Sun
Dec 2 2012
10:25 am

The New York Times has an interesting article and interactive database about various corporate tax breaks, and how states and localities do not keep track of whether various promises have been met, and very often lose in the deal.

I looked at the Tennessee numbers:

(link...)

In brief, the various incentive programs cost us at least $249 per capita, and 14 cents per dollar of the state budget.

The biggest incentives are sales tax exemptions/refunds/discounts and corporate income tax breaks. The biggest recipients are manufacturing and agriculture.

I hope this causes some reflection and hesitation the next time our community ponders a TIFF, PILOT, or other break.

Hallmark's CEO said something I wish would be learned at a county commission meeting, “If you’re looking at the competitiveness of a region, the most important thing a region can do is to focus on education. And this use of incentives is really transferring money from education to businesses.”

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Crowley 's picture

TIFs & PILOTs?

Do these not have to pass the "but for" tests? That the company's investment would not occur but for the incentive? I can't imagine how bad downtown Knoxville would look if incentives had not been provided.

metulj's picture

There's a fundamental

There's a fundamental difference between David Dewhirst, et al and Walmart. One is a local company. The other is a transnational corporation. The former should get incentives, the latter? Not so much. Your point is correct though.

Crowley 's picture

Is larger different?

How is a larger corporation different? They too have to choose the best investments for their owners as David Dewhirst does...I must be missing something obvious.

metulj's picture

Scale, dummy. Why on earth

Scale, dummy. Why on earth does a company like wAlmart need 1.5 million to make the numbers work? They do a quarter trillion worldwide.

Crowley 's picture

I'll have to respectfully

I'll have to respectfully disagree.

metulj's picture

Why?

Why?

Crowley 's picture

Because the deal hasn't been done.

Because I don't believe it is about scale. Irrespective of size, companies make go/no go decisions based upon all opportunities. If WalMart, Dewhirst Properties or Bubba's Bait Shop evaluate investment options, they look at them comparatively. Now, if said opportunity was the only opportunity, then a less profitable than past deal would prove accretive to earnings, but the last deal hasn't been done.

metulj's picture

You are, easily, the most

You are, easily, the most obtuse recent wingnut concern troll we've had in a while.

It takes less than an hour for WalMart to turnover 1.5 million dollars. Just in the US alone.

Crowley 's picture

I simply have to respectfully

I simply have to respectfully disagree. Regardless of a firm's size, it's success comes from making more good decisions than poor ones. Choosing an investment with a higher ROI has nothing to do with unrelated revenues.

metulj's picture

(No subject)

Crowley 's picture

Very cute.

Very cute.

metulj's picture

Choosing an investment with a

Choosing an investment with a higher ROI has nothing to do with unrelated revenues.

What on earth does this mean? It's nonsense.

Crowley 's picture

It means that companies have

It means that companies have multiple investment opportunities & will choose to pursue those that produce the best ROI's. The fact that the company has excellent revenues from previous investments plays no part in their decision. For example, if Dewhirst had great success with Fire Street Lofts, but a subsequent project isn't profitable, the former success has no bearing on the current opportunity. Size is irrelevant.

R. Neal's picture

It means that companies have

It means that companies have multiple investment opportunities & will choose to pursue those that produce the best ROI's.

Even, or especially, if it involves subsidies from taxpayers who can't afford health care, nutrition or clothes for their children?

Free markets rule!

Crowley 's picture

Usually yes...but he has done

Usually yes...but he has done some great properties.

fischbobber's picture

Just curious

Lets assume that your argument has validity.

What it means is that when Walmart balked and asked for more money, we the taxpayers as a party to the transaction, should have just demanded forfeiture of their original investment and rebid the whole project with the improved infrastructure. We should have then approached Target, K-mart, Big Lots, etc. and said, "Hey, we've had a partner pull out. What is your present interest in this project as it stands now?" That's what happens in the private sector.

It sets the project back a bit, but ultimately, it would have been more profitable for the taxpayers for the city to take this position. It does do away with quite a bit of this corporate welfare pish-posh. And it's working downtown.

Crowley 's picture

Sure.

Sure.

Fabricant's picture

Hard to believe Wall-Mart

Hard to believe Wall-Mart would let that happen. But you know good and well Target et al. is going to ask for incentives too, if it does happen. And Wall-Mart may just say, "Go ahead. See if Big Lots can bring you more jobs and tax revenues than us." The bargaining power sides with the TNCs.

Fabricant's picture

Crowley, the investment

Crowley, the investment motives of business is not the issue here. All businesses invest with the hope of future gain. Metulj is proposing a more specific, normative question: when does it make sense for fiscally starved states and local governments to offer tax incentives for trillion dollar corporations? Are you saying it doesn't matter which type of companies get local incentives? Are you saying that investment is good, no matter where it comes from?

To that, I would disagree. Investment from a trillion dollar transnational corporation that can easily disembed itself from any locale is qualitatively different from a small local business that is unable to take flight whenever it wants. Look at the history of Flint, MI, for example.

metulj's picture

Spot on, Fabricant.

Spot on, Fabricant.

Crowley 's picture

Actually, metulj said:

Actually, metulj said:

"Scale, dummy. Why on earth does a company like wAlmart need 1.5 million to make the numbers work? They do a quarter trillion worldwide."

I was simply tryIng to point out that regardless of size, profits from other locations, etc., the company will make a go/no go decision based upon the project at hand. If the project does not meet ROI objectives, it can either choose an alternative project or explain to govt that they are not moving ahead without incentives. Govt officials can then evaluate if the situation passes the "but for" test. With metluj's statement above, he is clearly implying that incentives should be based upon a company's success in other area's ("they do a quarter trillion worldwide"). This is no different than saying Mr. Dewhirst doesn't need a tif because he had success with other projects.

The need for incentives is based upon the project at hand, not revenues unrelated to the current project.

metulj's picture

And your point is nonsense

And your point is nonsense unless you count, among other factors, scale.

Crowley 's picture

I simply don't follow your

I simply don't follow your logic so I'll agree to disagree. For further clarification of my point, please see "Somebody's" reply below.

metulj's picture

You are correct. You do not

You are correct. You do not follow my logic. There is a palpable difference between WalMart and Dewhirst and if you can't see that, then there is no use continuing this discussion.

Crowley 's picture

Then we'll have to agree to

Then we'll have to agree to disagree.
Happy Holidays All.

metulj's picture

(No subject)

Crowley 's picture

Love cartoonish rebuttals.

Love cartoonish rebuttals. Well done.

metulj's picture

It is the only way to deal

It is the only way to deal with a concomitant intellect.

Crowley 's picture

Well bless your heart.

Well bless your heart.

metulj's picture

That stinging rebuke has

That stinging rebuke has convinced me to end my sorry life in the face of your monumental genius.

Frank Sparks's picture

Scale

Metulj, I have a feeling that you are correct but can you explain why scale matters?

Somebody's picture

I would be interested in that

I would be interested in that explanation as well.

metulj's picture

Social and economic processes

Social and economic processes do not operate the same at different scales. A business the size of Dewhirst has, for example, a completely different way of accessing financing from WalMart, which can either self-finance, raise capital via stocks and bonds, or access loans from much larger institutions like TNC capital management banks. While I assume that Dewhirst Properties is not hurting for money, that money is configured differently for it because of its size (though scale is not strictly a synonym for size). Dewhirst goes to banks for money(again, I assume), but would not have institutional investors looking at his sheet. Individuals? Yes. TNCs? No.

Big Al's picture

Thank you for explaining, but...

So you are simply referring to the cost of money? Financing costs? That's your scale argument?

metulj's picture

There's also areal extent.

There's also areal extent. But those are big words.

Big Al's picture

Thanks for confirming; I'm

Thanks for confirming; I'm with "Somebody" on this one. Scale is a very minor factor based upon your rationale. You may now proceed with your typical insults and name-calling. Over & out.

metulj's picture

To say that scale, in

To say that scale, in anything, is minor, is to deny reality. Things operate differently at different scales. Sorry. It's a fact.

Big Al's picture

No, in your example of

No, in your example of financing costs, you seem to be saying that a larger entity's ability to have lower financing costs affects incentives. Well- A. This can be vetted by the legislative body considering the incentive(s)and B. It's relative to the other cost drivers. I still agree with "Somebody"'s post; however, I may be tainted by childish name-calling and insults.

metulj's picture

No. There is no reason for an

No. There is no reason for an TNC to need municipal tax financing or outright grants "to make projects happen." When you are your own bank, it is nothing more than bottom-line shareholder happiness gambit. I can see where every $1.5 million counts, but, again, at the scale of WalMart that's is equivalent to going cheap on the toilet paper in the employee restroom across your whole system.

