Gov. Lee signals rethink on best path to bring Memphis Megasite to fruition
By Milt Capps
Updated 14 Feb 2020: A spokesman for ECD told VNC Feb. 13 that ECD is not looking at alternative uses for the megasite property and continues its search for advanced-manufacturing tenants. The Tiger Jones park grant reported below is "one of Gov. Lee's appropriations" and that grant did not affect megasite funding. The Commercial Appeal reported Feb. 13 that during a Memphis appearance this week Gov. Lee affirmed his enthusiasm and commitment for the megasite vision, but added that the megasite is not what he pins his hopes on for economic prosperity in that region. -Ed.
TENNESSEE's 4,100-acre Memphis Regional Megasite in Haywood County is far from finished and has failed to secure tenants, thus far, largely because of prospects' concerns about an array of uncertainties, including the availability and cost of water, wastewater and power infrastructure, the supply of qualified workers, options for residential development and other factors.
Those were among the facts and observations shared Monday by Bob Rolfe, Gov. Bill Lee's commissioner of economic and community development, during a standing-room only meeting with about 30 legislators and others who crowded into a small conference room in the state's Cordell Hull Building.
VNC research indicates that virtually from the megasite project's formal inauguration in 2009, state officers had estimated the total cost of the project at at least $700MM, including eventual tenant-industry incentives. Getting the land, utilities and basic infrastructure "shovel ready" is likely to take close to $300MM, all told, toward which less than $100MM has been expended.
Property eyed for the megasite was certified by TVA in 2006 as suitable for large-scale manufacturing, and the site, itself, was purchased by the state in 2009.
Haywood County is one of the state's 24 designated economically At-Risk counties.
It lies near Memphis and Brownsville (map at bottom) in southwest Tennessee, where it is encircled by two Distressed counties and four better-off "transitional" counties. Interactive map here.
State data online says Haywood, standing alone, has a labor force of nearly 8,000 and a 3-year average unemployment rate of 6.7%. Also, 2.1MM people are said to live within a 90-minute drive of the regional megasite site, a radius that probably penetrates several states neighboring Tennessee.
Though their was no lack of civility during Monday's meeting, an air of consternation seemed to grow among attendees during the 30-minute gathering, which ended a few hours before the governor delivered his 2020 State of the State Address before the General Assembly, Feb. 3.
Rolfe told his audience that within the two weeks prior to the Caucus meeting, Gov. Lee told him he "remains 100% committed" to bringing the West Tennessee site to fruition.
Caucus Founder Rep. White told those assembled Monday that he interprets recent developments as meaning that, while some construction is on hold, the overall project remains on-track.
The topic of the megasite project's cost and stage-gated spending did not arise when Gov. Lee, Rolfe and others on their staffs met Nov. 4 for their live-streamed discussion of budget options for the Administration's FY 2021 budget proposal. Nor was it highlighted that day in a version of Rolfe's budget presentation document (pdf here) that was provided to VNC by ECD staff.
The governor did emphasize in the 2020 Address that he would be proposing an additional $20MM for statewide rural economic development, with a focus on site development and related matters.
First candidate and now Governor Lee's comments on the megasite project, which he inherited from previous Governors Bill Haslam (R-Knoxville) and Phil Bredesen (D-Nashville), have been limited.
However, on at least one occasion in 2018, Gov. Lee signaled his awareness that the megasite had not yet been successful.
In August 2018, working through campaign staff, Venture Nashville asked then-candidate Bill Lee his thoughts on the incomplete megasite project.
Lee responded, as follows: "We have to complete the Memphis Regional Megasite. It is an opportunity for economic development in West Tennessee, an area that has consistently drawn the short end of the stick in terms of state economic resources. The failure of this project so far is just another example of how ineffective government can be when it is disconnected from the realities of accountability that private sector actors deal with every day. While we work to finish the Megasite, I'd like to see substantially more transparency and accountability brought to ECD to ensure that an issue like this does not happen again."
Lest it go unsaid: Candidate Bill Lee's response -- particularly his reference to the imperative of private sector accountability -- seemed particularly interesting in the context of the megasite's infrastructure issues, given that he previously ran his family-owned The Lee Company, which employs more than 1,500 workers focused on HVAC, plumbing, electrical and major construction projects.
Candidate Lee's 2018 endorsement of continued efforts on the megasite (and similar assurances expressed that year by then-Democratic candidate for governor Karl Dean) came at an important juncture.
For, in 2016, The Office of the Comptroller of the Treasury suggested in its routine review of ECD that if a West Tennessee megasite tenant had not been secured within the three-year window that ECD then thought reasonable, "The department may wish to consider alternative uses for the site..."
As fate would have it, even though the window could simply be kept open, Gov. Lee took office just as the window cited in the Comptroller's report was closing.
While tracking the issue in 2018, VNC checked with the Comptroller's staff regarding any further audits or reports on the megasite. Communications Director John Dunn responded, "While it is possible that we may do some audit work in this area in the future, it would be inappropriate for me to confirm that it will be a part of our future audit plans."
More recently, VNC notes that less than two months ago, the Tennessee State Funding Board, which is overseen by the Office of the Comptroller, voted on further actions related to the regional megasite's land and right of way funding. Documents 1 and 2.
Rolfe explained that in the past six to eight months there have been at least three very significant instances in which a prospective tenant or their site-selection consultant had considered the site, but not one of those encounters led to a deal to put a plant on the megasite.
Rolfe said, whereas the state has for several years set a goal of making the megasite "shovel-ready" in advance of occupancy, in order to ensure minimal delay in a tenant's new plant coming onstream, the Lee Administration now insists that only after the state secures one or more committed tenants for the site will the governor greenlight wastewater pipeline construction spending and related work for aggressive pursuit.
