When Mayor Karl Dean’s office hinted last month about an impending “economic development announcement,” anticipation didn’t culminate with an out-of-state company plotting its headquarters in Nashville.
Rather, city boosters met the next afternoon to celebrate LifePoint Hospitals Inc.’s planned county-line headquarters jump from Williamson County’s Brentwood to Nashville –– ostensibly upending the narrative that says the region’s biggest city always loses out to the booming affluent suburb when it comes to landing prosperous corporations.
“Today, we celebrate the ongoing success of one of Middle Tennessee’s leading health care companies,” Dean said of the moment.
But the 12-year-old hospital chain won’t be filling Nashville’s availability of downtown office space. Instead, the company –– which plans to build a seven-story, 203,000-square-foot facility to house an IT data center and central headquarters –– is eyeing a 23-acre office park called Seven Springs on Old Hickory Boulevard, just three miles from its three buildings at Brentwood’s Maryland Farms. The company would occupy four of the office park’s acres.
LifePoint’s move to Nashville, albeit a short relocation, comes with a carrot in return. The deal –– and its promised economic jolt –– would be contingent on significant Metro Council action to the tune of a 15-year property-tax abatement, with the company paying no taxes over the first four years in its new location.
The LifePoint proposal has emerged as the mayor’s first item on his second-term economic agenda, and a Metro Council with 17 new members has been asked to sign off on it. An ordinance outlining the deal is set to go before the council for the second of three votes Tuesday, Dec. 20.
Dean’s administration has sought to assuage any fears of a property tax giveaway by pointing out the abatement involves tax revenue that wouldn’t even exist if not for the development. In making their pitch, they’ve highlighted a planned companion retail center, resulting sales tax revenue, and 80 new jobs dependent on LifePoint’s growth. They’ve also argued the company’s new facility would jump-start further growth in the area.
Nonetheless, some council members are wary about whether the LifePoint proposal constitutes true economic development. Families of LifePoint’s 400 employees, many of whom presumably live in Williamson County, aren’t likely to move their residences to Nashville because of the relocation. Actual job growth would be minimal. Moreover, a few are uneasy about handing out corporate tax breaks at a time when they believe a property tax hike for all Davidson County residents could be looming down the road.
“This is such a unique deal,” said first-term Councilman Josh Stites, who is unsure how he’ll vote. “The company is already here, and they’re not going to be bringing anything in. Supposedly, they’re going to be creating 80 new jobs, so that’s great. But my comment to that is, let’s tie the incentives to the jobs they’re actually creating.
“I don’t like the government picking winners and losers, and that’s what we’re doing in this instance,” he said.
Despite such concerns, based on precedent, the LifePoint deal seems likely to pass. Council members aren’t typically eager to thwart a company’s expansion plans.
In fact, the LifePoint proposal is the latest in a recent influx of PILOT –– payment-in-lieu-of-taxes –– deals orchestrated by Dean’s administration for private companies, later approved by the council. The approach represents a sharp break from the philosophy of his predecessor, former Mayor Bill Purcell.
Research by The City Paper shows that in the history of Metro, the city has approved only 10 PILOT deals, five in the past two years under Dean.
Notwithstanding a foiled incentive-laced deal to land Canada-based IQT Solutions, the tax breaks have largely benefited companies with an existing Nashville presence. In 2011 alone, the council authorized tax abatements –– varying in scale –– for HealthSpring Inc., HCA, Carlex Glass America and Standard Candy Co., all contingent on company expansion and future investment.
Nashville’s largest PILOT deal involved computer maker Dell in the waning days of then-Mayor Phil Bredesen’s tenure in 1999. Purcell followed by making no such deals. Dean, however, has embraced the PILOT approach, adding it to his bag of tools to spur economic development. Dean’s top officials say such incentives are part of coping with a national recession.
“When you have tough economic conditions, I think you have to be willing to take steps to grow jobs,” Metro finance director Rich Riebeling said of the PILOT trend. “Our position is that by providing some incentives to some companies, that is part of the process of creating jobs in the community.
“LifePoint falls right under that category,” he said. “Critics will say, ‘They weren’t going to go anywhere else.’ That’s potentially true, but they didn’t have to do this building. They’re going to stabilize the workforce here and actually add some jobs.”
Metro’s latest PILOT deal would involve a health care giant that has flourished in recent years. LifePoint, which operates hospitals in small markets in 18 states, has added 10 campuses in just the past five years, bringing its total to 54. The company would locate to land owned by Raleigh, N.C.-based real estate trust Highwoods Properties, which has a Nashville office. Highwoods would own and manage the $48 million facility.
John Bumpus, LifePoint’s executive vice president and chief administrative officer, said that with three separate Maryland Farms locations the company is currently unable to serve its hospitals “as synergistically as we’d like to.”
The primary impetus behind the move, he said, is to consolidate its 400 headquarters employees into a larger building that offers future opportunity for expansion. The addition of a data center, he said, would help meet the demands of a changing health care industry, marked by new innovations like electronic medical records.
“It feels like a lifetime,” Bumpus said of the time LifePoint has spent searching for a new home. “It’s actually been a little over three years we’ve seriously considered moving to a new location.”
Bumpus said LifePoint never seriously weighed exiting the Middle Tennessee region, adding that LifePoint officials mainly explored areas in Williamson and Davidson counties. He indicated Metro’s property tax break sold the company on the Seven Springs office park.
Asked if moving to Nashville would be an option if the tax abatement weren’t part of the package, Bumpus said, “It really would not.” He characterized Metro’s role as “critical to making this possible.”
