EDGE TASK FORCE:

A REBALANCING ACT

By Joe Kent – Guest Blogger

The Shelby County Ad Hoc Economic Development Growth Engine (EDGE) Task Force met this Wednesday for the heavy lift of studying EDGE reform and rebalancing local economic development efforts. EDGE administers both economic and workforce development programming for Shelby County and the City of Memphis while using taxpayer funding.

Most encouraging from the meeting under Commissioner Willie Brook’s leadership was the desire to work in partnership with the Memphis City Council, a  time table of 30 days for the task force to finish its work and the sincere will to optimize economic development efforts in Shelby County.

Most discouraging was the lack of participation by the Memphis City Council, over representation on the task force of the real estate industry, lack of middle-class small business representation and lack of  workforce development subject matter presenters scheduled for future meetings. The former occurs as both Mayors state that workforce development is most important in local economic development efforts.

Task force members include Commissioner Willie Brooks (Chairman), Commissioner Reginald Milton, Commissioner Van Turner, Al Bright (Attorney), Calvin Anderson (Retired -Insurance), Jack Sammons (Manufacturing) Cary Vaughn (Ministry), Carolyn Hardy (Real Estate and Logistics) Ron Belz (Real Estate) and Les Binkley (Real Estate).

Needed study work is focused on three areas to include: 1) clearly defining Greater Memphis Chamber and EDGE roles, 2) having an efficient customer-centric “one stop shop” process to facilitate economic development programming and 3) workforce development.

A review of economic modeling / accurate accounting measurement, taxpayer funded grant performance, and more externally targeted tax incentives away from excessive locally targeted tax incentives did not make the short list of study items. These study items are important because based on the data poor grant performance and excessive locally targeted tax incentives can be shown to have negatively impacted local economic development efforts.

Local tax incentives consistently benefit the real estate industry which is only 1 of 10 major industry sectors contributing over $1B in total annual wages to the local economy. This reality and over representation of the real estate industry on the EDGE Task Force (3 of 7 non-elected) points to the  potential for imbalance in local economic development planning efforts which should it occur hurts all to include the real estate industry.

The Data

Unlike Detroit or Pittsburgh, the Memphis decline has systematically occurred without an external event over a  number of years that spans elected official terms. For example and thankfully, there has yet to have been an external threat to FedEx’s leadership in the transportation and logistics industry which would certainly negatively impact the local community. This fact points concerns inward to Memphis Corporate Community Leadership and Memphis Tomorrow that spans elected official terms. Memphis Tomorrow, a local CEO organization, has guided economic and community development efforts for almost 20 years through the creation and oversight of a growing web of government funded non-profits.

Memphis Tomorrow creates non-profits and their members, associates and/or staff sit on the non-profit boards supposedly to provide oversight and guidance for the effective execution of community and economic development programming. In this way, through Memphis Tomorrow advocacy efforts, EDGE and the Greater Memphis Alliance for Competitive Workforce (GMACW) were created.

Fundamentally, both organizations are thoughtful and needed in EDGE to provide an efficient “one stop shop” to support economic development and GMACW to provide connected education to employment programming. But the data shows poor execution resulting in self-inflicted wounds to the local community as the same people rotate from board to board. This appears to have resulted in a culture closed to new ideas and timely course correction which leads to a lack of vitality, stagnation and decline.

Workforce Data

With 15,000 open jobs, recently, in a Memphis Business Journal article entitled “Mired in Red Tape”, both Mayors agreed that workforce development is most important in the City’s economic development efforts. At the same time, with the EDGE administered GMACW Board not holding meetings and considering available solutions, closed Memphis corporate community leadership has failed to course correct and engage the work to better serve the business community and employers’ needs. This has led to disconnected efforts that can be referenced in the above articles.

GMACW’s deficient grant performance against the State of Tennessee Labor Alignment and Employment Program (LEAP) grant contributes to the disconnect. Following the completion of the LEAP grant in a 2017, a Complete Tennessee Report, an organization that works to improve post-secondary completion rates, stated that local institutions voiced concerns about understanding Shelby County’s labor market priorities.  The purpose of the LEAP grant was in large part to provide institutions with an understanding of labor market priorities while connecting local education to employment efforts. Based on the report and the above articles this work has not been accomplished leaving an estimated 60,000 learners unserved.

Disconnected efforts contribute to 15,000 unfilled jobs and poor GMACW grant performance can be shown to result in an approximate $15M recurring annual Memphis/Shelby tax revenue shortfall.

Slow Economic Growth Data

This spreadsheet quantitatively validates the work contained in the below graph. The data was sourced from the Bureau of Labor and Statistics Quarterly Census of Employment Wages (QCEW) program. The graph shows total annual wages paid growth rate per year in Shelby County versus Shelby County’s peers as identified by The Memphis Economy of the University of Memphis.

Shelby County total wages paid growth rate trails the average of its peers by approximately 7% with 21.15% total wage growth since 2010-17 (EDGE began in 2011). Shelby County peers had an average growth rate of 28.18%.

Had Shelby County achieved peer average growth of 28.18%, total wages paid would have been $1.57B higher annually in Shelby County with Memphis/Shelby County tax revenue being approximately $47M higher on a recurring annual basis than it is today. The below graph shows deficient Shelby County wage growth accelerating when compared to its peers’ average growth rate.  