Big Al's picture

What I believe you fail to

What I believe you fail to realize is that just because they can, doesn't mean they will...nor should they.

You state: "There is no reason for an TNC to need municipal tax financing or outright grants "to make projects happen."

Actually, yes there is; if the project is not financially viable otherwise would be the reason.

metulj's picture

No. You are missing the

No. You are missing the point. Scale clouds the margins. You can model it mathematically and the only reason WalMart would, again, want a tax break that equals the amount of handsoap they buy for the employee washroom each year is because municipalities hand it out like it isn't even real money. At the scale of WalMart, a globalized transnational corporation, it isn't real money. At the scale of Knoxville, a mid-sized city in Southern Appalachia, it is.

And the "can, will, should" argument fails, especially with regard to WalMart. See the practice of closing a WalMart and building another right next door.

Somebody's picture

Yeah, I think you're really

Yeah, I think you're really pushing it on this one, and I'll second the motion that your little cartoons and insults don't help you make a serious case.

Sure, in the grand scheme of their worldwide budget, the incentive in question won't make or break a company like Wal Mart. This issue is not about whether or not they can afford to build at a location that costs more. The issue is whether or not the will make the decision to do so.

The question for Wal Mart still remains whether or not they build at the urban site, the greenfield site or not at all, just the same as if a local developer is considering the development. Sure, the multi-national is far more able to kick in what amounts to a charitable donation by building on the more expensive site, but why would they do that? A local developer who has a sense of loyalty to the community has far more of an emotional motivation to make that kind of decision than the big company that's not from here.

Your scale argument really has very little bearing. These types of incentive are about the site, not the developer.

metulj's picture

You are making a category

You are making a category error though. This is my point. We are not talking about the same sort of things when we speak of a TNC opposite a local developer. Not even close.

And, to be honest, Crowley gets Schaad when he listens to Schubert.

Somebody's picture

Money is money.

No, there's no category error. Money is money. A trans-national corporation like Wal Mart has a lot more of it, and they could indeed "afford" to accidentally build a store at the bottom of Lake Michigan and someone in their accounting department could indifferently write it off while gently passing gas after lunch.

If they were to get in the habit of not checking for bodies of water when locating new build sites, however, the accounting department would start to pay attention. Why? Because money is money. They have full-time staff who look at sites for new store development, and their job is to make sure that they're not spending money they don't need to spend, and that they're not choosing sites that are pointlessly more expensive than their standard build. That's why they're more likely to dig up a cow pasture at the county's edge than they are to spend lots of effort trying to wrench a store into an urban brownfield site. That places them squarely in the same category as the local guy. They don't stay in business if their site selection process involves throwing darts at a map.

Heck, if there's any category error, it's probably in the opposite direction, because the small local developer is much more likely to place a qualitative value on improving the community's economic fabric through infill redevelopment as opposed to scraping another cow pasture in the exurbs. As such, the small local guy might be more likely to make the charitable contribution and develop on the more expensive site. Not much more likely, though. Why? Money is money.

Fabricant's picture

Money is money, business is

Money is money, business is business, I am what I am, it is what it is, and god and the bible. Thanks for the wisdom. But, not all businesses have the same ability utilize the power of money. And I don't mean hiring accountants to ensure the firm operates "efficiently." But while we are at it, this efficiency is socially constructed anyway. What is considered efficient is defined by the top managers and primary stockholders. As Tamara Shepard said concerning Papa Johns's efforts to raise prices because of AHA, there is a whole plethora of costs businesses could try to avoid but chose not to. What's most avoided, is cutting the executive and shareholder payouts. And as long as people believe these companies need tax incentives to turn a profit, then these distributional problems will deepen.

Which brings me to my point, money is not money, the more you have the more power you gain. TNCs are in the position to control and manipulate economic, political and social conditions in ways that are inconceivable to small local businesses.

Big Al's picture

Amen Somebody.

Somebody said it best. ;-)

Crowley 's picture

Ding. Ding. Ding.

I appreciate Somebody writing what I tried to do. Thanks Somebody.

Fabricant's picture

Keep at Crowley and maybe

Keep at Crowley and maybe someday you'll be somebody. I don't think you are far off.

Frank Sparks's picture

Thanks for the explanation

Thanks for the explanation about scale. I have to agree with Somebody as well. Happy Holidays Everyone!

guest's picture

Happy holidays, Frank Sparks!

Happy holidays, Frank Sparks! Glad you voted.

Fabricant's picture

There is no reason to assume

There is no reason to assume tax breaks/incentives facilitate economic growth/investment. Given the emphasis on finance, larger corporations like Walmart channel profits to shareholders rather than local communities. These corporate shareholders more likely use these profits for lending purposes, collecting interest on their returns, instead of using those profits to increase wages or reinvest in local communities.

Crowley 's picture

Actually, I was addressing

Actually, I was addressing metuj's statement about why WalMart would need the incentive. Maybe a Gov't official could chime in on restriction of incentives based upon the issues you mention. Metulj was obviously questioning why a large entity would want incentives.

Fabricant's picture

No. No one questions why a

No. No one questions why a company would want to make money (see the above).

Somebody's picture

Seems like there's obtuseness

Seems like there's obtuseness all around, here.

The TIFFs are being used to facilitate development at a particular location. A municipality has interest in putting the incentive on the table because a given location currently lies fallow, and does not generate much in the way of tax revenue.

The incentive is not put on the table as welfare to bolster a weak developer that needs the money to stay in business. That's why it's not particularly relevant whether you're talking about a local developer or a multinational corporation.

Whether the developer is local or multinational, that developer has the option to do a project on a greenfield, to do a project on a brownfield, or not to do a project at all. The purpose of something like a TIFF is to make the specific grreenfield location become a viable option versus the greenfield or the not-at-all considerations. So to that end, the developer's size is not particularly relevant.

The developer's and or tenant's economic capacity is relevant, however, to the extent that it can carry out the project and ultimately generate the future tax revenues. The idea is that those revenues will first be used to pay off the gap in financing between the cost of redeveloping a brownfield as opposed to an easier greenfield development. After a set period of time, those increased tax revenues will then revert to general fund income for the municipality. So by delaying the boost to the municipality, a site that otherwise would have been left vacant now becomes a site that generates economic activity.

Assuming it's structured correctly, that's not a giveaway, that's an intelligent investment. The one thing it should not be, however, is a welfare payment to a developer that doesn't otherwise have the financial capacity to do a development.

bizgrrl's picture

Apparently there is lots of

Apparently there is lots of fallow land in Knoxville. :)

Crowley 's picture

Exactly. Sorry I didn't state

Exactly. Sorry I didn't state as well.

metulj's picture

You didn't say that at all.

You didn't say that at all. Bullshitter.

Crowley 's picture

Unless I'm mistaken, Somebody

Unless I'm mistaken, Somebody said: "The developer's and or tenant's economic capacity is relevant, however, to the extent that it can carry out the project and ultimately generate the future tax revenues."

I agree and believe that my comparison b/n Dewhirst & WalMart is relevant because I believe that both have the capacity to perform. If they both indeed have capacity, scale is irrelevant.

Happy Holidays All.

metulj's picture

Once more for effect: Weasel.

Crowley 's picture

As Grandma Crowley would say:

As Grandma Crowley would say: "bless your heart".

fischbobber's picture

Welfare

The incentive is not put on the table as welfare to bolster a weak developer that needs the money to stay in business.

This is where your argument against Toby's point divides by zero.

Whether or not the money spent is legitimately welfare and whether or not it is to the taxpayer's benefit to spend this money are two entirely different issues.

Is feeding a child a healthy meal welfare, or an act to the benefit of the taxpayers around the school? If the gifted hungry child turns to crime , who are his likely victims? All welfare is on the table to better the community, whether it be feeding the poor or sliding a few mill on the side (with a nod, nod, wink, wink) to Wal-Mart in the hopes that they will contribute to the tax base down the road.

Don't kid yourself. The public money spent on that brownfield is no different from the public money spent on any given child's school lunch. And it is every bit the crapshoot.

I interpreted Toby's remarks on scale as such. Wal-Mart can successfully negotiate the high tides of the business world with or without public assistance. The hungry child, who, I might add, is likely to have a parent working for an employer much like Wal-Mart, not so much.

Fabricant's picture

Speaking more generally,

Speaking more generally, there is no reason to assume corporate tax incentives stimulate a healthy economy. The economy actually functioned better in the 50s and 60s, when taxes were higher. The fact that we automatically assume a tif facilitates growth and investment, without questioning whether or not it is a tax break, is problematic. There is no reason to assume tif's generate a municipal tax surplus - Downtown Convention Center, Women's Hall of Fame.

