Statement of the Hon. Willie W. Herenton, Ph.D., Mayor, City of Memphis, Tennessee

Testimony Before the Subcommittee on Oversight
of the House Committee on Ways and Means

Hearing on Tax Incentives for Renewal Communities

May 21, 2002

Mr. Chairman, distinguished members of Congress and this Subcommittee, I am honored to have the opportunity to come before you today to share our plans to implement the Memphis Renewal Community.   Over the next 8 years, the impact of this designation will touch hundreds of thousands of citizens by stimulating the economic engines that allow for the creation and expansion of businesses. 

The Memphis Renewal Community is one of the largest urban Renewal Communities in the country, both in its geographic size and the number of residents and businesses that will benefit.  The 48 census tracts that comprise the area encompass 40 square miles with a population of 112,534 residents and an estimated 5,000 businesses.  The federal tax incentives now available to these businesses will promote significant economic development and - even more importantly - create jobs and reduce poverty.  

There has been significant economic growth in Memphis in the past ten years.  Unfortunately the benefits of that growth have not extended into the entire community.  Our Renewal Community reflects the areas in Memphis which have the greatest need and which offer the best utilization of tax incentives to stimulate business growth.  The challenges of poverty and unemployment that permeate the fabric of Memphis are not easily solved.  We recognize and acknowledge that there are pervasive and long-standing problems that require new and collaborative initiatives to address the core problems that allow this life cycle of human struggle to continue. 

These solutions will not come without great effort.  However, our faith sustains us and the human spirit within us provides the motivation and the desire to create livable and sustainable communities. The Renewal Community we envision will accomplish this goal by not only creating economic opportunities but also providing hope to many Memphis residents.  Along with us on this exciting journey of change are both community and private sector participants all constructing a new paradigm for living, brick by brick, cemented together by the desire and the will to control their own destiny.

Mr. Chairman, please allow me to take a few minutes to share the significant impact of this program in monetary terms.  Before we received the designation we analyzed the potential value of each of the tax incentives available.  Our estimates were conservative, yet staggering. 

The 2000 Census indicates that there are approximately 60,000 people in the Renewal Community between the ages of 18 and 64 and able to work.  If the wage credit is estimated based on the presumption that 30% of the population will also work within the Renewal Community and qualify for the maximum credit of $1,500, the annual value of the Renewal Community Employment Credit is estimated to be almost $28.6 million.  Extended over the life of the designation, the estimated value of this credit is over $228.7 million. 

With almost 32,000 employees in Shelby County FedEx is our largest employer.  22,500 of these employees work in the Memphis Renewal Community and approximately 1,300 of those also live within the designated area, making them eligible for the employment credit.  Another one of our major employers, Buckeye Technologies, has estimated their annual wage credit at $25,000.

But this program will be even more valuable to smaller businesses.  Congress created the Small Business Administration in 1953 to "aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns."  These economic development tools and tax incentives will be crucial to the well-being and survival of small businesses within the Renewal Community.

We have done an analysis for each of the Renewal Community tax incentives and have estimated that the total impact to our community will be in excess of $300 million dollars over the 8-year designation!

Successful implementation of our Renewal Community Tax Incentive Utilization Plan is our next critical step in this process.   Collaboration was the key to our successful application and will be a major emphasis for successful implementation.  We have already begun by creating a  Renewal Community Advisory Board. 

This Advisory Board will lead the City's efforts, including oversight of statutory requirements related to the Course of Action, development of the Tax Incentive Utilization Plan to ensure maximum use of available tax incentives, promotion of the incentives in conjunction with other federal, state and local incentives, and the development of systems to track and report usage of all available incentives. 

Membership on this board consists of representatives from public and private entities including residents from the RC, businesses, banks, the Workforce Development Agency, Memphis Regional Chamber, CPAs, real estate professional and state and local government entities.  This Advisory Board has already developed an extensive marketing plan in preparation for the submission of our preliminary Tax Incentive Utilization Plan.  

Elements of the plan include detailed strategies for marketing to professionals, existing businesses, prospective businesses and to the residents themselves.  By educating these individuals and entities about the tax incentives we will create a body of knowledge and an information distribution system far more expansive than we could hope to achieve through the efforts of government alone.  Through direct mail, workshops and individual contacts we will create a network of educated professionals who will then be able to market the tax incentives to their clients and others. 

The plan brings together existing economic development efforts to assist in the successful marketing of the Memphis Renewal Community and to create a system to combine Renewal Community tax incentives with other federal, state and local incentives to create a synergy that will result in even greater advantages than each program alone. 

We have identified residents, faith-based and non-profit organizations within the Renewal Community as important target markets.  Residents must be educated as to their 'marketing benefit' when completing job applications.  They must be aware that they bring with them a 'hiring advantage' and must be able to recognize and articulate that advantage during the job application process.  We will work within the community through the non-profit service and faith-based organizations who already have the trust of neighborhood residents.

Finally, we are reminded on a daily basis that one of the key impact elements of the Renewal Community program is its ability to create jobs and thus lower the poverty rate and increase the standard of living for residents.  To this end, efforts are underway for close coordination with both the Workforce Investment Agency and the State of Tennessee Department of Human Services, the entity responsible for the state's welfare program.

But our plans do not stop there.  We recognize the important synergies between the Renewal Community program and the New Markets Tax Credits program and are currently preparing an application for a Community Development Entity and an allocation of tax credits.  We understand that the coordination of all of these economic development tools is critical. 

Mr. Chairman, one of our core strategies for attracting capital investment into the Renewal Community revolves around our ability to obtain an allocation of New Markets Tax Credits from the United States Treasury Department.  Investors who purchase these credits will be able to deduct 39-cents for every one dollar they invest over a 7-year period and the proceeds from these investments will be available for equity capital, loans and technical assistance in low-income communities.

Let me give you one real example of how all of these programs work together.  Onyx Medical Corporation is currently located outside of the Memphis Renewal Community.  They need to relocate in order to expand and upgrade their operation, and they understand the unique benefits of moving to the Renewal Community.  When they do, renovation or new construction for their new Renewal Community facility will allow them to apply for a commercial revitalization deduction to expense up to one half of their costs.  Next, they will be able to purchase even more equipment using the increased Section 179 deduction.  With the expanded facility and new equipment, they will be able to create jobs for Renewal Community residents and thus take advantage of the employment credit.  In addition, they can apply for a tax freeze from our local Industrial Development Board to lower their property tax liability.  Combine these incentives with an influx of equity capital from the New Markets Tax Credits program and you have shaped the kind of synergy that Congress intended when it created these programs.

I am aware that Congress is considering legislation that will allow Renewal Communities to modify their boundaries based on Census data from 2000.  We wholeheartedly support this effort.  The ability to add census tracts to our renewal community will further enhance our success.  I am aware also that Congress is considering legislation to expand the number of renewal communities across the country.  Again, this is an effort we support.  Economic development is critical to every community and these are the kinds of economic development tools that cost the federal government very little, but create significant returns for local communities.

Mr. Chairman, distinguished members of Congress and this Subcommittee, thank you for allowing me the opportunity to share our work.  Our city was honored this past January with a visit from HUD Secretary Mel Martinez to announce the first Renewal Community on Dr. King's birthday.  Secretary Martinez noted during his visit "…there remain many unresolved issues that Dr. King sought to resolve during his life."

We, in Memphis, feel a special obligation in fulfilling the legacy of his life's work...to pursue a goal of expanding the equality of economic opportunity for all of our citizens.  The Bible says "...we shall be transformed by the renewal of our minds..." and so shall our city be transformed by the renewal of our communities.  Thank you.