How Much is Too Much: Memphis and Electrolux

I know that everyone in the Memphis area or in the national business world has heard about the recent decision of Electrolux to relocate a new manufacturing plant to Memphis. The decision came of no surprise even in light of the reluctance and indecision on the part of Electrolux. The city of Memphis, Shelby County and the state of Tennessee have given the Electrolux company an unprecedented incentive package that if completed between 1999 and 2008 it would have ranked 14^th on a list of 25 of the highest economic development subsidies given to any manufacturing plant. In this economy, any kind of job creation from the private sector is considered a victory by any local and state government, but is the cost always worth the product? There have been numerous concerns raised by the media and other watchdog groups around the economic development incentives and the location of the manufacturing site. While I agree that the location is somewhat questionable, I am going to focus on the economic development incentives given to Electrolux by local and state governments, but first I need to give some background on Electrolux as a company in order to put things in prospective.

Electrolux is a Swedish based company with 86 total manufacturing locations worldwide with a questionable track record. Electrolux recently made the decision to shut down a manufacturing plant in Vastervik, Sweden. While this may seem like a typical business move, Vasterik is the hometown of Electrolux CEO Hans Straberg. He cut 500 jobs and moved them to the cheaper manufacturing and wage market in Hungary. The new model for the Electrolux Company is to search for low the lowest cost manufacturing locations. This is either a feast or a famine for the city of Memphis. In 2010, Electrolux decided to shut down a plant in L’Assomption, Quebec and relocate in Memphis. The plant in Quebec is scheduled to shut down completely by 2014, but not without cost to Electrolux. Canada was wise enough to put a contractual agreement that required Electrolux to pay back money that was spent in 2008 if certain requirements were not met. The money will be paid back to Canada in the amount of $4.7 million. Guess what? Memphis does not have this protection.

The total cost for Electrolux to relocate to Memphis and develop a green-field site is coming up to approximately $190 million, but the cost seems to be falling largely on the taxpayers of Tennessee. The state of Tennessee is projected to put in $97 million funds to Memphis and Shelby County both putting in $20 million apiece. This money came in the form of bonds that the state, city, and county issued. The cost of the bond issuance was $347,500, and the annual debt service on the bonds will be roughly $68.8 million over 25 years. Electrolux will be making up the difference of only $60 million; does not quite seem equitable to say the least.

Electrolux is also receiving tax breaks in the form of a famous Memphis Payment-in-Lieu-of-Taxes (PILOT) program that will last for fifteen years. The PILOT program gives Electrolux tax breaks in both real and personal property taxes to the tune of a 75% percent reduction in Shelby County and 90% reduction in Memphis city taxes. This will cost the city and the county a meager $33,870,858. Electrolux will take the title to the building and the land; turn the title over to the Shelby County Industrial Development Board (SIB); the SIB will then lease the property to Electrolux for no more than $1,000 annually; and Electrolux will run and operate as if they own the property, or because of the lack of protection that Memphis so wisely left out, pack up and leave. That would leave Memphis with a new modern industrial manufacturing facility that it is currently paying for with no tenant. Like I stayed early; smart move Canada.

While these considerations alone are enough to raise eyebrows, my biggest problem is with the required Economic Impact Report that the University of Tennessee was contracted to complete. I must say that this was the poorest attempt at this kind of report that I have personally ever seen. This is something that if I was the department whose name was being put on the report; I would be very embarrassed. Electrolux has stated that they will roughly employ 1,240 people within five years of the start of production and could potentially create nearly 8,000 jobs in the construction and supplier jobs combined, but the study conducted by the University of Tennessee estimated 1,500 manufacturing jobs. I’m sure they know more about the number of jobs being created than the actual employer does anyways. They, however, generated some wonderful numbers on tax revenues to the both the state and local governments. The study stated that the state and local governments would receive $7.7 and $6.5 million in tax revenues respectively every year. The state and local governments would also receive $132.5 and $95.9 million respectively in tax revenues over the life of the plant which they estimated at thirty years. While these are some great and impressive figures that they conjured up, there is a footnote in the study that causes concern. They did not account in any of these figures for the tax revenues forfeited by both governments in the form of incentives. A fairly smart 8^th grader could have generated these numbers with a good enough calculator. I do have to say that due diligence was not done here.

From my calculations at present value, the state, city, and county have given Electrolux $137 million to build the plant, given up $33.8 million in tax incentives, and a total debt service on bonds of $68.8 million. If the figures that the University of Tennessee generated are correct, the project will generate a total tax revenue to the local and state governments of $14.2 million annually. I am not a mathematical genius, but if my calculations are correct it will be almost 17 years before enough tax revenues are generated to recover what has been spent or forfeited for Electrolux to relocate to Memphis.

