More than ever, Metro turns to tax breaks to spur development

Sunday, April 1, 2012 at 10:05pm

At the height of Peyton Manning hysteria in Nashville, when it briefly appeared the Tennessee Titans had emerged as the frontrunner to land the services of the celebrated NFL quarterback, rookie Metro Councilman Josh Stites chimed in with a clever tweet:

“I’m as excited as the next guy about Peyton coming to the Titans,” the District 13 councilman told his social media followers last month. “I’m not excited about the tax abatement Metro will surely offer him.”

Stites was joking, of course. But as with any good punch line, he hit on something.

After a series of deals, a trend is starting to crystallize: Mayor Karl Dean’s administration, joined by Metro Council support, has turned to corporate property tax breaks — all in the name of economic development — more readily than at any point in the city’s past. It’s an incentive-based approach that originated in Nashville during the Phil Bredesen era but represents a sharp break from Dean’s predecessor Bill Purcell. 

“This is a competitive playing field that we’re operating on,” Matt Wiltshire, director of the mayor’s Office of Economic and Community Development, told The City Paper when asked about the flurry of incentives. “It’s really all about jobs. And in this particular time of economic distress, that playing field can tend to get more competitive.”

This week alone, the Metro Council is expected to give final approval for a $3 million property tax break to Nashville-based Hospital Corporation of America, the world’s largest private health care provider. The financial carrot, a 60 percent abatement on real and personal property over seven years, is intended to spur a new $200 million HCA data center in Antioch.

In a separate item, the council will consider a significantly larger 12-year, 60 percent property tax abatement for Gaylord Entertainment Co. and Dollywood Co. These two hospitality companies, through a group called Park Holdings, would receive the incentive — an estimated $5.8 million abatement — as part of plans to construct a much-ballyhooed water and snow park across from the former Opryland grounds.

The proposals, likely to breeze through the council, come just three months after Metro awarded a tax break in excess of $6 million to Williamson County-based LifePoint Hospitals to accommodate the hospital chain’s county-line headquarters jump — a mere three-mile move down Old Hickory Boulevard — to Davidson County.

Wiltshire, who has held his post for 10 months, said the administration’s deals target job creation during an economic downturn. HCA’s 76,000-square-foot data center is supposed to generate 155 full-time jobs. The water and snow park, which will carry the Dollywood name, is expected to create more than 1,600 annual jobs when it opens, according to a University of Tennessee economic impact study. LifePoint, meanwhile, will simply bring its existing jobs across the border to Davidson from Williamson.

“There are certain times when we think that we need to include tax incentives to close the deal and bring the jobs to town,” Wiltshire said.

The incentives at issue — known as PILOT (payment in lieu of taxes) arrangements — are hardly uncommon for a large municipality in the high-stakes game of corporate expansion or relocation, but Nashville has never seen today’s degree of activity.

The first and by far the largest PILOT agreement in Nashville’s history came in the final days of Bredesen’s administration in 1999 when Dell Computers received a whopping 40-year abatement on 100 percent of property to build a new plant near the Nashville International Airport.

Purcell, whose 1999-2007 tenure overlapped with a time of general economic prosperity, countered with no such PILOT deals.

Dean’s administration hasn’t engineered a deal on scale with the Dell arrangement. Rather, they’ve negotiated smaller PILOTs selectively, with Nashville companies often recipients of the tax breaks. Besides the three latest PILOT agreements, the council has signed off on the Dean administration’s $3.7 million property tax abatement for HealthSpring; an abatement totaling $2.3 million for Carlex Glass America; and a $300,000 tax break for Standard Candy Co. 

“Obviously, there’s a different philosophical approach to the concept of how best to attract businesses to a particular area,” said David Manning, Purcell’s former finance director, adding that many prefer economic incentives. “Our belief was that it was better to invest in the whole community, schools as well as infrastructure and things of that nature, to create an environment that allowed for the kind of economic growth that was occurring at that time.

