Ron Shultis

Ron Shultis is the policy coordinator at the Beacon Center of Tennessee, a nonprofit think tank whose research addresses issues including education, health care, economic regulation and tax policy.

Beacon Center: On EDGE and PILOTs, the numbers don't add up

By Published: April 15, 2019 4:43 PM CT

Any real estate agent will tell you it’s all about location. With its location sitting on a bluff overlooking the Mississippi River, Memphis has long been an epicenter for commerce and logistics. Even today with the second busiest freight airport in the world, Memphis’ location has allowed the city to grow and remain a regional epicenter for two centuries.

Despite these natural advantages, Memphis leaders have fallen into the same trap as many other governments. Shelby County leaders have participated in a continual race to the bottom through endless corporate welfare giveaways.

<strong>Ron Shultis</strong>

Ron Shultis

In 2011, the City of Memphis and Shelby County jointly created the Economic Development Growth Engine (EDGE) to coordinate public resources to attract business investment. Since 2011, EDGE has approved nearly a half a billion dollars in Payment in Lieu of Taxes (PILOT) agreements.

Recently, local leaders have begun to question if EDGE is delivering expected results. Richard Smith, the chairman for the Greater Memphis Chamber, went as far as arguing that EDGE should be reformed or eliminated. After six months of study, however, the only proposal was to add additional bureaucracy by creating another board to guide economic development.

Essentially, local leaders studied the structure of the process rather than the tools used themselves. But once you examine the incentives given and the agreements themselves, it becomes crystal clear why Memphis leaders were less than pleased with EDGE’s results. The numbers just don’t add up. 

Reid Dulberger: EDGE: Tax abatement works in a competitive world

Peel back the fancy ribbon-cutting ceremonies and press conferences for new jobs and all you’re left with is handouts to big, connected companies and higher taxes for the rest of us.

To determine if a PILOT is beneficial, EDGE calculates the “indirect growth” from the new jobs and investment created by the PILOT to determine the “cost-benefit ratio” of the incentive. Take down the curtain, however, and one realizes that EDGE uses existing jobs to calculate “new” indirect growth. Only new jobs or new economic activity should be used for indirect calculations because existing jobs — and their resulting indirect economic activity — already existed prior to any tax abatement today and cannot be attributed to it decades from now.

While defenders would say that those jobs would not have been retained had the abatement not been given, the research does not back that up. Instead, research shows these incentives make a difference in as few as 2% of instances. When a company already has existing infrastructure and trained workforce in one location, these incentives have little impact. When the indirect economic benefits are only attributed to new jobs created or new investment, many EDGE-approved PILOTs suddenly become a net loss where the public receives fewer dollars than taxes abated, even if the same multipliers are used.

In fact, a recent Beacon Center study of select EDGE PILOTs showed an actual tax revenue loss of $54.7 million for Memphis and Shelby County. Even more, while seven additional PILOTs were still a net positive, revenue estimates were over-exaggerated by a staggering $163 million. That’s money that went to large corporations rather than government core services like schools, infrastructure and public safety. 

A more effective solution for Memphis and Shelby leaders would be to make their environment more business friendly by doing things such as reducing red-tape, investing directly in infrastructure, or reducing local taxes. Those reforms would benefit all Memphians, and those are benefits that all can see and can’t be manipulated behind the smoke and mirrors of government estimates.


EDGE PILOT Beacon Center

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