PILOT FAQ and Score Card

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P I L OT S S I N C E A U G U S T 2 0 1 1 P R O J E C T E D I M PA C T
Total Jobs
Average Payroll
Investment
9,231
$78,383
$1,992,526,353
MWBE/LOSB Target Spending
$291,628,647
Total New Local Tax Revenue Generated
$711,533,104
Total Tax Abated
$276,132,496
Benefit-to-Cost Ratio (New Tax/Tax Abated)
2.58
Incentive Amount Per Job
$3,324
Average PILOT Term
9 years
Number of PILOTs Approved
35
WHAT IS EDGE?
EDGE was created by Joint Resolution of the Memphis City Council and Shelby County Commission in February 2011 to be the economic
development organization for the City and County. EDGE is organized as an Industrial Development Board (“IDB”) under chapter 7-53-101 et seq.,
of the Tennessee Code Annotated. As an IDB, EDGE has the authority to enter into PILOT agreements, as defined by the Tennessee Code, in the
City of Memphis and unincorporated Shelby County.
WHAT IS A “PILOT?”
A PILOT, or Payment In Lieu of Tax, is a temporary, partial abatement of future real and/or personal property taxes that an applicant would otherwise
have paid on a new investment. In return, the applicant commits to create or retain jobs with specified payroll and benefits, make the agreed upon
investment, hire minority and women business enterprises (MWBE) and locally owned small business (LOSB), and engage in other desirable
activities. The PILOT program is the primary local economic development incentive in Memphis and Shelby County.
WHAT ARE ECONOMIC DEVELOPMENT INCENTIVES?
Economic development incentives are tools that attempt to influence the location decisions of private firms. Incentives are provided by State and local
governments and include cash grants, tax abatements, tax credits, tax increment financing, free/reduced-cost land/buildings, infrastructure
improvements, employee training, reduced utility cost, fee waivers, project financing, and other activities. While local communities have long used their
borrowing authority and infrastructure spending to attract and retain business, modern economic development incentives are often traced to Mississippi’s
Balance Agriculture with Industry Program in 1936. Initially employed by relatively poor State and local governments trying to compensate for factors that
business found unattractive (e.g., cost, location, access, workforce or infrastructure), incentives ultimately became widely used as competition escalated.
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WHY DO MEMPHIS AND SHELBY COUNTY NEED TO OFFER PILOTS?
The competition among communities to attract and retain businesses is fierce — including active use of State and local economic development
incentives. Memphis and Shelby County offer PILOTs to compete for projects and the jobs, payroll, capital investment, local tax payments and
supplier contracts they bring. Memphis/Shelby County PILOTs are often required to simply “level the playing field” with competing communities.
As Memphis and Shelby County’s primary local economic incentive, the importance of the PILOT program was demonstrated in 2006/2007 when the
Memphis City Council and Shelby County Commission made several major changes to the then (pre-EDGE) PILOT program that had the unintended
consequence of making the program much less attractive to business. Use of the PILOT program dwindled as businesses chose to locate in places that
appeared more “business friendly.” Presented with that evidence, Memphis City Council and the Shelby County Commission unanimously overturned
those changes in 2009.
Memphis and Shelby County have great transportation/logistics and quality of life assets that make it an attractive place to do business. However,
other metro areas have strong assets as well — and offer incentives. Moreover, businesses attracted to the Memphis region no longer have to
locate in Memphis or Shelby County. Neighboring communities in Tennessee, Mississippi and Arkansas claim the same general assets and
amenities as Memphis/Shelby County. In addition, some of these communities have competitive sites, available workforce and aggressive state
incentives. They also offer local property tax abatements.
UNDER A PILOT, WHO PAYS WHOM?
PILOT recipients make an annual “Payment” to the City of Memphis and/or Shelby County, depending on where the project is located. The City and
County do not make payments to PILOT recipients.
HOW MUCH PROPERTY TAX DO PILOT RECIPIENTS PAY?
PILOT recipients pay a minimum of 25 percent of the real and/or tangible personal property taxes that would otherwise have been due Shelby County if
the investment had been made without a PILOT. In CY 2014 they pay a minimum of 15 percent of the property taxes otherwise due the City of Memphis.
The minimum Memphis payment will increase to 20 percent for PILOTs approved in CY 2015 and 25 percent for PILOTS approved in 2016 and beyond.
In addition PILOT recipients, like all other commercial entities, pay local sales tax, vehicle tax and other local business taxes and fees. The people employed as a
result of the PILOT own homes and make other purchases that also result in real property and sales tax revenues for Memphis and Shelby County.
EDGE conducts an economic analysis for each proposed PILOT that compares all projected local taxes derived from the project (i.e., company and
employee-paid local taxes) with the amount of real and tangible personal property taxes being abated. Based on that analysis, EDGE PILOT projects
are expected to generate significantly more in new local taxes than the amount of tax abated.
DO PROPERTY TAXES GO UP OR DOWN UNDER A PILOT?
