Corporate Subsidies Versus Schools
Back to school on how boondoggles undermine public education.
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With Labor Day behind us, nearly every school in the U.S. is back in session. Lights are on, budgets are done, supply closets are stocked (at least in theory) — and billions of dollars more would be flowing into school districts were it not for state and local corporate subsidies.
Yes, it’s a grim back-to-school statistic, but it’s true: According to a 2021 study by Good Jobs First, schools in the United States lost a collective $2.3 billion to corporate tax giveaways in fiscal year 2019.
And that total is actually an undercount, because many states and school districts don’t disclose how much corporate tax breaks cost them. For example, New York State alone probably has another $1.4 billion in lost public education funding due to corporate subsidies. Many states that should be forcing school districts and localities to disclose what sort of funding they’re losing to so-called economic development programs aren’t doing so, but even the incomplete picture is devastating in terms of the money that could be flowing into schools, but isn’t.
One of the best reasons, then, to reform America’s corrupt system of state and local economic development is to stop it from bleeding school districts dry.
The reason corporate subsidies drain so much from school budgets is simple: Property taxes are the main avenue through which U.S. schools are funded, and are also one of the most popular avenues for doling out corporate subsidies. These either come in the form of direct property tax abatements — i.e., a corporations promises X to the community and only has to pay Y percentage of its property tax bill, or has its property tax eliminated entirely — or through what is known as tax increment financing, where a certain percentage of the property taxes paid by a firm don’t go to the government to pay for general services, but are specifically spent in the district in which the firm is located, on items such as infrastructure or amenities.
Sometimes, these property tax giveaways will take the form of a PILOT — or a “payment in lieu of taxes”. If you see that term, it simply means the corporation in question has agreed to make a certain, usually fixed, payment to the local government instead of paying its assessed property tax rate.
But don’t be confused by the fancy terms or annoying acronyms. These are, at the end of the day, different mechanisms for accomplishing the same thing: Reducing a corporation’s property taxes in order to direct corporate activity to a specific location.
Now, regular readers of this newsletter will know that the vast bulk of the available evidence shows that corporate subsidies do not actually incentivize corporations to locate in a particular place: Most of the time, they simply pay a corporation to do what it was going to do anyway, based on other, sounder business reasons, such as the availability of labor, supply chains, access to energy, or a particular climate. Corporate subsidies are also not linked with any meaningful increase in economic prosperity, be it job creation, income gains, GDP growth, or poverty reduction.
So state and local elected officials are trading billions in school funding in exchange for an economic development tool that all the available evidence shows won’t actually provide meaningful returns to local communities.
I know pointing to “billions” of dollars in losses to schools can actually obscure the impact somewhat, since that’s a huge number devoid of local nuance. So here’s the impact on Atlanta public schools alone: Between $12 and about $22 million lost in any given year to property tax reductions handed out in the name of economic development, as shown in this chart from an investigation by The Conversation.
That’s tens of millions of dollars that can’t be spent on teacher salaries, school maintenance, new computers, new playgrounds, or whatever else the district might need.
Corporate subsidies undermining public education is certainly not a new phenomenon in the modern age of state and local economic development, which is disproportionately focused on bribing corporations to put specific facilities in certain places, rather than on building anything sustainable. Here’s an article from 1991 making many of the same points today’s critics make.
But the problem is even more critical today, as we’re in an extremely funky moment when it comes to public education funding. As of this month, the massive funding boost provided by the federal government in response to the Covid pandemic will be at an end: All federal pandemic-related funding received by states must be committed by the end of September. Nearly 50 percent of the most recent tranche of that funding went to labor costs.
This creates a cliff of sorts for schools, many of which only recovered in the last couple of years from funding deficits that resulted from the financial crisis and Great Recession in 2007-2008. Though every state is in a different financial condition, the general trend in the coming years is going to be tight budgets as states readjust to a lower level of federal support — one which they haven’t really prepared for in the intervening years, with many of them cutting taxes and diverting public resources to private schools, rather than preparing for the inevitable end of pandemic aid.
Ending the siphoning away of resources to corporate subsidies won’t fill all those gaps, of course, but it won’t hurt — and it would help move the U.S. toward a more effective and efficient model of economic development that actually provides benefits to local residents. Win-win for students and parents alike.
UPDATE: The trial over the proposed merger between Kroger and Albertsons — which, if allowed to proceed, would be the largest grocery merger in American history — is underway. I wrote about the stakes of the case here and here, and you can follow my colleague Laurel Kilgour’s trial updates here.
SIMPLY STATED: This is a new section I’m going to try out, providing a few links to news items that caught my eye during the week. Let me know what you think! If people dig this, I’ll keep doing it, and if not, I’ll ditch it.
A bipartisan pair of Ohio legislators are pushing for new restrictions on exclusive deals for live sports streaming rights, as more college football games move to specific streaming services.
The headline says it all: “Tampa Electric defends plan to charge residents millions more so big companies save.”
In a truly bonkers move, New Jersey is considering providing $800 million in tax incentives to the billionaire owner of the NBA’s Philadelphia 76ers if he moves the team across the Delaware River to Camden.
And in very statehouse specific news, the Pennsylvania Capitol cafeteria failed a health inspection, in part because of rodent droppings “too numerous to count.”
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— Pat Garofalo
Pat - shouldn't that Atlanta schools graph show the *cumulative* level of $ drawn from the schools?