Tax Abatements in Context, #2: Digging Deeper on Race and Inequality

August 31, 2021


Chalkboard surrounded by school supplies like pencils, paper clips and paints and text on chalkboard says,"Uneven Corporate Tax Breaks Districts with higher proportions of Black, Latino and poor students lose the largest shares of their revenue to tax abatements"

In a national study we issued in March 2021 on the harm of business incentives to school revenues, certain places stood out for their enormous tax abatements. A deeper analysis shows that the lost revenue falls disproportionately on low-income school districts, those with the most Black and Brown students, and those already suffering from regressive revenue systems.

Our earlier report, which required examining more than 10,000 school district financial reports, only summarizes dollars lost, per district and sometimes per pupil. We have since compiled school finance data to put those abatement numbers in context.  Adding that analysis makes it clear that big, gross-revenue losses are not the whole story, especially because school districts vary so much in size.

That is, a tax abatement loss of $200,000 may not seem huge. But for a district that collects only $300,000 a year in property taxes, spends half of what it’s supposed to on its students, and has outstanding debt that could be easily retired with the abated taxes, it is an enormous sum.

Revenue Impact and Race

Of the 1,807 districts that reported having lost revenues in 2019 to tax abatements, 211 lost more than 10 percent of their total property tax revenues.* This matters because, like school districts nationally, the school districts in our sample get one third of their revenue from local property taxes (which remain K-12’s biggest single funding source).

Thirteen school districts lost more than 50 percent of their property tax revenue. Most of those are in upstate New York or Texas, but there are also ones in Michigan (Detroit City Public Schools), Nevada (in Storey County where Tesla is), Oregon (with its proliferation of enterprise zones), and South Carolina (the state where schools reported the highest total foregone revenues).

In these 211 hardest-hit school districts, the average share of Black and Hispanic students is 40 percent, compared to 22 percent for the rest.  And in nearly two-thirds of these districts, more than half of the students are eligible for free or reduced price lunch—a measure of student poverty.

We ran a simple regression model for all 1,807 districts to test the relationship between race, poverty and the relative revenue impact.* Both show significant positive association after accounting for district size. That is, districts with higher proportions of Black and Hispanic students and those with higher student poverty lose the largest shares of their revenue to tax abatements.

At the state level, Louisiana, Missouri, North Dakota, Pennsylvania, Texas, and West Virginia have regressive revenue structures (that is, their moderately poor districts receive less revenue than districts with zero poverty, according to a measure developed by Dr. Bruce Baker at Rutgers University), and yet these states have some of the highest amounts of abated taxes per student.

Expenditure vs. Tax Abatement

When the Governmental Accounting Standards Board (GASB) issued the new rule that requires tax abatement disclosures, it was acknowledging that state and local spending through abatements is a salient factor in the financial condition of governments. Indeed, abatements are the only kind of tax expenditure GASB has ever codified.

The school district data now enables us to compare how much is spent on corporate tax breaks versus on students.

In our report, we found that South Carolina suffered $472 million in foregone revenue for school districts in 2019, the most of any state. Three-fourths of the Palmetto State’s school districts are underfunded, meaning that per-pupil spending is not at the level required to meet the labor market demand. In fact, spending for students in the poorest fifth of school districts is only 57 percent of what it needs to be.

Similarly, school districts in Louisiana lose close to $380 million a year to its notorious Industrial Tax Exemption Program. Students in its poorest fifth of districts get only 59 percent of the required funding. For Georgia, the numbers are $100 million in abated taxes and 44.8 percent funding adequacy for its poorest districts; for Texas, it’s $290 million and 41.2 percent.

In fact, most of the states that reported large tax abatement losses severely under-spend on their students.

Individual districts display a similar pattern. Seven out of the 10 top-abating districts are underfunded, some by a lot. Philadelphia’s school district, which reported $112 million lost in 2019, is only 46 percent funded: Its per-pupil spending is $8,713 when it needs to be at least $19,055.

Kansas City, Chicago, and Cleveland school districts also reported heavy losses while students are not getting adequate funds.

*This is calculated by the dividing the abated taxes by the sum of abated taxes and district’s revenue (i.e. the revenue it would have gotten if no taxes had been abated, assuming that developments did not require abatements).