It depends on the circumstances. As noted above PILOTs are partial abatements of future Memphis and/or Shelby County property taxes. Where
the PILOT project entails new construction, property taxes paid during the PILOT are typically higher than those paid before the incentive was
approved. Under that scenario property tax collected pre-PILOT is on land only; property tax collected during life of the PILOT includes the land
(which is not abated) and partial taxes on the new building — resulting in net new additional property taxes.
EDGE is also authorized to abate taxes on existing structures (known as a “Community Reinvestment Credit” or “CRC”). This equalizes the incentive
to reuse vacant structures with the incentive to construct a new facility, encouraging redevelopment of older, inner city areas. If a CRC is approved,
the total property taxes paid during the PILOT may be lower than those paid before the PILOT, depending on the pre-PILOT assessed value of the
structure, the amount of renovation and expenditures for tangible personal property.
DO PILOTS ADD REVENUE OR COST TO THE CITY AND COUNTY BUDGETS?
If a PILOT project could not or would not otherwise have located in Memphis and Shelby County, the PILOT payments are net new revenue the
City/County would not otherwise have had. In addition, Memphis and Shelby County benefit from a variety of other fees and taxes the recipient pays
(e.g., sales and vehicle taxes), and they benefit from the net increase in employee spending on homes and other taxable items. Once the PILOT
expires, the recipient pays full Memphis and/or Shelby County property taxes and the other financial benefits remain.
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IS IT TRUE THAT PILOTS COST THE COMMUNITY TENS OF MILLIONS OF DOLLARS?
Statements and media reports citing this “lost” revenue, based on information from the County Trustee and/or City Finance Department, are referring
to the total amount of property tax abated under the various PILOT programs — sometimes called the “PILOT benefit.” Few of these projects would
locate in Memphis and Shelby County without that benefit. If the project would not otherwise have located in Memphis and/or Shelby County,
nothing was “lost” by granting the abatement. Stated differently, the City of Memphis and Shelby County treasuries cannot lose what they never
had or would have had. Also, those figures do not include property and other local taxes paid by the PILOT recipient (e.g., sales tax, vehicle tax, other
taxes and fees) that would not otherwise be paid, or local taxes paid by employees.
WHO CAN GRANT PILOTS IN SHELBY COUNTY?
In the City of Memphis only the Center City Revenue Finance Corporation (Downtown Memphis Commission); Memphis Health, Educational &
Housing Facilities Board; and EDGE are authorized to grant PILOTs. PILOTs are also approved by the Arlington, Bartlett, Collierville, Germantown and
Millington Industrial Development Boards. The Shelby County Health, Educational & Housing Facilities Board can approve PILOTs with the
concurrence of the Shelby County Commission. However, the two Health, Educational & Housing Facilities Boards have placed a voluntarily
moratorium on the issuance of new PILOTs.
ARE PILOTS UNIQUE TO MEMPHIS AND SHELBY COUNTY?
No, tax abatements have been available across the United States for over 30 years and are among the most common forms of local economic
development incentives — though the programs vary. In Tennessee, industrial development boards (a/k/a industrial development corporations) are
authorized by chapter 7-53-101 et seq., of the Tennessee Code Annotated to grant PILOT tax abatements.
HOW DOES TENNESSEE’S TAX ABATEMENT PROGRAM COMPARE TO OTHER STATES?
Tennessee’s approach to tax abatements is unusual, but not unique. Rather than simply authorizing industrial development boards (“IDB”) to grant
tax abatements of real and/or personal property, Tennessee law requires that IDBs take legal title to the property. Since IDBs are government
entities, the property they have legal title to is exempt from ad valorem property taxes in Tennessee.
HOW DOES TENNESSEE’S TAX ABATEMENT PROGRAM WORK?
The PILOT recipient transfers the real and/or personal property to the IDB, by special warranty deed for real property and by a bill of sale for
personal property, and enters into a PILOT Agreement — a combination of property lease and incentive contract. Each time the PILOT recipient
adds property to the PILOT, a new lease or amendment to a previous lease must be prepared by IDB legal counsel and reviewed by the recipient’s
legal counsel. The transfer of real property also requires an environmental study to insure that the IDB is not incurring environmental liability.
During the term of the PILOT the recipient exercises all the rights and obligations of owning the property. When the PILOT ends the IDB transfers
the property back to therecipient, by quitclaim deed for real property and by a bill of sale for personal property, and it goes on the tax rolls like any
other real and/or personal property.
DOES EDGE APPROVE EVERY APPLICANT THAT APPLIES FOR A PILOT?
No. In fact, EDGE staff recommends to the Board only a small percentage of the inquiries received for PILOT assistance. Because EDGE wants those
projects to move forward in Memphis and Shelby County, albeit without tax abatement, staff are careful not to embarrass the applicants by
presenting projects to the Board that staff cannot recommend or otherwise publicizing the denial of projects that do not meet program standards.
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HOW DOES EDGE DETERMINE THE SIZE OF A PILOT TO OFFER AN APPLICANT?
Once the decision has been made that a PILOT incentive is necessary for a project to develop in Memphis and Shelby County, EDGE uses a two-part
approach to determine the size of the PILOT. A PILOT Matrix that assigns points based on investment, jobs, salary and other factors determines the
maximum number of years that can be offered. A Benefit-to-Cost analysis, conducted by an outside consultant, insures that new local taxes
expected from the project exceed the value of the taxes abated.
