Bob Mendes.

October 11, 2018; Next City

Economic development incentives, a fancy term for reducing tax bills through property tax abatements for corporations in exchange for a promise of investment or job creation, have typically been hidden from view. But they are starting to attract more public attention, both because of new accounting rules that push cities seeking bond financing—that is, nearly all cities—to publicly state how much they spend on corporate tax breaks, and because of the highly visible ongoing competition to become Amazon’s second headquarters’ city. In Tennessee, the cost of such incentive payments statewide exceeds $200 million a year.

But the acceptability of tax incentives in Tennessee is changing, at least in the capital city of Nashville. Last January, as NPQ covered, Nashville’s Metro Council passed by voice vote (an earlier vote passed by a 30–5 margin) a resolution that requires “companies hoping to receive incentives to make prior estimates on wages and jobs created or retained, as well as disclose past safety violations.” Council disgust at not knowing how many public dollars the city they govern was offering to Amazon helped fuel support for this measure.

Then, in the spring, the mayor’s budget left an estimated $17-million hole in the school budget.

Meanwhile, Mike Richter of the Tennessean reports that $9.3 million in property taxes had been diverted “from schools to pay off redevelopment loans—for downtown hotels, luxury condos, and other projects” using a method of financing known as tax-increment financing (because the increment in property tax value goes to pay off the loan, rather than support city services).

Now, Nashville Metro Council Member Bob Mendes has proposed requiring that property tax abatement deals hold school districts harmless. In other words, should this policy take effect, the city would only be allowed to offer tax abatements for corporations for the non-school portion of the property tax bill.

Jared Brey in Next City writes that Mendes, who has been a council member for three years, believes he has the votes to pass his proposal. However, Mendes has agreed to delay pushing it forward in exchange for a city agreement “to make no new TIF deals until at least next summer, when a committee is expected to wrap up a comprehensive study of Nashville’s TIF program and make recommendations for its improvement.”

As NPQ has covered, two independent studies released this year—one by Timothy Bartik of the W.E. Upjohn Institute and the other by David Merriman, published by the Lincoln Institute of Land Policy—found that corporate tax abatements have damaging effects, particularly for education. Bartik, for instance, found that, “Every 10 percent siphoned from K–12 spending results in a long-term wage decrease in the community of eight percent.” Merriman, in his report, recommended precisely the policy that Mendes in Nashville is now proposing—that is, an outright ban on school district property taxes being diverted to finance economic development.

For his part, Mendes is confident that some variant of the policy he is proposing will become law. As Mendes puts it, “I think there’s a pretty widespread feeling, even among people who are hardcore, downtown business-type folks, that some of what we’ve done with TIF over the last 10 years when the city has been booming is maybe not the ideal usage.”—Steve Dubb