PILOT program – Memphis Flyer

Mike Ritz, the chairman of the Shelby County Commission, is once again asserting himself, this time against broad new potential concessions to International Paper company in the way of PILOTs (Payments in Lieu of Taxes) — i.e., what lay people call tax breaks.

IP says it needs them from both city and county governments in order to expand and hints that it may leave for greener pastures in DeSoto County or elsewhere if it doesn’t get them. Ritz, who apparently regards IP’s demands as close to extortionate, is either a courageous man or one afflicted by hubris. He has chosen to draw this latest line in the sand in the immediate aftermath of a serious defeat.

The chairman’s call for a half-cent increase in the county tax rate to buttress the soon-to-be Unified School System went down with a thud on November 6th. His natural allies — city of Memphis officials like Mayor A C Wharton and city councilman Shea Flinn who supported it, even after it chased their own half-cent hike off the November ballot — took the hit, along with Ritz.

Meanwhile, the most obvious winners were the commission chairman’s de facto adversaries, the municipal-school advocates in the suburbs whose previously passed half-cent tax hikes escaped the prospect of being superseded by Ritz’s county tax.

The passage of those suburban tax initiatives on the August ballot goes far, incidentally, toward debunking the notion that tax-increase referenda are automatic losers. When people know what they will be accomplishing by taking on an extra tax burden — as the voters of Germantown, Collierville, Bartlett, Lakeland, Arlington, and Millington clearly did — they will cast their ballots for it.

So none of what had seemed the multifaceted objectives of the Ritz tax proposal were achieved: The $30 million the commission chairman intended to raise for the Unified School System (by statutory mandate, half of the $60 million projected total) will not be forthcoming; the suburbs were not taught a lesson or brought to heel; in fact, they triumphed; and the referendum’s defeat even blunted the impact of a civics lesson taught by Ritz, a long-overdue one — that county government is constitutionally preeminent over all other local governmental units.

Even so, the county commission chairman deserves respect — and maybe even support — for what would seem to be a principled stand in the IP matter.

One of the more bemusing aspects of the Wharton mayoralty has been that a vital service he proposed to bring to local government, both as county and as city mayor, has arguably been stood on its head. What started out as a commitment to reevaluate PILOTs from the standpoint of a shrinking local revenue base seems to have ended up with the mayor’s espousing ever more and bigger giveaways to attract corporate and industrial tenants, or, if already established, to keep them here.

Hence the result of recent negotiations with IP engaged in by Wharton and Shelby County mayor Mark Luttrell — unilaterally, says the commission chairman, and without the sanction of the much ballyhooed joint city/county EDGE Board (for Economic Development Growth Engine). Ritz maintains that the two mayors on their own tack offered the surprised corporate heads more tax relief than they had asked for: a somewhat reconfigured 30-year write-off of all real estate currently owned or contemplated for the future instead of a 15-year extension of the company’s current PILOT and its application to both real property and transport vehicles, including airplanes, owned by the company.

The two mayors have since denied Ritz’s assertion that they made any such firm offer. And both they and IP representatives have been close to the vest about whatever offers and counteroffers were made.

At the time Wharton and Luttrell issued this joint statement: “International Paper is more than just a successful Fortune 500 company; this company is a valued and contributing corporate citizen for Memphis and Shelby County. The significant step International Paper made some years ago to move its global headquarters to our community was a tremendous milestone in our local economic development efforts. We take the position that we must do whatever we can reasonably do to retain this company in Memphis and Shelby County as a strong local partner in our business landscape. We will vigorously work to maintain the current relationship between this industry leader and a community that deeply values its presence.”

Surely no one needs to be reminded that tax revenues to support elementary public services in Memphis and Shelby County — schools, libraries, fire and police, sanitation, etc., etc. — are regarded as seriously deficient and are projected to become even more so.

Supporters of the county sales tax hike had seen something discordant in the logic of Mayor Luttrell’s earlier insistence, in opposing the county tax hike, that the Unified School Board should be made to perform serious budget cuts (more serious than the already draconian ones suggested by the Transition Planning Commission?) before new revenues were authorized.

The county mayor most certainly does not oppose governmental revenue in principle (or at least he didn’t seem to during his eight years as sheriff, when he, eloquently and fervently, fought against the threat of cuts in his own budget).

Ritz argues that, however worthy and needful the retention of International Paper might be in the scheme of things, the concessions being offered IP might generate a snowball effect, leading to equivalent demands from Shelby County’s other corporate flagships. Or, as the chairman put it in a recent letter to Luttrell, “What do we tell FedEx? What do we tell AutoZone?”

In his letter, Ritz employed the term “public relations disaster” to describe the deal he says the mayors have offered IP. And he repeated this week his astonishment at the fact that the two chief executives have taken the lead in negotiations with the company.

“In the history of Shelby County, no major PILOT agreement was ever put together that way, at the instigation of the mayors,” said Ritz, who professed confidence that a majority of the Shelby County Commission would concur with him in resisting any PILOT arrangement with International Paper that would extend as long as 30 years.

Anything over 20 years requires the consent of the commission and the city council and would require further approval from the state commissioner of economic and community development and the state comptroller of the treasury. Ritz said he thought a 15-year extension on real property might be amenable to the commission and the EDGE board, and probably also to the city council, “although I don’t have any soundings as such from the council.”

Council member Flinn, for one, said he was open to persuasion on a new PILOT arrangement with IP and expressed little concern about the role of Mayors Wharton and Luttrell in beginning negotiations. “They may have a different relationship with their mayor over on the county side,” Flinn said, “but we have a strong-mayor system, and in our system it is the duty of the mayor to negotiate contracts. Once he does so, the deal comes back to us for a vote.”

