Tag: Electrolux

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Opinion The Last Word

What’s the Matter With Memphis? Time to Reconsider PILOTS

Parts of Thomas Frank’s What’s the Matter with Kansas?, a cheeky exploration of voters’ tendency to undermine their own self-interests, hold up better than others. Especially in this political era, I’m not sure if latté liberals’ fancy vocabularies drove working-class “values voters” into the arms of tax-spurning billionaire deregulators as much as Frank believed. And by using Kansas, a state whose population is 5 percent African-American, to illustrate his “backlash” phenomenon, Frank was able to conveniently ignore the large and growing segment of working-class Americans who still vote blue.

Whether by intention or not, the book’s enduring message comes in a critique of neoliberal policies — deregulation, union-busting, and the practice of luring businesses with economic incentives in the name of “job creation” — that are largely tolerated, despite their toxicity. It’s as if people stop listening when they hear “job creation” — just don’t tell them how much they’ll pay or who’s footing the bill for this “investment.”

I’ve been thinking about that critique a lot since Electrolux announced it would be shuttering its plant, well before the expiration of its PILOT agreement. Why was such a risky deal pushed through so quickly? Where was the outrage over the lack of of a clawback provision? The sub-optimal salaries? The $40 million commitment from the city and county? Were we so drunk on job juice that no one spoke up?

I’m no economist, but it was one-sided from the start. It’s a deal bad enough to make even Chris Wallace cringe. Sure, there was skepticism in 2011, after the deal was done and the shovels-and-hard-hats photo op had already taken place. But the jobs were the lede. The ugly details weren’t in the press release.
When the deal was announced, the unemployment rate in Shelby County was about 10 percent. For context, it was 3.6 percent in December. The hope, no doubt, was that a well-known brand and 3,000 new jobs would accelerate recovery from the recession. If the city, county, and state didn’t make the commitment, someone else would. That was the cost of doing business. Incentives are a necessary evil.

If that’s so, how do we prevent this from happening again? And who else is preparing to weigh anchor before the tax bill comes due? How much of the momentum I keep hearing about is fueled by property taxes?

Back to Kansas for a moment: Kansas City, Missouri, and Kansas City, Kansas, were engaged for years in a race to the bottom for taxpayer-funded business investment. Companies would take short-term leases to leverage a sweeter incentive package across the river. Over a five-year period, according to a Hall Family Foundation study, Kansas and Missouri gave up $200 million in tax revenue for 400 jobs. Kansas had paid $340,000 per job. In 2011, an alliance of Kansas City businesses petitioned both states’ governors to figure out a better way.

Yes, this was happening as Memphis, Shelby County, and Tennessee were filling a vault with coins for Electrolux to dive into, Scrooge McDuck-style. Set that aside for a moment. It was the businesses who said, “This isn’t really helping us as much as you think.” The so-called border war became so costly, both states — Missouri in 2014, and Kansas in 2016 — have proposed truces.

It’s an extreme example, but Memphis, as a neighbor to Arkansas and Mississippi, is in a position similar to the Kansas Cities. Memphis is in a financial position that necessitates creativity and restraint, and with a lot of in-state competition in Nashville. I get it. But if incentives are necessary, so is transparency. So is equitable pay.

Basically, we’re told, we can’t get by on our charm and good looks alone; to get the big boys to notice us, we’ve got to put out. Fine. There’s a difference between flirting and begging for a date, though. It’s nice to see local and state officials working to recoup Electrolux’s tax backlog and prevent such a swindle from happening again, but it never should have happened the first time. Not without public input. Not without taxpayer protections in place, should the company decide to bail on Memphis the way it bailed on its facility in Canada (spoiler alert). There were signs.

We should be angry that Memphis is, yet again, starring in a cautionary tale. That money ain’t coming back. However, there may be a hidden opportunity to reshape the definition of “business-friendly.” Communities in every state are dealing with this. Maybe we can be the ones to say, “We make the rules now.” If there’s any positive takeaway from this debacle, it’s that more people are paying attention. I hope our leaders are prepared to start answering more questions.

