Report Shows Huge Cost of Tax Breaks to South Carolina Public Schools -- Up 31% in Two Years

 My colleagues at Good Jobs First released a new report today showing that South Carolina public schools are losing high, and rapidly rising, amounts of potential revenue to property tax abatements controlled solely by county governments.

Thanks to Government Accounting Standards Board (GASB) Statement #77 adopted in 2015, governments that passively lose income to "tax abatements" are required, in their Comprehensive Annual Financial Reports, or CAFRs, to list the total losses annually. Passive losses occur when they are the result of the actions of another governmental unit. The most common scenario for this comes about when a municipal or county government gives a property tax break to a company, and overlaying taxing units (school, library, or ambulance districts, for example) are required to also waive their portion of the property taxes abated.

“The Revenue Impact of Corporate Tax Incentives on South Carolina Public Schools” shows that in South Carolina, these passive losses are happening with a vengeance. The state's public school districts collectively lost a total of $423 million to property tax abatements in fiscal year (FY) 2019. That's 31% more than in 2017, an absolute increase of $99 million in just two years.

Some of the biggest losses were in the poorest school districts, as measured by the percentage of students eligible for free or reduced-rate lunches. Six of these districts lost more than $2000 per student, including four that had majority Black plus Latino student populations.

“Our members struggle to teach in crumbling schools with poor heating and cooling systems and a lack of reliable internet connections,” said South Carolina Education Association President Sherry East. “It baffles me to continuously hear we don’t have enough money to fund our schools, yet this report shows we are diverting huge pots of money that could be available if we just consider tax reform in South Carolina.” (From the Good Jobs First press release.)

 This situation has been developing for over 20 years. Reporter Jay Hancock of The Baltimore Sun described South Carolina in 1999 as having "crumbling" schools that sometimes flooded in rainstorms. Despite the problems apparent even then, the state has continued to be an aggressive pursuer of new companies (Boeing and Alenia/Vought are two Megadeal-sized example).

What can be done? The report's top recommendation is to exclude school districts from any incentive deal. This is what California did in 2012-2014 when then-Governor Jerry Brown spearheaded the abolition of tax increment financing (TIF) and signed off on a much-modified version that prohibited the use of school funds in TIFs, as well as allowing all other overlaying jurisdictions to opt out.

The second recommendation is to cap the duration (currently up to 40 years!) and cost of tax abatements, to at least reduce their outsize impact on schools. Finally, better transparency from county and municipal governments on the costs and outcome measures of subsidies can lead to improved policy in the future.

The research here is part of Good Jobs First's updating of its landmark 2018 report, The New Math on School Finance, which was the first to use GASB-77 data to address the impact of tax incentives on school budgets.

Note to the reader: I was not part of this research. But stay tuned...

Shocking incentive failure rate in North Carolina

@sandymaxey points me to a new report from the North Carolina Justice Center that is making my head spin. Picking Losers shows that the state's flagship development program, the Job Development Investment Grant (JDIG), has seen 62 of its 102 projects fail in the period from its inception in 2002 until 2013. That is, 60% of the projects failed to meet either their job, investment, or wage goals, and had to have their awards canceled.

60%! This isn't baseball, where a .400 batting average is outstanding, a feat that hasn't been accomplished since Ted Williams in 1941. Let me tell you about a different failure rate: Investment Quebec takes equity stakes in a number of tech start-ups and other new companies. When I interviewed the director in Montreal in 2007, their failure rate was only 20%, a figure he considered needed to be reduced. In North Carolina, we are talking about a failure rate three times as high, despite giving the awards to firms that should not be nearly so risky.

One such firm was Dell Computers. In 2004, the company conducted a bidding war for a new computer manufacturing plant between Virginia and North Carolina. But North Carolina's analysis of the project was so out of whack that in nominal dollars it offered almost $300 million ($174 million present value) compared to Virginia's offer of $37 million. The plant shut down completely in 2010.

Here's the paradox: North Carolina has some of the best taxpayer protections in the country; indeed, state and local governments lost only a few million dollars when Dell failed. The state is rigorous about canceling awards and clawing back monies already paid out. But the problem is that the state's economic analysis of potential projects is simply atrocious. The 60% failure rate is one sign of this. The Dell fiasco, analyzed by the NC Justice Center and the Corporation for Enterprise Development in 2007, shows another aspect of fanciful economic modeling.

What can be done? I've written before about the weakness of economic development cost-benefit analysis. Even by that low standard, North Carolina's performance is breathtaking. Report author Alan M. Freyer suggests that the Legislature needs to resist calls to expand JDIG or create another fund with the same purpose, maintain its jobs standards, focus on expanding industries, vastly improve its evaluation of potential projects, and focus help on rural counties. I would add that the state should reverse its cuts to education, one of North Carolina's economic development crown jewels to date, and restrict its subsidies only to those types shown to have a positive national impact, primarily customized training for companies and generalized training for individual workers. Improving skills increases workers' income, and it also strengthens the U.S. economy as a whole, as opposed to simply building up a company's bottom line.

