By Pat Fain and Leslie Agron
The usual theory behind economic development for a community is that the local economy is too small. So, economic development experts seek to bring in new companies, especially industrial ones, to enhance that economy. The theory is that increased local purchases by new companies and their employees are multiplied several times as the money spreads throughout the community. Every additional purchase results in additional sales tax from the same original dollar that exited the new company. Companies that manufacture goods or provide services externally have the greatest value theoretically as they actually bring new money into the community. The rate at which this happens is called the velocity of money.
In Oak Ridge, however, the size of the economy that occurs within our city limits is enormous for our population. The problem for Oak Ridge is that much of that economy occurs within non-taxable institutions and the vast majority of their staff does not live in Oak Ridge. Thus, in Oak Ridge the velocity of money is 70 mph—the speed at which those folks are cruising down Interstate 40 on Friday evening as they take their paychecks home!
So, a development plan for Oak Ridge is about increasing Oak Ridge’s capture of revenue, more than increasing the size of the economy. The city of Oak Ridge, operating within the guidelines set down by the state of Tennessee, derives most of its tax revenues from property tax, sales tax, and bed tax at hotels and motels. New federal facilities are not subject to property tax unless they are owned by private entities. When that occurs, it is usually temporary. For example, several buildings at Oak Ridge National Laboratory are on a lease/purchase plan—taxable to private owners now, but not when the deed is turned over to the government at the end of the contract to purchase.
Additionally, new companies brought into town are also highly sought by other communities. They have very likely been offered incentives to locate elsewhere, and Oak Ridge will probably have to offer their own incentives to seal the deal. As a result, they are unlikely to pay a lot of property tax for their first 15 to 20 years here. Federal facilities may voluntarily pay sales taxes here in Oak Ridge; new private companies will pay sales, and if we are lucky, some property taxes. Thus, most of the positive impact of economic development occurs when new jobs lead to new residents of Oak Ridge who, directly or indirectly, pay property tax and sales tax as they participate in the circulation of money.
The remote locations of ORNL, Heritage Center, and, to a lesser degree, Horizon Center from the center of town do not encourage living in Oak Ridge because the lengths of commutes to those locales are not necessarily much shorter than from neighboring communities.
There simply is no history in the past 40 years of new jobs creating enough new residents to keep city revenue growing at the rate of inflation. Ninety percent of Oak Ridge workers do not live here. The most they contribute to the economy is purchasing lunch upon occasion. They do not even stop for fuel until after crossing Solway Bridge when heading to Knox County.
Oak Ridge needs economic development leadership neither mired in worn-out solutions that are not working nor more engaged in other agendas than our actual interests. The real potential for sustainable economic growth is in permanent residents who find this an attractive place to live and in a visitor-based economy of people who find this an attractive place to visit. Residents have associated costs of city and school services, but they contribute most of their earnings to the velocity of money in the city. Visitors have a triple benefit in that they contribute to economic growth while paying taxes and demanding few services.
When we spend our money on economic development it behooves us to understand where we get the best return on our investment. The new economic strategy should include slowing down the speed of money fleeing town across Solway Bridge at 5 p.m. It strikes us that a toll booth would accomplish this admirably, but alas…
Pat Fain and Leslie Agron are Oak Ridge residents and columnists.