Electrolux Subsidies Total $152,000 Per Job Created

An analysis of the huge, largely state-funded incentives package for a new Electrolux appliance manufacturing plant in Memphis by the Commercial Appeal has a lot of previously-undisclosed details.
In January, local government officials were told in public meetings that the incentive package offered to Electrolux totaled $153.6 million, with most of the funds coming from the state.
That figure did not include the value of local property tax breaks approved by the Memphis and Shelby County Industrial Development Board, which raised the total amount of support to $188.3 million, or about $152,000 per job.
That figure also excluded other pledges made to the company, based on a review by The Commercial Appeal of internal e-mails, contracts and other public documents.
Among the newspaper’s findings:
-During negotiations with the company last fall, the Tennessee Department of Economic and Community Development sent Electrolux a proposal that offered reductions in franchise, excise and sales taxes worth, the state said, an estimated $41.3 million. A revenue department spokesman declined to discuss those tax breaks with The Commercial Appeal, saying state law bars him from talking about individual taxpayers.
-The Tennessee Valley Authority, also in the Nov. 17 proposal, offered an additional $5 million in grants, loans and other incentives on top of a $1.5 million grant that’s been made public. A TVA spokesman also declined comment on the subsidies, calling them “client confidential.”
-Governments are borrowing money to pay for the project, and interest alone will add an estimated $76.5 million over a period of decades, according to public documents. Memphis and Shelby County residents will pay off the debt until 2036 through non-property tax sources, such as local sales taxes and business taxes.
-Although public money is paying for most of the $190 million factory — even reimbursing the company for its purchases of conveyor belts and other equipment — a construction agreement signed with the company in July provides that Electrolux takes over ownership of the property at the “start of production” — the moment when the first product exits the assembly line.
-The city, county and state governments have no written policies to determine which companies will get large cash subsidies in the future, and which will not. The state government is working on some standards, but they’re still not complete.
-Electrolux was exempted from diversity requirements that have been a condition for other companies receiving local property tax breaks.
-Local governments also agreed to keep competing appliance businesses from settling near the factory, and even agreed to pay the company $25,000 per day if they were found to be the cause of construction delays.
-Of all the concessions made in the December contract, the one that may prove the most beneficial to the firm is an agreement by the governments not to try to recover taxpayer money if the company fails to create the required number of jobs or leaves Memphis quickly. At most, Electrolux could lose local tax breaks that have a present value of about $33.9 million, and represent about 18 percent of the $188.3 million in confirmed subsidies.

The CA’s Sunday story package on Electrolux has sidebars, too.
One begins like this:
The only due diligence report Tennessee completed for the Electrolux project was a six-page document that celebrated the benefits and didn’t consider the costs of subsidies. Reports paid for by the Greater Memphis Chamber didn’t consider all the costs, either. None of the reports addressed the possibility that the company would leave early or fail to meet job creation goals.
“The research on the performance of PILOTs (payments in lieu of taxes) in Memphis has always been very weak,” said David H. Ciscel, retired professor of economics at the University of Memphis. “That is, not everybody actually wants to know if there’s a payoff. Because I fear in many cases, there isn’t.”

The other is on Chamber of Commerce power and begins thusly:
In 2004, the Greater Memphis Chamber waged a very public battle against a proposed city of Memphis payroll tax. In 2005, Memphis officials, some still smarting from the opposition, responded by cutting the chamber’s funding. It would be almost two years before the city contributed funds to the chamber.
How times have changed. Today, no other outside organization is linked as closely to city and county governments — particularly the mayors — as the chamber, which has received millions of public dollars the last few years and is the de facto economic development engine for the area.

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