News Column

Mississippi 'Poaches' Memphis Jobs, Report Claims

June 26, 2013

Mississippi and DeSoto County are pirating jobs from Memphis in a way that benefits only the companies, not the region's residents.

But Tennessee does the same to other states.

Those are among the criticisms of a Washington-based watchdog organization, Good Jobs First, which featured Mississippi and Tennessee in a report it distributed on the issue earlier this year.

Good Jobs First monitors the accountability of economic development programs. It's the same nonprofit that last month ranked Memphis No. 1 in the nation for the transparency of its industrial-development program granting tax incentives to businesses.

The watchdog also has issued a report called "The Job-Creation Shell Game: Ending the Wasteful Practice of Subsidizing Companies that Move Jobs from One State to Another."

The report's chapter on Tennessee begins:

"Tennessee has been an aggressive recruiter of companies from other states, while its largest city, Memphis, is a target of job poaching from neighboring Mississippi."

The report also says "while Tennessee actively recruits companies from out of state, Memphis and Shelby County in the state's southwestern corner lose local firms to neighboring Mississippi, especially DeSoto County." It goes on to state:

" ... Memphis and Shelby County are involved in a costly border battle in which Mississippi uses two kinds of property tax breaks and a subsidy that allows companies to retain a large share of employees' state income tax withholding payments."

Memphis and Shelby County fight back by giving new or incoming companies property tax breaks called payments in lieu of taxes (PILOTs).

The more employees a company commits to add on, the higher the payroll and the more a company spends on construction and equipment, the higher the tax break.

Shelby County PILOT subsidies account for about one-third of all the tax revenue lost to PILOTs in Tennessee, the report states.

But that statistic is misleading, EDGE spokesman Trey Heath said, because other big Tennessee cities like Nashville prefer other tax incentives, such as tax increment financing.

Despite the PILOTs, Memphis lost at least nine businesses to neighboring areas like DeSoto over a 15-month period during the recession.

So in 2009, Memphis doubled-down on subsidies by creating a retention PILOT to offer existing Memphis companies that expand and stay in Shelby County.

In Memphis, expanding companies often threaten to move out of Shelby County, which helps them receive a tax break.

And those companies may not even have to remember to make the threat. The EDGE application form for retention PILOTS asks companies to describe the advantages of moving to other locations.

It was a traditional PILOT worth $4.9 million in tax saving that the EDGE board approved this week for the expanding Old Dominion Freight Line. Since it sought a traditional PILOT, Old Dominion did not have to respond to question 15, but it did anyway.

" ... Please provide a statement (1) demonstrating that its local operations are at substantial risk of suffering a significant decline in local employment without Retention PILOT and the associated capital investment and (2) reflecting the competitive nature and advantages of other markets under consideration, if applicable."

Old Dominion wrote in response on the form: "The PILOT program is critical in our decision-making process to remain in Memphis versus relocated (sic) to Olive Branch, Mississippi, which also has a location suitable for this facility."

Earlier this spring, the expanding International Paper headquarters received a $57 million PILOT after the company threatened to start moving elsewhere.

Despite the incentives, McKesson Pharmaceutical Co. recently moved two of its six Memphis facilities to DeSoto. The company got $4 million from Mississippi for infrastructure and site preparation, the Good Jobs First report states.

"McKesson moved 300 jobs and offered its Memphis employees transfer rights to the new facility, even offering to pay their Mississippi state personal income taxes until they retire," the report states.

In an interview with The Commercial Appeal, one of the report's authors, Kasia Tarczynska, said regional cooperation is the antidote for the incentives war that promotes a race to the bottom.

But growth-minded Mississippi and DeSoto, their suburban green fields abutting a major old city, might seem to have nothing to gain by voluntarily refusing to recruit Memphis jobs.

Responded Tarczynska, a research analyst: "DeSoto County, in my opinion, depends on the well-being of Memphis ... If Memphis is not doing well, losing jobs, then DeSoto will lose jobs.

"When you look at the DeSoto County website, you will see they advertise themselves as being close to Memphis and the airport. They advertise all the cultural attractions in Memphis. I think that's why the DeSoto County officials should be talking to Shelby County and Memphis officials. Because it's one region."

Of the threats Memphis companies make to gain the retention PILOTs, Tarczynska said, "Very unfortunate. We didn't address that in the study ... You never know if they are planning to move to DeSoto. Nike and other companies saying they are threatening to move. Were they really thinking about moving out of Memphis? I don't know. That's a very big problem in Memphis."

Jim Flanagan, president and chief executive of the DeSoto Economic Development Council, responded to the Good Jobs First report by suggesting sufficient regional cooperation already exists.

"It is because of regionalism that the Memphis metro area is stronger and companies recognize their ability to expand in our region instead of another metropolitan area, where we would not enjoy any of the retention and expansion of jobs and capital investment," Flanagan said.

Memphis and Shelby County are concerned with the piracy, which is why they reorganized economic development under the new EDGE board two years ago, EDGE president Reid Dulberger said.

When it comes to job recruitment, very few state-border communities across the nation cooperate much, he said, adding, "Which means competition is seemingly the natural order."

Mississippi is among the nation's five most aggressive states in using incentives to recruit companies, Dulberger said.

Source: (c)2013 The Commercial Appeal (Memphis, Tenn.). Distributed by MCT Information Services.

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