Education Funding: Follow the Money
How tax deals short schools, and what you can do about it.
By Cynthia Kopkowski McCabe
Every day in this country, big businesses are getting a sweetheart deal paid for by our public school children. And no, we’re not talking high-interest lunch money loans.
It’s common practice in most states and municipalities to let businesses off the hook for paying taxes, in the vague hope of stimulating economic development. But that practice regularly shortchanges the schools where you work and send your children. Maybe shortchanges isn’t the best term, actually. Try shortbillions. Over the past 20 years, the percentage of profits corporations paid in state and local taxes dropped 50 percent. Have your taxes gone down 50 percent in the last 20 years? Didn’t think so.
Yet, after decades of watching such incentives weaken the financial footing of the nation’s schools, many people still don’t understand the relationship between tax breaks and things like class size and salaries. “We have a wonderful antenna that goes up when we hear a politician talk about public schools and testing and pay and pensions,” says NEA Vice President Lily Eskelsen. “We need that same antenna to start vibrating when we hear a politician talk about economic development.”
Here’s how it works: A large corporation comes to state legislators, county commissioners, or city council members and offers to set up shop in their area, creating jobs and boosting the local economy. In exchange, they ask for tax breaks. Lots of them. Well-meaning government officials agree, seeing the business’s arrival as the quickest way to spur development in the area. The problem is that many of these deals spell years of lost tax revenues.
“People don’t see the other side of it,” says Bruce Nissen, the director of research at the Center for Labor Research and Studies at Florida International University. “Tax cuts mean cuts to necessary services from government.” Taxes not paid by the corporation can hit local residents twice: Their local schools are shorted and, on top of that, local governments are forced to shift the tax obligation to residents to stanch the bleeding.
Add this to the growing list of things about which educators now have to be concerned, knowledgeable, and energized. But what’s the solution to this tax break bonanza? That would be “TEF,” an economic theory whose acronym is shorthand for tax structure, economic development policies, and funding for schools. Essentially, TEF is a call for fair taxation—both personal and corporate—and economic development that invests in education, rather than cripples it.
Right now, the nation’s schools are at the mercy of misguided policies around these three elements, says Associate Project Director Michael Kahn of NEA Research. “Unfortunately, these things have been going in the wrong direction for the last 30 years.” (If you’re wondering about the multi-billion-dollar bailouts for the banking and credit industries, that’s a separate issue, says Dawn Addy, director of the Center for Labor Research and Studies. “We’re talking about money that goes directly into the community and certainly that’s different from giving buyouts to the big guys.”)
Let’s look at personal taxation first. American workers on average pay $12 in taxes for every $100 they earn. Anyone making more than $1 million annually pays only $5 out of every $100. “We can’t achieve adequate schools if the tax responsibility is being shifted to those who have the least amount of money,” says Kahn.
Unfair economic development is just as troublesome. Consider Sykes Enterprises, Inc., a call center company. In 1999, the company located in Pikeville, Kentucky, after the local government gave it a multi-million-dollar package that included a five-year pass on property tax, which would have helped fund schools. In 2004, the company shuttered the facility and eliminated 324 jobs.
Similar stories come from Colorado, Oregon, North Dakota, Kansas, Nebraska, Minnesota, and Florida. Nationwide, state tax subsidies, cuts, incentives, and abatements offered to businesses and corporations have an annual price tag of more than $50 billion. Michigan alone estimates its state and local giveaways hover around $929 million annually. Decades ago, education activists didn’t pay much attention to these tax breaks, NEA’s Eskelsen says. “Now we’ve all seen what can happen to school dollars when some slick snake oil salesman with a PowerPoint presentation talks about economic development,” she says. (Oddly enough, these companies examine the quality of the local schools—the same schools that any tax breaks they might get would end up hurting—as they mull whether to locate their employees there.)
And nowhere are the current failed system’s misplaced priorities more apparent than school funding. In recent years, District of Columbia taxpayers footed a $611 million bill for a new stadium for the Washington Nationals baseball team. That amount of money could have built 61 brand new elementary schools, 36 middle schools, or 32 high schools, or refurbished hundreds of crumbling facilities in the District.
As the country’s economy continues to stumble, TEF proponents want local and state leaders to understand that a country’s fiscal health is directly related to a fair and equitable tax system, a level economic development playing field for large and small businesses, and adequate and equitable funding for public education. The underlying premise is simple: In the new global, knowledge-based economy, investing in public education—our human capital—provides a greater return on investment than tax cuts and subsidies for big business and sports stadiums.
Included in these TEF proponents are members of the Mississippi Association of Educators. After watching for years as businesses came into the state and received deals that let them escape local taxes for as long as a decade in some cases, state and local Association leaders began fighting back. Why? Cuts to school supplies and equipment, eroding facilities that had no relief coming in the form of repairs or renovations, ballooning class sizes, stagnant salaries, and staff layoffs. When it was finally time for the corporations to start paying their taxes, “they would up and leave,” says Frank Yates, the Association’s executive director. Nobody is anti-business, Yates says. “The idea here now is that yes, we want the local governments to recruit economic development, but they need to pay their fair share of taxes, otherwise the local citizens have to have their taxes raised,” to pay for essential services like schools and educator salaries and pensions, he says.
With the help of NEA, the Mississippi affiliate trained 25 members and UniServ directors to talk to colleagues, parents, and others about the importance of supporting fair taxation and economic development, and increased school funding. They’re heading out into their communities, holding forums and giving people “a true picture of our economic future,” says Yates.
David Odom, a high school algebra teacher in DeSoto County, Mississippi, is a member of that team. He travels the state in his free time, explaining in cafeterias and church halls how, in some cases, educators pay a higher percentage of their salaries in taxes than big businesses do. Adding insult to injury, they’re then forced to dig into their own pockets to pay for essential supplies when schools don’t get the money they need. “If these businesses were paying their fair share, we wouldn’t have that problem,” Odom says. “Most people don’t realize what is actually going on. You get mad when you do.”
There is hope on the horizon. Efforts like Odom’s and similar ones in other states are paying off as concern about corporate tax breaks is starting to take root among the general public. A study this fall by the Wisconsin Education Association Council found that nearly seven out of 10 voters think changes are needed in school funding, and a majority strongly favor eliminating corporate tax loopholes. “Public opinion is very much in tune with our beliefs,” says Council President Mary Bell. “We need a better school funding system—one that is accountable to the people who pay for it and depend on it.”
But it can’t be just a handful of states that tackle big business opportunism and the legislators who enable it. Grassroots activists are needed across the country to point out how educators and students are being hurt by unfair taxes, underfunded schools, and corrosive economic development. And there’s no better spokesperson to talk with parents, community members, and legislators about the damage being done in schools than the very people on the frontlines. “In order for TEF to work,” says Odom, “everyone needs to get on the bandwagon.”
Here’s how tax breaks can bust schools:
1. A big business eyes a particular city or town for a new location. They send representatives to meet with the city council, county commission, or governor’s office.
2. To woo the business—which pledges to create jobs and spur economic development—the government officials promise lucrative tax breaks. These deals give the corporation a free ride on local taxes for up to a decade in some cases. The business comes to town, bringing with it jobs (and more students for the local schools to educate), but there’s no tax revenue going into local coffers.
3. Schools feel the pinch when local government officials find themselves coming up short for school construction, supplies, salaries, and pensions, along with other publicly funded services like law enforcement and road repairs.
4. In many cases, the big business leaves as the tax break period is about to expire, heading to a new city or town, or leaving the country altogether.
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