But I (and Metulj, if I may) brought up the issue of profits. Profits controlled by local businesses is qualitatively different from profits controlled by TNCs. What happens to the profits accumulated by these benefactors of government subsidies matters. We don't live in a bubble where the only thing of import is tax dollars, especially since the share of profits going to taxes has been declining for decades along with the share of taxes going to public services. It goes without saying that tax revenues and profits are intimately linked. TNCs can more easily take their money out of local circulation, without much of a penalty on their business but with devastating consequences for the particular locale.

But while we are at it, generating tax revenues at at a specificlocation, probably just means that you are channeling revenues from other places, pitting state and local governments against one another, while the TNCs bounce but it could also tie up local taxes that could go to things like education (see CE Petro below). And you've got other problems to worry about too, like gentrification.

Skipster's picture

Slightly confused ...

There's a lot of talk about profits and taxes, but I thought that businesses were taxed on revenue, not profits. In that case, it doesn't matter if it were a multi-national conglomerate or a small mom-and-pop operation -- they're all taxed the same. If businesses are taxed on revenues not profits (again, I don't know, so you guys will have to help me out here), wouldn't you get more tax revenue by enticing the business with the largest propensity to produce taxable revenue, locally based or not?

I know there's also the ancillary taxes (sales tax on things purchased locally, etc), which are part of the equation. But, the amount of profit that would be available to be spent (and taxes collected on it) is relatively small. According to their SEC filings, Wal-Mart's profit margin is only about 3%. So, 97% of the money coming in goes right back out to support business operations, like wages, supplies, inventory, etc. And, that money would be spent much the same way that a local shop would do it -- electricity, paying workers, buying inventory, etc.

So, (again, correct me if I'm wrong), we're concerned about 3% of the money made from a store leaving the area so that it can't be locally taxed when it is spent. But, that assumes that the local owner will spend all his profit locally and not invest it for his retirement or put it back into his business.

I guess I don't see how a locally headquartered shop gives us much different tax revenue than a place not HQ'd locally.

fischbobber's picture

Dear Skipster,

It's what's hidden in the ninety-seven percent thats interesting, and what I might add, what you're giving them a free ride on.

For instance, executive salaries, board of directors and consultant and lobbying fees, and dividends are included in the cost of doing business, and are generally not considered part of "net" profits.

Skipster's picture

Cost structure

I see what you're saying -- not all of the money raised in one location would stay in that location. But, I think your analysis overlooks the cost structure of larger companies. Wal-Mart's website says that it operates 10,500 stores company-wide. Yahoo News reported their CEO's total compensation (benefits and all) to have been $18.1 million in 2011. So, each store contibuted $1,723 to the CEO in 2011. I understand that there is more corporate overhead than just a CEO, but that's not a lot of money for a store. The quick math shows that the average Wal-Mart store grosses about $42 million ($446.9 billion/10,500 stores), so to totally fund the CEO requires 0.004% of the store's sales. It really doesn't sound like a lot of money is being diverted back to HQ. I bet it would take a whole lot more than 0.004% of a mom-and-pop store's sales to cover wages and benefits for its owner.

I would think that Wal-Mart would also have some cost savings and efficiency over smaller companies. They probably spend less of their total revenue on supplies and inventory, so less money goes to larger non-local suppliers. Smaller shops would be sending more money out of the community than Wal-Mart, just to have something on the shelves for us to buy.

So, what we would need to look at in order to have a meaningful comparison is how much is spent out-of-community for the local shops and the larger ones. Local shops and Wal-Mart both sell similar things (food items, general merchandise items) that are not made locally, so they both send money out of the community. But, WM usually does it cheaper, so less money leaves the community and they're still being taxed on the larger amount they sell.

I guess I just don't see what the opposition is all about. The economic and financial data doesn't seem to support it, so it must be something else.

fischbobber's picture

Since you've cited two sources there Skipster

How about making a solid argument instead of pretending that it might exist?

Make a thesis statement, break it down and back it up.

This project is not the worst idea in the history of Knoxville, it's just that some people, myself included, feel that Wal-Mart and the developers overstated their case and ended up with somewhat more money than was prudent.

Wouldn't it be great if they built a bridge to the greenway and became a corporate example for their commitment to the local community and dispelled their corporate image of destroying the communities they invade? I can't think of a project that I'd rather be proven wrong about.

Skipster's picture

??

I'm not sure what you mean by 'solid argument' and 'pretending that it might exist'. I was just showing that assertions about corporate overhead and money fleeing the community aren't true and don't have the devastating impact that some people make them out to have.

But, to the larger point, is it fair to say that you disagree with the amount of tax abatement and who it's going to? If they took a bit less, would you like it more (or dislike it less)? If it went to a smaller shop, would it be better, since it's anyone-but-WalMart? Would you think that a small shop should build the same bridge you're asking WM to build?

It's hard to look at what you wrote and not conclude that you have some personal arbitrary dislike for WalMart, based on no evidence other than you don't like them.

That's fine, I suppose. You're free to dislike anyone you want. But, maybe you should simply tell us that you don't like WM, instead of making up false rationalizations to make you feel better about not liking them.

For example, I don't like sweet potatoes. I'm not going to sit here and talk about how they might raise my blood sugar or how they have too many carbohydrates, or how they pillage nutrients from the soil. I'm simply going to say that I don't like sweet potatoes.

fischbobber's picture

A few points here

I was just showing that assertions about corporate overhead and money fleeing the community aren't true and don't have the devastating impact that some people make them out to have.

That's what you were insinuating. You never backed it up. Maybe your point has validity, maybe not. Pulling assertions out of the sky does not make them fact.

But, to the larger point, is it fair to say that you disagree with the amount of tax abatement and who it's going to?

It's fair to say that there was going to be public money involved to redevelop this property. It's also fair to say that there is a good chance that Wal_Mart will probably make a tidy sum of money from this project. As such, I think that it's reasonable and prudent, in order to free up public money for other community projects, that our community investment be wisely spent. In the event that the community's investment rise above the minimum reasonable expense, our return should also grow.

Would you think that a small shop should build the same bridge you're asking WM to build?

I didn't ask nor do I expect Wal-Mart to build a bridge to the greenway. I will go to the Wal-Mart in question, at least once, because this neighborhood concept they are promoting intrigues me. I'm curious to see it.

It's hard to look at what you wrote and not conclude that you have some personal arbitrary dislike for WalMart, based on no evidence other than you don't like them.

When my son was born, I would make a weekly trek to Wal-Mart for supplies. He went through a bottle and a half of baby formula every day. At about his four month mark, they arbitrarily put a six bottle a trip limit on the amount of formula I was allowed to buy. I believe it was to get me into the store more often and increase their sales. The assistant manager said it was because cocaine smugglers were buying all the formula and dumping it out and filling the bottles with cocaine in order to get the drug to market. No lie. At the time, the difference in time alone it would have taken to change my routine would have cost an extra hour+ a week. I decided then, to critically examine my shopping habits, and frankly it is just not economical for me to shop at Wal-Mart. Except for dutch-oven liners in the camping section. This is the smoking gun I presume you are looking for pertaining to my personal views of Wal-Mart.

I'm not wild about sweet potatoes either.

Skipster's picture

Good comments

I didn't back up what I was saying? I put forth the numbers, told you where I got them, and how I calculated what I did. Maybe I didn't bring anything earth-shattering into the conversation, but I think I put some things in perspective. You haven't offered any evidence to say that I'm wrong, either.

I understand that you want to see a return on this investment with public funds -- and that return is developed usable land with shopping, dining, and the increased tax revenue that goes with it. The hope, here, is that the future taxes will exceed the expenditure to move the project forward.

You mentioned a bridge in you post on Wed, 2012/12/12 - 4:16pm. If you don't want anything to do with a bridge, why did you bring it up?

Finally, I understand your frustration with WM limiting the number of bottles you can buy. I deal with seasonal allergies each spring and I hate it when I can't buy the medicine I need. I usually work from 5 am until 7 or 8 pm in the spring and summer and that makes it hard to get to a place when the pharmacy is open, so I can sign my life away for some pseudoephedrine. But, I can't hold that against a particular store (it was a store practice before it was a law).

BTW, the DEA issued an advisory to stores some years back asking that they limit single-time baby formula pruchase in the small bottles in areas where DEA reports increased drug activity. More recently, the AAP (American Academy of Pediatrics) advised stores to limit purchases of ANY type of baby formula to two containers per household because baby formula has a relatively short shelf life and expiration dates are not far from date of production. There were a lot of kids getting sick from drinking expired formula.

So, they were probably just trying to protect their customers.

fischbobber's picture

I get it.

So, they were probably just trying to protect their customers.

This was a joke, right?

