The Vasco A. Smith Jr. Administration Building, where Shelby County Commissioners meet downtown Memphis. (© Karen Pulfer Focht)
A Shelby County resolution requiring developers who want to use future property tax revenues to pay for development to first complete “culturally-competent community engagement” may run afoul of constitutional equal protection guarantees, according to Tennessee Attorney General Jonathan Skrmetti.
Though the resolution “contains no explicit race-based criteria” for approval, Skrmetti stated in a written opinion issued in January that the resolution’s mention of a “focus on eliminating racial inequities” and acknowledgment of historical and current discrimination and prejudice “nonetheless contemplates the consideration of race in the process.”
District 7 Commissioner Henri E. Brooks spearheaded the resolution with the aim of including community engagement early in the process when developers apply for tax increment financing, a tool that allows local governments to pay for the redevelopment of “blighted” areas with future tax revenue. TIFs are based on the theory that improvements will raise property values in the area and thus increase property tax revenue, which can then be used to pay off the redevelopment bonds.
Governments create TIFs on the theory that improvements will raise property values in the area. The higher values and new tax revenue are used to pay off the bonds issued as part of a TIF. Many cities in Tennessee use them, to varying degrees of success.
While Tennessee law requires protections for low-income residents who are affected by this kind of development, they are often displaced from their neighborhoods during construction and unable to return to the more expensive housing options once development concludes, Brooks wrote in a Commercial Appeal opinion piece.
“All we’re doing here is including the public in the beginning of a development process,” Brooks said during a May Shelby County Commission meeting. “All we’re doing is … making sure that the people who pay the bill for the tax incentive (are) informed, (are) included, (and are) educated about the process.”
Brooks could not be immediately reached for comment.
The Shelby County Board of Commissioners voted 9-4 in May to adopt the new guidelines, which include requirements to notify community members in writing before a developer seeks TIF approval and the formation of a community advisory board made up of impacted community members. A project needs a two-thirds majority vote of approval from the community board before the developer can seek approval from the tax increment agency board.
Skrmetti’s opinion takes no issue with those provisions but does highlight two requirements that “raise the concern that the commission may consider race in its tax-increment-financing decisions.”
TIF applicants must include a list of minority- and women-owned firms associated with the development team and their percentage of ownership of the project in their letter of intent, according to the guidelines. Skrmetti wrote that TIF developers’ quarterly reports must include data on the number of minority-owned contractors involved in the project.
It’s not uncommon for local governments to require reporting on minority-owned businesses’ involvement in projects that rely on economic development incentives.
The Fourteenth Amendment to the United States Constitution prohibits infringement on equal protection, including distinctions by race, unless a “narrowly tailored” racial classification serves a “compelling government interest” and meets strict scrutiny standards.
“At this stage there is nothing to indicate that the commission could justify the consideration of race in this context,” Skrmetti’s opinion states.
Shelby County is 54% Black, according to U.S. Census data. In 2023, Black residents of Shelby County had a 24.4% poverty rate, compared to 6.7% for non-Hispanic white residents, according to data compiled annually by the University of Memphis.
Prior to its approval, the resolution received pushback from the Economic Development Growth Engine for Memphis and Shelby County and the Memphis and Shelby County Community Redevelopment Agency, quasi-governmental entities that review TIF applications. Each submitted letters to the Shelby County Commission, but neither sent representatives to attend the commission’s final consideration of the resolution in May 2024.
State Rep. Mark White, R-Memphis, requested the Attorney General’s review of the resolution. White represents District 83, which includes part of Shelby County.