Every year, governments spend tens of billions of dollars on tax breaks for private companies. Now, state and city governments will have to start reporting it as lost income.
In 2013, Chicago’s Board of Education announced that due to a $1 billion deficit, the city was closing some 50 public schools. The same year, Mayor Rahm Emanuel gave more than $55 million in public tax money to build a new basketball arena and hotel. Many outraged students took to the streets to protest. Asean Johnson, nine years old at the time, was one of them.
“Rahm thinks we are all toys,” Johnson, then-class president at the Marcus Garvey Elementary School, told a cheering crowd. “He only cares about his kids. Ninety percent of school closings are African American. This is racism right here.”
Although property tax cuts and subsidies are not new, these often secretive deals made between government officials and private companies have come under increasing public scrutiny in recent years, as cities like Chicago and Philadelphia closed dozens of public schools, citing budget woes.
Every year, state, city, and county governments give billions of tax dollars to corporations through grants, incentives, subsidies, and tax write-offs. Often, that same money would otherwise fund services like public schools, which increasingly rely on property taxes to operate. Forty-four states allow local officials to offer companies what’s known as tax abatement agreements, which exempt a company from paying part or all of the property taxes it owes in return for doing business in an area and creating jobs. To this day, there is no way to study how much money residents lose in these deals, or if any jobs have been created by these programs. Because no data is collected on these deals, no studies could be done to evaluate whether any of the programs have lost or earned money.
Starting December 15, this will change. Earlier this month the Governmental Accounting Standards Board (GASB) — an obscure, non-governmental entity that makes rules on financial reporting — voted in favor of mandating governments to calculate and disclose property tax incentives as lost income. Their final statement will be published on their website.
Every year, state, city and county governments give billions of tax dollars to corporations through grants, incentives, subsidies and tax write-offs.
The New York Times conducted an investigation in 2012 and estimated that nationwide, at least $80 billion per year is spent from public coffers to sweeten deals for companies from almost every sector imaginable—from manufacturing to retail and the technology industry. But “the cost of the awards is certainly far higher,” the Times concluded, since the officials and government agencies that grant these thousands of incentives don’t track outcomes.
But now, officials will be forced to report “the magnitude and nature of the tax abatement agreements that governments enter into,” said Dean Mead, Research Manager at GASB.
This information, which will be included in the notes of financial statements, Mead said, will include the “amount of tax revenue that the government willingly chose not to collect and may in fact have committed itself to not collecting for a period of time going forward.” It will not, however, name the beneficiary companies or specify exactly what each tax assessment deal is worth, or even how many deals exist in a region.
As a result, some public interest advocates say that GASB’s change doesn’t go far enough.
“The proposal is tepid and narrow, but far better to let in a ray of light than to allow these deals the cover of total darkness in which they are typically carried out,” wrote reporter David Cay Johnson for Al-Jazeera America.
The Chicago Teachers Union penned one of the nearly 300 letters GASB received during a recent public comment period to weigh in on the proposed accounting change.
“We believe that Chicagoans have waited long enough and deserve to know how much our schools suffer due to the loss of funds siphoned from schools into the pockets of wealthy developers in the TIF program,” said CTU President Jesse Sharkey in a January press release.
“We got a lot of comments from people who were looking for us to do a lot more than we had proposed,” Mead said. GASB, he said, chose to focus on tax abatements rather than “the broader universe of things like tax credits, tax exemptions, things more like broader tax policy,” which get captured in the numbers that are reported in financial statements. However, property owners receiving tax abatements are not billed for the portion of what otherwise would have been their tax liability—and that’s the cost to taxpayers that’s missing from the books.
“The amount the government decided to forego never made its way through the accounting system and is not reflected in the revenue numbers,” Mead said.
But critics like Johnson are unimpressed with the limited scope of GASB’s rule change.
“Everyone responsible for picking your pocket—the politicians who grant the subsidies, the companies that get them and the brokers who charge fees to arrange them—prefer to hide in the dark,” he wrote.
GASB’s final statement released on August 14.