R. Neal's picture

The financing and public

The financing and public policy aspects of the Fulton site Walmart/Publix project were discussed to death here:

(link...)

The only thing I would add in the context of this discussion is that the only reason developers and their national big box retail tenants ask for and get these incentives is not because they need them but because they can.

metulj's picture

Exactly. Thank you.

Exactly. Thank you.

Somebody's picture

Please explain then why said

Please explain then why said developers and retailers would proceed with development of the site in question, were no incentives on the table. Do you believe that they or anyone else would develop that site now or anytime in the foreseeable future anyway? Do you believe the numbes work for that location without the incentives? If so, please explain. This would be an important revelation, because you would be demonstrating that taxpayer money is being given up without reason. That would be a big deal.

metulj's picture

AGAIN: WalMart, if so

AGAIN: WalMart, if so inclined, could buy the entirety of Knox County, public and private property, with the cash it has on hand. All of it. Incentives or not.

Somebody's picture

AGAIN: Why would they be so

AGAIN: Why would they be so inclined? Oh, right. They wouldn't.

Perhaps if you were so inclined, you could afford to buy every box of corn flakes in your local grocery store. You're not going to, however. Hell. You might buy some Wheaties instead, or maybe skip the cereal altogether.

Kellog's would like for you to maybe buy some corn flakes, so they stick a little red box with a flashing light on it, drawing your attention to coupons offering you a 50 cent discount, if you'll just buy a box of corn flakes. Do they ask what neighborhood you're from? No. Do they ask for your last five years' income tax records? No. Why not? Because their objective is to move some boxes of corn flakes. They don't care where you're from, and they don't care if you're poor or rich. That has nothing to do with their objective of selling some corn flakes. If you can bring the other two bucks, you can buy a box of corn flakes. Objective met. Thus endeth the lesson.

If you can't get that, then you're just trying real hard not to get that.

metulj's picture

Here is what you don't

Here is what you don't understand, and the point that the people who are pointing out that WalMart is a 1/4 trillion dollar TNC are saying: Your decision to buy or to not buy cornflakes in any quantity is nothing like WalMart's business decisions. Scale matters (though there is no individual scale).

Somebody's picture

Oh, I do get the scale

Oh, I do get the scale concept, and you're overstating your case on it. The corn flakes analogy is perfectly apt. Warren Buffett could buy the Kellog's brand with the spare change in his coat pocket. That's scale. Despite that, Warren seems like a guy who does his own grocery shopping. His usual standby is raisin bran. Today he sees a coupon for 75 cents off corn flakes. Your scale argument says that the coupon shouldn't matter, and Buffett shouldn't even be allowed to have a coupon, because by god, he can afford to buy a box of corn flakes without it. O.K., but now he's just going to get the usual raisin bran.

Offer the coupon and he might consider corn flakes. Why would it make any difference? Because Warren Buffett didn't get to be a billionaire by throwing his money around indiscriminately. He likes a deal. A deal gets his attention. Despite his billions, when he sees that corn flakes are, with the coupon, a dollar cheaper than the raisin bran, he might just decide to have corn flakes this week.

Now, you could look at Kellog's and call them rubes for giving a billionaire 75 cents he didn't need. Or you could look at Kellog's and see that they just got a customer to buy corn flakes instead of raisin bran, which was their objective all along.

Scale matters, but not in all contexts.

metulj's picture

You are conflating

You are conflating microeconomics with macroeconomics. They do not operate the same way. This is the point.

Somebody's picture

Perhaps instead of saying

Perhaps instead of saying "nuh-uh," you could enlighten me how it's different in this case. Use examples. Be specific.

Skpister's picture

I don't hink you've got the right scale

Metulj, I think you’re missing the point. You’re acting as though large scale means that costs don’t matter. This is not the case. In case you didn’t know, large companies divide their business into several smaller chunks, which makes for easier monitoring and management. Wal-Mart is divided into 3 business units (WalMart US, WalMart International, and Sam’s Club), that operate like their own autonomous companies. Each of those are further divided based on geography (WalMart US is divided into North, South, and West). Each of those divisions is divided into geographic regions (Great Lakes, MidSouth, etc), and each of those is divided into Markets (ie Great Lakes region Chicago market and Great Lakes region Milwaukee market). BTW, I think they limit their markets to about 5 stores. In the Dallas TX area, they have a North, South, and East Dallas market, then several other market areas for Ft. Worth and the suburbs.

The different markets operate almost autonomously and decisions are made at the market level. So, they only build a new store in the Milwaukee area based on the finances from the Milwaukee market stores, not based on the finances from the Great Lakes region, the North division, the WalMart US business unit, or WMT corporate.

So, the decisions are made in the context of a group of about 5 stores. It’s all done on a very small, local scale.

metulj's picture

That's not what I am saying.

That's not what I am saying. I question why a corporation like WalMart should have access to such small-scale incentives, and, in extension, why they would find it necessary to use them other than for bottom-line purposes.

Skpister's picture

That's exactly what you were

That's exactly what you were saying. Otherwise, their financials would have nothing to do with this and you wouldn't have brought it up.

Small scale incentives? First, you think that the incentive is a lot of money for the government to forego, now you say it's small. Which is it?

I think you're trying to look at the situation as a collective, instead of the individuals that make up the entity (maybe this is a good corrollary for society). Most large companies (or even those with just a couple of stores) view their stores individually. They don't say "if Store 1 makes twice as much profit as necessary and Store 2 loses money, I'll come out ahead." They say "Store 1 did a great job and Store 2 needs to improve." All decisions are on a local level.

So, a corporation like Wal-Mart makes its decisions by looking at the same factors that a small scale operation or even a single store mom-and-pop would look at: how much can I make in comparison to what I have to put in to it.

Also, don't think for a minute that even the small local mom-and-pop operations aren't concerned about the bottom line. You insinuate that Wal-Mart is doing something undesirable by wanting to make a profit, but making money is why all businesses are in operation. No one opens up a shop with the hope of losing money or breaking even. Do you like having a little money left over after the bills are paid? If so, you're just as bad as WMT.

metulj's picture

Again: $1.5 million is a mere

Again: $1.5 million is a mere 3 minutes of WalMart revenue. You are missing the point. And WalMart does not use the same analysis as a Mom and Pop. Mom and Pop's don't cover payroll with a hedge fund.

Skpister's picture

You can listen if you want

You can listen if you want to, or you can plug your ears, sing la la la, and ignore the truth.

You're still thinking of WMT as a whole, when the only thing relevant to this discussion is the local portion. WMT doesn't consider how much it makes at other locations when deciding to build a store. It only looks at what that one store can do. The rest of it is irrelevant. They don't say "I've got all this money coming in from other stores, so I can afford to pay more than necessary to build one more store." Thay DO say "we need to operate as efficiently as possible to make this store work."

If you want to make a true statement, you might want to talk about the incentive in relation to revenue at that location or in relation to profit margin. But, then you wouldn't find much difference between WMT and its competitors and it wouldn't support your hate for them.

BTW, WMT doesn't cover its payroll with a hedge fund. It makes payroll in one location with money produced from that location. It keeps local money local.

Somebody's picture

"Other than bottom line

"Other than bottom line purposes?" You're joking, right? That's how any business, large or small, makes decisions, at least if they want to stay in business. Mind you, some will make "civic-minded" decisions, but even those go back to the bottom line, usually through consideration of a longer time-horizon.

For instance, Costco is said to invest more in employee pay and benefits than Sam's. That's a morally better thing to do, but they're also considering that the company benefits by having knowledgeable, healthy and content employees who are more reliable to manage as company assets and who provide customers with a better experience in the store, which translates to more money down on the bottom line.

Now, I'm going to ask you one last time to apply an actual explanation to your assertions about "scale" and macro economics v. micro economics, because I am interested and willing to read what you have to write on the subject.

So far, it appears that what you're really saying is that you think these sorts of incentives should be means tested, thus adding a new objective to the incentives. The existing objective is to entice a viable developer and business into redeveloping a challenging brownfield site. By means testing the incentive, you want to do that, plus assure that only a locally-based business that is smaller than a given size should be given the incentivized opportunity to develop the site in question.

That's certainly a decision that could be made, but the additional objective significantly reduces the likelihood that any deal would be done at all, thus undermining the prospects of ever meeting the first objective, which is to move an urban brownfield parcel back into productive use, and eventually back onto the tax rolls.

Now, if you can't offer anything more than generalized but fairly meaningless assertions ("scale matters"), and personal judgement calls ("I question why a corporation like WalMart should have access to such small-scale incentives"), then I'm going to have to conclude that you've got nothing.

On the other hand, I am more than happy to be schooled in economics by you, if you've actually got a substantive rationale behind your assertions. At the moment, though, I think you've just got an opinion that you'd rather not try to justify with a reasoned explanation.

