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April 26, 2018; Governing

Last fall, Cyndi Suarez, writing in NPQ highlighted a new rule from the Governmental Accounting Standards Board (GASB Statement 77), which “requires most state and localities to disclose for the very first time how much revenue they lose to economic development tax break programs.” Now, data is coming in. As Mike Maciag observes in Governing, it is now possible to take a “first look at how much revenue states and localities across the country are losing from tax breaks.” One important preliminary finding is that the cities that use tax abatements the most also often have the highest levels of economic inequality.

Using data organized by the nonprofit advocacy group Good Jobs First that is culled from local governments’ comprehensive annual financial reports (or CAFRs), the calculations take into account tax revenue “lost to property tax abatements, economic development incentives and other programs were tallied for each jurisdiction.” Maciag adds that, “Total losses on a per capita basis were then compared to different socioeconomic measures for a sample of 446 cities and counties with complete data as of earlier this year.”

In many cities, the price tag exceeds $100 per capita. Some leading spenders are big cities—New York City ranks fourth in per-capita spending. If every community in the country gave tax incentives to corporations at the rate New York City does, the total annual cost of city and county incentives—i.e., not including state-level tax incentives—would exceed $130 billion.

Beyond New York City, other big city spenders include Chicago, Kansas City (Missouri), Denver and Washington, DC. Then again, other big cities, like Phoenix and Los Angeles, spend relatively little. Also, many of the spending leaders are smaller communities, often inner-ring suburbs that face high levels of poverty, such as Cicero, Illinois and East Palo Alto, California.

A chart reproduces the per-capita spending leaders below.

Jurisdiction Per Capita rate Total Annual Direct and Passive Revenue Losses
Mishawaka, Indiana $416 $20,072,792
St. John the Baptist Parish, Louisiana $407 $17,858,805
Carbondale, Illinois $406 $10,586,858
New York, New York $401 $3,389,468,000
Bloomington, Minnesota $333 $28,360,455
East Palo Alto, California $302 $8,855,528
Seneca County, New York $278 $9,726,072
Chicago, Illinois $220 $596,599,000
Greenville, South Carolina $211 $13,248,017
Kansas City, Missouri $190 $89,811,000
Kenosha, Wisconsin $181 $18,032,574
DeKalb, Illinois $177 $7,657,438
Glendale, California $171 $33,814,000
Cicero, Illinois $162 $13,621,598
Denver, Colorado $162 $107,244,000
Liberty, Missouri $158 $4,780,219
Niagara Falls, New York $156 $7,648,484
Pittsburg, California $155 $10,534,624
West Baton Rouge Parish, Louisiana $140 $3,501,030
District of Columbia $140 $92,037,000

Source: Governing calculations of data reported by Good Jobs First, U.S. Census Bureau 2012-16 American Community Survey

The mid-sized and smaller cities that are heavy users of tax abatements for corporations “typically heavily utilized tax-increment financing (TIFs) to fund major development projects,” notes Maciag. “Mishawaka, Ind., reported the largest per capita abatement of any jurisdiction reviewed, with nearly $20 million going to TIF projects in fiscal 2016. The small city of Carbondale, Ill., similarly reported $10.6 million in abatements for three TIF districts.”

Cities that rely on tax incentives often have elevated levels of income inequality. Maciag writes that, “The median revenues lost to tax abatements for the top quarter of jurisdictions with the highest levels of inequality, as measured by the Census Bureau’s Gini index, was $9.29 per capita. That’s nearly double the rate for all other jurisdictions in the sample ($5.28).”

Of course, tax abatements may be a response to, rather than a cause of, this inequality. “It’s possible,” Maciag notes, “that areas with already high levels of inequality may opt to spend more on economic development incentives. Some central cities or distressed communities may feel the need to spend more to compete with jurisdictions offering more affordable land, better schools or other amenities.”

But, in a related article, Maciag gives some reasons to be concerned. For example, even though tax-increment financing is supposed to be benefit low-income communities, what actually happens may differ. As Maciag explains,

In St. Louis, 84 percent of TIF incentives between 2000 and 2014 supported projects in the city’s newly revived central corridor, according to Team TIF, a local group that tracks incentives. Other studies have found a heavy concentration of TIF spending for retail projects in wealthier communities outside the city.

TIFs may initially target one or two areas of a city, but over time many expand to the point where just about any neighborhood might have them. “In places like Chicago, tax increment financing for many years was simply a slush fund of the mayor,” says T. William Lester, a professor of city and regional planning at the University of North Carolina who studies tax abatements.

—Steve Dubb