Jen Clarke is a digital marketing specialist and an unabashed Memphian.

Categories
Editorial Opinion

Electrolux Deal: Time to Rethink the Industrial-Development Process

The catastrophic news late last week of the imminent closing of the Electrolux plant at Pidgeon Industrial Park underscored the importance of long-overdue efforts currently underway to examine the incentives policies employed locally to recruit industry and, more generally, to reform the industrial development process.

It was not even a decade ago that the announcement was made, in mid-December 2010 at a gala year-end Chamber of Commerce banquet at the Peabody, that the giant Swedish appliance manufacturer would be building a 700,000-square-foot installation on Presidents Island. Numerous luminaries were present, including Electrolux executives, Mayors A C Wharton and Mark Luttrell of Memphis and Shelby County, respectively, and then-Governor Phil Bredesen.

Bredesen said the enterprise would represent a $190-million investment and would bring some 1,200 jobs, in addition to supplier jobs and other ancillary benefits. The facts, as things turned out, were a little different: The supplier jobs never really developed; the ancillary benefits remained theoretical; the job numbers totaled out at 1,100 and had subsided to roughly half that number at the time of last week’s announcement; and only the $190-million investment turned out to be entirely real.

Except that $190 million was the amount paid out by local and state taxpayers, not a measure of bounty to be received by the local economy. And, most worrisome of all, there was no “clawback” provision in the contract with Electrolux mandating that the company would be liable to refund any of this investment in the case of any default in its commitment to Memphis, Shelby County, and Tennessee, all of whom played the role of marks in this one-sided transaction. All that Electrolux had consented to do by way of recompense is to pay the standard tax rate, deferred to this point, for the remaining year or so the plant will be doing business in Shelby County.

How could such a deal have been made? To be sure, all the governmental principals had reasons. A basic fact of life for an elected official is the need to demonstrate results. The two mayors were facing elections, the exiting Bredesen was understandably eager to crown his gubernatorial legacy, and for the then-incoming Governor-elect Bill Haslam, who gave the project his approval, it no doubt had the looks of a godsend on a platter.

For current Memphis Mayor Jim Strickland, who was a member of the city council that gave the deal its blessing, it must look now like a joke at his expense. The Electrolux deal was not of his making, but it is a setback that may count against him in his reelection campaign. It is not to his advantage that his own explanations for the debacle dovetail with the company’s: a troubled economy, blowback from Trump tariffs, the going belly-up of Electrolux super-customer Sears.

All of that may be so, but none of it explains the embarrassing and costly predicament facing Memphis and Shelby County now. The fact is, our civic guardians undertook an enormous gamble without elementary protection. They bet on the come — and it came and went.

Any valid reform of our industrial recruitment process must include safeguards against any possible recurrence of this disastrous deal.

Categories
Politics Politics Beat Blog

The Trump Tariffs and the Memphis Electrolux Disaster

A Wednesday announcement by U.S. Senator Lamar Alexander of his co-sponsorship of a bill to return control of American tariff policy from the president to Congress ironically highlights the news, a day later, of the Electrolux Corporation’s decision to abandon its Memphis plant.

One section of Alexander’s press release analyzes the probable deleterious effects of President Trump’s steel and aluminum tariffs on manufacturing plants in Tennessee:

“In general, steel and aluminum tariffs put in place for national security purposes are a big mistake. No state is likely to be more damaged by these tariffs than Tennessee, because in many ways we are the nation’s number one auto state. One third of the manufacturing jobs in Tennessee are auto jobs. We have more than 890 automotive suppliers — almost all of which use aluminum and steel — in 88 of our 95 counties.