“I don’t think there was any question that Nashville was served quite well by that approach.”

He added: “I don’t believe most businesses make their decisions on taxes. They make their decisions on a wide variety of factors — taxes may be one of them. But, I don’t think it is a commanding factor in the decisions that most businesses make with respect to location.”

Wiltshire, citing a recent Stillwater, Okla., account in which the government there authorized a tax rebate to spur a new Olive Garden, suggested other municipalities award incentives for far less economic benefit than Metro’s deals produce.

Still, the obvious question for Nashville’s two pending PILOT deals is whether the private investments would occur without public assistance. Davidson County seems like a natural destination for both HCA and Gaylord, given their existing presence here.

Nonetheless, Wiltshire called both incentives “necessary components” to finalize the projects: “We could be right, we could be wrong, but we believe that they were necessary. We certainly wouldn’t give incentives if we didn’t feel they were absolutely critical.”

Wiltshire said HCA had explored Texas and Virginia for its new data center. He said Metro’s interest in the water and snow park deal is about “filling a niche in the tourism market that we haven’t had since Opryland left,” one that extends to families visiting on vacation and conventioneers opting or an extended stay.

“The reality is, organizations like Dollywood and Gaylord have a variety of investment opportunities,” he said. “So it’s not, were they going to build this theme park somewhere else. The question is were they going to build this theme park, or were they going to build some other addition to a hotel, or in Dollywood’s case, an expansion of other ventures and other entertainment venues that they have.”

Unlike past PILOT arrangements, both the HCA and theme park pieces of legislation have so-called “performance requirements,” based on future job growth or investment, which the companies must meet to continue to receive the benefits. “We think it’s appropriate public policy to have these protections,” Wiltshire said.

The HCA and water-and-snow park abatements seem likely to sail through the council. HCA’s financial package passed its second of three votes last month unanimously after no deliberation. Few have spoken against Metro’s more frequent use of tax breaks.

“I think the Dean administration is being aggressive in trying to stimulate as much activity as they can,” said At-large Councilman Ronnie Steine, adding that the past three deals have been “responsive to concerns” of the council.

“In this economic environment, you have got to be aggressive and competitive with the rest of the world if you’re going to create an environment that folks want to invest in and create jobs in,” he said.

Stites, elected to the council last fall, is rare in questioning the wisdom of abatements.

“Generally, I don’t like them simply because there are a lot of people [who] don’t get them,” he said. “More people don’t get them than do get them. How do we decide who gets them? It’s arbitrary, and it’s decided behind closed doors. Nobody knows the criteria that we use to decide who’s going to get a tax abatement.”

Stites said he “understands the mathematics” that leads many to support property tax abatements. Still, he called the trend an “unsustainable policy.” He also suggested the tax breaks are even more problematic during a time when observers are expecting a Metro property tax increase in the near future.

“I think people are going to be outraged because we have given so many tax abatements to very profitable corporations, and then we’re going to turn around and ask for a tax increase for everybody else,” he said. “I hope there’s a lot of people asking, ‘Why are we doing this?’ ”

10 Comments on this post:

By: JayBee56 on 4/2/12 at 5:43

Stites gets it. It is unfair to give profit making corporations tax breaks while considering a property tax increase that affects everyone, including homeowners. Robbing the poor to pay for the rich. It is not sustainable and you get into a game of oneupmanship with other cities. Taxpayers don't usually win.

By: gdiafante on 4/2/12 at 6:36

It's the new norm. Businesses expect it now. The cat's out of the bag now.

Unless you're willing to cede business opportunities to outlying areas/other states, it won't be reversed.

By: morpheus120 on 4/2/12 at 7:50

At what point (or is there a point) does Mayor Dean or the Council STOP giving these kinds of tax breaks?

I understand the notion that providing these incentives attracts employers. I don't agree with it, but I understand the thinking.

