Year in Review: City leans on incentives for economic development

Sunday, December 30, 2012 at 10:05pm

In 2012, a term that had been mostly confined to discussion among policy insiders and the most ardent government observers crept further into the public lexicon: incentives.

In the policy context, the term refers to the practice of offering varying combinations of tax breaks and cash grants to encourage the expansion or relocation of businesses. It’s a tool that has increasingly become a primary strategy of economic and community development in Nashville, in Tennessee and around the country.

Tennessee spends at least $1.58 billion per year on incentive programs, according to an extensive examination of government subsidies across the country by The New York Times. That’s $247 per capita, based on 2010 U.S. census figures, and 14 cents for every dollar of the state budget — a relatively tiny sum compared to states like Texas (which spends $19.1 billion per year), but still enough to make Tennessee one of 21 states that spends more than $1 billion per year on incentives.

The first and largest such arrangement in Nashville’s history came under then-Mayor Phil Bredesen, who went on to serve two terms as governor. In 1999, his administration offered a 40-year tax abatement on 100 percent of property to lure Dell Computers to the Nashville area. His successor, Bill Purcell, who served as mayor from 1999-2007, did not enter any such deals.

During Mayor Karl Dean’s tenure, though, economic development incentives have been more common. Since Dean took office in 2007, Nashville has offered more than $180 million in tax breaks and cash grants to companies as a part of 13 different deals. Most recently, in one of the largest incentives packages in the city’s history, Nashville-based Hospital Corporation of America was granted a deal estimated to total $66 million over 20 years. The offer secured a commitment from HCA to relocate two of its division headquarters to the long-vacant West End Summit property.

Outright supporters of the strategy — including, of course, the mayor’s office — tout the jobs, desirable development at former eyesores, and net gain in revenue that, on paper, results from such deals. Others, such as Bredesen, who spoke on the topic in a recent City Paper interview, concede that a world without such deals would be preferable, but submit that in the current context, they are the price of entry when it comes to economic and community development.

Still, critics warn against the practice as a race to the bottom with diminishing returns. Perhaps foremost among them in Nashville’s political sphere is Councilman Josh Stites, who has consistently opposed such deals, calling them unfair and unsustainable. Stites was the sole vote against the HCA package, and said that if incentives are going to persist, he will introduce legislation in early 2013 to create broader access to them for small businesses.

Meanwhile, Nashville’s most visible ECD gamble — the Music City Center — nears completion south of Broadway, itself a $623 million carrot on a stick, aimed at raising the city’s profile as a destination. And so, whether boon or boondoggle, incentives of one kind or another it seems, will persist.     

9 Comments on this post:

By: GuardianDevil01 on 12/31/12 at 7:11

These incentives are nothing more than welfare for the rich. If they are necessary then local and state government should simply admit that the various taxes that are being abated are too high and thus an obstacle to doing business and then cut them for everyone. Also, with all of the bogus commerce clause justifications made by government in order to impose upon the rights of the individual why hasn't anyone sued to prohibit states and localities from using corporate welfare in order to draw new businesses into their jurisdictions? It certainly appears more applicable than a lot of the other uses of the commerce clause such as Gonzales v. Raich, et. al.

By: Kosh III on 12/31/12 at 7:12

Stites is right. If we do this, do it for the many small local businesses which are struggling, not just the large corporations and the downtown bars and restaurants.

By: Ask01 on 12/31/12 at 8:01

Never have I read a more comprehensive indictment of a governmental body as corporate welfare pimps.

Mayor Dean has the mostly spineless, ineffective, lockstep Metro Council in his presumably well stuffed back pocket, and, since the shortsighted sheep of Metro Nashville blindly re-elected him, they get what they deserve.

I, for one, can proudly say I did not vote for Mayor Dean either time, nor will I ever vote for him for any public office. I don't trust or respect most members of city government, especially the Metro Council, and expect them to continue their political and fiscal escapades into 2013.

I expect it is time for Mayor Dean's supporters to come up for air and defend him and his corporate and business welfare policies.

By: rickmuz on 12/31/12 at 8:31

I still, for the life of me, cannot fathom the HCA/Tri-star welfare deal.