Ritz is not mollified by such sentiments and continues to maintain the mayoral intervention is out of kilter with local tradition in arriving at tax abatements. “That’s not the way it has been, and it’s not the way it ought to be,” he said. “I’m the one who took the initiative in creating EDGE, and if we had wanted the mayors to work out these deals, we wouldn’t have appointed Reid.” That would be Reid Dulberger, the president/CEO of EDGE since January 2012.

In any case, there is no deal as of now, and the forthcoming holiday break may provide some brake on the momentum of the issue. But the pressure to do a deal will undoubtedly mount — local fears of being jilted by a major corporate resident being intensified, no doubt, by residual uncertainties concerning the slow-motion progress of the Bass Pro project and maybe even by the absence — during the holiday season, no less — of Twinkies and other goodies that will — at least, temporarily — no longer be produced by any of the now defunct Hostess Bakeries plants, including the one that just shut its doors here.

It was late Tuesday afternoon, and the City Council was hoping to knock off a little early to get the jump on the Fourth of July holiday, but instead members wound up moving ahead on some taxing matters — as in sales taxes, gas taxes, and “voluntary” taxes on nonprofits and businesses that get tax breaks.

All of the matters are still in preliminary stages, so the votes Tuesday merely moved them a little closer to up-or-down final votes, or “third readings” as they are called. But the council seems to be serious about finding new revenue sources to balance the budget and keep from making cuts in services and employees.

Here’s a look at each possibility.

Councilman Shea Flinn, with the backing of Mayor A C Wharton, wants to give Memphis voters the option to raise the local sales tax from 2.25 cents to 2.75 cents, which would make the total sales tax 9.75 cents. Voters would have to approve it in the November election, but for that to happen, the council would have to take further action. On Tuesday the second reading of the measure was delayed. Flinn said he is fairly confident that the proposal will make it to the voters. But he also knows that some of his fellow members will not vote for it because they fear being branded as “pro-tax” which could make them vulnerable to future political foes.

Councilman Ed Ford Jr. wants to give voters another tax option — a one penny increase in the gasoline tax, with the increase dedicated to budget expenses for public transportation. This also has to pass council a couple more times, and there is some question whether the money can be given straight to MATA, which already gets millions of dollars a year in city funding. Like the sales tax, the gas tax has some appeal because it hits non-Memphians as well as Memphians, and is a “voluntary” tax to the extent that purchases can be controlled.

Councilmen Janice Fullilove and Lee Harris think the city should look at nonprofits and companies in Memphis that get tax abatements through the PILOT or payment-in-lieu-of-taxes programs. PILOTs freeze taxes at pre-development levels for a certain number of years. The nonprofits, Fullilove said, “use the same services” as tax-paying individuals and businesses. Boston and other cities have successfully persuaded “eds and meds” to make voluntary payments to help raise city revenue. The proposal is in the early stages in Memphis. A committee will be formed, but the idea has popular appeal as evidenced by the union lobbying for it at the unified school board meeting last week. The council won’t have leverage until the nonprofits and PILOT businesses come before it seeking something. Then we will see who’s serious.

Councilman Kemp Conrad wants members to approve an ordinance that would amend the city charter to require the mayor and council to adopt a five-year strategic business plan and a six-year consolidated operating and capital improvements budget. Wharton has floated a similar proposal, which is a favorite of business group advisers. The problem is that politics is always more or less a seat-of-the-pants operation. And over the years the council has yielded much of its authority to quasi-public agencies like the Riverfront Development Corporation to take over former city operations. Tax-cutters on the council regularly fall in line when the such agencies come around for their annual review and subsidy.

Give the council credit for this: On a day when many Memphians were leaving work early, they stayed well into the evening to do the people’s business. They voted against a special use permit for a pawn shop at Perkins and Knight Arnold, which is a serious issue for members and their constituents in urban districts. Harold Collins was especially blunt in his opposition, comparing pawn shops to blight.

The council had a healthy discussion of the dreaded car inspection stations. There is strong “feds be damned” sentiment to give all Memphians, not just poor people, a break on the annoying and expensive emissions-related “check engine” light breakdown. Inspection, of course, is as much an expenditure of time as well as money, and both investments can be considerable if the light-related problem has to be fixed in order to pass. Conrad spoke for many of us when he said “Anything we can do to get our citizens out of this ridiculous process, I’m for it.”

Finally, in the most touching moments of the meeting, the council and onlookers gave a very enthusiastic standing ovation to two people: Dr. Mary McDonald for her 35 years of stellar work with the Catholic Schools of Memphis and Deandre Brown and the members of Lifeline to Success, winners of the 2012 Large Group Volunteer of the Year Award. Some 25 members of the “Blight Patrol” in Frayser, all of them wearing lime-green t-shirts, came to the meeting and did a rousing group recitation of their “I am not my crime” coda, as Brown barked out the cadence. Members of the team, including Brown, are former criminal offenders looking to restart their lives in a Christian program working in one of the toughest parts of Memphis.

“You are the model for what this country should be looking for in a second-chance program,” said Council Chairman Bill Morrison.

Brown said he is determined to make Frayser “a nice place to live.” For more on his story, here is a Flyer interview done last year. Also see the group’s inspiring video on YouTube with the lines “I gotta clean up, what I messed up, I’m starting my life over again.”

Fine organization and good thought for everyone on this Fourth of July.