Letter to the Editor: Tale of Franklin’s tax-break incentives plays out like Greek tragedy

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To the Editor:

A Greek tragedy is a literary play art form that originated in ancient Greece and is described by the following characteristics: 

 All the actors are morally good people. 

 Each actor does the right thing in his own eyes and by his own rational self- interest.

 The end result is a tragedy for all caused by some general structural failure for which no individual is personally responsible.  

As a former member of the Franklin Industrial Development Board, I fear Franklin and Williamson County is in the midst of playing out its own Greek tragedy. 

The IDB is a volunteer body appointed by the mayor with the mission of providing a conduit for tax-advantaged financing of major projects that will make a significant contribution to the economic development of Franklin. During my tenure on the IDB, one major project for this pass-through financing was approved in excess of about $110 million dollars. In the past, the board has also approved projects of a much larger magnitude, including Nissan. 

The project begins with a private business entity coming to the city saying something like, “We are planning on expanding or relocating our operations. What incentives will you give us if we choose Franklin?” This request is then referred to the IDB for consideration for tax-advantaged financing, which is often part of a larger package made up of a combination of real estate or other tax holidays, abatements or tax reductions.

If tax-advantaged financing through the IDB is part of the a package offered to the business, attorneys representing the city then examine the project and make a determination as to whether it qualifies for IBD financing arrangement. If it does, attorneys for the city negotiate with the attorneys for the business to work out a package that is then sent to the Board of Mayor and Aldermen and, ultimately, to the IDB for approval. 

The package allows the business to sell bonds to investors who receive tax-free interest. As a result, the project then receives a substantial reduction in total interest costs compared with raising money on regular tax corporate debt markets.  

This cost reduction can be as large as 20%, saving millions for a project over time. And although the bonds are issued as if they were backed by the full faith and credit of the city of Franklin, they are not. Payment of interest and repayment of principal is the sole responsibility of the project and bond holders do not have recourse to the city to demand payment. 

This financial advantage may be combined with other incentives, including exemption from tax payments, tax rate reductions, or tax abatement and other tax holidays.   

The revenue loss to the city is theoretically offset by the economic activity the project generates over time in additional employment and other economic benefits. These theoretically add sufficiently to the tax rolls of the county and city so, overall, city and county revenues are preserved or even enhanced compared to a situation where these advantages were not awarded.  

The emphasis here in is on the word “theoretically” because, regrettably, the IDB has never conducted the necessary analysis to ensure the taxpayers’ interest is actually preserved.                                                     

It would seem every project should have an overall plan that’s prepared by the city to ensure the interests of the general public are protected — a plan that could be evaluated, verified, audited and validated. It would appear good business practices would demand the IDB,  the mayor or aldermen review each specific project’s plan and progress, including the project’s financial outcomes and whether the tax incentives the city offered to attract a business to Franklin have actually benefitted the general interest of Franklin residents and taxpayers more than the special interests represented by the project.   

For example, the argument is frequently made that a business will generate adequate employment that will, in turn, favorably enhance sales tax revenue and other tax revenues accruing to the city and county. The hope is this revenue enhancement will more than offset the revenue lost from tax advantages awarded to attract the project to Franklin.   

To my knowledge, this sort of review has never been accomplished.  There is even some doubt on the part of the IDB leadership that the IDB can require a project review on its own. But if the IDB isn’t so authorized certainly in the context of an overall project review requested by alderman and/or the mayor, this project audit could and should be accomplished.

As a member of the board about a year ago, I suggested this be done and was met with two responses to my enquiry: 

1. There’s no financial risk to the city from nonpayment of the bonds. The project stands on its own. This may be true but it’s also irrelevant to my question which focused on whether or not the taxpayer was adequately compensated by the arrangement negotiated to attract a business to Franklin. 

The board was uncertain about whether or not it had the authority to order a review of its decision to grant the financing facility. I then referred the matter to city senior management and was rewarded for my time and trouble with an invitation to resign from the board.

It’s been close to a year since my resignation was accepted, but I’ve had a hard time living with my conscience on the matter without knowing if the Franklin taxpayers benefit from these programs. Absent a rigorous followup by the IDB board, aldermen and/or the mayor, we will never know. 

And so, the curtain falls on a Greek tragedy right here on Tennessee soil.  Good, well-intended public servants all doing the right things in their own eyes with unknown and unintended consequences that may well violate the public trust. 

John A. Knubel

Franklin, 37064

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