In 2012, a term that had been mostly confined to discussion among policy insiders and the most ardent government observers crept further into the public lexicon: incentives.
In the policy context, the term refers to the practice of offering varying combinations of tax breaks and cash grants to encourage the expansion or relocation of businesses. It’s a tool that has increasingly become a primary strategy of economic and community development in Nashville, in Tennessee and around the country.
Tennessee spends at least $1.58 billion per year on incentive programs, according to an extensive examination of government subsidies across the country by The New York Times. That’s $247 per capita, based on 2010 U.S. census figures, and 14 cents for every dollar of the state budget — a relatively tiny sum compared to states like Texas (which spends $19.1 billion per year), but still enough to make Tennessee one of 21 states that spends more than $1 billion per year on incentives.
The first and largest such arrangement in Nashville’s history came under then-Mayor Phil Bredesen, who went on to serve two terms as governor. In 1999, his administration offered a 40-year tax abatement on 100 percent of property to lure Dell Computers to the Nashville area. His successor, Bill Purcell, who served as mayor from 1999-2007, did not enter any such deals.
During Mayor Karl Dean’s tenure, though, economic development incentives have been more common. Since Dean took office in 2007, Nashville has offered more than $180 million in tax breaks and cash grants to companies as a part of 13 different deals. Most recently, in one of the largest incentives packages in the city’s history, Nashville-based Hospital Corporation of America was granted a deal estimated to total $66 million over 20 years. The offer secured a commitment from HCA to relocate two of its division headquarters to the long-vacant West End Summit property.
Outright supporters of the strategy — including, of course, the mayor’s office — tout the jobs, desirable development at former eyesores, and net gain in revenue that, on paper, results from such deals. Others, such as Bredesen, who spoke on the topic in a recent City Paper interview, concede that a world without such deals would be preferable, but submit that in the current context, they are the price of entry when it comes to economic and community development.
Still, critics warn against the practice as a race to the bottom with diminishing returns. Perhaps foremost among them in Nashville’s political sphere is Councilman Josh Stites, who has consistently opposed such deals, calling them unfair and unsustainable. Stites was the sole vote against the HCA package, and said that if incentives are going to persist, he will introduce legislation in early 2013 to create broader access to them for small businesses.
Meanwhile, Nashville’s most visible ECD gamble — the Music City Center — nears completion south of Broadway, itself a $623 million carrot on a stick, aimed at raising the city’s profile as a destination. And so, whether boon or boondoggle, incentives of one kind or another it seems, will persist.