Cities Report Their Corporate Tax Abatement Costs for First Time

February 22, 2018; Governing

As NPQ covered last September, a new rule from the Government Accounting Standards Board, better known as GASB, required cities to begin to report on their total tax abatement outlays for the first time in 2017. The regulation, known as GASB Statement 77, requires state and local governments to account for commitments made to corporations to “abate” or reduce their tax obligations. Such state, county, and city tax abatements, also known as economic development incentives, have been estimated by the New York Times to exceed $80 billion a year.

Now, data are coming in. In Governing, Liz Farmer lists the costs for 11 of the 20 cities seeking to host Amazon’s second headquarters. Of the rest, two don’t have data—one because it is in Canada (Toronto) and the other because it’s a regional bid (Northern Virginia). Two communities—Montgomery County in Maryland and Raleigh, North Carolina—claim costs are insignificant, and the remainder have yet to report their overall financial data for the previous fiscal year.

The data from cities that did report significant tax abatement activity are listed below:

As the above chart details, some cities use tax abatements more than others. Some numbers, however, may be small because they don’t include larger county and state incentives. For example, the Atlanta Journal-Constitution reports, based on Fulton County data, that tax incentives in Atlanta totaled $15.9 million, nearly five times the amount the city reports.

The form tax abatements take can vary. One common form is tax increment financing (often known as “TIF”), a method of financing development by borrowing against the anticipated benefits of economic growth. As Farmer explains, “TIFs subsidize companies by refunding or diverting a portion of their taxes to help finance development in a specific area.”

Of course, this can be costly. Money borrowed comes due whether or not development follows. Farmer observes that Chicago “has been repeatedly downgraded by credit rating agencies and has raised property taxes to help its budget.” Chicago, Farmer adds, “reported that it gave up more than a half-billion in tax revenue in 2016 via incentives primarily associated with tax increment financing.”

All told, according to Chicago’s financial report, corporate tax abatement giveaways in 2016 represented nearly a sixth of general fund revenues. Chicago’s numbers may be high in part because schools are outside the purview of city government and many functions (such as health) are housed in Cook County government. Even so, the city’s proposed fire department budget, at 15 percent of general fund revenues, is less than the cost of tax abatements. And expenditures on the city’s “public works” functions—i.e., emergency management, transportation, streets and sanitation, and fleet and facility management, combined are slated to get 11 percent of general fund revenues. In short, even for Chicago, $600 million is real money.

In New York City, tax abatements total 4.1 percent of general fund revenues of a much larger budget. Still, the nearly $3.4 billion in tax revenue foregone is almost ten times as much as the $352 million budgeted in FY 2017 for so-called “Schedule C” funds that provide “discretionary funds to not-for-profit organizations and agency initiatives to meet needs and fill gaps in City Agency services and local projects.” About a fourth of those funds support youth programming.

City budgets are often opaque, but you may want to look at your own community. To give one more example, in 2016, for the first time, Denver committed $150 million over 10 years (i.e., $15 million a year) for affordable housing, but this pales in comparison to the $107 million in tax revenue the city gives up annually through corporate tax abatements.

As the nonprofit research and advocacy group Good Jobs First has noted, “Whether one is fighting for equitable and adequate funding for K-12, affordable tuition for public colleges and universities, broadening access to affordable healthcare, maintaining public transit service, ensuring good police and fire response times, or maintaining roads, water, sewage and other infrastructure—everything depends on a fair and sufficient tax revenue base. Yet the $70+ billion spent for economic development are too often treated as a corporate entitlement: compared to so-called ‘on budget’ spending, such tax breaks are more likely to elude normal budget scrutiny and are less likely to be audited or sunsetted.”—Steve Dubb