I realize that this has been a mostly negative outlook on the future that Electrolux will have with the city of Memphis. There could quite possibly be a large amount of good that comes from this, but, from my point of view, I feel that Memphis and the state of Tennessee are going to get the raw end of the deal sooner or later. Job creation is important in times like these, but at what cost? Electrolux had a strong reason to move to Memphis, whatever it may be. Was it necessary for tax payer money to be offered up so that Electrolux could put the money in its capital budget and treated like pocket change?

With the logistical advantage that Memphis has over a large number of cities across the country, Memphis could have dared to be a little less generous. Memphis has a strong advantage over most of the country, and I felt as if we threw it away. There needs to be more thought on behalf of the people that make these decisions. Is selling your soul or giving up millions in tax dollars worth letting someone in with no connection to the community and no contractual agreement to stay here? I guess only time will tell.

The Time is Now

As a Texan, the beginning of the college football season is one of the most important events every year. I patiently wait for, what seems like, months for Texas Tech to begin its football season. Once it begins I fill every Saturday with hours of college football until January when it finally ends. I watch, in Texas, every year as communities come together through college sports. Whether it is in Lubbock, Texas where everyone cheers on the Red Raiders or in Fort Worth, Texas where those Horn Frogs of Texas Christian University hail, people in the cities come together to cheer on the home team. Now, I know Memphis is a basketball city rather than a football city but I am here to argue from a new perspective. Both of these sports are vital in putting universities on the map and universities are essential in the success of cities.  

Lubbock, Texas is not the largest city in Texas, nor, is it the most fun by any means. Apart from the occasional ultra-conservative incident on the national news or Buddy Holly reference, there is not much Lubbock is known for. When I tell people I am from Lubbock, however, they often have at least heard of it because of Texas Tech and, most recently, due to the great success and controversy surrounding the former football coach, Mike Leach. Although Tech is not known for its strong academics, extremely smart and gifted kids select it for college because they are faithful fans of the Red Raiders.

Memphis has an advantage that Lubbock does not. Memphis has an extremely rich history, an even bigger musical sensation from the 1950s, and, typically, a great college basketball team. People all over the world have most likely heard of Memphis. Not all that is known about Memphis, however, is positive. The 2010 Census revealed that Memphis has the highest poverty of any city at a staggering 19.1%. Even more detrimental to the city’s image, Forbes named Memphis the second most dangerous city in America saying that out for every 100,000 residents there are 1,006 violent crimes in 2010. Along with this negative press, the University of Memphis Tiger football team has consistently been associated with being one of the lowest performing teams in a non-Bowl Championship Series conference. Is there anyone who can come to Memphis’ aid?

There is one coach who is able to make this team better. His name is Mike Leach. This former coach of Texas Tech is known for two things: being a crazy pirate and more importantly winning football games. He has been called a mad scientist because his formula for winning is both crazy and extremely effective. He is able to take teams with mediocre talent and turn them into offense power houses. A school like U of M could benefit from this because it could make them viable to move into a better quality conference like the Big 12 or South Eastern Conference. 

Having a great football team will provide families in Memphis with an additional event to attend in the fall. Memphians must wait for basketball season each year. People in Memphis will call you crazy for even suggesting that Memphis can be both a football city and basketball city. What about those outsiders who are not native Memphians?  If a great football team were to offer people with both pride and events could it not also invite business into the city? Businesses to city can provide jobs that would spark revitalization and all of this could happen with a simple hiring of Coach Leach.