Cross-posted at Angry Bear.

Online International Political Economy Course

If you've enjoyed my posts, you may be interested in my courses, too. In spring 2013, I will be offering an online course at the advanced undergraduate level in my specialization, international political economy (Political Science 3830). This course will examine the main issues of the global economy, including trade, money, investment, and globalization, from a variety of theoretical perspectives and a special focus on who wins and who loses from different policies. I have taught this course for over 20 years and am now in the process of finalizing the online architecture.

This is a regular course at University of Missouri-St. Louis and you may be able to transfer it into your own degree program; needless to say, check with your adviser. To do this, you would enroll as a visiting student.

You can also enroll as a non-degree student if you are simply interested in the subject and are not taking it as part of a degree program.

This is a 3 credit-hour course. Tuition is $265.60 per credit hour for Missouri residents and residents of 22 counties in western and southern Illinois. Out-of-state tuition is $717.90 per hour. You will need to check what other fees may apply (there is a supplement for online courses; beyond that, I am uncertain).

If you are interested, you will need to apply as a visiting student or non-degree student. See here for more details on the admission process. Feel free to contact me at kpthomas55@hotmail.com if you would like more information.

Basics: U.S. One of Worst Rich Countries for Child Poverty

Pat Garofolo of Think Progress reports on new data published by UNICEF on child poverty among rich countries. The study covered all 27 European Union members, plus Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland, and the United States. Of the 35 countries studied, the U.S. ranks second-worst in the percentage of children living in relative poverty (half of median GDP per capita; see further below), with 23.1% below this poverty level, above only Romania at 25.5%. Romania is the second poorest member of the EU and not an OECD member country. The table below sums up the results (most data are for 2009):


Source: UNICEF via Think Progress

As the report says:

Previous reports in this series have shown that failure to protect children from poverty is one of the most costly mistakes a society can make....The economic argument, in anything but the shortest term, is therefore heavily on the side of protecting children from poverty. Even more important is the argument in principle. Because children have only one opportunity to develop normally in mind and body, the commitment to protection from poverty must be upheld in good times and in bad. A society that fails to maintain that commitment, even in difficult economic times, is a society that is failing its most vulnerable citizens and storing up intractable social and economic problems for the years immediately ahead.

Some people object to the use of this relative poverty measure, which is the OECD standard. Certainly, for the poorer EU Member States, their absolute levels of child deprivation are worse than that in the U.S. because their income per capita is so much lower. For example, Romania's GDP per capita is $12,300 at purchasing power parity (PPP) compared to $48,100 for the United States. The UNICEF report actually has an absolute measure of child deprivation based on lack of access to two or more of 14 resources it estimates are essential for children in an industrialized society (including everything from three meals a day to a quiet place to do homework to an Internet connection). 72.6% of Romania's children and 56.6% of Bulgaria's are deprived by this standard, but only four more EU members exceed 20% by this measure. (Comparable data were not available for the U.S.)

But we in America should not get too excited by this fact. If we compare poverty across the major OECD economies, we find that the rankings change very little whether we use the OECD's relative measure or an absolute measure. We know this because for a time the UN Development Programme's Human Development Report listed data for an absolute poverty threshold of $11/day in 1994-5, which comes to $16,060 per year for four people, little different than the Census Bureau's figure of $15,569 for a family of four in 1995. So, measuring major European economies plus Australia and Canada, which generally have a lower GDP per capita at PPP than the U.S. does, against the U.S. poverty line, what do we find? From the 2006 Human Development Report, , page 295, here are all the "high human development" countries with poverty data using both the relative and absolute scales (listed in order of their Human Development Index score):

Country          50% of Median Income Rate          $11 a Day Poverty Rate
                                   1994-2002                                1994-95

Norway                          6.4%                                         4.3%
Australia                        14.3%                                       17.6%
Sweden                           6.5%                                         6.3%
Canada                          11.4%                                         7.4%
United States                  17.0%                                      13.6%
Netherlands                      7.3%                                        7.1%
Finland                             5.4%                                         4.8%
Luxembourg                     6.0%                                         0.3%
France                             8.0%                                         9.9%
United Kingdom             12.4%                                       15.7%
Germany                          8.3%                                         7.3%

As we can see, the shift to the absolute rate improves the U.S. rank from only 11th (last) to 9th. As long as restrict ourselves to the richest of rich countries, it makes little difference whether we use a relative or absolute measure of poverty. Either way, the U.S. does very poorly. And because it does poorly in overall poverty, it does poorly in child poverty as well.

