Stealing Money from Kids

by RUSSEL MOKHIBER And ROBERT WEISSMAN

If there’s one thing that brings together the right and the left, and citizens and corporations, it is the importance of education — for stimulating the intellect, developing a moral sensibility, enhancing the civic culture, enabling a skilled workforce and creating a sense of community.

The question is: Who’s willing to pay?

Not big corporations.

They instead demand cities and states offer tax breaks before they will invest in new plants and facilities. Those tax breaks, frequently in the form of property tax abatements or what is called tax increment financing (TIF, a long-term diversion of certain areas’ property taxes to corporations investing in those areas), deprive schools of money.

Property tax breaks often directly siphon money away from schools, which rely heavily on property taxes as a revenue source. According to “Protecting Public Education From Tax Giveaways to Corporations,” a report issued last week by the National Education Association (NEA), local property taxes constitute 65 percent of all local education funding, and 29 percent of all school funding, including local, state and federal contributions.

Property tax abatements and TIF districts cost schools hundreds of millions of dollars a year, at least.

Case studies in the NEA report, which was conducted by Good Jobs First, the leading organization studying state and local business subsidies, show that abatements and TIF districts cost schools in Texas $52 million a year. Montana schools lose $16 million a year in revenues to business tax subsidies. Abatements and TIF reduced or diverted property tax revenue for Ohio schools by $102 million in 1999.

Poor reporting rules and the diversity of jurisdictions and tax revenues make it almost impossible to determine a total cost to schools from business tax breaks.

However, some estimates have tagged the cost of local and state subsidies to business as high as $50 billion annually. This is an estimate of the total cost, not just the amount borne by schools, and some states reimburse schools, in whole or part, for revenues foregone due to property tax breaks.

The NEA report offers three recommendations to redress the problem highlighted by the study. First, there should be improved disclosure of subsidies and enforcement of conditions attached to subsidies. Second, local school boards should have a formal say — up to and including veto power — over subsidy decisions. Third, states should prohibit the abatement or diversion of the school portion of property taxes.

This all seems logical enough to us.

What the report did not do was suggest what corporations’ role should be in these matters. Since corporations drive the “bidding for business” game, this is an important question.

Since companies so heavily emphasize the importance of a skilled workforce, shouldn’t corporations simply be willing not to ask for property tax abatements?

We decided to call up the U.S. Chamber of Commerce and find out.

We asked Marty Regalia, the Chamber’s chief economist: In light of the impact on schools, should companies stop seeking tax breaks from cities and states?

That proposal, he said, is “blatantly un-American.” (Yes, they really talk this way at the Chamber.)

No one forces cities and states to give tax breaks, he said. They are competing for a benefit — new investment — and they choose to enter the competition. If they think it is a bad deal, they are free not to offer tax breaks. “Local communities do not give away [tax breaks] at gunpoint,” he said.

There is some truth to Regalia’s point that cities and states are free to decline to offer tax benefits.

The problem, though, is not just that most government officials are spineless and/or indentured to business, but that there is an inherent difference in bargaining power between government and business. The companies have the power to decide where to locate. And even though most threats to move factories or offices are bluffs, in some cases, a tax break may influence a decision to locate in this town or the one next door.

However, property tax breaks and benefits virtually never determine whether or not a company of any size is going to undertake a new investment.

In the bigger picture, and based on the rules of the game, the outcome is always the same: the cities and states collectively lose tax revenues, the investing company always saves money that it would have been willing to pay in taxes on investments it would have made anyway.

This all comes at the expense of education, among other important government spending priorities.

The tax breaks are taking money from kids as sure as the schoolyard bully stealing classmates’ lunch money — just on a scale so large that few have been willing to call it by name.

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter. Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, and co-director of Essential Action. They are co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy (Monroe, Maine: Common Courage Press, 1999.)

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