Unions Join the Fight to Slash Economic Development Tax Breaks

When local authorities hand out subsidies, school budgets lose revenue. The state teachers union is now pushing back.

Arabella Saunders   ·   February 2, 2024
Statewide union officials were in Albany on Wednesday asking lawmakers to stop local economic development agencies from draining school funding through corporate tax breaks. | Arabella Saunders

New York schools are losing out on millions of dollars because of an arcane local funding mechanism for corporate subsidies. Now, the fight against this tool has some powerful new supporters: labor unions. On Wednesday, good government groups, legislators, a local development authority board member, and their latest allies from the statewide teachers union and the AFL-CIO gathered in Albany to urge the state to stop the bleeding.

School districts lost $1.8 billion to corporate tax breaks in 2021, according to a study by the subsidy watchdog group Good Jobs First. That’s because all over the state, industrial development agencies have exempted businesses from paying full property taxes for projects ranging from real estate to power plants.

“While we’re busy making these massive investments in public education, there is a hidden problem exacerbating school budget gaps,” said state Senator Sean Ryan, who last year introduced a bill to halt the tax breaks that harm schools. “Year after year, IDAs across the state give corporate handouts that cost numerous state school districts millions and millions of dollars.”

Most public school funding in New York comes out of residents’ property tax payments. But IDAs, created by state law in 1969 to spur industrial job creation, have the power to lower the property tax burden for businesses and developers — and as a result, schools miss out on that money.

The bill Ryan pushed on Wednesday, sponsored in the Assembly by Harry Bronson, would prohibit IDAs from eating into schools’ property tax share. It’s part of a larger ongoing effort by legislators and watchdogs to rein in the agencies, which fiscal policy experts, good government groups, and lawmakers have long criticized as being obsolete and easily corrupted. Now, the bill’s advocates say the decades-long fight has reached a turning point, thanks to the entry of major statewide unions.

“It’s gonna be a clash of the titans,” John Kaehny, executive director of Reinvent Albany, said.

Melinda Person, president of the 700,000-member New York State United Teachers — the state’s largest union — said her organization is going to lead community conversations about the need to not only stop IDA abatements, as the bill outlines, but to reform the local agencies completely.

“It’s gonna be a clash of the titans.”

—John Kaehny, Reinvent Albany

“So many of our schools already lack the necessary resources to recruit and retain staff including teachers, custodians, bus drivers, and many others to meet the growing needs of students,” Mario Cilento, president of the New York state AFL-CIO, said in a statement.

Kaehny called the unions’ organizing power “extremely politically important.” He said in other states, such as Louisiana, unions have been instrumental in pushing back against local subsidies to corporations.

“The IDAs are key tools for local political powers to award friends with jobs and billions in tax breaks,” he said. “The fight here is IDA crony capitalism and corruption versus public schools and people who want tax dollars spent sensibly, fairly, and transparently.”

The fight is already in progress in several towns around New York. In Riverhead, on Long Island’s east end, residents are demanding the local IDA be dissolved. In 2022, the agency diverted $2.7 million from the school district’s budget, forking it over to business owners and developers in the form of property tax exemptions. That’s money that could have been used to pay for air conditioning in classrooms, wages for bus drivers, and teacher training for new technology, among other things, New York Focus reported in September.

A group of people holds a press conference in Albany, New York, holding signs that read "IDAs DRAIN $1.8 BILLION A YEAR FROM NEW YORK SCHOOLS."
Melinda Person, president of New York State United Teachers, pledges support of the bill to stop IDAs from abating school taxes. | Arabella Saunders

“When you can quantify $2.7 million in just the year alone, it could mean 30 more teachers,” said Greg Wallace, president of the Riverhead teachers union.

Rashida Tyler, deputy executive director of the New York State Council of Churches, joined the Ulster County IDA board in the summer of 2022, about a year and a half after the agency approved a controversial $25 million tax break for the Kingstonian, a mixed use development that will include luxury apartments and a boutique hotel.

