A Plea to Audit Your Corporate Tax Break Programs
Trust me, you'll find all sorts of stuff.
Last year, the board of education in Jersey City, New Jersey, found in an audit that its school district loses more than $16 million every year because companies aren’t paying the amount in taxes they owed the city, even under corporate-friendly tax deals.
At issue are PILOTs, which stands for payment in lieu of taxes. These are arrangements in which companies and developers agree to pay a set amount to a city instead of their normal property tax rate.
The idea is that setting a standard fee will encourage development on land that would otherwise be un- or underdeveloped; the negotiated rate is usually far below the actual property tax rate, making many of these deals handouts to companies that don’t need them.
In Jersey City, it turns out, even that was too much for some companies, which were reneging on the lower rates they said they’d pay, and getting away with it because no one was enforcing PILOT agreements. That was bad for Jersey City schools, specifically, since property tax reductions come directly out of classrooms thanks to America’s ridiculous system of school financing.
I’m writing about this now because the city is currently auditing the full scope of the 178 PILOT agreements it has made over the last thirty-something years, with the aim of recouping at least some of that lost cash and getting companies to pay what they said they’d pay. The end result could be tens of millions of dollars for the city to spend on the stuff that local governments actually need to provide.
The lesson here for other states and cities is really simple: Audit your corporate tax break programs. Trust me, you’ll find stuff worth knowing and save taxpayers money.
There are other examples worth citing: I’ve already written quite a bit about the state of New Jersey and its effort to find all the skeletons buried in its corporate tax break programs. Now those efforts are bearing fruit, as the state is chasing down companies, including professional sports franchises, to collect at least some of what is owed. Ohio audited its programs, found a mess, and is now working on reforms. Georgia recently undertook a big audit of its film tax credit, which was producing a fraction of the economic activity boosters said it was, and is now potentially expanding that effort to more corporate dealmaking. Wisconsin, home of the infamous Foxconn deal, also looked into its programs and found an avoidable disaster.
These are good efforts. And they’re not hard for states to undertake. It just takes a bit of political will and someone willing to stand up against the corporations ceaselessly clamoring for a bigger share of the public pie.
FYI: Lawmakers in Missouri and Indiana are proposing that their respective states start film tax credit programs, while a Rhode Island bill would make it easier for film productions to qualify for tax breaks. As readers of this newsletter hopefully know, film tax credits are bad and states that have them should feel bad.
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— Pat Garofalo