“Just last year, the largest employer in Springfield, Tennessee — Electrolux, which makes home appliances — put a $250 million expansion on hold. Electrolux buys all of its steel from U.S. suppliers, but, of course, when you raise the price on imported steel, the price of U.S. steel also goes up, and Electrolux concluded that it could not be competitive in the U.S. market with these higher prices. Now, if we were moving toward a policy of reciprocity — do for us what we do for you — there would be zero tariffs, and the people of Springfield would have a $250 million plant expansion and the jobs that come with it instead of a 25 percent tax on the U.S. steel that Electrolux buys.”

On Thursday, the day following the press release containing this analysis, residents and officials of Memphis were shocked by the news of a pending shutdown by Electrolux of its plant in Memphis, constructed under a 2010 contract calling for nearly $190 million in state and local government incentives without the protection to taxpayers of a “clawback” agreement.

The giant corporation’s plans were presumably affected by such other circumstances as the recent bankruptcy of Sears, for which Electrolux was a major supplier of home appliances. It seems clear that the same arguments put forth by Alexander regarding effects on the Springfield plant of Electrolux might also have had decisively adverse consequences on the company’s plans for the Memphis plant’s future.

The bill co-sponsored by Alexander would require Congressional approval of tariffs proposed by the president under Section 232 of the Trade Expansion Act of 1962 to address threats to national security.

As the Senator’s press release notes, Article I, Section 8 of the Constitution gives Congress authority to regulate trade with foreign nations and to impose tariffs.

Categories
Opinion

Snapshots of the Memphis Economy

Electrolux site

  • Electrolux site

How many Memphians do you think could find the Frank Pidgeon Industrial Park? That’s where the new Electrolux plant is under construction. I rode down there (it’s in southwest Memphis near the river) this week with a friend who is one of the site-preparation contractors. The site was swarming with heavy equipment and (mostly) guys in hardhats, shades, and yellow vests. It reminded me of the mid-1990s when the casinos were going up in Tunica. The main building will be about one million square feet. That’s a biggie, on the order of the car plants in Middle Tennessee and Mississippi.

The factory will make ovens. Right now it’s hard to put a face on this project, but it’s a big deal for Memphis and is good to see. To the south is the Nucor steel plant and to the north is the Mitsubishi Electric site, another big catch. If you want to see for yourself, go to Chucalissa, if that’s any help, and then keep going west and you’ll be there.

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On a different note, another friend and I took a driving tour of the Memphis airport last week, starting at the Greyhound bus terminal on Airways. The bus terminal looks overdesigned to me, like the one near the train station downtown. It replaced the old terminal on Union that got former mayor Herenton in hot water. I felt sorry for the people sitting in the terminal waiting for over-the-road buses or MATA buses to take them to some other terminal closer to their final destination. I don’t see much if any synergy between airplane passenger service and bus service, but we’ll see.

By the way, I am thinking of taking the Megabus to Nashville. Depending on when you go, the one-way fare is $1, $4, or $9 and the return can be as low as $1 or as high as $25. Round trip could be less than it costs to park in downtown Nashville these days. And the Nashville bus terminal is within easy walking distance of the Country Music Hall of Fame, arena, and lower Broadway honky-tonks. I would be grateful for some comments from readers who have made this trip or other trips by Megabus.

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Right across the street from the new Memphis bus terminal is an abandoned hotel with curtains flapping in the breeze and mirrors still hanging on the walls. It looks like something William Eggleston would have photographed. I do believe in aerotropolis, I do believe in aerotropolis, I do believe in aerotropolis . . . because if you look a little farther east you see all those FedEx jets parked in rows. But our little circumnavigation of the airport was depressing because of all the blight, vacant office buildings and warehouses, and poor neighborhoods. Three cheers for Smith and Nephew and Medtronic, holding down the fort on Brooks Road.

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News

How Do the Memphis Biz Incentives Compare?

John Branston took Mayor Wharton up on his invitation to “read” about what other cities are doing to lure big business. The numbers tell a story.

