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Incentives A La Carte

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Robert Lipscomb has a lot on his plate, what with being Memphis' chief financial officer, as well as the head of the Memphis Housing Authority and the city's department of Housing and Community Development. If that isn't enough, this month he's taking on the beleaguered PILOT program.

A city audit recommended increased monitoring of the payment-in-lieu-of-taxes (PILOT) program

during a city council committee last week. Under the PILOT program, companies that locate in Memphis are eligible for tax breaks, ostensibly for bringing the region additional jobs.

"We're competing with cities with great educational systems, who don't have crime," said Lipscomb. "Companies have many places they can locate. Mississippi gives a lot of incentives."

But the PILOT program has come under fire for giving away the store while the city struggles financially.

"This rent reduction might entice developers ... to locate offices and warehouses in Memphis, but it rests squarely on the shoulders of those who pay property taxes," said Councilman Tom Marshall.

Council members have been thinking about bringing PILOT decisions, currently made by four quasi-governmental boards, in-house for months, but delayed any formal recommendation last week. Working with Lipscomb, the committee is expected to present its proposed changes to the program August 1st.

"It's a more complex problem than just saying the council is the final say," Marshall said. "The council should be involved from the beginning. ... The business community doesn't get a free ride just because they're bringing jobs that may or may not affect the success of this community."

Marshall is right: The problem is anything but simple. If council members decide that they're the ones who should be minding the store, it could potentially politicize the process. And does it really matter who gets the final say if the program is inherently flawed?

"I think the problem is that we have this menu and it only has one item on it," Lipscomb told the committee. "We're over-reliant on PILOTs."

There are other, federal, incentive programs out there -- new market tax credits, 108 loans -- that are designed to encourage growth in low-income communities, but the city has not been using them to full capacity. Instead, Memphis has been giving out PILOTs like party favors.

Carol Coletta's Smart City blog pointed out how counter-intuitive the program is for growing the overall business climate. While the targeted tax breaks give one company a pass, they artificially increase the tax rate for everyone else, making it more difficult for home-grown entrepreneurs.

Some people argue that Memphis needs PILOTs to compete with other communities for businesses. I don't disagree, but PILOTs simply should not be the city's signature dish.

When the U.S. Supreme Court took up the issue of tax incentives in an Ohio-based case earlier this year, 38 states filed briefs with the court in support of the incentives. The court side-stepped the issue, saying the plaintiffs didn't have the standing to sue, but the point is this: at least 38 states are offering tax incentives.

If everyone gives business incentives, how does the PILOT program distinguish Memphis? If the city is trying to use PILOTs to overcome its less appetizing aspects -- poverty or an uneducated workforce -- the program may keep Memphis at the table, but it's not going to guarantee success.

Lipscomb hopes to rework the PILOT program to coordinate with an overall economic growth plan that Memphis Tomorrow should complete within the next two weeks.

"If they're bringing higher-paying jobs in certain areas, maybe they'll get more of an incentive," said Lipscomb. "If it's a low-paying job or it's not in the industry we wanted, but we still need the job, they might get less of an incentive."

That sounds like a good start, but I have to wonder: What are our specials?

Sure, we can use more federal incentives that don't cost Memphians money. And yes, we need to think about other incentives we could offer. But the better plan -- albeit one that is long-range -- would be to think about how to make Memphis attractive to prospective corporations with or without incentives. Just a little tip.

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