Making the students pay? The gross cost of property tax abatement for U.S. school districts

ABSTRACT

In the U.S., local property taxes fund public education more than any other source, but the revenue cost of property tax abatements for school districts has long eluded capture. This paper finds that at least $2.4 billion was diverted in 2019 to fund tax incentives from just the small percentage of school districts that disclosed out of the 10,370 financial statements reviewed. School board authority in the award process is limited or absent in most cases. Given the cost-inefficiency and cost-ineffectiveness of many awards, the long period of time before profits come in, and the critical need for closing the funding gap in public education, more judicious use of tax incentives is called for. Specifically, we recommend that all states establish independent agencies for reviewing incented projects regularly and rigorously, impose benefit reduction or clawback on underlivering recipients, enable institutions for multiscalar collective action, and maintain oversight of tax abatement reporting by local governments.

KEYWORDS:

• Tax incentive
• public education
• fiscal impact
• equitable development

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Montgomery County in Maryland is a rare exception of a local government that publishes annual tax expenditure reports.

2. Kansas City Public Schools used GASB 77 data to show that its mostly Black and Latino students lost a lot of revenue while nearby wealthy, mostly white districts lost little: https://www.kcpublicschools.org/about/tax-incentives-kcps.

3. See note i above.

4. These are better known as CAFRs, but that term has since been replaced due to phonetic similarity to an apartheid term.

5. These are the school districts defined as “regular local school districts that are not part of supervisory unions” by NCES.

6. For each state, we stopped individual CAFR searches when $\frac{a}{b}\times \frac{x}{y}=0.08,b\ne 0,y\ne 0$, where a is the number of files still missing, b is the total number of school districts, x is the number of GASB 77 reporters so far, and y is the number of financial reports reviewed so far. For states with no GASB 77 reporters (i.e. x = 0), we stopped searching when $\frac{a}{b}<0.5$. For example, after we obtained the financial statements for 122 school districts in Arizona and saw that none of them contained GASB 77 disclosures, we stopped looking for the remaining 106, so if any of these have GASB 77 disclosures, they were not included in the 2019 state or national totals.

7. See Good Jobs First’s comment to the GASB on why IRB-bundled tax abatements should be covered by GASB 77 at the second half of this document: https://tinyurl.com/2p8w8weh.

8. Good Jobs First. 2022. Financial Exposure: Rating the States on Economic Development Transparency. https://goodjobsfirst.org/financial-exposure-rating-the-states-on-economic-development-transparency/.

9. Compiled by Urban Institute (https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/projects/state-and-local-backgrounders/property-taxes#revenue) from the 2017 Census Survey of State and Local Government Finances (https://www.census.gov/data/datasets/2017/econ/local/public-use-datasets.html)

10. Information obtained from interviews with Ohio stakeholders.

11. See https://xbrl.us/ for latest developments on the practice.