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- The ongoing debate over tax incentives and economic development, tonight, on Behind The Headlines.

[intense orchestral music] I'm Eric Barnes with The Daily Memphian.

And thanks for joining us.

I'm joined tonight by Worth Morgan, member of the Memphis City Council.

Worth Morgan, thanks for being here.

- Thank you for having me.

- Along with Reid Dulberger, President and CEO of EDGE, the local agency that grants most of the tax incentives in Memphis and Shelby County.

Reid, thank you for being here.

- Thank you for the opportunity.

- Along with Bill Dries, reporter with The Daily Memphian.

I will go to you first, Councilman Morgan.

And is it time to...

Some people as long as we've been doing Behind The Headlines and longer, but certainly as long as we've been doing Behind The Headlines, people have called for changes to tax incentives, abolishing them, ending them.

I don't think you're in the abolishment camp, when it comes to tax incentives and such, but is it time for changes?

Is it time for...

If only an evolution to how we do tax incentives, is that something you would support on the Memphis City Council?

- Yeah, I think there's certainly the majority of people that would like to see some change or adjustment, to the way we do incentives here in Memphis, Shelby County but there's not a majority opinion about what that change should be.

And it's fair to have a conversation every once in a while, to sit down and determine and take a look at where we are versus other communities, other cities that we're competing against regionally, what we can do better, what are some things that maybe our priorities change that are more important to us, and how we can be more competitive.

So, it's not unfair to have conversations every once in a while but we need to be careful that in those conversations, that we don't enter or create kind of an uncertainty in the market for businesses in our pipeline that are looking at Memphis.

We don't want to scare them away by some of the more outlandish ideas that might be pitched.

But to sit down and have a reasonable discussion about what could be changed, sure.

Do I think we're gonna come to a majority opinion about what those changes are?

Maybe, maybe not.

- One example of a change.

If you could wave a magic wand and make happen, what is the change you would make?

- So I would like to see how we can make our PILOT process.

And we talk about PILOTs, we also have grants, and loans, and TIFFs, TDZs, all different types of economic incentives.

And even once you get into PILOTs, I think, you know Reid's the expert but I think we have six different versions that we offer.

So there are things that other cities do to make it quicker, simpler, easier, more straightforward process.

And I talked about uncertainty, and that's gonna be a big key to these businesses.

So when they look at Memphis, and they're deciding whether or not to invest in Memphis, they can know with certainty, when it comes to their time to make a decision, what they're gonna get back from us.

Rather than having all of these requirements that are tacked on, that they really won't know until they get into the community, into the bidding process and getting contracts back, that makes it too difficult for them to know for certain what their numbers are.

And so they're not even able to really count it towards us in our favor.

They have to say, "All right, we can't count on that incentive, "let's just figure out what we can actually guarantee that we'll get."

And so sometimes we're not getting the full credit for what we're offering.

- I should note too, before I go to Reid Dulberger that next week we will have Commissioner Tammy Sawyer, County Commissioner, as well as City Councilman Martavius Jones, both more on the camp of wanting much more radical reform or radicals of pejorative, but more deep... - Radical is okay.

- Well, I understand that you agree with that, but I would not a fair characterization of how they would put their proposals.

But Reid Dulberger, you've been in this role for some years now, EDGE was formed to try to streamline.

Councilman Morgan talked about streamlining certainly from the business side.

I think I always hear that, that people want it to be quicker, they want it to be simpler.

From the accountability side, short of radical, or abolishment, or any of that kind of thing, are there things that you could do, that EDGE could do, to be more transparent and maybe give more comfort to those who feel like they don't have control over or understanding of, first what incentives are being doled out, and that they are accomplishing what they were meant to achieve?

- Well, Eric, I think we can just, as a blanket say, we can all almost always do a better job.

And to the councilman's point, we're certainly open to that discussion.

EDGE has actually won national awards for its transparency.

