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Good Jobs First entered the national scene when it produced documentation that the CARES Act was being used to funnel billions of dollars to private schools and charter schools. The charter schools were double-dipping, first taking money allotted to public schools, then getting millions more from the Paycheck Protection Program, which excluded public schools.
Now, Good Jobs First has released a new report, showing that students are paying for corporate tax breaks.
Abating Our Future:
How Students Pay for Corporate Tax Breaks
Public school students in the U.S. suffered poorer schools—and local and state taxpayers paid higher taxes—in 2019 due to corporate tax breaks. Thanks to a new government accounting rule, we are able to prove that economic development tax abatements given to corporations cost public school districts at least $2.37 billion in forgone revenue in 2019. That is $273 million — or 13 percent— higher than two years before.
Across the country, 97 school districts lost more than $5 million each; 149 districts lost more than $1,000 per student.
Even though we looked at all 50 states and DC, these dollar amounts come from only 2,498 school districts in 27 states, which represent about 20 percent of independent school districts. For some of the states with no meaningful data, there are legitimate reasons, such as no independent reporting for school districts.
However, as we detail, some dozen states are failing to ensure that school districts and other local government bodies are adhering to the new accounting standard.
In essence, they are either exploiting loopholes in the rule or ignoring it altogether.
With no way of knowing how much revenue school districts are foregoing in these data-absent 23 states and the District of Columbia, it’s clear the harm of abatements is far greater than we can yet prove.
Those costs reduced school budgets, forced states and localities to raise their tax rates to offset at least some of the difference, or some of both.
In some of the states with the most complete disclosures, it is evident that the poor pay more. That is, school districts with the highest rates of poverty (measured by metrics such as the share of students who qualify for free or discounted school lunches) are likely to suffer the highest losses.
And because U.S. poverty is racialized, this means that Black and Brown students often suffer the greatest losses. Indeed, Kansas City Public Schools Superintendent Dr. Mark T. Bedell recently called tax abatements “systematic education racism.”
We hasten to add that these tax abatements are, in most states, granted by city or county governments, not by school boards. Even though state equity formulas try to offset the resulting losses, tax abatements effectively amount to what we call an “intergovernmental free lunch,” in which one body of government gets to spend another body’s revenue — a structural flaw that invites over-spending and defeats accountability.
Put another way, local school leaders not only have no say in whether their money should be given away, they often don’t even realize it’s happening.
This 2017-2019 surge in spending on corporate tax breaks also occurred despite the strong economic growth the U.S. enjoyed in that pre-pandemic time span. (Most school districts’ FY 2019 calendars ended June 30, 2019.) Indeed, the nation’s unemployment rate fell to record post-war lows during our study period.
We stress again: The $2.37 billion figure is a conservative summation based on incomplete data. Supposedly, all school districts that use the Generally Accepted Accounting Principles (GAAP) — set by the Governmental Accounting Standards Board (GASB) — should report tax abatements. Though a minority of states do not require their school districts to follow GAAP, many of those districts still do use GAAP accounting, as Wall Street prefers it for rating bonds. Most states do mandate school districts to comply with GAAP, so when their abatement data is missing, we attribute this to either poor state oversight (state auditors, comptrollers or treasurers normally enforce such rules), or loopholes in how “tax abatements” are defined by GASB (or how those definitions have been specified in GASB’s annual Implementation Guides).
These definitional loopholes, or ambiguities of GASB Statement No. 77 (“GASB 77”) — especially regarding tax increment financing (or TIF) and Industrial Development Bonds (or IDBs) — are allowing some of these economic development tax expenditures to go unreported. We detail external evidence of these problems in several states. In other states, foregone revenue is offset through an increased local levy or by state aid. These states argue that GASB 77 does not apply to them because there was no foregone revenue to the districts themselves; instead all taxpayers contribute to the subsidy payouts.
We present in-depth case studies on five states with complete data:
▪ Missouri, where tax increment financing (TIF) proliferates, diverting much- needed revenues away from school districts.
▪ Louisiana, where three of the poorest districts — located in the parishes of West Baton Rouge, St. James, and St. John the Baptist — not only suffered sizeable forgone revenue in 2019 but also large increases from 2017. Indeed, teachers in East Baton Rouge made national news in 2019 when they voted almost unanimously to walk out if the parish school board granted another abatement to ExxonMobil.
▪ New York, where we found statistically significant association between greater tax abatements and higher shares of Black and Hispanic students, after controlling for district size or total enrollment.
▪ South Carolina, where six school districts each lost more than $2,000 per pupil (and four of those have Black + Brown student majorities), while total state losses soared by 31 percent to $423 million in FY 2019.
▪ Texas, where the Chapter 313 program results in heavy per-pupil losses thanks to a system that essentially rewards districts for doling out business subsidies.
In our conclusion, we make seven recommendations to the states and two suggestions to the GASB itself.
The best, most equitable solution is for states to shield school revenues entirely from abatement programs. They can simply rewrite their incentive-enabling laws to exclude from abatements those shares of local property and sales taxes that would normally be apportioned to K-12.
Short of that, we recommend that states cap the share of each locality’s property and sales tax base that can be abated in the name of economic development, and at a very small share, such as two percent. We also recommend caps on dollars per student that can be abated, at $200 annually.
Short of an absolute shield or tight caps, we recommend that states give school boards control to opt in or out of tax-break deals (i.e., to give them equivalent powers enjoyed by cities and counties).
We also recommend four actions by the states now to ensure compliance with GASB 77. They should create clear authority and mechanisms (led by a state auditor, comptroller, treasurer, or education department) to review the financial reports issued by school boards, and if, necessary, correct them. They should require that all localities include a GASB 77 note in their financial reports, whether they have reportable abatements or not. They should require localities to disclose even “immaterial” abatement costs (rather than allowing arbitrary definitional decisions). And they should require all governments that are actively making abatement agreements to compute and report the costs of such deals to all affected jurisdictions in plenty of time for inclusion in annual financial reports.
To the GASB itself, we urge it to start over on tax increment financing (TIF) and issue a clean new Statement that treats all three forms of TIF as reportable abatements akin to those clearly covered by Statement No. 77.
We also urge the GASB to finish the process it began in 2018 and openly declare that property tax abatements that are bundled with Industrial Development Bonds (IDBs) are abatements covered by Statement No. 77.
These safeguards reflect what Good Jobs First has learned since we first explored the tension between abatements and school funding in 2003, and in our many blogs, articles, and studies since GASB 77 was issued in 2015.
Communities cannot determine if tax abatements given to corporations in the name of economic development are worth the price if they don’t know the costs, especially to education.