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MANAGEMENT UPDATE.

HOW TAX ABATEMENTS CAN HURT THE POOR

In January, Good Jobs First published a riveting – if somewhat depressing – study about the way in which Black and poor students are disproportionately impacted by tax abatements in the St. Louis Area. It focused especially on the use of TIF (Tax Increment Financing) districts, which divert the increase in property taxes that can come from development of blighted areas to create more economic development there.  They’re often used to float bonds and pay the debt service on those bonds, hence the word “financing.”



The problem, however, is that school districts rely on the same property taxes and when those revenues are diverted it can reduce funding for the schools. In the case of the St. Louis area, the schools were shortchanged by $260 million over six years according to the report.


We reached out to Greg LeRoy, executive director of Good Jobs First, to hear about the highlights of the study and here are some excerpts from that conversation:


  • “There’s an old axiom, that the poor in cities pay more when tax abatements are used to attract companies. But we never had the ability to document whether it was true. Eight years ago, we won this ruling from the Governmental Accounting Standards Board that requires most local governments to account for how much revenue they lose to tax abatements, and so we finally were able to look closely and compare the effect on St. Louis versus neighboring school districts.”


  •  “We looked at 24 different school districts in St. Louis and surrounding St. Louis County and looked at the loss per student per year from tax abatements. And then we compared that to the racial composition of the student body, as well as the income levels as measured by what percentage of the students are eligible for free or reduced meal price subsidies. We found that Black students, brown students and low-income students are very disproportionately harmed by this and are likely to lose far more money each year than White students, affluent students, suburban students.”


  • “Students in St. Louis Public Schools lose by far the most: $1,634 per student per year. By contrast, 13 suburban school districts lose less than $80 per student per year or report no losses at all.” 


  • “Another interesting finding was that the second most harmed group of kids on a per student basis were actually students with special needs. There’s a separate school district in suburban St. Louis County, just for special needs students and they lost more than $1,100 per student per year.”


  • “St. Louis is an outlier in the use of tax increment financing. It’s been using TIF aggressively for a long time. And in fairness to St. Louis, the use of TIFs was deregulated radically by a court decision more than 20 years ago, involving a suburban mall in an affluent suburb of St. Louis, Des Peres.


“In this case, the suburb said ‘our mall is blighted because we don’t have a Nordstrom yet. And we want to have a $31 million TIF district to give the Westfield Mall money to get a Nordstrom’, and that was upheld at the highest level of the equivalent of the state supreme court in Missouri because Des Peres could say they were blighted. So, once you have a court saying that ‘blight’ means anything that a city wants it to mean, then you have a green light for abusive use of TIF. So, we’re sympathetic to St. Louis in this plight because at the end of the day it’s really state deregulation at work.”


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