My Opinion on Closing 3 Memphis City Schools: A Good Start

The school board has suggested closing three Memphis City Schools: Graceland Elementary, Lakeview Elementary, and Georgia Avenue Elementary. These schools have consistently experienced declining enrollment. Graceland's enrollment dropped from 626 in 2002 to 372 this year and in that time Georgia's dropped from 678 to 325. Due to the poor conditions of Graceland Elementary and Georgia Elementary, it would take $8 million to bring Georgia up to code and $9.6 million for Graceland. Closing the schools though would save the city about $26 million in the first year, and $58 million in 10 years! "It's not just about closing a school to save money or to get it off our books," Superintendent Kriner Cash said. "It's really about what is the educational quality to the students in that school." Memphis Education Association President Keith Williams predicts that students affected by the school closings may be better off than they are now. "Students do not go to a school whose adequate yearly progress is lower than the school that is closing. It will be comparable or better,” Williams says.
Inevitably there will be contentious debates about the recommendation to close these schools, but the citizens and some elected officials are asking the wrong questions. The question should not be “how do we save our schools?” It should be “how do we provide an environment that helps educate our students?” What’s as disturbing as the costs for operating public schools at half capacity, mainly in neighborhoods of entrenched poverty, is that most of these are also the schools in the worst physical condition. That appalls Superintendent Cash. He said as directly as possible: The kids who are most at-risk and need our best efforts are the ones in the worst schools.
When we send students year after year to schools that cannot even meet building codes, we are sending them a message: Your city does not value you and your future. Moving these students to an environment more conducive to learning will show them the City is paying attention and we care about their future.
An underlying issue that is even more difficult to address than closing schools is the fact that too many City of Memphis facilities are in the wrong places. They weren’t once, but they are now. Densities in a number of neighborhoods have fallen by half, but public facilities are located as if we are still living in the Memphis of 40 years ago. Last October, Superintendent Cash recognized that there were 21 elementary schools with less than 75% capacity, and six of them were less than 50%. There were about 11 middle schools with capacities of less than 75% and four with less than 40%. Finally, there were about five high schools with less than 75% capacity, with two less than 50%. These schools are serving neighborhoods that are no longer densely populated by school-aged children and their families, and this inefficiency is costing the city big time. Public services are less expensive when they are serving high-density areas, and capital costs are almost 50 percent cheaper than low-density sprawl.
Because of the declining densities of many neighborhoods, city taxpayers are paying for once busy facilities that are now underused and mislocated. That’s why the option is not simply closing old facilities, but relocating them to where they are needed in light of population shifts. In the case of the three city schools suggested for closure, "They are not communities where you have young families so, the school population in those areas is down significantly," said Williams.
I suggest operating government more like a business. For business, there is a demand threshold that must be met to keep the enterprise afloat. There are a minimum number of customers that are needed to cover costs and generate a profit. If this threshold isn’t reached, businesses fail or are never opened.
Now, apply this to city services. When places have levels that are below threshold, services are not terminated. They are subsidized, because all city services are delivered to everyone. As a result, city government can’t keep up, so we have roads that are patched but not resurfaced, crumbling sidewalks, declining services, half-empty, dilapidated schools, and unfortunately the list goes on…
Back in October of 2010, Superintendent Cash’s announcement that 50 Memphis City Schools should be closed was right on target. I think closing three schools is a good start…

References:
Tealy Devereaux: Unified Board Closer to Closing 3 Schools. October 27, 2011.
Sherri Drake Silence: 3 Memphis City Schools Considered for Closure. September 19, 2011
Smart City Memphis: School Closing Prospects Hint at Bigger Problem. October 26, 2010.

It's Not the Population That's Growing

The health issues in the state of Tennessee have been a growing cause of concern for policy makers across the board. Both public and private sector health care providers have seen a significant rise in food related illnesses that have put a strain on health care budgets in the state.

According to America's Health Rankings, Tennessee ranks 42 in the country in overall health rankings. In fact, the state of Tennessee has not ranked below 40th since 1990. In 2010, 32.8 percent of the population in Tennessee are obese. This percentage gives Tennessee the not so proud ranking of 48th among the 50 states. Obesity in the state of Tennessee is more prevalent among non-Hispanic blacks at 40.3 percent. In non-Hispanic whites, only 28.2 percent of the population suffers from obesity. Diabetes also varies by race and ethnicity in the state of Tennessee. 12.7 percent of non-Hispanic blacks suffer from diabetes while only 11 percent of non-Hispanic whites have diabetes.

In 2007, Forbes ranked Memphis as the most obese city in the country. Forbes contributes many of the problems with obesity and health rated illnesses to poverty rates and high frequencies of fast-food consumption. In Memphis, 24 percent of the residents live below the poverty line compared to the national average of 13 percent. Forbes considers fast-food consumption as a minor factor contributing to the obesity epidemic in Memphis. In 2007, Sandelman & Associates, a consumer tracking group, reported that the average American purchased fast food 16 days a month. Memphis, along with twelve other cities, either met or exceeded the national average in fast-food consumption.

While I’m sure that no logical person would deny the argument that Forbes made back in 2007 was irrational or wrong, did Forbes look at the correct factors that attribute to food-related illnesses. Is the issue the fact that people have an over-abundant supply of fast-food or is it more of an issue of the lack of access to healthy foods?

News One, an African-American-oriented website, ranked Memphis number 4 on its list of “America’s Worst 9 Urban Food Deserts”. What is a food desert? In the 2008 Food, Conservation, and Energy Act a food desert was defined as an “area in the United States with limited access to affordable and nutritious food, particularly such an area composed of predominantly lower income neighborhoods and communities”. The map on the right shows all of the census tracts in Memphis and Shelby County that are considered food deserts.

In 2010, a Gallop poll ranked the Memphis Metropolitan Statistical Area (MSA) number 1 for hunger. They reported that 26 percent of the people in the Memphis MSA could not afford to buy food for their families in the last twelve months. In Shelby County, 3.16 percent of the population either has no car and no supermarket within a mile of their home. This means that almost 30,000 people have limited or no access to fresh healthy foods.

