Thousands of jobs have vanished from Memphis since the economy collapsed in 2008. Yet, the city hasn't dried up.One reason: the annual injection of billions of poverty dollars.Home to half of the region's 200,000 low-income households, Memphis ranks regularly among the nation's poorest metropolitan areas, making it fodder for national misery indexes. But less understood, and less visible, is a robust industry that has quietly grown up around the city's legions of poor.
Memphis' poverty industry pumps at least $5 billion a year five times FedEx's annual local payroll into the economy, according to a study by The Commercial Appeal and the University of Memphis.
Just as the city's logistics industry has swelled around 30,000-employee FedEx and Memphis International Airport, a loosely aligned network of employers everything from charities to landlords to check-cashing companies has grown into one of the city's vital economic engines.
While it is difficult to pinpoint the exact financial impact of Poverty Inc. on the city and county's $46 billion economy, the newspaper found that at an estimated $5.3 billion per year, it rivals the region's largest industries: transportation and logistics, health care, even government.
"There's a lot of economic activity that revolves around the billions of dollars of commerce associated with poor people," said University of Memphis economist John Gnuschke who participated in the newspaper's study.
Year after year, metropolitan Memphis ranks among the nation's poorest metro areas. It now has the highest poverty rate of any metro with more than 1 million residents. Yet, the poor are still able to sustain hundreds of shops, stores and offices. This is largely due to the social safety net.
Just over $3 billion flowed from Washington for the 100,000 least well-off households in Memphis in 2010. This tide of cash never diminishes the poverty rate, which is based on earned wages. But the aid is real money.
Part of the safety net of social programs in place for the jobless, retired, disabled and poor, the $3 billion gets spent, flowing throughout Memphis, mixing with underground cash, state aid and philanthropic donations.
Add up all this cash, and $5.39 billion circulated in 2010 alone, according to the newspaper's study, helping support more than 1,000 businesses ranging from free medical clinics and payday lenders to grocers and car dealers.
Even though wages for thousands of Memphis families fall below the poverty line, they are still consumers. They eke out just enough aid individually to get by. Collectively, the 100,000 households support a wide slice of the Memphis economy.
"A lot of people in this town are very good at getting ahead in a get-by world," said Ruby Bright, executive director of Women's Foundation for a Greater Memphis. "Poor people are strategists within the resources they have available."
Poverty Inc.
At a time when policy makers in Washington are talking about scaling back federal spending, The Commercial Appeal set out to figure what share of the poverty business ties directly to government aid.
Examining reports and records from 2010, the review shows Washington accounts for 56 percent of the $5.39 billion. This does not include all federal grants, such as federal law enforcement funds or the $293 million in federal money going to Memphis City Schools. The newspaper study focused on cash outlays that directly sustain poor citizens. The study shows:
State and federal government agencies disbursed about $3.58 billion in 2010 for the 100,000 least well-off families in the city. Washington's share: $3.02 billion, including safety net and social programs such as welfare, Social Security, Medicaid health care and Section 8 rent subsidies.
Shops, stores, offices, foundations and charities from pawn shops to health clinics whose clients are largely poor account for another $782 million. Baptist Memorial Hospital, for example, provided $51.9 million worth of uncompensated care in its 2011 budget year.
An estimated $768 million is off-the-books cash never reported to the Internal Revenue Service for everything from lawn and garden work to illicit drug sales. The Commercial Appeal estimated the number from economists' studies of the U.S. underground economy.
Besides the impoverished families, one of every three working Memphians earn just enough to get tax credits meant to lift them out of poverty. In 2010, nearly 103,000 city residents received $261.6 million in tax refunds related directly to these earned income tax credits.
The tide of cash helps support scores of businesses leasing acres of building space along the city's commercial corridors. Nearly 800 payday lenders, pawn shops, tax refund offices, rent-to-own stores, check cashiers, car-title lenders and bail bond offices operate across the city, according to a U of M analysis for The Commercial Appeal.
Washington's role
Exactly how big is the poverty trade in Memphis compared to other sectors of the economy? That's hard to say.
The figures above double-count some of the money. Tax refunds, for example, get spent at pawn shops. Food stamps are used at dollar stores. What's clear is that Washington stands out as an economic driver. Take the two largest sources of federal money.
Safety net programs including food stamps and welfare contributed $1.2 billion in 2010 for the city's 100,000 poorest households. Medicaid disbursed $1.1 billion, including funds for some Memphians who are not classified as poor, such as disabled people.
If this $2.3 billion were a straight transfer of cash, it would equal 9.6 percent of all the wages and salaries paid in 2010 to every resident in the city and county.
Only four sectors top this: Government including public schools and colleges (22 percent of all salaries and wages in the city and county), logistics (17 percent), health care (16 percent), manufacturing (12.5 percent).
Even at 9.6 percent, the funding is considerable. FedEx, for example, is Memphis' largest company. Yet, the federal outlays dwarf its $1 billion-plus annual Memphis payroll.
Poverty rate
While a tide of cash fuels the poverty trade in Memphis, the money barely dents the poverty rate.
Indeed, the tide has risen. And the poverty rate remains high. This traces in part to the recession wiping out jobs.
Presently, about 606,000 jobs are filled in the eight-county metro area, about the same level as in 1998. Poverty has increased as a result.
