Game of Chance: PILOT 101 - FOX13 News, WHBQ FOX 13

Game of Chance: PILOT 101

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    Friday, October 4 2013 3:43 PM EDT2013-10-04 19:43:45 GMT
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You hear the term a lot in Memphis business and political circles: PILOT Program.

Chances are you have a general idea of what they are: Tax breaks for businesses to either move to the city or in some cases, to stay in the city.

There are those in Memphis who see PILOT Programs, as a hand-out of tax dollars to big business.

"We giving large businesses and special PILOT Programs we giving them too much revenue," said Memphis Councilman Joe Brown.

But proponents in the same political circles as those above see them as necessary to not only bring businesses and jobs to Memphis, but also to keep businesses and jobs in Memphis.

"Most of the deals we make with PILOTS result in the benefit far exceeding the cost," said Shelby County Mayor Mark Luttrell. "That's one of the requirements for that, so, we don't give away anything."

That prevailing thought has been a big help to a roster of companies. Federal Express, Nike, Cargill, Valero, and International Paper.  In fact, it was IP which started to raise the ire of opponents of the Pilot Program in 2013.

The company was given a 15-year PILOT by the Economic Development Growth Engine (EDGE Board) to keep its operations in Memphis for at least another 15 years. This means no city or county taxes.

"The PILOT Program makes a deal with the property owner," said EDGE Board President and CEO Reid Dulberger. "The deal is that if you develop your property and actually pour enough money into it to make more than double the value of your property. Then we'll give you a partial tax abatement for a certain number of years."

But that is an idea that even members of the city council either oppose, or don't seem to fully understand. Councilwoman Janis Fullilove has been highly critical of the use of PILOTs and incentives by the administration of Mayor A C Wharton.

"When will the least of these be take care of? I guarantee you, not one executive at EDGE has to worry about his or her mortgage, has to worry about paying his or her utility bill, has to worry about how you're going to get to work,"  Fullilove said in June of 2013, while the council was proposing cutting funding to the EDGE Board to help the struggling Memphis Area Transit Authority.

But the trade off?  International Paper stays put along with more than 2,400 employees -- all of whom "do" pay taxes. Newer companies like Mitsubishi, Electrolux, and even Bass Pro Shops were all granted PILOTs, meaning they pay only closing costs on the land they bought to build on, taxes on that property's pre-development value,  and a portion of taxes on real and personal property.

But after the doors of their businesses open, no more sales taxes for what ever term they've negotiated with the EDGE Board, which Memphis and Shelby County has put into place to work out such deals.

Dr. John Gnusckhe, head of the Sparks School of Business at the University of Memphis explains PILOTs simply as tax breaks given to businesses to lure them to do business in the city of Memphis.

"This is a tax abatement program," Dr. Gnusckhe said. "The city says to a business, ‘Come here, build your business, and we will wave your property taxes for an agreed upon amount of time.'"

Dr. Gnuschke also says that money not paid by businesses is recouped by the productivity of those businesses.

"A company's employees are given jobs, or that company might bring employees to Memphis," he said. "Those employees pay property taxes, sales taxes, and buy goods and services in the city which make up for the property taxes not paid by the business. In other words, if EDGE gives a company a $1 million tax abatement, the city stands to make $1.5 million in other taxes paid. Plus, the abatement doesn't last forever, so that company will wind up paying property taxes along the way."

Memphis Chief Administrative Officer George Little is a major proponent of the EDGE Board's work in the PILOT Program. He sees PILOTs as the city's chief attraction in the competitive world of business recruiting.

"We are competing with other cities in the region and often times those cities are able to offer more in the terms of benefits that are attractive to major companies," Little said. "When we compare ourselves to other cities of comparable size like Charlotte or Minneapolis, we do well to offer incentives to companies who are looking for the best deal to locate their factories."

But there are others who have questions about how the PILOT program works in Memphis. County Commissioner Steve Basar has raised questions in the past concerning PILOTs, asking aloud during commission hearings on the matter if sometimes too much is offered.

"Incentivizing is a good thing, but at the same time, we have to pay for things like schools, public services like fire and police," Commissioner Basar said. "There is something to be said for making a deal for a company to come to your city, but we have to be careful that we don't give too much away and that we don't allow public services to suffer."

 

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