Every year since 2014, Shelby County has given up nearly $41 million in tax revenue that could have been used to fund the county’s crumbling schools or cash-strapped transit agency.
Instead, the money was funneled away from the county’s coffers by several obscure boards empowered to hand out tax breaks without lawmaker approval and with little to no oversight of their activities.
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PILOTs — short for payment in lieu of taxes — let companies and real estate developers pay a fraction of their property taxes in exchange for creating new jobs and affordable housing. But, critics say that the effectiveness of these incentives is often hard to measure.
With more than 500 current contracts, no other county in Tennessee gives more tax breaks than Shelby County. A review of the county’s financial data by MLK50: Justice Through Journalism shows that the county has granted $409 million in PILOT incentives in the past decade alone.
Among the recipients are some of the largest — and wealthiest — corporations in the country, including FedEx, International Paper and Auto Zone.
“When we fund those social safety net programs that keep people in their houses, pay utility bills and fix their sidewalks and roads, we say, ‘Oh, we’re giving too much,'” said Austin Harrison, an urban studies professor at Rhodes College. “But then a developer from New York City can walk in and get a $10 or $15 million tax break at the sign of a pen, and we don’t view that as a handout? It’s really corporate welfare in a lot of ways.”
Some economic developers say they’re a necessary incentive to stimulate the local economy. Yet, counties of comparable size in Tennessee have found economic success with fewer PILOT agreements and less reliance on incentives.
PILOT deals and Shelby County’s outsize use of them have been studied and scrutinized since the program was adopted in the late 1980s, with researchers casting doubt on their benefits and calling for more accountability. But local leaders say there has never been enough will or power to do anything about it.
That could be changing. An eight-member ad-hoc committee of the Shelby County Board of Commissioners has been working to rein in the PILOT program since September. Last month, committee members voted to send a resolution to the commission that would request a 180-day moratorium on new housing PILOTs and extensions.
“This is absolutely needed because we’ve already experienced a little bit of unnecessary delay and a little bit of unnecessary pushback in getting documents that we need to do our work,” said Commissioner Henri. E. Brooks, who is the chairperson of the committee.
How PILOTs are supposed to work
Five municipalities in the county each have an Industrial Development Board with the power to grant tax breaks. Most of Shelby County’s PILOT deals have been granted by the Economic Development Growth Engine, or EDGE, the Downtown Memphis Commission and the city’s Health, Educational and Housing Facility Board.
The process for granting tax breaks is not the same for every board, and the details of each contract may be different. However, the benefits of most PILOT arrangements are the same.
When a PILOT contract starts, the title to the land is transferred to the government board that signed off on the deal. Every year, the county assessor’s office collects a fee for a portion of the property taxes owed instead of sending a tax bill. This arrangement can last as long as 20 years or longer if a contract is renewed.
Methodology: Data on the amount of taxes paid and abated came from the Shelby County Trustee’s office, which compiles a report on PILOTS annually. The tabulation of those figures came from the summary tables of the 2023, 2019, 2015 and 2014 reports. The reports are based on projections and not actual figures.
To make the numbers consistent across time, the debt service paid by PILOT recipients was added to the abated taxes figure from 2014 to 2019 after consultation with the trustee’s office. The tabulation for the taxes paid was calculated by adding the debt service and the amount billed columns.
The PILOT activity for the Economic Development Growth Engine was reported separately for Memphis and Shelby County between 2014 and 2019. The figures were combined for this analysis since the industrial development boards were merged in 2011.
Not all PILOT recipients are big businesses or out-of-town corporate landlords. Some tax breaks go to small nonprofits that provide housing for retired seniors or to revitalize abandoned eyesores like the Sears warehouse before it was redeveloped into Crosstown Concourse.
Each project promises good jobs or housing and greater economic success. But how many have delivered enough value to justify the county’s investment? That question is at the center of the ad hoc committee’s work.
“There’s anecdotal information out there that will let you know that it’s not doing what it’s supposed to do by state statute,” Brooks said during an interview. “These incentives are not achieving the level of jobs and affordable housing, and just some of the enforcement is not there.”
The most notable case in recent memory is the Swedish appliance manufacturer Electrolux. In 2010, the company received a generous incentive package from state and local governments, including a PILOT deal worth $33.9 million, according to The Commercial Appeal. Less than a decade later, the company said it would close its new plant in Memphis at the end of 2020, consolidating its operations in Springfield, about 30 miles north of Nashville.
The decision left more than 500 people without jobs.
Crosstown: A picture of success?
Supporters say PILOTs can help reshape communities for the better when used strategically. It’s also easier to demonstrate the value of a PILOT given to redevelop a blighted building or build on an empty plot of land than job-related incentives, they say.
“What I love about our PILOTS is they’re pretty easy to defend. They’re about trying to attract investment in commercial property in the core city,” said Brett Roler, chief operating officer for the Downtown Memphis Commission, one of ten PILOT-granting boards in the county. “Sometimes it’s hard to know (if) this thing is the reason why a company stayed or was this incentive the reason why you attracted a company from some other place.”
Crosstown Concourse, for example, is credited with boosting the quality of life in a corner of the city that was marred by an abandoned property for decades. The 15-year PILOT granted by the Downtown Memphis Commission for the property does not expire until 2029, according to county data.
New construction immediately raises the value of previously vacant land or buildings, increasing the tax base even if only a portion is paid to the government. New businesses also create a spillover effect that boosts government revenue in other ways, PILOT supporters say.
“It’s shortsighted to only think about the real estate taxes,” said Chandell Ryan, the DMC’s president and chief executive. “When [a] building comes back to life — if it’s a retail business — you’re getting sales taxes. If it’s a hotel, now you’re getting hotel taxes.”
In 2023, the DMC held 109 PILOT contracts on the books, which was one out of every five in Shelby County, according to county data. Collectively, those developers saved about $10 million in property taxes and paid about $3.6 million in PILOT fees and debt payments instead.
Although economic developers say the PILOT deals are necessary to stimulate the local economy, some lawmakers are unconvinced they’re still the best strategy for Shelby County.
A known skeptic of tax breaks, Shelby County Mayor Lee Harris said PILOTs aren’t an effective incentive in most cases because companies won’t take on a project unless they think it will be profitable. He said tax breaks should only be offered as a last resort when private interests have failed.
“There are some instances of market failure where a property tax cut could help to stir economic activity. Crosstown is one,” Harris said. “That’s a project where you’ve got a blighted building — blighted for decades — and it’s unlikely that the market would come in and do anything about that. So there are some cases of market failure, but there are very, very few.”
Harris said it’s also unfair to home and business owners who must pay their full freight in taxes but acknowledged there’s been no political will to change it. The money could be better used elsewhere, he says.
At last count, Memphis-Shelby County Schools had nearly $1 billion in deferred maintenance, and the average school building is 64 years old.
“Our property taxes fund all kinds of things. We could say that you should at least pay for the schools. Our schools are in terrible shape,” Harris said. “Why should some companies not be able to pay their fair share?”
Michael Finch II is the enterprise reporter for MLK50: Justice Through Journalism. Contact him at mike.finch@mlk50.com