Changing the Game of Economic Development in Oak Ridge

There’s no nice way to spin it: the results of our city’s bad decisions for the past decade are catching up with us. In addition to having high debt and property taxes, our sales tax revenues continue to decline, we are exporting over $727 million per year in DOE payroll^* and we have a comparatively stagnant population growth. Even with all of the new restaurants opening, these projects won’t fully replace the revenue we’ve lost from the countless businesses that have closed up shop or left town for greener pastures.

Continuing down this path is not an option. Thankfully, our city manager understands this and wants to strategize a more competitive position for Oak Ridge. He is proposing that we change our approach to economic development by finding other uses for the $1-2 million we’ve been spending annually on nearly 20 different external organizations like the Chamber of Commerce.

Acknowledging the need for change is the first step. The next step is determining what we should do differently. Ask any successful business owner how to improve sales and they will tell you that you must study the competition. Our direct competition is right in our back yard and, unlike Oak Ridge, they aren’t focused on playing nice with others for the sake of “regionalism.”  

For the last 17 years, The Beacon Center of Tennessee has compared our 50 most populous cities in an effort to answer the question, “How Business-Friendly Are Tennessee’s Cities?” In other words, how competitive are they?

Their study focuses on three areas: Economic Vitality (job growth, population growth and median household income); Community Allure (cost of living, education, crime, individual tax burden); and Business Tax Burden (property tax rate and gross receipt sales tax.)

Out of these 50 cities, Oak Ridge ranked #42, a twelve point drop from last year. Near the top, out of only three East Tennessee cities to make the top 25, Farragut ranked third, a two point drop from last year.  

Census data backs up these rankings with results. At $108,000, Farragut’s average annual household income is more than twice ours which is $48,716. They are also stomping us in population growth at 17% compared to our 7%. Farragut is eating our lunch in every possible way.

So how are they doing it?  On their website, I found their Comprehensive Annual Financial Report (CAFR) prominently displayed on their home page. Before getting to the actual financials, the opening remarks caught my attention: “The Town of Farragut is…in close proximity to the City of Oak Ridge…the two largest area employers [are] the University of Tennessee and the three U.S. Department of Energy facilities in Oak Ridge.”

Ouch! A major element of their marketing strategy is to promote our resources. But marketing alone doesn’t bring about success. After all, you’ve got to spend money to make money, right?

Wrong. Farragut’s phenomenal growth was not stimulated by spending.

First, they have no debt and haven’t since 2002. While our $200 million debt has largely been justified as a means to bring in new residents, Farragut has taken the exact opposite approach. Over a decade ago, we spent $66 million for a high school with the belief that, “If we build it, they will come.”  To date, we still owe over $60 million and enrollment has declined. Currently, Knox County is building schools in reaction to their growth, not to spur it.  

Second, they levy zero property tax or business tax. According to the Beacon study, the average property tax rate for all 50 cities was $1.30. “Farragut again finished with a perfect Business Tax Burden score…” for having $0 property taxes while Oak Ridge came in third from last at $2.39.

Finally, Farragut spends very little for the specified purpose of economic development. Since 2010, their total budgeted amount was $208,000. Over that same four year period, Oak Ridge spent nearly $8 million. The fact that we spend 38 times what they do to bring in business makes Mark Watson’s proposal sound like a no brainer, doesn’t it?

Now, the argument has been made that Farragut doesn’t enjoy the same level of services as Oak Ridge. That simply is not true. Those services (great schools, beautiful natural assets, recreation, low crime, etc.) are all promoted on their website. The only difference is how they are paid for – what sales tax and some nominal fees don’t cover, Knox County property taxes make up for. Prospective residents and businesses don’t see Farragut as lacking; they see an affordable, desirable place to live and do business. More to the point, they recognize that they can get everything Oak Ridge has to offer without paying for it twice.  

With no debt, property taxes or expense to lure in businesses, Farragut is winning the economic development game by spending less. When they topped the list for a second year in 2011, the Beacon Center’s president said, “Farragut has maintained a solid commitment to low taxes and an inviting economic policy…This award is a reflection of Farragut’s commitment to creating a business-friendly climate free of stifling taxes and restrictive regulatory burdens.”  

Obviously, my intent is not to promote Farragut over Oak Ridge. Rather, it is to challenge us to learn from them.  If we are to regain any competitive advantage; if we want to attract the businesses that will build the Uranium Processing Facility; if we want to attract new families to live here, we have to strategize to win. And to win, we have to learn from winners.

Mark Watson gets that and I’m excited about his proposal. It clearly demonstrates that we still have the ability to influence positive change in our future. His suggestion (to dissolve the Economic Diversification Fund) equates to15.5 cents on the property tax rate. I recently provided council with suggested alternatives to debt that were the equivalent of 45 cents. Reducing the property tax rate by even a few of those pennies can be a game changer. Think about it. With taxes rising across the nation, what better marketing message can we send than “Oak Ridge is cutting taxes!”

In the coming months, the city’s 2014 budget (roughly half of which includes the schools’ budget) will be discussed, debated and adopted. The city needs your help. Tell us how we should better prioritize spending YOUR dollars. Share with us what a reduction in the property tax rate would mean to your families. Ask us the tough questions, like the one recently asked of me, “Should it really take 8 trucks and 20+ employees all working on the same street at the same time to take down Christmas lights?”

Your elected officials need your input. Email addresses for all can be found at oakridgetenn.org and ortn.edu. I can be reached directly at trina.baughn@gmail.com. Let’s all put our heads together and find ways to make Oak Ridge more competitive!

*From a 12-31-11 DOE report, $727 million is earned by employees who live outside of Anderson and Roane Counties