“Money on a hook.” Photo credit: TaxCredits.net

June 19, 2018; Tennessean

“As Nashville prepares to raid its reserves to pay for unexpected school costs, some of the shortfall can be traced to tax breaks awarded to developers,” reports Mike Reicher in the Tennessean. “The city,” Reicher adds, “diverted $9.3 million of property taxes from schools to pay off redevelopment loans—for downtown hotels, luxury condos and other projects.”

As Reicher details,

Metro Nashville Public Schools may cut 30 central office positions and pause new programs to make up for a $17 million hole in its budget next fiscal year. The city’s financial woes have drawn new scrutiny to economic development subsidies and caused many to ask fundamental questions about Nashville’s perceived prosperity.

How, they wonder, can a city with gleaming hotel towers, record-low unemployment, and years of real estate market growth, not afford to pay for its children’s education? Who, exactly, has benefited from the development boom?

These questions are not unique to Nashville, however. As NPQ covered earlier this year, a study by Thomas Bartik of the Upjohn Institute noted that economic development incentives frequently come at the expense of public education. Indeed, Sarah Holder, writing in City Lab, summarized one key Bartik finding as follows: “When cities and states offer tax deals for large companies, public education suffers.”

Aided by new disclosure rules, as set forth in Government Accounting Standards Board Statement No. 77 (GASB 77) of the nonprofit Financial Accounting Foundation, which now requires compliant cities to disclose their corporate tax abatement costs on an annual basis, the conflict between public school funding and corporate tax abatements is becoming increasingly evidence-based. For instance, this past March, St. Louis Post-Dispatch ran a story titled “Tax breaks cost St. Louis, school district almost $30 million in 2017.”

Nashville’s $9.3 million price tag is smaller, but still significant. “It makes no sense for the City of Nashville to rob the reserves of the schools to do redevelopment,” says Erick Huth, president of the Metropolitan Nashville Education Association, the local teachers’ union.

Reicher details how incentives in Nashville work:

Nashville’s redevelopment program uses “tax-increment financing” as its primary tool. The Metropolitan Development Housing Authority backs loans to developers for land acquisition, demolition, and off-site infrastructure such as utilities and sidewalks. Any future increases in property taxes at those sites are directed to repay the loans. Once the loans are repaid, the full property tax bill is available for schools and city services.

As NPQ has noted, corporate tax abatements in Nashville are already under increased scrutiny. This past January, the 35-member Metro Nashville Council approved a new rule by voice vote requiring firms seeking economic development incentives to “disclose details like how many county residents they’ll hire, the wages they’ll pay and whether they’ve had any safety violations in the past,” before an up-or-down vote on their requests can be held.

As for the current state of affairs, Reicher notes that the subsidies were designed to spur development in “blighted” areas of the city. But now the neighborhood is booming. “The Westin hotel, for instance, was awarded $15 million in economic development subsidies,” notes Reicher. This was done in 2014, well after revitalization had occurred. “The city collected nearly $200,000 in property tax on the property in the year ending September 30, 2017,” Reicher adds, “but that was redirected to pay off a redevelopment loan.” All told, in fiscal 2017, Nashville paid $24.8 million on such loans, of which $9.3 million was diverted from public schools.

It does not help that the city has failed to adequately track the effectiveness of its spending. A city audit released this past March recommended that Nashville “create quantifiable goals to evaluate performance of development incentives.”

“It’s impossible to track the benefits to the community from the loans,” laments John Cooper, an at-large councilperson. “We don’t even have the records to show where it went and what we got for it.”—Steve Dubb