Since the issue of food access has become a hot topic as of late, the next obvious question would have to be has the public or private market made any movement towards solving the issue? Without a question, I would have to say yes. The number of farmers markets in the city has more than doubled in the past few years. There are three now in South Memphis alone, but is that enough? Farmers markets are a wonderful thing during our growing season, which in most cases last for three to four months, but what happens when the farmers markets close down for the rest of the year? The same people that the farmers markets aim to help go back to being that percentage of the population that still have limited or no access to healthy alternatives, and since the private sector is not flooding into these urban areas with pinned up demand a new creative method to reach these people is in need.

Mobile markets like those that have been created in Chicago (freshmoves.org) and Nashville (nashvillemobilemarket.org) may be an immediate solution that can reach those people that have the greatest need. These public-private partnerships that have created the innovative delivery systems may be the future for food deserts across the country. Until large chain or “mom and pop” groceries are willing to move into under-served communities, these newly designed farmers markets on wheels may be the alternative that low-income communities across Memphis need.

Growing Good in Cleveland: Lessons for Memphis

Cleveland, Ohio shares a similar history with Memphis, from population loss to an abundance of vacant properties. Cleveland has lost over half of its residents since 1950 with 81, 588 making an exit between 2000 and 2010 alone. The recent spike has a lot to do with Cleveland being “one of the epicenters of the nation’s foreclosure crisis”, experiencing a “four-fold increase in foreclosures from 1995 to 2007” (Capital Institute). These factors have combined to wreak havoc upon the various neighborhoods’ landscapes, in some cases for decades. In response, a lank bank, one of the oldest in the country, was established in the 1970’s to acquire, rehab, manage, and reallocate vacant and abandoned properties for redevelopment. Today, it is widely-know for its successful role in catalyzing a “renaissance in affordable housing by helping the city’s CDC networks become some of the nation’s most productive affordable housing developers” (PolicyLink).

While holding a prestigious reputation for its overall urban revitalization, Cleveland still faces an uphill battle that includes recovering from the 2008 economic downturn, the ongoing implications of being a “weak market city”, and unimpressive data results following analyses of revitalization efforts. A report by Policylink, reviewing the revitalization process of older core cities, stated that such a daunting task requires “innovation, creativity, and commitment to inclusive and sustainable growth” (PolicyLink). There are many lessons and strategies Memphis can learn from Cleveland’s approach to revitalization, but a recent effort by one of the big names in the game specifically addresses the “inclusive and sustainable” aspects of growth the report acknowledges as being integral to the process.

The Evergreen Cooperatives is a network of worker-owned businesses that seeks not only economic development in struggling neighborhoods, but also “sustainable prosperity” by engaging workers in the profits of the companies, sitting on the company board, and participating in hiring and business strategies. It is a community-building model in its essence. “The Evergreen Model” as it has come to be called, “builds in worker ownership and control but under the umbrella of broader democraticizing and green principles. Learning from Cleveland’s legacy as a ‘steel town’, and the associated risks of such concentration, Evergreen’s goal is to build a diversified portfolio of small enterprises rather than a few large ones, thus ensuring the long-term survival of the cooperative vision” (Capital Institute).

Green City Growers is the most recent small enterprise to be launched by Evergreen Cooperatives. On 11 acres of assembled land parcels (a portion of which was a city-owned, land-banked, “light” brownfield) in the heart of Cleveland, a 4.4 acre hydroponic greenhouse and accompanying packaging house will be built to yield year-round produce. Set to harvest its first crop in the spring of 2012, the greenhouse will yield 5 million heads of lettuce and 300,000 pounds of herbs annually, employing between 30 and 40 workers year round at full operation. The marketing will initially be directed towards the local food service industry, local grocers and anchor institutions, most notably the hospitals and universities, “allowing purchasers not only to reduce their food-related carbon footprints substantially but also to purchase produce with a longer shelf life.” In addition, “Green City Growers will not only provide employment and wealth that helps stabilize our neighborhoods, but it also provides local food at a commercial scale and keeps food dollars in the local Cleveland economy” (Green City Website).

According to the Mid South Peace and Justice Center’s website, there are 6,000-7,000 unsecured vacant properties and 13,000 vacant lots in Memphis. Food production as a means of reuse has arisen in academic and municipal discussions as an option. As farmer’s markets have popped up all over town, a need for “infill farming” has emerged as many of the farmers within the economically feasible service area now have full slates. A hydroponic greenhouse provides a very effective and efficient use of the land for growing food versus a community garden that utilizes conventional farming techniques. Hydroponic systems provide stability in crop yields, protection from outdoor elements, such as weather and food snatchers, and are more environmentally friendly. They use ~70-80% less water compared to outdoor growing methods and can provide a tremendously larger yield, sometimes up to 100 times more, of vegetables per acre. With Memphis’ similar abundance of vacant land and struggling neighborhoods void of job opportunities, perhaps such a greenhouse could not only help to bring jobs to these starved areas, but also help to address food desert conditions.