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Thursday, May 19, 2022

New Study Shows South Carolina Schools are the "Biggest Losers" to Tax Incentive

 A major new study by my colleagues at Good Jobs First found that of any state in the Union, South Carolina schools lose the most to tax incentives. The total in fiscal year (FY) 2021 came to $534 million, 65% more than the first year school districts were required to report their losses to other governments' tax abatements (FY 2017). In South Carolina's case, it is counties which decide on tax incentives and school districts have no say-so, even though property tax abatements usually cost the schools five or six times as much money as they do the counties.

Five or six times as much! Not only did you read that right, but it is actually typical in most states that a municipal government can harvest tax revenues from other taxing jurisdictions.

This study and its predecessors was made possible by the 2015 introduction by the Governmental Accounting Standards Board (GASB) of Statement #77, which requires that governments that passively lose tax revenue to other districts must report those losses, in addition to being reported by the government that actively creates the tax incentives. With five years of reports now in the books, this has created a treasure trove of data.

Over those five years, school districts in South Carolina have lost a total of $2.2 billion.

The biggest loser in the state was Berkeley County school district, which lost $84 million in FY 2021, third highest in the nation. Only the Hillsborough 1j district in Oregon and Philadelphia City Schools lost more than that. South Carolina's biggest losers had higher than average poverty rates, in a state with above-average poverty.

By contrast, 2% raises for every teacher in the Berkeley County district would cost $4.5 million, according to the report.

What can be done? The report recommends safeguarding school districts from tax abatements, mandating advanced disclosure of proposed tax incentives to enable public discussion, requiring counties to make company-specific disclosure to make proper evaluation of such deals, and performing audits of each tax break program to ensure it is working as intended.

Such reforms are only common sense, but lack of transparency hampers discussion of subsidies in many areas of the country. The introduction of GASB Statement #77 is helping bring that transparency to debates on tax incentives.

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