Do Economic Development Tax Abatements Affect School Finances?

Abstract

Criticisms against tax incentives typically come from either the regional inequality perspective that compares a locality with others in terms of the amount of revenues foregone or the opportunity cost perspective that compares a locality with itself in an alternate reality where it foregoes less or none. How foregone/hypothetical revenues affect collected/actual revenues and related fiscal outcomes is less understood. This article examines the association between the amount of abated taxes and school district revenues and expenditures in 2019 for the nine U.S. states that have sufficient tax abatement data for such analyses. Findings show that districts experiencing greater incentive cost burden have fewer overall revenues per pupil, depend more on local sources besides property tax, spend less on teaching salaries, and are more likely to be underfunded. Some of these effects vary by district wealth, suggesting the need to fine-tune the incentive award levels according to local conditions.