The U.S., with high levels of child poverty, is therefore setting itself up for permanently lower economic productivity, higher costs in social services and incarceration, and so forth. This is a powerful argument against cuts to safety net programs and to education. The only question is whether we can overcome the forces currently promoting such policies.

America Shows No Increase in College Graduation Rates over the last 30 Years

Jared Bernstein (via Paul Krugman) highlights an amazing breakdown in the prospects for reducing economic inequality any time soon. Over the last 30 years, the U.S. has made no progress whatsoever in increasing college graduation rates. To be specific, 25-34 year olds in 2009 had a college degree rate of about 40%, almost exactly the same as for 55-64 year old baby boomers. In the meantime, other industrialized countries were racking up substantial gains, most spectacularly in the case of South Korea where a little over 10% of 55-64 year olds have college degrees, but more than 60% in the 25-34 age group do. If you want to understand how South Korea has gone from a poor developing country to an industrial powerhouse within our lifetimes, this is one big reason.

Here are the overall results for OECD and select non-OECD countries for the two periods:



As we can see, the U.S. has fallen from a tie for second with Canada among current OECD members (Russia is not a member) to 15th in the OECD. The big question is why this is happening. One major reason is rising college costs, which have far outstripped overall inflation.

	Tuition and Fees
	Private Nonprofit Four-Year	Public Four-Year	Public Two-Year
1980-81 to 1990-91	5.1%	4.2%	3.9%
1990-91 to 2000-01	2.6%	3.3%	3.2%
2000-01 to 2010-11	3.0%	5.6%	2.7%

Note: Average annual rate of growth of published prices in inflation-adjusted dollars over a 10-year period. For example, from 2000-01 to 2010-11, average published tuition and fees at private four-year colleges rose by an average of 3.0% per year beyond increases in the Consumer Price Index. See link above for further data on tuition and fees plus room and board.

View Notes and Sources

As we can see, the rate of cost increase for public four-year universities was the most rapid of all. One big reason for that, of course, is reduced state support of higher education. Citing State Higher Education Executive Officers, the National Conference of State Legislatures reports that state appropriations per student, at $6928 in fiscal year 2009, was more than $1000 below its FY 2001 peak, and lower in real terms "than in most years since FY 1980" (p. 1). As Bernstein argues, Pell grants are one way to offset this problem, and he points out that the Obama administration has strengthened the program. However, the Ryan budget would slash Pell grants, among many other programs, in order to fund a tax cut for millionaires of almost $400,000, per Bernstein.

As Alan Krueger noted in January, there is a strong relationship between higher inequality and lower social mobility. The OECD data show that the U.S. is making no progress on one of the most important tools for social mobility, college. If access to higher education in this country actually declines, as it is threatening to do, our inequality problem will become infinitely harder to solve.

Basics: U.S. Students Score About Average in OECD Testing Program

Every three years, the Organization for Economic Cooperation and Development carries out its Program for International Student Assessment, PISA. The 2009 edition covered 65 countries and focused on reading, but included test results for math and science as well. PISA tests students who are 15 years, 3 months old to 16 years, two months old to

assess the extent to which students near the end of compulsory education have acquired some of the knowledge and skills that are essential for full participation in modern societies (PISA Results, Volume I, p. 19)

 In addition to the 34 OECD member nations, a further 31 "partner countries" take part. Some of these partners, such as Shanghai, were among the top performers, despite lower education budgets than in the OECD and wide socioeconomic disparities within them. In fact, Shanghai topped the list in all three categories (see below).

The U.S. scores on the high end of average in reading and science, and just below average in math. As the table below shows, America scores better than a few countries often thought of as more "socially advanced," such as Sweden. Though there is obviously room for improvement (and the PISA report discusses improved scores in countries as diverse as South Korea, Poland, Germany, and Brazil), the sky is not falling on U.S. education just yet.

In future posts, I plan to take up more education-related issues. Here, I wanted to show that the U.S. is not starting from as bad a baseline as it does, for example, in health care. Without further ado, here are the PISA scores for the top 50 countries:

Country		Reading	Math	Science
Shanghai-China		556	600	575
Korea		539	546	538
Finland		536	541	554
Hong Kong-China		533	555	549
Singapore		526	562	542
Canada		524	527	529
New Zealand		521	519	532
Japan		520	529	539
Australia		515	514	527
Netherlands		508	526	522
Belgium		506	515	507
Norway		503	498	500
Estonia		501	512	528
Switzerland		501	534	517
Poland		500	495	508
Iceland		500	507	496
United States		500	487	502
Liechtenstein		499	536	520
Sweden		497	494	495
Germany		497	513	520
Ireland		496	487	508
France		496	497	498
Chinese Taipei		495	543	520
Denmark		495	503	499
United Kingdom		494	492	514
Hungary		494	490	503
Portugal		489	487	493
Macao-China		487	525	511
Italy		486	483	489
Latvia		484	482	494
Slovenia		483	501	512
Greece		483	466	470
Spain		481	483	488
Czech Republic		478	493	500
Slovak Republic		477	497	490
Croatia		476	460	486
Israel		474	447	455
Luxembourg		472	489	484
Austria		470	496	494
Lithuania		468	477	491
Turkey		464	445	454
Dubai (UAE)		459	453	466
Russian Federation		459	468	478
Chile		449	421	447
Serbia		442	442	443
Bulgaria		429	428	439
Uruguay		426	427	427
Mexico		425	419	416
Romania		424	427	428
Thailand		421	419	425
Source: OECD, PISA 2009 Database
http://dx.doi.org/10.1787/888932343342