But if unemployment is low, or if what this business does is something that they really could only do in Nashville (like the Dollywood/Gaylord project), when do you decide to stop giving money away?

You know another thing that attracts employers? Good schools for its employees. Clean air and water. Good transportation options. Safe neighborhoods and reliable public services.

How are we doing on those things? You see the problem here. When officials provide these tax incentives to the companies, the only ones who benefit are the shareholders who pocket the cash. If we provided other good incentives, like top-notch schools, good mass transit, and safe neighborhoods, then EVERYONE would benefit, not just the top 1% who run the companies.

Besides, it is naive to think that tax giveaways are a major factor in why a business chooses to move to a particular location. VW didn't move to Tennessee because of tax rebates or because this is a right-to-work state. They've admitted as much and yet, we fell all over ourselves to hand them tax breaks they weren't even looking for.

This kind of shallow thinking on economic development is on its way out all across the country - mainly because the companies are not delivering the jobs they've promised. And that raises another important question:

Will Metro get its tax money back from these companies if they don't deliver what they promise on job creation? Will the city track their progress and hold them accountable?

Have they BEEN doing that?

By: slacker on 4/2/12 at 8:33

If a private business can't build, or rent its own facility, and pay 100% tax on its assessed property value, and turn a profit, their business plan is flawed. The mayor's office can spin this anyway they like,but its grossly unfair to homeowners who will soon be asked for a property tax hike. Wiltshire said: ''we could be right, we could be wrong'', taxpayers should tell their council representative their feelings on the matter.

By: BigPapa on 4/2/12 at 10:20

I'm sure every small business wonders the same thing. How big do I have to be before I get the free money?

By: Xemo on 4/2/12 at 6:23

Redistribution of wealth at it's finest.

By: Ask01 on 4/4/12 at 4:50

Slacker advances an interesting idea I had not considered in my headlong dash to condemn Corporate Welfare.

If a business plan relies on any manner of support from government to begin any operation, being unable to stand without taxpayer money, there must be a flaw in the plan. An interesting consideration.

I wonder how this concept could apply to the stadium and Mayor Dean's Must Be Compensating for Something Convention Center?

All joking aside, as long as cities and other governmantal bodies allow themselves to be victims of extortion by businesses and corporations, the situation will not improve.

As to the question, at what point do Mayor Dean and the Council Cronies stop giving away the store, I suppose the answer is when they finally leave office, either by recall, voted out, or termed out after two terms leeching off the public.

Anticipating the juvenile rebuttal that everyone else (other states. cities, etcetera) are doing it, offering tax break tributes, I offer the typical parental response, if everyone else jumped off the Batman Building, would you?

Realistically speaking, we do need some sort of bait, but let us be sure the return for the city benefits everyone, not just elected officials or the upper management of businesses at the expense of the average worker.

Viva La Workers Revolution!

Have a great day folks. I must take my meds and head off to work.

By: T-BONE on 4/4/12 at 8:45

How many "METRO" employees live in surrounding county's to avoid paying Nashville's high property taxes? The people that get these tax breaks live in Williamson County (we already know this)! If you try to raise our property taxes "again" we the people will NOT PAY IT and will FIGHT (literally) you!...The 99% have had it!...TAX THE FRIGGEN RICH! Does the word "REVOLUTION" mean anything to you? "Taxation with pathtic on the take representation, is tyranny "!

By: Xemo on 4/4/12 at 12:31

You want to talk Socialism folks, or just plain corruption?

By: thinking12 on 4/10/12 at 7:39

Just plain corruption, thank you Xemo.

morpheus120 made great points and very eloquently!
Which might lead to T-BONE's scenario since I too am very much fed up with corporations getting the breaks and the rest of us trying to fill in.
Why does the mayor think we should supply (with a property tax increase) all the amenities that these corporations will enjoy?
Are these corporations going to provide jobs that pay enough for their employees to pay their property taxes in Davidson county or are they going to need to get a share of their bosses break?
What's the chance of that?????