The proposed tax abatement –– applied to the new headquarters building, 85 percent of an 885-space parking garage and personal property of the data center –– would come over 15 years following the company’s expected late 2013 move to Nashville. LifePoint would get a 100 percent discount in its first four years, a 60 percent abatement in years five through 11, and a 25 percent cut over the final four years of occupying Seven Springs.
“My main focus right now is I’m a little uncomfortable going out 15 years,” said At-large Councilman Charlie Tygard, who is still in the process of reviewing the plan’s numbers. “Most of the other incentive deals we’ve offered have gone out 10 years, and I’m worried we’re setting a precedent for longer and longer terms, and more obligation on the part of tax payers.”
Leading the LifePoint arrangement on Metro’s end is Matt Wiltshire, hired in May as director of the mayor’s Office of Economic and Community Development. Wiltshire, former director of investment banking for Avondale Partners, valued the abatement between $6 million and $7 million if property tax rates were to stay the same. Metro’s next reappraisal of property values is set for 2013.
Discussing the economic development components of the LifePoint move in a recent City Paper interview, Wiltshire covered a long list of perks for what he believes is “an absolute home run for this city.” He acknowledged the abatement is longer than others Metro has authorized.
Wiltshire cited 80 new jobs projected to stem from the company’s continued growth; construction jobs to build the LifePoint headquarters; new positions at an adjoining 25,000-square-foot shopping center, which itself would create property tax revenue; and sales tax generated by the facility’s construction and LifePoint’s purchasing of new equipment. The company is expected to buy $50 million for its data center alone, he said.
“There’s a whole bunch of various bits and pieces of what is generated,” Wiltshire said.
He pointed out that the Seven Springs parcel that LifePoint would occupy is currently generating only $9,000 in taxes annually. But if the deal moves forward, Wiltshire conservatively estimated LifePoint would generate more than $9 million in total tax revenues.
Some council members share that thinking. “We’re virtually collecting relatively nonexistent property taxes on that property as it exists today,” newly elected Councilman Steve Glover said. “As I’ve read the proposal, there will be a pretty nice economic stimulus in Davidson County, even though it’s a three-mile move.”
But there’s one additional driving force behind accommodating LifePoint.
“Part of this decision calculus that we had was not wanting them to move farther south, farther down into Williamson County,” Wiltshire said. “So it’s not just where they were to where they are, but it’s where they were to where they could have been.”
Brian Reames, senior vice president of Highwoods’ Nashville office, said his company purchased the Seven Springs land in 1998, later constructing a single office building in 2000, which is 86 percent full. He characterized the remaining acreage, which is the bulk of the property, as “dormant” since that time.
Reames said company officials never envisioned it would take so long to develop the property, citing its convenient access to I-65. He said they never stopped seeking tenants in the years since purchasing the land. The Seven Hills site, however, happens to be on the Davidson side of the border.
“If you really had to break it down, it’s had its difficulty in competing against all the things that Williamson County has, in my opinion,” Reames said, adding that his company developed properties in Cools Springs and Maryland Farms during that decade. “It’s not like there hadn’t been development in that vicinity.”
Reames called it “exciting” to have a company like LifePoint moving to Davidson. He said he believes it would serve as a catalyst for future growth within Seven Springs.
“I think that’s the biggest thing,” said Councilman Brady Banks, whose district includes the office park. “When you look at Old Hickory Boulevard, there’s an open field there. We needed something to anchor development at the Seven Springs site. LifePoint, being a health care company, matches well with Nashville’s brand.”
Metro’s LifePoint coup raises some obvious questions on its relationship with Williamson in competing for corporate development. Has the move ginned up competition? Could it hurt the area’s regional partnership?
“We cooperate more than we compete against Nashville,” said Matt Largen, director of Williamson County’s Office of Economic Development. “One of the biggest benefits in Williamson County is our proximity to Nashville. We all know that. We all share the same labor market. We all share the same amenities. We all share the same airports.
“I don’t want us to ever become a Kansas City, Mo./Kansas City, Kan., where we’re incentivizing companies to come across county lines to a significant degree because in that case, nobody wins long-term,” he added.
Still, Largen said he doesn’t view LifePoint’s exit as a loss for Williamson: “We compete as a region against the Charlotte region, against the Raleigh region, against the Austin region,” he said. “So that’s just not how we look at these things.”
Largen, who said LifePoint’s departed Maryland Farms offices could open space for expanding Brentwood companies or new businesses, pointed out the new LifePoint headquarters would still have a Brentwood address within Nashville and wouldn’t be leaving its current office submarket.
Janet Miller, chief economic and development officer for the Nashville Area Chamber of Commerce, said the Williamson-Davidson comparison in company growth “may not be as out of balance as people believe.” She said the chamber’s goal is to ensure Middle Tennessee’s 10 counties are growing.
“It is true that as far as new office construction over the last 10 years, the majority has been in Williamson County,” Miller said. “We’ve actually got them plotted on a map, that goes from downtown, down the 65 corridor. But it has been a disproportionate share in Williamson County.”
However, according to the chamber’s figures, Davidson County has seen a combined 71 company expansions and relocations over the two previous fiscal years, stretching from July 2009 to June 2011. Williamson County has seen 33 combined over the same period. Nashville’s significantly larger population certainly plays a role in those numbers.
As for the LifePoint move, Miller said it’s not the chamber’s role to comment on the financial packages offered by individual counties, such as the tax abatement proposed for LifePoint. But she said LifePoint’s investment would represent a win for the area.
“Anytime you can have a headquartered company investing tens of millions of dollars in infrastructure in your community, it’s a good thing,” Miller said.