The Kingstonian deal sparked public outcry. The tax break meant the Kingston City School District would miss out on $16 million in property tax revenue over 25 years. While locals fought the plan, the school board voted against the project. The county IDA approved the tax break anyway.

“Our school district does the best job that they can with the resources that it has, but they shouldn’t have to keep scrimping and saving.”

—Rashida Tyler, New York State Council of Churches

“Kids come into the school district and they need counseling, or they need something extra special, and because we have such a high poverty rate that is a much longer wait to get access to those services,” Tyler said. “I think our school district does the best job that they can with the resources that it has, but they shouldn’t have to keep scrimping and saving.”

And thanks to a New York law known as the “tax cap,” school districts can’t make up the money they lose annually to IDA abatements by billing other residents more. If they need more revenue, local governments and most school districts can only increase the total amount of property taxes billed each year by either two percent or the rate of inflation, whichever is less.

“It’s like being in a boxing match with one arm tied behind your back,” Wallace said. “As funding is taken out of one source, you can’t replace it.”

Beyond describing how IDAs negatively affect schools, advocates who spoke at the capitol on Wednesday repeated the same sentiment: The subsidies don’t work.

“There’s no conclusive evidence from research conducted since the mid-1950s to show that subsidies in general had an impact on dramatic economic gains for job growth,” said Kaehny, quoting a 2013 study. “AKA there’s no evidence for this spending $1.8 billion in tax abatements.”

“All of the research is showing that [IDAs] over promise and underperform in terms of actual job creation,” Person said. “That is what makes this doubly insulting — that we are not even getting the jobs we were promised on top of the impact and cuts to schools.”

The frustration has become widespread, according to Ron Deutsch, director of New Yorkers for Fiscal Fairness. He said the unions’ entry into the battle is a sign that more people are paying attention to IDAs and “realizing the economic harm that’s being done in communities across the state.”

Two policy changes in the last decade helped New Yorkers gain a better understanding of how IDA tax abatements impact schools. On the federal level, the Governmental Accounting Standards Board, the professional organization that sets financial reporting standards for state and local governments, in 2015 started requiring governments to disclose money lost to economic development subsidies in annual financial statements.

Without the change, “New Yorkers — and everyone else — would still be in the dark about how tax breaks undermine schools,” said Greg LeRoy, executive director of Good Jobs First. “It is really heartening to see the school boards and superintendents’ associations, plus the state PTA, all united against the unjust status quo.”

“It’s like being in a boxing match with one arm tied behind your back. As funding is taken out of one source, you can’t replace it.”

—Greg Wallace, Riverhead teachers union

Person said that the February 2023 Good Jobs First study, which identified the $1.8 billion in tax breaks, significantly increased the teachers union’s awareness of how IDA subsidies impact schools.

The second significant change came last March, when New York passed a law requiring IDAs to notify school districts prior to approving tax breaks. Before, they only gave notice to local boards of education, which are typically more removed from their schools’ day-to-day finances, according to Jeffrey Pearlman, director of the Authorities Budget Office, the state IDA watchdog. Sometimes, the impact would slip under the rug.

Outside of the school tax bill, other proposed reforms to IDAs include Senator James Skoufis’s bill to establish a single IDA in each region of the state, decreasing the number of agencies from 107 to 10.

Skoufis and other lawmakers have also taken a stand against IDAs giving tax breaks to housing developers, which experts argue is not permissible under state law. Last September, Skoufis and Pearlman called the practice a “sham.”

IDA subsidies for housing developers can be particularly harmful to school districts. New developments can mean more students entering the school system while schools lose out on additional property tax revenue.

A spokesperson for the New York State Economic Development Council, the state’s major trade group representing IDAs, said the group does not support Ryan and Bronson’s bill because it would “result in fewer projects, fewer jobs, and less economic growth, which would actually result in less revenue to schools.”

But members of the coalition who gathered above the Senate chambers on Wednesday see it differently.

As Kaehny put it: “If we had our way, there would be no IDAs.”

Arabella Saunders is a Report for America corps member covering economic development for New York Focus. Her reporting has also appeared in Vice, HuffPost, DCReport, and The Assembly NC.
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