Fabricant's picture

Here's something, Somebody

Walmart systematically challenges property tax assessments to chip away at its property tax bills, costing local governments several million dollars a year in lost revenues and legal expenses.

In New York State, for example, at least eight Wal-Mart locations have challenged their property tax assessment, recouping about $766,000.

A national study examined a 10 percent random sample of Walmart’s 2,833 Supercenters and discount stores as of the beginning of 2005, and found that at least one assessment challenge had been filed at 35 percent of the stores. If that rate applies to all Walmart stores, the company has brought challenges at more than 1,000 retail outlets nationwide.

Recent studies have shown that the tax revenue big box stores like Walmart produce is often vastly overstated.

A study conducted in Asheville, NC found that a downtown mixed-use development would generate $83,600 per acre per year in retail taxes, vs. $47,500 for a Walmart. Similarly, the mixed-use development would generate $634,000/acre per year in total property taxes vs. $6,500 for a Walmart.

Another study by the organization Smart Growth also concluded that mix-used developments are generally more productive tax-generating spaces.

A study by the organization Smart Growth revealed that big box stores only contribute slightly more in taxes than single family homes. Single family homes generate roughly $8,200 per year, and big box stores about $150 to $200 more.

Making Change at Walmart

Fabricant's picture

Here is something more

20 Facts About Wal-Mart

#1 The average U.S. family now spends more than $4000 a year at Wal-Mart.

#2 In 2010, Wal-Mart had revenues of 421 billion dollars. That amount was greater than the GDP of 170 different countries including Norway, Venezuela and the United Arab Emirates.

#3 If Wal-Mart was a nation, it would have the 23rd largest GDP in the world.

#4 Wal-Mart now sells more groceries than anyone else in America does. In the United States today, one out of every four grocery dollars is spent at Wal-Mart.

#5 Amazingly, 100 million customers shop at Wal-Mart every single week.

#6 Wal-Mart has opened more than 1,100 ”supercenters” since 2005 alone.

#7 Today, Wal-Mart has more than 2 million employees.

#8 If Wal-Mart was an army, it would be the second largest military on the planet behind China.

#9 Wal-Mart is the largest employer in 25 different U.S. states.

#10 According to the Economic Policy Institute, trade between Wal-Mart and China resulted in the loss of 133,000 manufacturing jobs in the United States between 2001 and 2006.

#11 The CEO of Wal-Mart makes more in a single hour than a full-time Wal-Mart associate makes in an entire year.

#12 Tens of thousands of Wal-Mart employees and their children are enrolled in Medicaid and are dependent on the government for healthcare.

#13 Between 2001 and 2007, the value of products that Wal-Mart imported from China grew from $9 billion to $27 billion.

#14 Sadly, about 85 percent of all the products sold at Wal-Mart are made outside of the United States.

#15 It is being reported that about 80 percent of all Wal-Mart suppliers are in China at this point.

#16 Amazingly, 96 percent of all Americans now live within 20 miles of a Wal-Mart.

#17 The number of “independent retailers” in the United States declined by 60,000 between 1992 and 2007.

#18 According to the Center for Responsive Politics, Wal-Mart spent 7.8 million dollars on political lobbying during 2011. That number does not even include campaign contributions.

#19 Today, Wal-Mart has five times the sales of the second largest U.S. retailer (Costco).

#20 The combined net worth of six members of the Walton family is roughly equal to the combined net worth of the poorest 30 percent of all Americans

Is Wal-Mart Destroying America? 20 Facts About Wal-Mart That Will Absolutely Shock You

Fabricant's picture

On the Subject of TIFs

I direct you to a recent report generated for Denver.

Title: ARE WE GETTING OUR MONEY'S WORTH? Tax-Increment Financing and Urban Redevelopment in Denver

Part II: Who Profits from Tif Subsidies? National Chains, Local Businesses and Our Private Developer Partners

Some Key Findings:

Based locally, and with more complete integration into the metro economy, local businesses deliver almost three times the local economic impact through their secondary spending as national chain stores. This also means they generate more local tax revenue, particularly in the context of TIF projects, where on-site taxes are diverted to pay TIF subsidies and only secondary off-site spending generates public tax revenue.

TIF subsidies are meant to help realize private projects at blighted sites at minimum cost to the taxpayer. Yet the data and calculations used to establish the need for TIF subsidies, the amount of TIF necessary to realize a project, and likely developer profit rates, are all permanently hidden, not only from public view but also from the elected leaders responsible for approving such subsidies in the first place. Neither the public nor our representatives have any way of holding TIF projects accountable, either for maximizing public value or for minimizing public costs, even long after TIF deals are concluded

A bias toward well-known and reliable revenue-generating businesses may be dictating a TIF investment strategy that favors projects attractive to large-scale national chains. This bias reduces the potential public revenue and private economic benefits from utilizing local businesses. It also promotes potentially damaging competition to local businesses by proliferating national chains in the Denver economy. Denver’s TIF investment strategy needs to be reoriented with a view toward supporting smaller-scale, neighborhood projects that are more appropriate and hospitable to local, small business tenants.

With no access to the financial data that establishes either the need for TIF or the amount of TIF necessary to win developer participation, neither the public nor our elected leaders has any way of reviewing or holding accountable the key “but for” calculations that justify the diversion of millions of dollars of tax revenue to private, for-profit projects. Denver should expand the transparency of TIF transactions, at least retrospectively. Some financial information may justifiably be kept confidential for “proprietary reasons” during the negotiation of a TIF deal, but the public should be able to review key data and the decision-making process after the deal is concluded and the project built. Further, Denver should consider the establishment of regular performance audits for our TIF system to ensure that its use of diverted tax revenue is as efficient and effective as possible.

Front Range Economic Strategy Center

Fabricant's picture

The purpose of a box of

The purpose of a box of cornflakes is to get bought (and supposedly eaten, but examining the tension between exchange value and use-value is a topic for a different discussion). The purpose of a local government is to facilitate democratic decision making that is responsive to the needs and values of the local community, in ways that go (or should go) far beyond the generation of tax revenues. This is especially true when these tax revenues come with associated costs that are not understood very well.

So, the issue does not concern the rational economic decision making capabilities of the good folks running Walmart, or whether or not they are capable of understanding when they can make a profit. The issue concerns the ability of local governments (or lack of ability) to make wise investment decisions on behalf of the local community. Distinguishing local businesses from transnational corporations, and understanding their different effects on the overall health of the local economy, are important steps in fulfilling this governmental purpose.

The issue of scale, I would argue, has a number of important implications. Given the scale and orientation of TNCs, their profits and revenues do not get reinvested in the local communities the way a local business invests. A transnational corporation with revenues surpassing the GDPs of most of nations in the world is qualitatively different from a local grocery supplier. Yes, both are trying to make money. But one certainly has more power to control and manipulate profit opportunities for itself than the other. And one has the ability to avoid paying the costs associated with these profit opportunities. So, for instance, lets say a tif comes at the expense of local education, an expense that may or may not be paid back in time. In the mean time, the local community pays the price for this business incentive, a price that is not felt by the TNC given its disembeddedness from the local community.

But why are TNCs not embedded in the local communities? The answer is scale. These are economic giants bigger than most nations that can bounce around anytime they want and can avoid paying a number of costs associated with their activities. So when you expand the notion of scale to include the notion of businesses interacting with governments and communities then you get a different notion than the one presented by economic thought alone, i.e. all businesses, no matter of scale, try to make money, all business profits and revenues have the same effect, and all business activity helps generate tax revenues. When you escape the confines of typical economic thinking and look at the relationship between businesses and the local communities, scale begins to take on a different meaning.

Somebody's picture

That's a lot if words to say

That's a lot if words to say you think a shopper should provide tax returns and references before getting their corn flakes coupon, and the Waltons need not apply, and Warren Buffett probably shouldn't, either. Those things are more important to you than selling the corn flakes.

Nice try, but I'm still waiting on metulj to school me in economics.

metulj's picture

No. I am not trying to school

No. I am not trying to school you. If you were listening to NPR this morning Bob Schiller pointed out the exact problem with the "purse strings" metaphor viz the US economy. When you have a corporation that functions as an economy unto itself, the metaphor does not apply there as well. Sorry, it is the case.

Somebody's picture

Really, you're doing a great

Really, you're doing a great imitation of #9, here. Saying "it is the case" doesn't make your case. It only affirms that you claim to believe your case, and suggests you have no intention of explaining it. You've said I'm all wrong, but you haven't explained why you are right.

At this point, you can choose to explain it or not. I'll read it if you do, but otherwise, I'm done with it.

metulj's picture

You are trying to express a

You are trying to express a complex phenomenon with a simple metaphor, and you are accusing me of not making my case?