In it latest study, the U.S. Census reported 19.1 percent of the residents in metropolitan Memphis lived in poverty in 2011, a rate higher than the 50 other American metropolitan areas exceeding 1 million population.
As jobs vanished, the safety net expanded. Medicaid disbursements, for example, rose 62 percent between 2000 and 2010 in Memphis and Shelby County. Food stamps, now called the Supplemental Nutrition Assistance Program, quadrupled as the jobless rate climbed from 3.6 percent in 2000 to 11.1 percent in 2010.
None of this money reduced the official poverty rate. It is based on pretax household income reported on tax forms. A family of three that earns $19,090 in annual pretax wages is at the official poverty line regardless of how much rent subsidy, food stamps and other aid they get. Because the safety net money is not earned income, it is not counted in poverty rate calculations.
This has caused some experts to rethink how poverty should be defined. Basing a poverty measure on consumption provides a clearer look than a poverty rate based on earned income, say professors Bruce Meyer and James Sullivan. They research poverty at, respectively, the University of Chicago and the University of Notre Dame.
"Many of the major antipoverty initiatives of the last few decades are not reflected in the poverty rate, because policies like a rise in the Earned Income Tax Credit, a more generous Child Tax Credit, and expansions of Medicaid and food stamps do not show up as pretax money income," Meyer and Sullivan report in the Journal of Economic Perspectives' summer 2012 edition.
Spending power
What they're saying is the poverty rate doesn't reflect actual living standards. What it means in Memphis is the poverty industry rolls along despite the rising poverty rate. Poor families still consume goods and services.
Across the nation, households with an annual income of less than $10,000 lived on average as if they had made $21,000, according to a consumption survey last year of 122,287 households in all income strata by the U.S. Bureau of Labor Statistics.
Government aid including welfare, food stamps, and rent subsidies accounted for the bulk of the $11,000 difference in the BLS survey. Off the books cash, the survey noted, averaged $1,100 per year, while annual Social Security payments added $2,800 per family.
Just as the safety net pumps cash into Memphis families, they in turn spend the money. Across the city, the workforce bulges where the poor and working poor make up a large share of the client base. For example:
Memphis and Shelby County contain a greater share of collection agency employees than the nation as a whole. Being above the national per capita rate adds 412 jobs and $14.1 million in payroll, according to a proportional analysis by The Commercial Appeal that uses U.S. Bureau of Economic Analysis data.
Grantsmaking, voluntary health and other charities employ one worker for every 2,369 residents in the United States. In Shelby County, the rate is one worker for every 884 residents. Being above the national rate adds $36 million in payroll here.
Payday lenders and check-cash shops average one employee per 2,013 residents in communities throughout the nation. Here, the rate is one employee per 530 residents, adding 464 jobs and $62.4 million in payroll.
Memphis tides
In some neighborhoods, nearly 20 percent of the households report annual income of less than $10,000 enough to sustain some businesses.
"Our customers are really good people. They just don't have bank accounts. We're their bank," said Ann Agee-Gates, managing partner of Happy Hocker, a pawnshop on East Parkway.
Sustained by safety net programs, one unemployed single resident of South Memphis can survive. Add up the food stamps and her parent's rent subsidy and Social Security, and they live as if they earned $400 per week.
"I've put my life on hold. I've learned to live basically," said the woman, who asked not to be identified because she was embarrassed by life lived without a job. "The system has it now where if someone has fallen, it's hard to get back up."
She said she left the workforce recently to help her elderly parent in an emergency. She can now return to work. The parent is stable. But she's just comfortable enough to stay home, she said, especially when good wages seem hard to find in a region with a current 8.6 percent unemployment rate.
She lives in the parent's apartment. Medicaid and Social Security checks cover the parent's basics. Energy is used sparingly to keep the monthly bill under $150. Rent costs the two of them less than $150 per month after the Section 8 subsidy payment. The daughter contributes about $200 per month worth of food stamps.
"Food stamps make me able to live almost at a standstill," she said. "It plagues me that I'm not working. I know I have to get work some day. But right now I don't have to."
Her tax refund exceeded $1,000 including an Earned Income Tax Credit spent long ago, she said. She figures pawned jewelry, watches and clothes will bring in another $1,000. She makes about $100 each month or so doing odd jobs.
"I've lived where I was able to be frivolous," she said. "I wish I had thought to save. Now, whatever I get goes into our home. I'm going to turn this around. I just have to trust in God."
Although 96,000 households here rarely or never use banks, economic life hasn't disappeared, not with a $5.39 billion tide of money flowing across the city. Poor isn't the same as destitute.
Data reporter Grant Smith contributed to this report.
-------------------------------------------------------------------
BY THE NUMBERS
No one knows the exact size of the poverty economy in Memphis. The Commercial Appeal made its own estimate. It uses federal and state government reports and per-capita and proportional analysis. Centered on nearly 100,000 poor households in Memphis, the poverty economy amounts to an estimated $5.39 billion industry in the city, fueled by an array of sources. Here is the revenue from each sector:
Medicaid, $1.2 billion.
Safety Net, $1.1 billion.
Illicit trade, $572 million.
Poverty trade, $450 million.
TennCare, $418 million.
Philanthropy, $332 million.
Social Security, $297 million.
Tax credits, $261 million.
Off the books, $196 million.
Federal housing, $168 million.
Tennessee aid, $139 million.
