A special taxing district is now almost certainly on its way to South Memphis. If successful, it will infuse the long under-invested community with revenues to improve roads and attract a level of commercial development that hasn’t occurred there in decades.
The Community Redevelopment Agency’s finance committee recommended on Thursday that a tax-increment financing district be established in Soulsville, which it would oversee. While the fate of the tax incentive will ultimately be decided by the Memphis City Council and Shelby County Board of Commissioners later this year, the endorsement shows that the TIF has the important backing of the Community Redevelopment Agency.
The decision was a compromise between the grand, optimistic plans of two development groups — led respectively by local entrepreneur J.W. Gibson and Shelby County Commissioner Reginald Milton — and a conservative approach recommended by consultants. It was an approval granted with the hope — but not the certainty — that it could spur major private investment in a deeply impoverished area.
Instead of approving either group’s application, the committee created its own boundaries, which are highlighted in red and blue in the map below and primarily include the Soulsville area between E.H. Crump Boulevard, McLemore Avenue, Third Street and Bellevue Boulevard. While the two groups had sought much broader boundaries, they will both work with the CRA on developing within the TIF and advising the organization on how it should invest the revenues.
While Milton’s team had argued previously that such narrow boundaries could doom the TIF, he said Thursday that the result was a positive one and expressed “extreme” confidence the plan will pass the local legislative bodies.
“We (wanted) the first true inner-city TIF district (in Memphis), and I believe … we accomplished that,” said Milton, founder of the South Memphis Alliance nonprofit. “We’re very happy and prepared to move forward.”
How do TIFs work?
Tax-increment financing allows organizations to capitalize on growing property values in a certain area. In this case, the city and county would agree to continue collecting the same amount of tax from the South Memphis properties identified, and additional taxes — the “increment” — would be given to the CRA. The CRA would then reinvest this cash into the neighborhood by incentivizing development, home repair, and more.
Skepticism
Early in Thursday’s meeting, CRA Director of Planning and Community Development Andrew Murray announced that the CRA staff was officially opposed to a South Memphis TIF since the projections made it unlikely the TIF would generate enough cash to fund its operations.
“Our recommendation — based on the technical merits and financial merits — is that there is no TIF adopted … mainly for the lack of funding,” he said.
However, he also said the staff “understands the needs and the situation of South Memphis,” so it would be fine with a smaller — and therefore more manageable — TIF if the board wanted to approve one.
Gibson and Milton’s groups — the Southeast Regional Development Corp. and the SoulsvilleUSA Neighborhoods Development District, respectively — originally proposed TIF districts with over 5,900 pieces of property that they said would generate more than $100 million over the next 20 years.
From the start, CRA staff and board members were skeptical.
In May, CRA President Rosalyn Willis said she thought both proposals were too large, and finance committee chairman Sam Cantor expressed doubt they would generate the increment they projected — projections based on the assumption that property values would rise by an average of 2% per year.
Successful tax-increment financing districts are often driven by a huge development project — such as Mud Island in the Uptown TIF — or naturally rising property values. Since no massive development is expected in South Memphis soon, the question is whether or not property values will rise.
CRA staffers were especially wary because the TIF approved in 2017 for Binghampton — another long-disinvested Memphis neighborhood — has generated only about $180,000 per year, as opposed to the roughly $870,000 projected by the same local consultant hired by Milton’s group.
“Binghampton’s been disappointed, I know,” Murray said.
Binghampton Development Corp. president Noah Gray agreed that his neighborhood’s TIF has been disappointing. However, he argued that the relatively low level of increment is still a neighborhood asset his organization is using to aid its low-income housing efforts. Based on his experience, he believes South Memphis should be given its own TIF, even if it’s a risk.
“Neighborhoods need tools that can support neighborhood values (such as low-income housing). A TIF has (that) potential,” Gray said. “We should be making bold choices to provide communities that need resources a possible path to resources.”
Still, with Binghampton leaving a bad taste in the CRA’s mouth, it hired its own consultants to study the Gibson and Milton proposals — Missouri-based PGAV Planners and Maryland-based MuniCap Inc.
