Tax incentive programs underfund schools

One of the biggest sources of funds for urban revitalization is tax increment financing.  Governments impute a likely increase in property value and tax revenue from a new development, but direct that increase to the developer as a source of finance, inducement, etc.

But that is all the taxes--city, county, schools, special districts, etc.

The argument can be made that the tax abatement shouldn't be total, that it should be more measured, especially when it comes to funding local schools ("Students lose out as cities and states give billions in property tax breaks to businesses — draining school budgets and especially hurting the poorest students," The Conversation).  From the article:

At James Elementary in Kansas City, Mo., principal Marjorie Mayes escorts a visitor to a classroom with exposed brick walls and pipes. Bubbling paint mars some walls, evidence of leaks spreading inside the aging building. 

The district would like to tackle the $400 million in deferred maintenance needed for its 35 schools, but it doesn’t have the money. The lack of funds is a result of tax breaks Kansas City lavishes on companies that do business there. The program is supposed to bring new jobs but instead has starved schools. Between 2017 and 2023, those schools lost $237.3 million through tax abatements, according to the Kansas City Public Schools. 

That city is hardly an anomaly. An estimated 95% of cities provide incentives to woo corporations. A 2021 review of 2,498 financial statements from schools across 27 states revealed that in 2019 at least $2.4 billion was redirected for tax incentives, according to the academic research that appeared in Community Development. 

Yet that downplays the magnitude: Three-quarters of the 10,370 districts did not provide any information on tax abatement agreements. Abatements have long been controversial, pitting communities against one another in beggar-thy-neighbor contests. Yet their value is unclear: Studies show most companies would have made the same location decision without subsidies. 

... In Kansas City, for example, nearly $1,700 per student was redirected in 2022 from poorer public schools, while between $500 and $900 was taken from wealthier schools. Other studies found similar demographic trends elsewhere, including New York state, South Carolina, Texas, and Columbus, Ohio. The funding gaps often force schools to delay needed maintenance, increase class sizes, lay off teachers, or close. 

All told, tax abatements can harm a community’s value, with funding shortfalls creating a cycle of decline. Researchers agree that a lack of adequate funding undermines educational outcomes, especially for poor children.

Aerial view from the west of a stadium-anchored redevelopment master plan proposed by the Chicago Bears. (Courtesy Hart Howerton/Chicago Bears)

In Chicago, the Bears football team wants to move to the suburbs, to the site of an old race track.  But there is contention with the local governments and school districts about how much the property is worth, and how much tax incentive would be provided ("Bears, suburban school districts $100M apart in valuations of Arlington Heights site," "The Chicago Bears' Battle Over Arlington Heights Property Taxes, Explained," NBC Chicago).  The team says the property is worth much less than the local government. 

-- Arlington Park project, Chicago Bears
-- "Chicago Bears reveal tentative plans for mixed-use development in Arlington Heights anchored by domed stadium," Architect's Newspaper
-- "The new Chicago Bears Arlington Heights stadium will benefit Chicagoland," Evanstonian

From the Chicago Tribune, "Bears stadium development could hinge on TIF money":

For decades, TIFs have been used in Chicago and across the suburbs to help develop real estate. They have been criticized by some as a “slush fund” for municipalities to use as they wish, while diverting money from schools and other taxing bodies. 

 And they have been praised by officials of towns large and small as economic engines that bring jobs, development and an improved tax base. TIFs work by using any increase or “increment” in property tax revenues in the TIF district for the municipality to redevelop that site, typically by building infrastructure such as roads and utilities. 

Other taxing bodies, such as schools, parks and libraries, typically get only the same amount of property taxes as when the TIF took effect, with no increased revenue during the 23-year duration of the TIF. 

The Bears’ say they will pay to build a new stadium, but would only proceed with their planned $5 billion mixed-use development if they get tax “certainty” and public funding for infrastructure such as roads, utilities and stormwater management. Apartments, condominiums and other development planned for the site would be built by private developers — and could mean the added expense of more students for local schools.

I argue that TIFs should be more targeted, and school tax revenue streams not be included.