Almost all government layoffs are local, but could be paid for by cutting subsidies

Sometimes I feel like a broken record, but it really can't be emphasized too often: state and local subsidies to business have noticeable negative effects on government finances,which are magnified in times of fiscal crisis like the present.

As Kash Mansori points out (h/t Mark Thoma), of the 532,000 government jobs lost from September 2009 to September 2011, fully 470,000 are at the local level.



Source: Kash Mansori, The Street Light

My research suggests that state and local governments give almost $50 billion per year in location incentives to business, and about $70 in total business subsidies. My best guess is that about half of it is at the local level, meaning $25-35 billion per year comes from local governments. It's easy to see that that much money could pay to rehire all those teachers, police, and  other local government workers, and maybe have money left over. At the top end of the estimate, $35 billion could hire half a million workers earning $70,000 a year in salary and benefits, or 700,000 making $50,000 per year.

Make no mistake: we can't just wish state and local subsidies away. Companies leverage their mobility to extract tax breaks (and, increasingly, grants) from governments that need tax revenue and economic activity. But it's impossible to build a politics to oppose these giveaways unless we can document their extent and show what it really is we're giving up when governments award subsidies. Mansori says local budgets are being balanced on the backs of schoolchildren; it would be equally correct to say that local subsidies are paid for out of school budgets, on the backs of teachers and students alike.

Heritage Tries to Mislead Us on How Swell Poverty Is

A little late getting to this (I've had unexpected travel), but Matt Yglesias makes an important point I wanted to expand upon. That is, just because you can afford a number of modern conveniences doesn't mean you're not poor. Similarly, people don't go bankrupt because they can't afford a TV, but because of medical bills (62% in 2007) or job loss.

Yglesias: The Heritage Foundation is out with the latest version of its annual poor people aren't poor because electronics are cheap report.....A serious person would follow this up with a discussion of relative prices. Over the past 50 years, televisions have gotten a lot cheaper and college has gotten a lot more expensive. Consequently, even a low income person can reliably obtain a level of television-based entertainment that would blow the mind of a millionaire from 1961. At the same time, if you’re looking to live in a safe neighborhood with good public schools in a metropolitan area with decent job opportunities you’re going to find that this is quite expensive. Health care has become incredibly expensive.

How much more expensive? For higher education costs, the College Board presents this table of how far above the general inflation rate college costs have grown. Remember, these are tacked on top of the general inflation rate. Thus, over the 30-year period public four-year universities have gotten 3 1/2 times as expensive in real (inflation-adjusted) terms, for example.

	Tuition and Fees				Tuition and Fees and Room and Board
	Private Nonprofit Four-Year	Public Four-Year	Public Two-Year		Private Nonprofit Four-Year	Public Four-Year
1980-81 to 1990-91	5.1%	4.2%	3.9%		4.3%	2.3%
1990-91 to 2000-01	2.6%	3.3%	3.2%		2.2%	2.3%
2000-01 to 2010-11	3.0%	5.6%	2.7%		2.8%	4.2%

Average annual rate of growth of published prices in inflation-adjusted dollars over a 10-year period. For example, from 2000-01 to 2010-11, average published tuition and fees at private four-year colleges rose by an average of 3.0% per year beyond increases in the Consumer Price Index.

View Notes and Sources

Let's now compare overall inflation with health care inflation (inflation tables are at: http://data.bls.gov/cgi-bin/surveymost?cu). The CPI-U (consumer price index – urban) for all items was 225.722 in June 2011, compared to 37.8 in January 1970 (1982-84=100), meaning that urban prices were 5.97 times as high as 41 years earlier. By contrast, the CPI-U for medical care rose to more than 12 times as high over the same period, from 32.7 to 399.552. No wonder health care costs have caused problems for so many people.

To sum up, the economic problems facing poor or middle-class people aren't related to spending on frivolities, which are largely low-cost. Instead, they come from what one's health insurance company will or won't pay for, whether you have a job or not, and whether you can afford the housing and education to give your children a better life. The Heritage folks, while giddily pointing out that the poor in America see doctors, also support deep cuts (“entitlement reform”) to the programs that make that possible in the first place. Have they no shame?