Last week, the City Council's economic development committee discussed a possible payment-in-lieu-of-taxes (PILOT) for Harrah's Entertainment. The company, which plans to move its Central Division
headquarters to the former Concord EFS building near Appling Road, has been granted preliminary approval for a tax freeze. The PILOT will save Harrah's an estimated $2.6 million over eight years, and some council members wondered if the company should get that big of a payout. "For a company that makes $7 billion in one year to ask us for a tax break of $2 million for 65 jobs?" said TaJuan Stout Mitchell. "That was a bit much."
Critics of the Harrah's PILOT -- including the Smart City Memphis blog -- cited both the company's profits and its current location in Shelby County. Harrah's has apparently outgrown its headquarters and needs a space that will accommodate a data center. But critics said that Memphis should have played the odds that the company wouldn't want to relocate to another city.
"I don't believe it was worth the risk of saying, 'We think you may stay here anyway,'" said Dexter Muller, senior vice president of community development for the Memphis Regional Chamber and a member of a city/county economic development coalition, after the meeting.
"Not every office building qualifies as a data center. There weren't any in Shelby County, so they were going to have to build one. They started looking at other locations and found one in Dallas," said Muller. The former Concord EFS building became an option for Harrah's after Wright Medical backed out of its proposal to buy the site. "It was fortuitous for us," said Muller. "Otherwise, [Harrah's] probably would have moved to Dallas." Though the current proposal only calls for adding 65 jobs, Muller pointed out that the company expects to add about 400 in Memphis over the next 10 years. He also said that the PILOT will help the company put down "deep roots" in Memphis because they're buying the building. "The jobs average $52,000 a year. If they add another 450 people, that's another $20 million. This is a huge opportunity," he said. By the end of the meeting, council members seemed convinced that betting on Harrah's was a good idea.
"I felt it was warranted because they were set to go to Dallas," said council member Scott McCormick. "They might have $7 billion in revenues each year, but we don't know what their profits are. I know they comp a lot of steak dinners." In some ways, the critics are probably right. If anyone can pay its property taxes, it's Harrah's. The company operates 230,000 square feet of casinos in Tunica, with over 5,500 slot machines. But I guess the question is: Who should the city be comping -- the high-rollers who don't need the freebies or the nickel slot players who won't come without them? A recent consultant's report said the city and county should use a "but for" test when granting PILOTs, giving incentives only to companies that cannot do the projects without them. But Muller said focusing on a company's net worth is asking the wrong question. "I want us to have the richest companies in the world in Memphis," he said. "Those are the ones that are able to pay their employees well, pay employee benefits, and make civic and charitable contributions. I want a company that is profitable, because those are the ones that are growing." In some ways, the PILOT program is a little like a hand of poker. Muller says the policy is not to offer one dollar more than it will take to get a company in the game. Without seeing all the cards, how do we know how much that is?
In theory, the companies say they're going to create so many jobs, and in return, they get a tax break. Only, the house doesn't always win. "There should be some sort of accountability measure," Mitchell said. "We need an audit to see how many jobs companies bring and see if they come up short." The full Industrial Development Board will consider Harrah's PILOT application Wednesday, April 19th. Because Tennessee doesn't offer incentives other states do, the PILOT program is really the only chip the city has to offer. "My understanding is that we have things going against us in terms of data centers. We don't have an extensive workforce, and we don't have the ability to recruit highly skilled executives," said Muller. "We're already at a disadvantage, so it's important to us to be aggressive in making this work."
Okay, we need to play aggressively. But we also need to be ready to call a company's bluff.