How Corporate Tax Incentives Rob Public School Budgets

Newsworthy

A new Good Jobs First study shows that corporate tax incentives—like those given for Amazon HQ2—have diverted at least $1.8 billion from public schools.

Public schools in 28 states could have received nearly $2 billion in funds that instead were given away by state and local governments as corporate tax abatements last year, according to a new report from Good Jobs First. This amount—which, due to incomplete reporting, may only be a fraction of the total nationwide—was enough to have paid for more than 28,000 new teachers in 10 states, the researchers estimate. Instead, it went to attracting businesses.

“When we’ve talked to school board members and teacher unions, they’ve always known their districts were losing money,” said Scott Klinger, a co-author of the report: If corporations are given property tax-free, for instance, that lost revenue is obviously shaved from somebody’s budget. It’s the reason some residents of New York and Virginia are angry about the money their governments offered to Amazon. “But we never had numbers on how much schools lost before,” he said. “We’ve never had even a guess of it.”

Until now. The fresh data was uncovered thanks to a new state disclosure standard put in place by the Governmental Accounting Standards Board (GASB), which governs many state, local, and county governments and school boards by a set of Generally Accepted Accounting Principles (GAAPs). In 2017, GAAP instituted a new rule, GASB Statement 77 on Tax Abatement Disclosures, which now requires that GAAP-compliant government bodies disclose the public costs of corporate tax abatements each year, and out of which pots the money was siphoned.

Using the first cycle of filings available, Good Jobs First analyzed more than 5,600 of the 13,500 independent school districts in the nation. And they found that, in the last fiscal year, schools in 28 states lost at least $1.8 billion to corporate tax subsidies.

(Good Jobs First/Madison McVeigh/CityLab)

(Good Jobs First/Madison McVeigh/CityLab)

The vast majority of that loss (almost $1.6 billion) was in just ten states—which could have as much to do with their more comprehensive reporting practices as their spendier habits. South Carolina schools alone lost $331,324,018, based on its disclosures, and New York came in a close second. Even for districts that didn’t make the top ten, losses were large: 249 school districts across 22 states reported losing more than $1 million.

The nature and magnitude of the tax giveaways differ by city, says Klinger. Storey County, Nevada’s school district, lost almost $40 million, likely at least partly due to tax breaks given to Tesla to build its giga-factory; the Port Arthur, Texas, school district lost $45 million after approving $257 million in subsidies to the Saudi Arabian Oil Company in 2016; and Charleston County, South Carolina’s lost more than $25 million, probably thanks to its subsidizing of Boeing, and Mercedes-Benz and its parent company, Daimler. And Louisiana, which highly subsidizes energy and chemical plans and is home to three of the five most-affected school districts in the country, “shortchanged … more than $2,500 for each enrolled student.”

The public schools of Hillsboro, Oregon, lost the most money to abatement of all the cities that disclosed amounts—more than $96 million. Tech giants like Intel and biotech firms like Genentech made off with the majority of it. And in second place was Philadelphia, whose public schools lost at least $61,900,000 last year, according to disclosures. The city has a broad policy of offering property tax abatements focused primarily on housing rehabilitation, benefiting real-estate developers and individual homeowners of high-value properties. Eliminating these property abatements would benefit the school district in the short-term, the city acknowledged in a recent study—but it also found that after a period of 18 years, the lost revenue from slowed development would hurt the schools even more. The official who wrote the city’s report did not respond to CityLab’s request for comment.

Philadelphia’s complicated self-assessment mirrors the argument many incentive advocates make: Tax abatements are simply necessary for job creation. Without them, local growth will be stymied, and without growth all public services will eventually suffer. Klinger’s response to that? If you’re cutting resources to schools, you’re giving up on developing local talent, and becoming less attractive to families—which also negatively affects economic development over the long term. And research from the W. E. Upjohn Institute, too, indicates that it’s K-12 public education that suffers most when budgets are reshuffled.

It’s an old fight, and one that shows no sign of being resolved. While research has shown that tax incentives do not have a significant effect on location preferences, cities and states still clearly barter with them constantly.

And what they’re bartering away, the report suggests, is public schools’ ability to hire—and pay—good teachers. Strikes roiled states like ArizonaWest Virginia, and Kentucky this year, as public employees’ wages reached record lows, and the gap between teacher wages and other college-educated peers widened. Almost every state reported a teacher shortage this year, and many said the situation was worsening. South Carolina alone could have hired 6,626 more teachers paid a salary of $50,000, estimates Good Jobs First, or raised wages for the ones they already employ. All told, 28,059 teachers could have been hired in the ten states that reported the largest abatement losses with the funds that went to tax incentives—that is, assuming there’s the political will.

(Good Jobs First/Madison McVeigh/CityLab)

(Good Jobs First/Madison McVeigh/CityLab)

Because GAAP requirements vary by state and school district (see the map below for details), and because several districts that should have disclosed figures didn’t meet reporting guidelines, researchers believe that the $2 billion figure is just the tip of the iceberg.

Even within states and cities, disclosures were uneven. Louisiana’s Jefferson Parish gave a 100 percent property tax abatement worth around $111 million over 10 years to Entergy Louisiana, but the district reported no losses at all. Houston, too, “reported giving up $7 million in tax revenue for economic development tax subsidies,” the report reads. “And yet the Houston Independent School District did not report any abatement-related revenue losses.” And while New York City reports the largest annual loss to tax abatements each year, New York City schools aren’t forced to break down that loss’ effect on school funding because of an accounting technicality.

(Good Jobs First/Governmental Accounting Standards Board)

(Good Jobs First/Governmental Accounting Standards Board)

Good Jobs First advocates strongly for better reporting practices, but absent a full freeze on corporate tax abatements, which seems unlikely in today’s political climate, the blood-letting will likely continue. In some states, like Alabama and Florida, school boards do have a voice in deciding whether abatements will effect their revenues. But even if school boards manage to claw back their funds, it might be garbage collectors or police forces that lose out.

Credit: City Lab