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The role of tax incentives in development June 22, 2006

Posted by Tom in Community, Economic Development.
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Smart City Memphis offers yet another blistering critique, this time of Memphis’ economic development tax incentive policies vis a vis Nashville’s policies. Here’s a sample:

[…We] admire Nashville for resisting the Siren’s call of tax freezes. Yes, they are attractive: they are easy, they aren’t generally understood by the public and economic impact studies can interpret them in ways that make them look grandly successful.

Nashville, on the other hand, in a 10-year period, only approved five tax freezes. Meanwhile, Memphis and Shelby County were handing out 415 tax freezes. In other words, we were approving in six weeks the same number of tax freezes that Nashville was approving in 520 weeks.

About 20 years ago, Memphis and Nashville were roughly in the same place. Both had ambition and expansive ideas. Both were trying to sort out and prepare for competitive position in the coming economy.

Nashville went one way. Memphis went another.

In Nashville, they were mindful of sending a message about quality government, quality of life and quality of public investments. They set out to execute “quality strategies” that would make them a magnet for young workers and skilled jobs. They identified the key public investments that could make this happen. They rejected the notion that they had to waive taxes to get companies to move there.

I’m no expert in the world of tax incentives, but this lengthy discussion really makes you think about what is most critical in economic development – high value or low cost. If you accept Smart City Memphis’ arguments, it appears that Memphis is working as a low-cost economic development community and Nashville is a higher value community

The nature of this blog (and my work) leads me toward the notion that a well-trained, higher value workforce can be a meaningful lure in economic development on its own – independent of financial incentives. (Disclaimer: I have never directly worked in economic development, so my opinions may be pollyannaish. But they are what they are.)

Interestingly, Nashville is listed as the #1 community in the country on Kiplinger Personal Finance’s “50 Smart Places to Live.” And the Nashville Chamber of Commerce offers an extensive list of high community rankings for their town. Is there something to Smart City Memphis’ claims?

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