Anyhow, large things behave differently than small things, even though they may resemble each other. A galaxy looks like an atom, but they behave very differently. A WalMart behaves toward money as your checkbook behaves toward money very differently. Your logic fails the identity test. This, through the garden path, is my point.

Somebody's picture

You are trying to express a

You are trying to express a complex phenomenon with a simple metaphor, and you are accusing me of not making my case?

Anyhow, large things behave differently than small things, even though they may resemble each other. A galaxy looks like an atom, but they behave very differently. A WalMart behaves toward money as your checkbook behaves toward money very differently. Your logic fails the identity test. This, through the garden path, is my point.

I really an going to try to leave it alone after this, but...

"trying to express a complex phenomenon with a simple metaphor"

"A galaxy looks like an atom, but they behave very differently."

Hmm. Interesting. Simple metaphors should not be used to explain complex things. Check.

But really, the main thing I note is that you have, once again, stated that I am wrong, but declined to explain your own case. Logic would dictate that even if I am, in fact, wrong, that does not necessitate you being right.

If you would care to explain why a large corporation should not be given incentives like TIFFs or PILOTs you may still do so. I'll head you off a couple of paths, though. "Because you're wrong" and "Because they're different" are not sufficient explanations.

Have at it, or don't.

metulj's picture

So you understand that the

So you understand that the use of metaphors like that one do not work. Ok. Thanks for playing.

Somebody's picture

You're welcome. Thank you

You're welcome. Thank you for never actually explaining your "argument," #9. Exquisite troll work. Have a great holiday.

metulj's picture

Keep trying.

Keep trying.

Fabricant's picture

a shopper should provide tax

a shopper should provide tax returns and references before getting their corn flakes coupon

What are you talking about? You obviously have mental blinders on. Corn flakes are commodities, land is a fictitious commodity because it has uses not expressed in the formality of the market. By your logic, all Knox County land should be making as much money and drawing in as much tax revenues as possible? We are comparing corn flakes and oranges, here.

Skpister's picture

Should all land be making as

Should all land be making as much money as possible and drawing in as much tax revenue as possible? Of course! That is the concept of efficiency and productivity! Land not making as much money as it possibly can is a waste!

But, this isn't anything new -- it's been around for centuries.The most productive comparative use of a piece of land was even the premise for the adverse possession doctrine, which states that the one who makes the most productive use of land is the rightful owner. This was used by peasants centuries ago in England and Wales to force distant nobles off their land and it was invoked by all of the Occupy movements as squatter's rights.

We've already learned here that WMT's overall revenue or profit numbers are meaningless in this discussion, because those resources aren't available to any single potential store. Only the rsources produced by a four or five store market are available to finance a new store. We've already learned here, too, that more revenue from a WMT store stays local than a smaller shop, which much outsource much more of its purchases.

So, if you simply don't like WMT, I get it. People dislike all sorts of things for all sorts of reasons, myself included. But, you don't have the right to declare what another entity can or should afford, anymore than they have the right to tell what you can or can't afford.

fischbobber's picture

Huh??!

Say what?

Fabricant's picture

I don't know how to respond.

I don't know how to respond. This is some bizarre stuff. Um, I disagree that all land should maximize tax revenues. Why? I guess, I can place non-monetary value on land (parks and recreation, the smokey mountains for instance) and its possible uses (for schools, churches, housing, public services). I don't consider these places waste, I consider Wal-marts near downtown, drawing public subsidies to be a waste.

On adverse possession, are you saying Wal-Mart can "squat" on "unproductive" land in Knoxville and take ownership because the land is not maximizing its tax revenue potential? That's not what adverse possession means.

I don't think you have a grasp of the economic and financial data, at all. All you've pulled together is the total revenues, the profit margin, the number of stores, CEO pay and did some division. Hardly an analytical triumph.

And you haven't proven that WM's revenues stay local. Just because Wal-Mart files a 3% profit margin with the SEC doesn't mean 97% of the money made at each WM goes back to the community. And just because the CEO makes less than one percent of the total revenues generated by the company doesn't mean WM doesn't divert money back to headquarters or to China to pay for low wage manufacturing that put American's out of work. And you haven't accounted for the effect of WM on wages and putting thousands of local retail shops out of business.

And as far as this, nonsense:

But, you don't have the right to declare what another entity can or should afford, anymore than they have the right to tell what you can or can't afford.

You bet your ass I have a right to tell Wal-Mart they don't deserve a Knoxville subsidy! I'm a damn citizen.

Skpister's picture

So, governmetn actions are

So, governmetn actions are now subject to your personal whims? What if another citizen thinks that you don't deserve to have a home? Is that OK simply because another citizen says so?

BTW, you weren't talking about if they "deserved" it (even though that is as subjective as it gets), you were saying that they didn't "need" it, as if you have the right to determine what others can or can't afford.

That's awfully arrogant.

R. Neal's picture

The government has all sorts

The government has all sorts of means testing. If you make too much you can't get Social Security benefits. If you make too much, you can't qualify for Medicaid or food stamps.

metulj's picture

But. But. But. That's

But. But. But. That's different!

Fabricant's picture

Man, you are unreal. Look,

Man, you are unreal. Look, I'm a citizen and I have a right to object to the way public dollars are spent. I don't think WM deserves a tax break nor do I think they need one and I'd prefer it if the city didn't give them one. And who the hell is Wal-Mart to say that Knoxville can afford millions of dollars worth of subsidies. How arrogant is that?

R. Neal's picture

Yes, but we'll never know

Yes, but we'll never know now.

Fabricant's picture

Seems like there's obtuseness

Seems like there's obtuseness all around, here.

I'll second the motion that your little cartoons and insults don't help you make a serious case.

You can probably can add hypocrisy to your list, too.

metulj's picture

Fascinating. This would imply

Fascinating. This would imply I have benefited from a TIF or a PILOT. Enlighten.

Fabricant's picture

It was direct toward

It was direct toward Somebody. Somebody takes exception to your insults but then says things like, "Seems there is obtuseness all around here." Yet his cornflake and Buffett analogy really cleared everything up. Seems like there is hypocrisy around here too.

metulj's picture

It cleared it up for people

It cleared it up for people who think that a global transnational corporation operates like Emerys. In other words, it was a sop.

Fabricant's picture

Agreed. All quantity and no

Agreed. All quantity and no quality.

gonzone's picture

Taxes are for the little

Taxes are for the little people, not jahb creators.

Rachel's picture

IMO, for the most part the

IMO, for the most part the City uses TIFs properly. They aren't used for greenfields; they're used for redevelopment. They have to pass the "but for" test and prove a public benefit. The City has a standardized procedure all TIFS go through.

It's the County that has thrown TIF $$ at greenfield development and seems to treat every new application in an ad hoc fashion.

gonzone's picture

What ever happened to the

What ever happened to the "free market" I keep hearing the non-Keynesian butt holes talk about? Has anyone ever actually seen such a thing or is it like "the great invisible hand" that purportedly controls it, nonexistent?

CE Petro's picture

Just to chime in I wanted to

Just to chime in I wanted to point out that as a follow-up on the NYTimes investigation of corporate subsidies (paid for by taxpayers the editorial board chimes in, with:

Race to the Bottom.

Many governments don’t know the full value of the subsidies they hand out in the form of tax refunds, rebates, loans, grants and more. And they don’t know if the jobs created would have been created anyway. The fact is, numerous studies show that such incentives result in only a small increase in jobs and that any gains usually come at the expense of other cities and states.

Local governments would be much better off investing tax dollars in education and public works that would deliver long-term benefits to both businesses and workers.

R. Neal's picture

The Tennessee Advisory

The Tennessee Advisory Commission in Intergovernmental Relations (TACIR) has published a few reports on tax breaks, TIFs, PILOTS, etc. Here are a couple of interest:

Tax Increment Financing: Opportunities and Concerns

The Effect on the Property Tax Base of Economic Development Agreements

Fabricant's picture

Concluding remarks from Chicago based research on tifs

Tax increment financing is an alluring tool. TIF districts grow much faster than other areas in their host municipalities. TIF boosters or naive analysts might point to this as evidence of the success of tax increment financing, but they would be wrong. Observing high growth in an area targeted for development is unremarkable. The issues we have studied are (1) whether the targeting causes the growth or merely signals that growth is coming; and (2) whether the growth in the targeted area comes at the expense of other parts of the same municipality. We find evidence that the non-TIF areas of municipalities that use TIF grow no more rapidly, and perhaps more slowly, than similar municipalities that do not use TIF.