We think we're pretty good at it.

So every PILOT is approved in a public meeting.

The meeting is public noticed, all the documents that the EDGE Board receives to evaluate a project, are available to the public in advance.

There are proactively sent not only to the media, to all elected officials, but also that everyone who signs up on our list.

So, we go to extreme lengths to make sure that all of that information is available upfront.

And then of course, if anybody has an issue, or a concern or question about any of those projects, they can come to our meeting and during public comment, they can pose that to the board.

And so, I do think that the public and elected officials, have a lot of an opportunity to both understand these projects upfront, comment on them.

You talked about compliance, we do annual compliance reports, with all of our active PILOTs.

Those documents are in the public domain.

Those projects, they don't meet any of their key metrics, we go through every scoring process and make sure that incentive that is in place, is the appropriate one.

So again, is it possible to do a better job?

Yes.

But to the sometimes blanket criticism that this is not a transparent process, I take issue.

It is absolutely a transparent process.

- Let's go to Bill Dries.

- Councilman what do you think about the idea, put forward by your colleague Martavius Jones, that in cases where the business that we're talking about, wants to come here and not pay a certain wage, that perhaps the City Council on the County Commission should be back in the game so to speak again and actually have a vote on those kinds of economic incentives?

- Yeah, so I mean, EDGE was created in order to try to take the politics out of it.

And take the City Council and County Commission out of it, to some extent.

We still have approval authority on things like TIFFs.

And I get what Councilman Jones is saying, there are other jurisdictions that do require a certain amount to be paid.

I think I was looking at the City of Austin earlier today, I think requires $15 per job in order to be eligible for their incentives.

And we could look at something like that.

I would be afraid, I have constituents that they make 8, $9 an hour, and they would love to have a job that pays 12 or 13.

And I don't think Memphis is quite in a position yet in terms of our economy to turn up our nose at higher paying jobs that are gonna improve the quality of life and the take home pay of a number of the citizens that we have here.

So I don't want to say we're kind of... For the sake of political ideology, talking points, to do something that's gonna negatively impact people that are living in our neighborhoods.

I mean, really kind of take it out of the political speak up in the air, and put it into one of my communities that I represent, like Binghampton and they would love some 12 to $13 an hour jobs.

And I don't wanna turn to them and say, "No, no, we didn't think that was good enough, so we weren't willing to bring that to you."

All the while, I think they would be very interested and begging for and I think the market here in Memphis, would be able to find a large supply of labor for a number of jobs that Councilman Jones would not be interested in incentivizing.

So other communities may be further along with us in terms of their economy, Memphis and where we are, we still need those jobs.

We should be present for every one that we can get.

- There has been much discussion about a joint City Council/ County Commission meeting on this topic.

And I think the original thought was that it would happen in February, that didn't happen.

As far as you know, are there still plans for that type of joint meeting on this?

- It's scheduled, I just got the calendar invite.

So, I believe it's gonna be late March and the second meeting in mid-April could follow up.

- Okay, Reid, you work with the industries that are interested in coming here, some do, and some don't.

What I've heard from people I've talked to, who are involved in the process, is that some of them, at least some of them say, "Well, look, the other businesses are asking "for these incentives.

"So we feel like we should too, as well since it's out there."

How many applicants do you see who take that approach versus we absolutely have to have these incentives in order to be able to do this?

- Well, Bill, let me divide the projects into sort of two different types.

And I understand there are nine PILOT granting entities in Shelby County.

Probably the entity that does the most projects, is the Downtown Memphis Commission.

I think EDGE probably does the second most, and the Health, Education and Housing Facilities Board of Memphis is the third most.

We do a combination.

Most of our projects are what we call employment, or job-based projects, but we do a few real estate projects.

Both Downtown Memphis Commission, and Health and Ed Board primarily do real estate projects.

And I think you need to look at them slightly differently.

The real estate projects are tied to a specific site.