WHAT exactly did WE get from a deal that provided so much to a company that had NO INTENTIONS of going anywhere?

This back room reach around will no doubt be among the top puzzling moments in Metro government history.

By: amoobrasil on 12/31/12 at 8:58

Bredesen accedes to Realpolitik, essentially saying that the policy does not generate new investment or jobs, but that the power wielded by certain organizations capable of demanding preferential treatment (to the detriment of small businesspeople) amounts to a blackmail we taxpayers must pay.

Only Stites has it right. New investment follows increased consumer spending, not "incentives" to invest in an economy in which consumer purchasing power is stagnant. Only upon seeing the prospect of more sales and profits because of greater consumer purchasing power, will private enterprise invest in the form of new capital and hiring.

The Mayor should know better, as should the other councilmen and councilwomen. I think they do, but I fear that they are either intimidated or simply bought by the power of wealth.

No enterprise will risk capital just to get incentives. That enterprise must have the results of market research strongly indicating that not only does demand for its goods or services exist, but also that purchasing power to acquire those goods and services are sufficient to reward the investor. If the reward seems very likely, investment will take place--with or without "incentives" (just ask entrepreneurs who, although denied such incentives, invest anyway)--; if it is not, the "incentives" will be pocketed and either invested elsewhere, or (more likely) allowed to slosh around in idle accounts awaiting a time when (and if) consumer purchasing power increases.

We would stand to gain much more by investing those wasted "incentives" in lower tuition (it is our money, after all), in schools, and in infrastructure building. The last of these three provides a true incentive: leveraging matching federal contributions to our rebuilding and to modernization of our infrastructure.

For example, the Mayor has wisely accorded to public transportation a high priority. With more federal funds leveraged by money not squandered on payment of legal demands for "protection", the county (and its environs) could invest in lanes for exclusive use by buses, in building parks, recreation, and business-friendly facilities where now we have nothing but ugly, unproductive streets and intersections.

The success of the City of Curitiba, Brazil, is a model of such an initiative: parks; botanical gardens; small businesses consisting of cafés, artists (this is Music City, right?), local S&Ls, jewelry stores, hobby shops, etc., etc. would not only further vitalize the Riverfront, but they would also attract more tourism.

If I know this, then our leaders certainly know it. The problem is not a lack of vision or of the means to make that vision reality; it is the weakness built into human nature that impels so many of us to cave in to the demands of the power of influence purchased with excessive wealth.

By: MusicCity615 on 12/31/12 at 10:57

Thank you Mayor Dean for being an excellent mayor. I wish we had another 8 years with you.

No I do not work for Metro Council, nor am I related to Karl Dean in any way. He is a fantastic mayor, and Nashville is very fortunate to have him.

By: NewYorker1 on 12/31/12 at 1:54

I really would like to see the city put more funding into beautifying the city. It seems like every road I drive on, there so much trash on the side of the roads. There’s nothing pretty about Nashville. It’s such a dirty and grimy looking city. You would think that with the smaller population here, that there would be more control over keeping the city clean.

By: Ask01 on 12/31/12 at 3:08

I agree, NewYorker1.

The problem is we have many tourists, most of whom are considerate and don't litter the streets. There are, however, the slovenly few who could care less.

One has only to look around after some of the many events sponsored downtown to see an overabundance of litter left by the attendees. I suppose, though, paying an adequate clean up crew would cut too deeply into profits.

Likewise, if city government devoted too much money to cleaning up, there would be less business welfare dollars to spread around.

Those of us who don't live in the city center would like to see some improvements in our areas for a change. Sidewalks would be nice, as would adequate street lighting.

This is the other side of having a metropolitan government. While the tax base is larger to fund boondoggles for downtown, the outskirts demand attention also.

Not that we actually receive any, unless it seems the mayor or council see some direct advantage for themselves.

I actually miss Mayor Purcell, in my opinion, the best mayor of Nashville in the last two decades.

By: On.the.Other.Hand on 1/2/13 at 11:52

What would be helpful would be a review of past Metro subsidies and some analysis about how they panned out. Dell, Gaylord...and don't even get me started on the Predators.