers and customers, and access to key inputs (which vary widely by company and facility). When a company considers transferring managers to or hiring future workers in a prospective location, its executives ask: How good are the schools? Is infrastructure in good repair? How is the quality of life? Is property safe and are insurance rates reasonable because police and fire department response times are prompt? These are business-climate basics that rely on a tax base that is fair and adequate. However, spending huge sums on PILOTs is just the opposite of fair: It shortchanges small businesses and those that are not threatening to leave a city. It’s also risky. In Memphis’ case, what happens if the Bass Pro Shops deal doesn’t pan out? What if an economic recession hurts stadium ticket sales? What if a PILOT-subsidized company is acquired by another corporation and leaves town? Putting too many eggs in so few corporate baskets is risky and unfair. Memphis would be better off protecting its investments in public goods and services that benefit all employers: the teachers of our future workforce, the police and firefighters who keep neighborhoods and businesses safe, and the sanitation and maintenance workers of the built environment. Greg LeRoy is executive director of Good Jobs First, a Washington-based research organization that monitors and critiques corporate subsidies by state and local governments.
Posted on: Tue, 15 Jul 2014 17:29:01 +0000
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