DO PILOT PROJECTS “ROLL OVER” WHEN THEIR TERM EXPIRES, OR DO THEY END?
EDGE PILOTs end when their term expires. Further, when a PILOT ends the recipient is immediately responsible for paying 100 percent of the
Memphis and/or Shelby County taxes that would have been due with no PILOT. As a result, Memphis and/or Shelby County receive the full amount
owed, even if it takes time for EDGE to transfer the property back to the recipient.
DOES EDGE MONITOR PILOT RECIPIENTS?
EDGE monitors PILOT performance annually. An outside firm is engaged to collect the data and report to the Board.
WHAT HAPPENS IF A PILOT RECIPIENT DOESN’T MEET ITS KEY PERFORMANCE CRITERIA?
Recipients that fail to meet their key performance criterial are subject to a “claw-back of the benefit term,” a process that aligns the PILOT incentive
with actual performance. Under a claw-back, the PILOT term is reduced so the PILOT recipient receives the benefit it would have been awarded had
its actual performance been known at the time of application.
DO EDGE PILOT PROJECTS FULFILL THEIR OBLIGATIONS?
Yes. Reports from PILOT recipients and on-site inspections show that the EDGE PILOT portfolio (including pre-EDGE PILOTs approved by the Industrial
Development Board of the City of Memphis and County of Shelby, TN), has created more jobs, at a higher average wage, and invested more money
in Memphis and Shelby County, than they committed to. For example, the latest EDGE compliance report shows 52 active PILOTs that created 11,589
jobs (10,324 committed), at $73,466 average annual wage ($45,892 committed), and $2.46 billion of capital investment ($2.32 billion committed).
WHAT IS THE MAXIMUM PILOT THAT EDGE CAN OFFER?
EDGE can currently offer a maximum abatement of 75 percent of County taxes, for a period of 15 years. For City of Memphis taxes, EDGE can offer
a maximum 85 percent abatement for projects approved in 2014, a maximum 80 percent for PILOTs approved in 2015, and a maximum 75 percent
for PILOTs approved in 2016 and thereafter — all for a maximum of 15 years.
HOW MANY PILOTS ARE THERE?
EDGE currently manages a portfolio of approximately 80-90 active PILOTs, including projects approved by EDGE and pre-EDGE projects approved
by the Industrial Development Board of the City of Memphis and County of Shelby, TN. Old projects end and come off the list; new projects activate
their PILOT benefits and are added to the list, typically one to two years after approval by the EDGE Board. Those 80-90 projects account for well
over 200 PILOT leases and amendments to leases (as discussed above). A typical manufacturing or distribution project may have one PILOT real
property lease and several PILOT tangible personal property leases or amendments to leases.
WHAT ASSETS ARE SUBJECT TO A PILOT? CAN EDGE ABATE LAND VALUES?
EDGE does not abate land values. EDGE can abate real property improvements — e.g., new construction, building renovations and/or existing
buildings. In addition, EDGE can abate certain tangible personal property — e.g., factory machinery & equipment and office furniture, fixtures and
equipment. However, EDGE does not abate rolling stock.
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WHAT TYPES OF PROJECTS ARE ELIGIBLE FOR AN EDGE PILOT?
Manufacturing, distribution, office, research & development, pollution control, major tourism projects and other non-retail commercial activity are
eligible. Housing, retail and most entertainment/recreation projects are not eligible.
WHAT ARE THE MINIMUM CRITERIA TO QUALIFY FOR A PILOT?
After demonstrating need, to qualify for a “Standard” PILOT an applicant must: invest at least $1 million and create 15 new jobs that pay at
least $10/hour where the company subsidizes health insurance (minimum 50 percent). Applicants must compile at least 31 points on the
PILOT Matrix to qualify.
EDGE also has a “Retention” PILOT to assist existing applicants facing competitive challenges. After demonstrating need an applicant must: invest
at least $10 million, retain at least 100 jobs that pay at least $10/hour where the company subsidizes health insurance (minimum 50 percent), and
have operated in Memphis/Shelby County for at least 10 years.
All applicants must complete a “Diversity Plan” that commits them to a best-faith effort to hire City-certified minority/women business enterprises
(MWBE) and County-certified locally owned small businesses (LOSB). Applicants target 25 percent of their discretionary local spending for
construction, professional and non-professional services, and goods to MWBEs/LOSBs. In addition, applicants commit to fill at least 15 percent of
their new jobs using the local Workforce Investment Board or other identified local entities.
WHERE CAN I FIND MORE INFORMATION ON THE EDGE PILOT PROGRAM AND APPROVED PILOTS?
For more information on the EDGE PILOT program, see the EDGE website www.Growth-Engine.org. The “Archive” contains thousands of documents
from the pre-EDGE Industrial Development Board of the City of Memphis and County of Shelby, TN, and EDGE. The searchable “Database” of
EDGE-approved projects provides easy access to project data, including links to documents in the Archive. In 2013 EDGE was named one of the two
most transparent local economic development organizations in the nation’s largest cities and counties, in a study by Good Jobs First.