Speaking ad lib, several members of the Caucus audience simply expressed puzzlement.
Others said more pointedly that the mandate to find a committed tenant before the State can answer basic operating-cost questions and hand over the keys for plant construction quickly enough to suit the tenant, etc., seems like like "pulling back" on the project's priority and seems "completely backward" in the context of product marketing.
Asked whether the governor was aware of the added marketing challenge the unfinished site represents, Rolfe indicated the governor was fully briefed on the ramifications of his decision.
Some present suggested that further discussions among the caucus about approaching the governor, the Comptroller of the Treasury and others seemed in-order.
While neither objecting to nor endorsing such efforts, Rolfe urged the audience to keep in mind at all times that it is not just short-term construction costs that are at-issue, but also the economic-development incentives that one or more tenants are likely to require.
Rolfe also said he thinks it likely that there will eventually be one or more new U.S. auto manufacturing plants up for grabs, adding that landing a major automotive manufacturer for the site will require fierce competition with a number of states neighboring Tennessee and elsewhere.
He explained that in 2017 it was tough working so hard to land the Toyota-Mazda project that would have made the megasite a reality, and then see it go to a site at Huntsville, Ala.
He indicated that such experiences have made clear to him that, particularly amid white-hot competition, megasite proponents must find concrete ways to overcome negative preconceptions or "optics" and must always have a compelling factual story to tell prospects, said Rolfe.
Rolfe's comments come amid epochal innovation-, economics- and trade-related uncertainties that are reshaping the global Automotive industry, making forecasting individual automaker priorities and strategies extraordinarily difficult. See: PwC | Bloomberg | Seeking Alpha | Mordor | Edmunds
Still, Rolfe's optimism about finding an Automotive partner seems logical in the context of Tennessee's existing Automotive footprint: After all, the state often refers to itself as "the beating heart of the southern automotive corridor," and a state website says Tennessee is "#1 in the Southeast for automotive employment".
That said, during Monday's meeting Rolfe acknowledged he sensed considerable "frustration" among legislators in attendance, after he had made clear that the governor had decided there'll be no further spending for construction for the megasite unless and until a prospective tenant or tenants first express intent to locate there.
Foremost perhaps, ECD is free to continue seeking wastewater pipeline easements from a half-dozen or so as-yet unpersuaded property owners along the more than 36.7-mile path from the megasite to the Mississippi River. VNC research indicates about 18 other property owners have now granted easements.
Even difficulties in arranging for utilities could lead to innovative solutions.
For example, Rolfe noted that, because utilities have not been recruited for the megasite, it is impossible to provide prospective tenants' definitive projections of the costs of water supply and wastewater transport, two of many variables that are critical to manufacturers and about which questions quickly arise during site conversations with prospective tenants or their agents.
Rolfe also explained that efforts have been made to get locally based utilities to provide electric and gas supplies needed on the site, but the utilities' estimates of their pricing for delivered infrastructure and services turned-out to be significantly higher than ECD anticipated, a factor that could ultimately take local players out of the game.
Regarding local utilities' estimates, one member of the audience asserted that if treatment of utilities' depreciation costs under Tennessee law is part of the pricing problem, as he seemed to suspect is the case, perhaps the General Assembly should consider modifying pertinent laws and regulations.
There's apparently been some less conventional thinking underway, as well.
Rolfe acknowledged that the notion of forming a new utility partnership and/or district continues to gain some consideration, and formation of a public-private partnership (P3) might ultimately be part of the solution.
He said ECD has enlisted the architectural and engineering firm of Gresham Smith to help ECD look at utility-development scenarios.
At another point, Rolfe also made clear there had been other concerns from at least one potential tenant regarding where homes for workers could be built, and whether or not there is an adequate supply of workers within commuting range.
In response, several legislators made the case that the region's workforce is adequate, particularly if a share of workers who are now commuting from rural areas into Shelby County are drawn to employers on the new megasite. (In contrast, the State's Comptroller's 2016 report found that some residents of the region saw the siphoning of workers from their current employers to the regional megasite to be a negative factor.)
The ECD commissioner also sought to remind his audience that West Tennessee has been the focus of a great deal of state effort, for years.
Rolfe noted that since February 2017, when he joined the Cabinet of then-Gov. Bill Haslam, he has personally made 13 trips to West Tennessee in pursuit of the region's development, with particular focus on the megasite, completion of which during Gov. Haslam's tenure had been declared a priority.
Rolfe also volunteered that ECD's tracking of site-selection, jobs and investment data shows that West Tennessee is receiving state economic-development support on par with other state regions.
VNC reported on ECD's methodical efforts to ensure regionally balanced economic-development assistance statewide in our December 2017 report.
Rolfe emphasized that the state does not seek to dissuade desirable relocating firms from investing in any area of the state.
Rather, he said, the state aims in every negotiation to provide prospects a full and complete inventory of all available TN sites and available standard incentives, allowing each prospect full latitude in making a decision.
In the course of those discussions, said Rolfe, ECD communicates to industrial prospects very clearly that the state has available additional incentives or enhancements for companies that create new jobs in designated Distressed or At-Risk counties.
A few hours after the Caucus adjourned, Gov. Lee mentioned the state's commitment to 39 higher-need rural counties in his State of the State Address, in which he also previewed highlights from his proposed FY2021 budget, which totals $40.8BN in combined state and federal funding.
Within Gov. Lee's budget is a $20MM investment in development on what is now Tiger Jones Industrial Park in Jackson, in West Tennessee.
The Jackson Sun reported Feb. 4 that Illinois-based resort company Great Wolf Lodge plans a $150MM development there. VNC
. last edited 0743 2 February 2020