Categories
Opinion

Comparing the Memphis Incentives

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Taking a cue from Mayor A C Wharton, here’s a look at what some other Southeastern cities and states reportedly paid to land big manufacturing plants and major employers in the last 18 years.

On Tuesday Wharton suggested that critics of incentives for Mitsubishi Electric and Electrolux read up on what other cities offer. I looked at car manufacturers because Wharton specifically mentioned Nissan and Hyundai at his press conference.

Conclusion: Memphis paid less for less.

Numbers are easy enough to find since public expenditures must be disclosed. But comparisons are harder to make and quantify when other factors are considered. How many spinoff jobs and industries? What average wage? What’s the inflation factor for an incentives package given years ago? And how desperate was the city and/or state for new jobs and a good story to tell?

And in this case we’re not talking apples to oranges, but cars to appliances and transformers. Or first-round draft choices and third-round picks, if you prefer.

One thing is indisputable. You have to pay to play. As then-NFL commissioner Paul Tagliabue said in icy-cold tones in Chicago several years ago when Memphis and Liberty Bowl Memorial Stadium finished out of the running for an expansion team, “You can win or you can be disappointed.”

With those cautions, here’s a look at some big car deals within 500 miles of Memphis and the two Memphis deals.

Categories
Opinion

Another Way Memphis Could Buy Business

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First comes the party. Then comes the price.

That’s how it works in economic development. Like other cities, Memphis has to pay to play to attract companies like Mitsubishi, Electrolux, and Bass Pro Shops. The price is millions of dollars in tax breaks plus public improvements in exchange for jobs, investment, spinoff businesses, and a positive story to tell.

Electrolux and Mitsubishi are good catches. The total number of jobs will be around 1,500, and the combined investment will be more than $600 million. Big deals, but not quite as big as the Volkswagen plant in Chattanooga (2,000 jobs), the Toyota plant near Tupelo ((1,350 jobs), the Amazon distribution facility in Chattanooga (1,400 jobs), the Nissan plant in Canton, Mississippi (3,300 jobs) or the Nissan plants in Smyrna (6,700 jobs since 1983) and Decherd (1,300 jobs since production started in 1997) in Middle Tennessee. But certainly preferable to the loss of 1,900 in Union City in West Tennessee when Goodyear pulls out.

A lot of people in Memphis are probably thinking either, “I hope I get one of those jobs” or else “I hope the people who get those jobs buy a house in my part of Memphis.”

We have a bad housing market. Memphis is certainly not alone in that regard, but our problem is compounded by low density — a population of 670,000 and a city of more than 320 square miles.

Two things are slowly killing Memphis. One is the “For Sale” signs all over town, indicating the outmigration of our population and the difficulty of selling a house when there is a glut of housing. The other is the tax imbalance between Memphis and its suburbs in Shelby County, where property taxes are as much as 40 percent lower and signs in front of subdivisions near annexation boundaries proclaim “No City Taxes.”

The city of Detroit is taking an aggressive approach to its glut of housing and scarcity of residents, as described this week in a story in The Detroit News. In addition to giving incentives to businesses to move to Detroit, the city gives incentives to young people and police officers to move into neighborhoods such as Midtown, an older part of the city.

The program is called “15 by 15,” and aims to attract 15,000 new residents by 2015. It has the backing of Michigan Gov. Rick Snyder and Detroit Mayor Dave Bing.

I live in Midtown Memphis. I confess to a little envy when I read about corporate welfare, and I suspect I am not the only one. No, we’re not job creators, but we’re taxpayers of several years, owners and customers of local businesses and public services, and our small businesses pay full freight. Houses aren’t selling, and the only “incentive” anyone is offering is the lower price accepted by the homeowners who do sell. No homeowner gets a PILOT.

So, welcome employees of Electrolux and Mitsubishi and, possibly, Bass Pro Shops. Live up to the bargain. Live in Memphis, not DeSoto County, Mississippi or Fayette County or Tipton County Tennessee. Remember who is giving you the incentives to be here. And tell your friends to come too.