Report: Memphis Electrolux Deal Not In Public's Favor

Electrolux is set to break ground on a new $190 million factory, but some say the deal carries hidden costs while creating risks for taxpayers.

MEMPHIS, Tenn. (AP) -- Appliance maker Electrolux is set to break ground in early October on a new $190 million factory, which proponents say will be a boon to the local Memphis economy because it is expected to create thousands of jobs.

Memphis was able to land Electrolux with an incentive package of local property tax breaks that totaled about $150 million, local officials were told in January.

But an analysis of the deal by The Commercial Appeal shows the incentive-laden project carries hidden costs while creating risks for taxpayers ( Economic development experts say the deal is heavily weighted in Electrolux's favor.

The newspaper's report also said that the decision to give public resources to Electrolux was made by a handful of people who worked in secret in closed-door talks. They produced a signed contract and convinced various boards to ratify it.

The new oven and stove factory, along with a regional headquarters and distribution center, is expected to employ 1,240 workers within five years of the start of production, the company has said.

Supporters of the project, like the Greater Memphis Chamber, say millions of dollars will be pumped into the local economy. Supplier jobs and new cash circulating through the economy could bring the total of new jobs created in the community to nearly 8,000, proponents say.

In January, local government officials were told in public meetings that the incentive package offered toElectrolux 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.

The January figure also left out other pledges made to the company, based on the newspaper's review of internal emails, contracts and other public documents.

The newspaper's findings included:

-- The Tennessee Department of Economic and Community Development -- during negotiations with the company last fall -- 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 newspaper, saying state law bars him from talking about individual taxpayers.

-- In a Nov. 17 proposal, the Tennessee Valley Authority offered an additional $5 million in grants, loans and other incentives on top of a $1.5 million grant that had been made public. A TVA spokesman also declined comment on the subsidies, calling them "client confidential."

-- Public documents show governments are borrowing money to pay for the project, with interest alone adding an estimated $76.5 million over decades. Memphis and Shelby County residents will pay off the debt in 2036 through non-property tax sources, such as local sales taxes and business taxes.

-- Electrolux was exempted from diversity requirements that have been a condition for other companies receiving local property tax breaks.

-- The concession that may prove the most beneficial to Electrolux 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 the city quickly. Electrolux, at most, 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 newspaper showed the December 2010 contract to Jeffrey A. Finkle, president and CEO of the International Economic Development Council, a Washington-based nonprofit group that bills itself as the world's largest membership organization serving the economic development industry.

"I could be wrong, and this project could stand to last 100 years in Memphis," Finkle said. "But if it doesn't, this incentive package is built only with the company's interest in mind."

Mark Herbison, the senior vice president for economic development at the Greater Memphis Chamber, saysMemphis and Shelby County got a great deal for a relatively small amount of local money. The project allowsMemphis to complete development of the Frank C. Pidgeon Industrial Park, he said.

State government had already invested in other big projects and it was only fair that it spend some money inMemphis, Herbison said

"I'm very proud that we were able to leverage the kind of money we were able to leverage for our industrial park -- because we've been overlooked," said Herbison, senior vice president for economic development at the Greater Memphis Chamber.

With the deal, Memphis leaders saw a chance to signal that the area was "open for business."

"We were becoming a place where it was believed the bureaucracy, the red tape and the resistance to business was a red flag," said Memphis Mayor A C Wharton, who succeeded Willie Herenton in October 2009.

In October 2010, Herbison and other officials visited the Electrolux North America headquarters in Charlotte, N.C., to talk about placing the facility in Memphis or an industrial site in Haywood County.

On Oct. 18, recruiters offered Electrolux a package that included a $30 million grant, according to a letter sent a few days later.

"We were told our first offer would not even get us to the table," Herbison told the chamber publication "Memphis Crossroads."

Electrolux, which was looking at sites in Alabama, North Carolina and Mexico, doesn't dispute that it asked for money.

"So we did an analysis and said, 'Hey, to be in the game we need to be able to have an incentive package that's in this range,'" said Thomas A. Vining, a vice president of engineering for the company. "And that's the discussion we had with all of the states we talked to."

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