The project either happens, or it doesn't happen.

The rate of return for the investors, is either high enough that they do the project or it isn't.

And we might consider an incentive to get them there.

The employment projects are competitive from a very different perspective.

If you are a manufacturer, or a distribution company or a back office and you're gonna be leasing space in the Mid-South market, you can be pretty much anywhere.

It is one market.

It's the same labor for us, it's the same transportation assets, it's all the things that we brag about for Memphis, are really regional assets.

And what we have seen over the years, is particularly on the industrial side, the distribution side and the manufacturing side.

More of those new projects, more of that new construction, is not happening in our community but it's happening in adjacent communities.

It's happening for a variety of reasons.

It's not necessarily just an incentive issue but it is nonetheless happening in adjacent communities.

Those projects don't necessarily need the incentive because they can't make the numbers work.

They need the incentive because they're getting an incentive offer from pretty much every community they're looking in to your point.

And if we don't offer one, we're not cost competitive any longer.

It is a highly competitive world.

There are thousands of organizations countrywide like EDGE, offering tax abatements being the most common kind of incentive, but cash grants being very common as well.

So, we offer these incentives in many cases not because the company can't do the project without it, it's because the company won't do the project here without the incentive.

And so, we understand the role that we play.

There are many things these companies are looking at in terms of communities.

But when they get down to those short list, every community on that list, every site on that list, couldn't work for the company.

And they're basically looking for where is the best deal.

And that's really the role that the PILOT incentives fill in those employment-based projects.

- I believe it was the Commission that you told us pretty early on in this most recent round of discussions.

And I think what you said was to the effect of, if you want higher paying jobs, if you want jobs in a sector that is currently not dominant in our local economy, you're going to have to do even more, in terms of incentives.

Am I accurate in what you said?

- Yes, but let me broaden it just a tack.

We'll have to do more, period.

Incentives again are only a piece of the equation.

Incentives become very important at the end of the decision making process because everything else has been factored in, you're either the strongest candidate or not, and the decision is gonna be made very quickly.

So, there isn't time to necessarily change your workforce, your infrastructure, any of the other things they drop will drive a decision.

It's what can you do in the next couple of weeks, to get best and final offer into this company and typically that's the incentive.

But I don't know if when we have more time, when we take the longer term perspective, if we want different results that we're getting today, the community needs to do more.

And maybe that more is we need to do more in terms of telling our own story, marketing the community to try to attract other entities in here.

We need to do more in terms of growing small startup companies into mid-size startup companies.

We need to do more to improve our quality of life, our tax and regulatory abilities to provide buildings and sites suitable to the types of industries we're interested in attracting.

So basically, yes, if we want better results than we're getting today, we need to do more.

Because we are assisting projects across the spectrum today.

And I like to go back if I can, just for a moment, to the question that you asked the councilman, related to wage rates.

And clearly, we have some council people and commissioners who believe that we should focus more on high wage jobs.

I believe that we have others who are more interested in focusing on those Memphians in the greatest need.

It isn't either-or, we don't have to have one or the other, the EDGE approach is, we need jobs along the spectrum.

Certainly we appreciate the value that high wage jobs bring to our community.

And we do those projects.

And we have a separate added incentive, for projects that pay higher wage job, pay higher wages.

But at the same time, forty-five percent of Memphians have a high school education or less.

According to the census, they're averaging about $25,000 a year.

If we're only creating higher wage jobs, we are not creating jobs for those individuals.

And if they don't have cars, they can't get to those jobs if they're located in surrounding communities.

Our philosophy, is we need jobs along the spectrum, jobs that the people that the councilman referenced, can access our standard right now, is at a minimum pay of $13 an hour, plus employer subsidized healthcare.

That's the that's the bottom end.

At the upper end, we have done projects with jobs at 100, 150, $175,000 a year.

Again, we try to create jobs across the spectrum, so that people in all walks of life, Memphian walks of life have an opportunity.