Small Business Data

The below graph shows declining Memphis small business vitality when compared to 106 metros during an improving economic cycle. The source of this data is the American Cities Business Journal (ACBJ) parent to the Memphis Business Journal (MBJ). A small business vitality index was not published in 2015 so the 101 ranking of 2014 was assumed. 

This trend line graph is concerning because typically local economic growth comes mostly from small business. Local small business is less likely to demand tax incentives while further diversifying the local economy. The following ACBJ links provide the data sources for the below graph with the 2016 rankings contained in the 2017 rankings link: 2012 Rankings  2013 Rankings 2014 Rankings 2017 Rankings.

The decline from the below average 67 ranking to 106 ranking among 106 metros in small business vitality can be shown to represent a decline in small business payroll of $679M of the $1.57B and $20M of the $47M as previously mentioned in recurring annual Memphis/Shelby County tax revenue shortfalls. This analysis confirms the importance of small business in the overall local economy.

The below average growth and declining small business vitality point to local policy and business culture as potential root causes of locally deficient economic development outcomes.

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Policy and Implementation Concerns

The excessive locally targeted retention payment-in-lieu of taxes (PILOT) program can be referenced as a policy concern. Retention PILOTs unlike expansion PILOTs abate already existing taxes against existing jobs for corporations to keep operations in Shelby County. These abatements also serve commercial real estate investor interests with the benefit of long term corporate lease tenants.

The problem is that the abatements are justified using incomplete accounting that recognizes existing tax revenue as “new local tax revenue received” while failing to account for 1) some probability of company retention without a retention PILOT but with an expansion PILOT for new jobs 2) the economic impact of the remaining workforce upon a company departure and 3) economic impact of forgone investments into the community. When properly accounting for retention PILOTs over the last seven years, the estimated Memphis/Shelby County tax loss is approximately $250M+ compared to the erroneous and lofty  $600M gain EDGE claims. This results in an estimated $850M overstatement of EDGE projected tax revenue.

Additional policy concerns regarding excessive tax incentives relate to small business vitality. In a 2015 Good Jobs First  study regarding corporate tax incentives, many small business representatives say “spending on incentives for big businesses strain the tax base for public goods such as education and infrastructure that benefit all employers.” This is not to suggest that responsible tax incentives for new industry recruitment are not needed. But that excessive incentives that abate existing taxes for local companies and residential PILOTs in a hot housing market are likely negatively impacting small business and local economic development efforts. Such a policy environment appears not to provide a culture for improving small business vitality.

And finally, local real estate investors consistently benefit from local economic development policy in an environment that seems to define real estate development as economic development. The EDGE Task Force should consider adopting a definition for economic development to help guide EDGE reform efforts.

Proposed Solutions

Converge Efforts – While calling for a new EDGE Board, The Memphis City Council should join County EDGE Task Force efforts to optimize EDGE as a “one stop shop” while avoiding redundancy and yet another study.

Get Real – Al Bright, EDGE Board Chairman, remarked in the task force meeting that “EDGE efforts have been good but not great”. That statement does not appear to be grounded in any type of data supported reality. The data as previously discussed show EDGE efforts to be deficient but not good. And get real with the EDGE accounting and measurement.

Define Economic Development – Define “economic development” to guide task force work and defend against imbalances in planning efforts based on historic efforts that seem to define real estate development as economic development. The EDGE Task Force might consider the following definition to help formulate balanced economic development policy: Economic development is a community policy intervention endeavor with aims of improving the economic and social well-being of its people. This definition aligns with  economists Steven Sheffrin and Authur O’Sullivan, from their book Economics: Principles in Action. The former was the resulting definition of the only known public survey on economic development conducted by the social media group Memphis Raise Your Expectations (MRYE).

Emphasize Workforce Development – Emphasize workforce development for a change in economic development efforts based on 15,000 job openings and public statements by both Mayors. Determine what happened to cause workforce development efforts to struggle, not course correct and leave an estimated 60,000 students unserved so that it’s not repeated. Both Mayors offices should have intake reports that document public concerns raised about GMACW filed two years ago.

Consider Culture – It’s the culture stupid ! The small business vitality data points to the local business culture as a potential root cause for declining vitality. An unsupported middle-class small business sector results in the population either falling into poverty or leaving the City which occurs under the radar. Both outcomes are undesirable.

Conclusion

The work of the EDGE Task Force is vitally important to the community. The City Council should join the County EDGE Task Force in optimizing the potential of EDGE as a “one stop shop” for economic development programming. 

Strong steps should be taken to emphasize workforce and small business economic development programming. If 3,000 of 15,000 more jobs were filled and the small business vitality levels were at previous 2012 ACBJ levels, based on analysis, total wages would be $800M higher. That is 50% of the $1.57B wage deficit that comes from deficient wage growth and equates to $24M in increased Memphis/Shelby County tax revenue.

Such a shift would require decreased emphasis on internally targeted tax incentives for corporations and real estate investors while driving balanced economic development policy. Balanced economic development policy would emphasize workforce and small business development as cornerstones to economic development policy while ending excessive retention and residential PILOTs. Tax incentives would be reserved for external recruitment, large local expansions and planned inner city redevelopment.

A convergent EDGE “one stop shop” supported with balanced economic development policy is vital to successful local economic development reform efforts.

joe b. kent

Guest Blogger

Mr. Joe B. Kent has worked throughout the country on workforce and economic development projects and is a reform activist in Memphis. Joe B. has a BBA in Finance, Masters in Instructional Technology and is a certified Global Career Development Facilitator with an emphasis on labor market information.

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