Based on property value data going back to 2009, these consultants estimated in June that Milton’s boundaries would generate $28,000 annually, and Gibson’s wouldn’t generate any.
After tweaking their assumptions, a MuniCap analysis on Thursday showed roughly $143,000 of annual increment for a district agreed to by Milton’s and Gibson’s organizations, which includes all five areas highlighted above. While this would add up to almost $3 million over 20 years, that wouldn’t be nearly enough to cover CRA’s administrative costs for the 3,700-property district.
Tax-increment financing, the consultants said, is not a silver bullet for a chronically disinvested community like South Memphis. The median household income in the area’s predominant ZIP, 38126, is below $13,000, and the median value of owner-occupied homes is about $36,000, according to Census Bureau data.
Optimism
While Milton’s group backed off its projection of 2% growth, its consultant Andy Kitsinger, owner of The Development Studio, argued that the MuniCap projection of nearly 0% was far too conservative.
“Should (the projection) be half a percent, should it be three quarters, should it be one? I’m not sure. But it shouldn’t be zero,” he said.
Both Gibson and Milton have listed numerous development projects — such as a major redevelopment of the Metro Shopping Center on E.H. Crump Boulevard and a $9 million apartment building on Bellevue Boulevard — they expect to take place in the neighborhood in the coming years. They said these would generate tens of millions in new taxes by themselves, not counting their effect on nearby property values.
The problem with this argument, to Murray, is that neither group was able to give examples of projects that were both ready to be built and that would not seek a payment-in-lieu-of-taxes incentive. Because PILOTs incentivize developments by wiping away most of their tax bills, projects that receive a PILOT don’t directly contribute taxes to a TIF. Usually, developers working in TIF districts only agree to not seek a PILOT if they’re promised TIF funds, which there likely won’t be much of for at least the first five years.
The two groups said they did expect non-PILOT projects, as the areas near southern downtown have surged in value in recent years and attracted interest from an increasing number of investors. Along with the TIF, they argued that philanthropic foundations and federal programs aimed at low-income communities would help these developments occur.
“The key to all of this is new construction,” Gibson said.
Because commercial development is key to the TIF working, Gibson strongly disagreed with the removal of the TIF portions closest to Downtown — including properties between Third Street and Danny Thomas Boulevard just south of FedExForum and others in Victorian Village (the purple and orange areas above) — on Thursday. Just like the Uptown TIF was able to use increased property values on Mud Island to pay for improvements throughout North Memphis, he had hoped to use rising property values in southern downtown and the Medical District to help South Memphis.
Compromise
While public boards in Memphis usually side with the recommendations of their staff, CRA board members have repeatedly expressed interest in trying some sort of TIF in South Memphis.
“If there’s ever a neighborhood that needed help, it’s South Memphis. That keeps running through my head,” CRA finance committee chairman Sam Cantor said in July.
On Thursday, Cantor said he thinks the TIF’s revenues will end up falling somewhere between the consultants’ projection and the applicants’.
“We’ve got to give some credence to what (consultants say), but we also got to give some credence to the area needing some help,” he said.
The discussion between Cantor and his fellow board members barely included the possibility of axing the TIF effort altogether. Instead, it was largely a debate on the merits of a larger boundary that had a higher chance of generating revenue versus a smaller one that is less likely to overwhelm the organization’s staff.
“I would do everything I could to continue to contract it, (cutting) anything that isn’t absolutely essential (to help) the staff,” board member Ann Langston said.
Board member Kevin Spragling favored including both the areas near downtown and the Soulsville area but didn’t have the support of any of his colleagues.
The final proposal of a 2,850-property Soulsville-centric TIF — including Gaston Park, The Historic Four Way Restaurant and the Stax Museum of American Soul Music — passed unanimously in the final vote.
Jacob Steimer is a corps member with Report for America, a national service program that places journalists in local newsrooms. Email him at Jacob.Steimer@mlk50.com
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