- And again, I should note that we will have Commissioner Tammy Sawyer, and Councilman Martavius Jones on the show next week to talk but with a different perspective, in wanting more change.

But Worth Morgan from Memphis City Council, talking about that spectrum of jobs, the three sort of big name things that have not worked out, as maybe everyone would have hoped, were Bluff City Law, which was filmed here for a season or part of the year, the Mitsubishi plant was a manufacturing plant, And Service Master, at least a part of Service Master is moving to Atlanta.

It's actually not the bulk of the employees here to be clear because they separate the company into Terminex, Terminex is staying as far as we know.

But all three of those didn't necessarily go as great as we would've liked, right?

Where are those failures?

- And I would add Electrolux in there as well, which received a different type of incentive.

And it was a little bit before EDGE's time.

- That's why I left that one out, is definitely the poster child for a lot of incentive and I think I don't want to put words, we can address it, but I think Reid has said before, that was before and we don't do them that way anymore.

But on these three more recent ones, what went wrong and does that make them failures?

- Everything's a case by case analysis.

And so for something like Bluff City Law, you give a shot to them because if it works out, it can be one of the greatest marketing tools for the city of Memphis in terms of our tourism and attracting people to come and visit and maybe potentially live here.

So, there can be huge rewards for things like that.

The way that we try to structure the incentives and the way that I prefer to, is more of you... For lack of a better phrase, eat what you kill.

If you're not producing, then you're not gonna have that abatement.

So, it's always above and beyond what was currently being produced.

And then we're able to rebates or to abate the taxes that they would be paying.

We give them credit for the investment that they're making in Memphis for the jobs that they're producing.

So even if a company fails under that model, Memphis doesn't fail because nothing is lost.

It's more of an opportunity cost in terms of the amount of time we put on it but it doesn't drain a pool, like a restricted pool of funds that could have gone to someone else.

It doesn't prohibit anybody else from getting the next incentive, is we gave that business an opportunity to succeed here in Memphis and maybe they do, maybe they don't, but we're protected on the downside and there's huge upside if it turns into a win.

And that's the right way to do it, and there are wrong ways to do it.

We can go back into history and to Electrolux and others.

But if somebody doesn't generate an increase in property tax revenue, somebody doesn't generate sales tax revenue that we can then capture in surcharging and feedback in some of the cover the bonds, then they don't get that incentive.

So, that's what I mean by eat what you kill.

They have to be able to produce a lot in order to receive a little.

- For you Reid, those three projects again, across that spectrum.

Mitsubishi, big heavy manufacturing, Bluff City Law, Service Master, do you view those as failures?

And going to... Will Memphis get some money back or is it what's called clawbacks in the industry or is it just more the kind of scenario that that Worth Morgan described?

- Okay, so one of the good things about PILOT tax incentives versus cash grants, is the company gets an annual benefit, with an annual abatement.

So what we give the company, moves in lock step with what the company gives us.

So we've structured these agreements, so the companies are on the employment project.

So the company is committed to jobs, to wages, to capital investment and to contracts with local women and minority-owned firms.

So as they fulfill their agreement, they get a tax abate.

If the project doesn't succeed, if it closes, if it fails, then the tax abatement ends.

And so Bluff City Law, we got 10 episodes plus the pilot.

Certainly we would have loved for that to be renewed.

They got one year tax abatement and then the tax abatement ended because that was our deal.

They got one year for every 10 programs, every 10 hours that was on the air.

Mitsubishi Electric, that's a situation where the market...

They invested a lot of money in our community, a lot more money than they committed to.

They were all in for Memphis, the market for their product didn't materialize.

They sold the plant to Hyosung, which is a Korean firm, which is also producing electric transformers, like Mitsubishi Electric did, will ultimately have more employees and more investment.

So with a little luck, and if Hyosung is successful, that becomes a win for us.