Policy makers should use TIF with caution. It is, after all, merely a way of financing economic development and does not change the opportunities for development or the skills of those doing the development planning. Moreover, policy makers should pay careful attention to land use when TIF is being considered. Our evidence shows that commercial TIF districts reduce commercial property value growth in the non-TIF part of the same municipality. This is not terribly surprising, given that much of commercial property is retailing and most retail trade needs to be located close to its customer base. That is, if you subsidize a store in one location there will be less demand to have a store in a nearby location. Industrial land use, in theory, is different. Industrial goods are mostly exported and sold outside the local area, so a local offset would not be expected. Our evidence is generally consistent with this prediction of no offset in industrial property growth in non-TIF areas of the same municipality.

Tax Increment Financing (Land Lines Article) A Tool for Local Economic Development Author(s): Dye, Richard and David Merriman Publication Date: January 2006

vernon's picture

Its my understanding that

Its my understanding that Walmart is not receiving the TIFs,the local developers are.The local developers buy and develop the site, and construct the building.Walmart does not usually end up owning the property,they are tenants.The incentives provide the only avenue to offset the extremely high costs of dealing with this site because of its brownfield status.Walmart agrees to lease a building at a number,they allow a standard percentage for profit for a developer.If numbers work and the demographics are acceptable Walmart comes, if not they go somewhere else.
I ve never participated in one of these and I think they are overused, but if there were ever a situation that made sense I d say the one on Cumberland Avenue would be one.
The brownfield issues are deserving of the TIF, the renovating of another old building for apartments downtown should at some point stop.
When do we declare that downtown is established enough to survive without subsidies?

EricLykins's picture

I hope this causes some

I hope this causes some reflection and hesitation the next time our community ponders a TIFF, PILOT, or other break.

PILOT, Dewhirst, White Lily. Reflect away.

Big Al's picture

Seems like a pretty good deal

Seems like a pretty good deal as the property has sat unused for 5 years without prospects so the gov't probably wouldn't have collected any more tax $'s over the next few years any way.

metulj's picture

smh.

smh.

Big Al's picture

?

?

R. Neal's picture

Somebody seems to suggest

Somebody seems to suggest that Walmart or other big box retailers should or will only open at a particular location if there are tax incentives for the developer.

What if nobody offered incentives? Better yet, what if it were the other way around? What if a community made themselves so attractive that developers and big box retailers paid them to be able to come there?

That's exactly what happened when Walmart wanted to open a store at a new development in Brooklyn. They made a $4 million donation to a city jobs training program. Unfortunately, it didn't work. Despite their many efforts, there are still no Walmarts in NYC.

Fabricant's picture

Unfortunately, it didn't

Unfortunately, it didn't work.

I would say, fortunately.

fischbobber's picture

The site in question

There are some interesting hypothetical arguments floating around about the old Fulton bellows site but very few specifics.

I would like to point out a few obvious aspects that come to mind.

1) Without public support and the subsequent with permits there is a chance that the brownfield could have sat fallow indefinitely. There is a liability issue at stake with a brownfield, from a business that old, in a floodplain operating thirty years before the EPA was passed, that would likely cause both Wal-Mart and Publix to pass on the project were it not for public involvement.

2) Local developers (I believe) secured the first grants and indeed are the leasers as I understand. In other words, there is a layer of bureaucracy built in the project (again, likely for liability purposes, but also one that adds a layer of compensation) that will increase the gross cost of the project.

3) No one posting is posting real numbers. It's great to say this should or shouldn't be, but without real numbers and a detailed breakdown, it's hard to say this is or isn't reasonable.

4) In the big picture, it could be the rare case where Wal-Mart is actually the great neighbor everyone wants. I'm curious to see what they do with a store this size. They could survey their neighbors, and offer a product line that compliments the other stores within walking distance or they could (as is their style) decide to directly compete against, and run out of business, their closest competitors. Obviously a problem with mixing public money with the private sector is that there is an expectation of the private entity acting in a manner that is in the best interest of the community at large. Sadly this tends to be the exception, rather than the rule.

5) In the big picture, our community will likely be better off with this site developed. In the event something goes wrong, at least the city will (or should have) some say in what happens down the road with the site. The plan at hand appears to be a current best option.

Fabricant's picture

Points 3 and point 5 are at

Points 3 and 5 are at odds, how can you make both?

fischbobber's picture

Point 3

Among other things, point 3 addressed whether or not the public money invested was too much. I believe a detailed analysis would likely lend itself to the conclusion that Wal-Mart got the best end of the deal, but these sorts of reports tend to be long, boring and secret.

Fabricant's picture

I don't know the numbers for

I don't know the numbers for Knoxville but according to these guys

Asheville realizes an astounding +800 percent greater return on downtown mixed-use development projects on a per acre basis compared to when ground is broken near the city limits for a large single-use development like a Super Walmart. A typical acre of mixed-use downtown Asheville yields $360,000 more in tax revenue to city government than an acre of strip malls or big box stores.

Urban 3 research

And according to these guys:

Based locally, and with more complete integration into the metro economy, local
businesses deliver almost three times the local economic impact through their secondary spending as national chain stores. This also means they generate more local tax revenue, particularly in the context of TIF projects, where on-site
taxes are diverted to pay TIF subsidies and only secondary off-site spending generates public tax revenue.

Front Range Economic Strategy Center

Furthermore:

Our evidence shows that commercial TIF districts reduce commercial property value growth in the non-TIF part of the same municipality. This is not terribly surprising, given that much of commercial property is retailing and most retail trade needs to be located close to its customer base. That is, if you subsidize a store in one location there will be less demand to have a store in a nearby location.

Tax Increment Financing (Land Lines Article) A Tool for Local Economic Development Author(s): Dye, Richard and David Merriman Publication Date: January 2006

Looks to me that a Walmart on Cumberland may negatively impact the tax revenues generated or that could be generated downtown by local suppliers.

metulj's picture

Asheville is planned very

Asheville is planned very differently than Knoxville, though. A great deal of land is taken out of production by slope protection and other means thereby driving up prices (and taxes to some degree) because of scarcity.

Fabricant's picture

Right, but Asheville doesn't

Right, but Asheville doesn't turn into Nebraska once you hit the city limits. So, how is this pertinent?

fischbobber's picture

Points 3 and 5

Points 3 and 5 are only at odds if one discounts point 1.

It was going to take some deep pockets and a fall guy to get this project rolling. The smaller size of this Wal-Mart would lend itself to other uses, in my opinion, more easily than a superstore. I don't wholeheartedly embrace this project, but I recognize that it may well have value and tentatively, grudgingly, support it.

I spent a year servicing RobertShaw and would submit that it is fair to say that redevelopment of the site was a conundrum. Sometimes a working plan, even a somewhat distasteful working plan, is better than no plan at all.

Fabricant's picture

I don't wholeheartedly

I don't wholeheartedly embrace this project, but I recognize that it may well have value

But it may not. Like you said, where are the numbers? If too much public money is invested, would it not be better to leave the spot vacant until a better plan comes along?

fischbobber's picture

Maybe

If too much public money is invested, would it not be better to leave the spot vacant until a better plan comes along?

Maybe. But it's still going to take deep pockets and a fall guy. I have a hard time visualizing anyone but a Wal-Mart or big box store developing the property. By putting Wal-Mart in the liability layers, we, at least hypothetically, are insured that a best effort will be given, if for no other reason, that they have deep pockets and don't want a willful negligence ruling. I know that's a crappy reason for supporting a project, but it's a crappy piece of land in a great location. Sometimes you roll with what you got.

Fabricant's picture

Yeah, I see your point. Not

Yeah, I see your point. Not many mom and pops can fork over $62 million. Or is it $50 million, since Knoxville is providing $12 million in tifs? Anyway, its a lot of dough.

Up Goose Creek's picture

Taking

Should all land be making as much money as possible and drawing in as much tax revenue as possible? Of course! That is the concept of efficiency and productivity! Land not making as much money as it possibly can is a waste!

Skipster - are you willing to shoot me dead so you can put my land to more "efficient" use? Would you support Madeline sending the KPD in to do the job? I thought all I had to worry about was the Agenda 21 cultists. Where the H*ll are you coming from?

Skpister's picture

???

What are you talking about? Shoot you dead for your land? Where did you get that idea?

All I said was that land not used for its most productive endeavors is an economic waste. That was in response to Fabricant's post, in which he said: "Corn flakes are commodities, land is a fictitious commodity because it has uses not expressed in the formality of the market. By your logic, all Knox County land should be making as much money and drawing in as much tax revenues as possible?"

First, land is most certainly a commodity and can definitely be valued in a market. Second, all land SHOULD be making as productive as possible. Productive land produces oxygen for people (forest land and green space), produces food for people (farmland), provides for the exchange of supplies (stores), and allows for economic activity (businesses and jobs). On the tax side, productive land is that which allows taxable activity.

Currently, the site in question is producing nothing of value, either intrinsic or extrinsic. Thus, it is non-productive.

Fabricant's picture

I never said land was not a

I never said land was not a commodity, I said land doesn't have to be a commodity. Corn Flakes on the other hand is nothing but a commodity (seeking buyers).

From the perspective of the corn flakes, the buyer doesn't matter, according to Somebody. I'm saying not all land should be for sell or developed. And if it is developed, unlike the corn flake analogy, the "purchaser" matters, because different types of businesses have different effects on the community.

So let's say you own a grocery store and you want to attract good customers. Would you not rather have a loyal customer who shops frequently. Someone who is nice and courtesy and has a vested interest the well being of the store. Or would you prefer somebody who is wealthy but frugal? A shopper that is rude, knocks over displays and stinks up the joint when he comes in and runs off other customers? Maybe the only customer you can get is the rude wealthy one. In which case, it may not be worth staying in business. Hopefully, the store could be used for other purposes or reopen for business another time.

metulj's picture

Land, like labor and money,

Land, like labor and money, is always a commodity.

Fabricant's picture

That's not true.

That's not true.

Edit:
Sorry, you were joking, right?

metulj's picture

Nope. Not joking. You can

Nope. Not joking. You can start googling now.

Fabricant's picture

Ha, your a joke.

Ha, you're a joke. I truly am embarrassed for you, metuljk. How about you google some Polanyi and see if you learn anything. Idiot.

R. Neal's picture

Hey, now.

Hey, now.

Fabricant's picture

My apologies.

My apologies.

metulj's picture

Keep trying.

Keep trying.

Skpister's picture

A commodity is any marketable

A commodity is any marketable item that can serve a want or need. Land is always bought and sold. Land for the GSMNP was bought from loggers and developers -- as a commodity.

It really looks like you're saying that you would rather pick and choose who gets to buy and use land -- just like folks in the Old South (or even the 1960s South) thought they should choose who got to buy land, put up houses, and run businesses. In the Old South, blacks weren't allowed to do those things at all, since whites thought that the purchaser mattered and thought that blacks would bring in people who were rude, knock things over, and stink up the place.

In the 1960s South, blacks weren't allowed by whites to put up houses or businesses in certain parts of town because white thought that the purchaser mattered and thought that blacks would bring in people who were rude, knock things over, and stink up the place.

So, it really looks like you're discriminating against some shops, merely because you don't like them. Not much different from the Old South.

metulj's picture

Overdefined

A commodity is anything that can be exchanged for something else. "Marketable" is a bit to strong a word, but I think you get the gist.

Skpister's picture

That's the definition that

That's the definition that came out of the Economics textbook. I'm not going to second guess that one :)

Fabricant's picture

Wal-Mart doesn't need

Wal-Mart doesn't need subsidies and Metuljk doesn't need to talk about the economy . I means skpister has a better grasp of these elementary concepts.

+1 skpister.

Fabricant's picture

A commodity is any marketable

A commodity is any marketable item that can serve a want or need. Land is always bought and sold. Land for the GSMNP was bought from loggers and developers -- as a commodity.

Nope. The Smokey Mountains are not a commodity and they are protected from being turned into a commodity by the federal government. Corn Flakes are produced to be sold on a market, that is the purpose of corn flakes.

I am not impinging on property rights but am claiming that tax payer money should not be used to subsidize billion dollar corporations, race has nothing to do with it and to make the comparison is beyond absurd.

Up Goose Creek's picture

Brownfields

We can argue that the developer should have sharpened his pencil a little closer and planned for all contingencies. Or gone back and renegotiated the lease with WM and financing agreement with the bank. We can say that the developer is pulling a fast one on the city and that may be true.

But at the end of the day ... this is an important brownfield redevelopment. Willing sellers and private buyer too, Skipster. The administration is wanting to encourage brownfield redevelopment and is sending out the message that they have the developer's back. If they had dug in their heels and said no way - how many other more developers would take the time to consider a brownfield?

Fabricant's picture

I don't know if a City "no"

I don't know if a City "no" would squash future development plans or not. But why is this an important brownfield redevelopment? I'm not sold on it's significance.

Rachel's picture

What Goose said. Look, as

What Goose said.

Look, as I've said previously, the City has a track record of using TIFs judiciously. And if any site needed incentives to be developed, it's this one.

That said, the terms of the TIF made me a bit queasy, but not so much so that I couldn't handle it. What really bothered me was giving the developers the additional $1.5M. I still haven't decided how I would have voted on that if I sat on Council. Since I don't, I don't have to decide.

And yeah, if the subsidy was going straight to Walmart, I would have been against this. Period. And I'm not really thrilled that a Walmart is going there.

But the subsidy is going to local developers, who need help to redevelop this property. Should they have gotten different tenants? Should they have insisted that they get better terms on their lease with Walmart? Should they have planned better so that they didn't have to come back and ask for more money?

Probably. Maybe. Probably.

But still.... what Goose said.

Fabricant's picture

All this sounds reasonable.

All this sounds reasonable. Goose sounds reasonable and so does Fischbobber. But why does this site need to be developed. I haven't heard a good argument about this yet. Doesn't mean there isn't, though. Just haven't heard it.

fischbobber's picture

The site

It's currently a blighted slab of concrete at the edge of what may very well turn out to be the most outstanding greenway system in the southeast. On it's other side is a major land grant University whose students are currently underserved by practical retail within walking distance. There is a direct need for a grocery store for the neighborhoods immediately across the Alcoa Highway bridge. In the event that this project fails, the infrastructure, and market I might add, remains to be utilized by projects down the road. If this project succeeds, tax revenues will be running in the black in short order. It also gives both Wal-Mart and Publix a grand canvas to experiment with multimarket concepts.

Aside from the idea that Wal-Mart is involved, and the arguable position that we may have somewhat overextended public money, it may well turn out to be a pretty good idea.

I'm still not wild about Wal-Mart though, and if they don't stock dutch oven liners in their camping section, I won't patronize them in my maximum capacity.

Fabricant's picture

Yeah I hear you, and I hope

Yeah I hear you, and I hope you can get those dutch oven liners, but I'm just not convinced the development project is going to lead to a tax surplus anytime soon.

It appears, national chains produce less returns on tifs than local businesses and are more likely to ask for, and get, tax deductions once they have established themselves. The fact the developers are local helps but I'm still not convinced they deserve $3 million of Knoxville's cash.

Secondly, these stores will probably just pull money away from other retail shops and grocery stores, simply transferring tax revenues from one site to another. The people living across Alcoa probably go to Kroger, the Fresh Market or Earth Fare in the Sequoyah Hills area. So, these business will probably take a hit. The Food City further up Alcoa closed down so I'm not sure how big the Alcoa market is, anyway. The Food City near Mechanicsville will probably take a hit. The chances of practical retail downtown will be lessened (and it appears that businesses downtown generate more tax revenues than big box stores on the outskirts). The chance of local grocery and retail on the strip is also likely gone.

I can appreciate the desire to beautify the greenway but this is not enough to sell me on the project. And from the road, campus and strip area the site is basically unnoticeable.

I can also appreciate the desire to facilitate retail opportunities to UT students but I'm not sure this is the best option and it may be the worst option. But I'm curious why UT doesn't want to develop the land itself. I certainly would be more willing to support development for UT purposes, but maybe not given their recent track record.

But in the end, I'm not convinced this project is crucial, or slightly important, for Knoxville development. Its not the worst idea (DCC, WHOF, JWPE) but I don't think it is a very good one. I'd rather see brownfield development along seventeenth street and North Knoxville before the Fulton Bellows site, unless UT was involved (even with their poor track record).

Up Goose Creek's picture

$$$$

Bob - there were some officials in the previous administration who didn't understand the concept of "my property is not for sale". Joe Hultquist made statements that he was in favor of eminent domain. I don't know who this skipster is or where he's coming from but it is disturbing to read strangers indicate they are willing to take my house by any means necessary, over my dead body if neccesary, to increase theoretical tax revenue.

From a practical standpoint I know it is nothing to worry about but it is upsetting to face that kind of ideology. Maybe he is joking. I hope he apologizes.

Up Goose Creek's picture

???

You're not from around here, are you?

We had a former mayor who was a .01%er who was brought up to believe if you throw enough money at something you could have your way. And a former councilman who was out to save the world and didn't care how many feet he stepped on to get his way. They had an idea to turn my neighborhood into a playground for the privileged elite.

Well I've got trees on my lot and they produce oxygen so I guess I'm OK by you. There's a pear tree by the driveway and a few tomato and pepper plants on the front porch, too.

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