Because at the end of the day, well we have, in terms of jobs, wages, investment and contracts with MWBEs will be even more than we had initially anticipated.

I'm sorry... - Service Master and then we'll go to Bill for... - So certainly in Service Master did their project in 2016, they committed to 965 jobs downtown.

They have since split that company essentially into multiple parts.

But at the end of the day, that commitment remains in place.

Last year we were looking at the data they had over a thousand jobs, we still betting the numbers but clearly over a thousand jobs.

That commitment for 965 jobs remains.

So we are protected in that case, as we are actually in all a PILOT cases.

So, would we have loved to have kept the Service Master brand jobs?

Absolutely.

But we as a community, are protected based on the commitment we made to them and the commitment they made to us.

- Okay, Bill.

- With about three minutes remaining, my question to each of you starting with Councilman Morgan, is do you think that what's happening here, is we have companies who are staying for as long as they have the abatement, and then all along had plans to leave once that was done?

- I think it'd be very difficult for business to plan 10 and 15 years out to a certainty.

'Cause the market's gonna change, the industry of Memphis.

So, you're getting into a bit of a question about retention PILOTs and that's almost an entirely different issue with the same goal and outcome in terms of jobs in Memphis.

But there is a certain aspect where these businesses that come to Memphis are gonna keep their cards close to their chest.

We asked to look at their numbers, open up their books, we try to understand their business model here as best as possible and make a fair decision.

And there are plenty of them that we turned down and don't come to the EDGE board for a vote, or the Council or any other boards.

- Reid, your view on that, are there people who are getting these incentives, who are kind of watching the clock on this, so to speak?

- No, not really.

If you have an example of what we could discuss in a specific case, but no.

There's a cost to moving a business and a business operation and the Councilman is absolutely right.

People's crystal ball over 5, 7, 9, 11, fifteen years is pretty hazy.

But I don't recall any PILOTs that we've dealt with, where a PILOT ended and the company moved.

- Just with a minute left, it's a similar family of things but I'll go to you Councilman Morgan, the city has bought a building, they bought a 100 North Main downtown, it's partly Downtown Memphis Commission is partly involved, it's more moving pieces.

Bill has written about it, Tom Bailey's written about it for us, others have.

Is this the beginning of the city buying blighted buildings?

Or is this literally the only time it will ever happen?

I mean, what's the big picture on this?

- It's not the first time we've done it.

And I don't love the model.

Again, I think in the debate, the metaphor I used was we were dealt a bad hand and tried to make the best of it.

But we'd done this also with a property in Binghampton, with some apartments that we were able to purchase as a city, we can offer incentives, we put out an RFP to developers, we know what's gonna be great for that community there, and we hope someone can build to that.

And so I think it's a way...

I don't want the City of Memphis to be in real estate business but sometimes in very unique circumstances, it is in the best interest of the City of Memphis and the surrounding area.

And I think a 100 North Main met that criteria.

- Do you think, as much development has happened downtown, and improvements that have happened and are continuing, there's some other big... Part of the argument for doing this, was it that that building is so big, such an eyesore, it's location or right down the street is The Sterick.

And there's probably a couple others.

Does this now create another bidder for anyone who wants to sell one of these empty buildings?

- Potentially, sure.

I think it makes this an available site where maybe they could have had more difficulty but in the game of economic incentives, we gotta pick and choose our battles.

And I think a 100 North Main again, is a absolute bullseye of opportunity for economic development just radiating out from an incredible project that could go there.

We wish it could have been done privately but with a little government help, I think we can get a great project moving forward finally.

- Okay and Reid gets to dodge that question, 'cause we are out of time.

Thank you both for being here again.

We will have two folks on it really with a different perspective on this, Tammy Sawyer from the County Commission, Martavius Jones from the City Council, on next week.

You missed any of this episode?

You can see it at wkno.org, or search YouTube, Behind The Headlines.

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Again, we'll see you next week.

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