Tax breaks used as an economic development tool left Nevada’s public school districts without an extra $60 million during a recent fiscal year, but education leaders aren’t necessarily feeling robbed.
Good Jobs First, a national policy resource center, published a report this month that examines how corporate tax breaks have affected public education funding. The takeaway: School districts across the country are losing out on big money, sometimes millions of dollars per year.
“That revenue could be used to hire back more teachers, reduce class size, restore student-support services and elective programs, and bring educators’ pay in line with similarly-educated professionals,” the report states. “With K-12 funding still lagging pre-recession levels in many states, tax abatements merit close scrutiny lest they undermine the skills of America’s future workforce.”
The examination was made possible by a new accounting rule known as GASB Statement 77, which requires many governmental entities, including school districts, to report revenue losses associated with tax abatements. The requirement — put forward by the Governmental Accounting Standards Board — applies to monetary losses that are passive, too. In other words, even if another governmental body made the tax-break decision, school districts should report the revenue it didn’t receive as a result.
Ten school districts in Nevada disclosed revenue losses related to tax abatements in fiscal year 2017, according to the Good Jobs First report. The losses totaled more than $60.9 million.
Storey County School District’s loss — about $38.5 million — thrust it into the top 10 nationwide. The rural school district, which serves about 450 students, sits in a county now home to the massive Tahoe-Reno Industrial Center. Tesla’s gigafactory is the anchor of the world’s largest industrial park.
But Tesla didn’t wind up there on a whim. Four years ago, Nevada lawmakers approved a $1.25 billion tax-abatement package as an incentive for the electric carmaker to locate its giant battery factory in Storey County.
Paul Anderson, executive director of the Governor’s Office of Economic Development, defended the tax abatements, saying they’re often necessary when competing against other states to bring businesses here. And, in the wake of the Great Recession, diversifying Nevada’s economy has been a primary goal.
“Schools also struggle significantly in a recession when there’s not as much spending taking place,” he said. “We’re trying to make sure we can weather the next storm, so to speak, better than we have in the past.”
Anderson argues the net effect on schools is “zero” because tax abatements, which generally have an expiration date, involve revenue that wouldn’t otherwise exist. (If a business chooses not to come here, there’s no influx of tax dollars.)
Still, the state’s chief economic development officer said officials keep education top of mind in every business discussion. That’s why the state’s agreement with Tesla involved a $37.5 million investment in STEM education — a term that refers to fields in science, technology, engineering and mathematics.
“Those are all discussions that are important to have when we try to offset and mitigate that factor as much as we can,” Anderson said.
For the Storey County School District, an additional $38 million would be like winning the lottery. Superintendent Todd Hess said the district’s budget is slightly more than $8 million per year.
Hess doesn’t hold grudges over the tax-abatement situation for a very simple reason: The school district’s student population hasn’t grown as a result of Tesla or other businesses coming to the Tahoe-Reno Industrial Center (TRIC). Storey County has few residential areas and a population that hovers around 4,500, meaning most TRIC employees head west for housing.
“We don’t have that $38 million in the tax abatements, which I’d love to have, but it also didn’t do one thing to us,” he said, referring to Tesla coming in.
Hess, a sixth-generation Storey County resident, even sees a benefit. While the school district isn’t reaping a sudden windfall of new tax revenue, he said the industrial park has provided possibility for his students. He knows some who are gaining appropriate skills in high school and, after graduation, will be landing jobs at the gigafactory that pay roughly $50,000 per year.
“It’s changed the thinking of a lot of kids in Western Nevada,” he said. “There’s a lot of kids thinking about opportunities in that park.”
The chief financial officers for the state’s two biggest school districts — Washoe and Clark — also didn’t pan the state’s use of corporate tax abatements.
The Washoe County School District missed out on $9.5 million because of corporate tax abatements, while the Clark County School District’s loss was about $11.6 million for the fiscal year that ended June 30, 2017, according to financial disclosures.
Jason Goudie, the Clark County School District’s CFO, said viewing tax abatement revenue as a loss is too simplistic given the economic benefit it can yield over time. The $11.6 million amounts to less than 1 percent of the district’s budget — small potatoes in the broader view of education funding.
“The people that build these abatement programs are usually pretty smart and understand the big, long-term picture,” he said. “We as a district need to focus on the funding model itself.”
His counterpart at the Washoe County School District agrees. CFO Mark Mathers said he’s more concerned about property tax abatements rather than corporate ones.
“If you want to talk about abatements, that’s probably where I’d go first,” he said.
But in a state where many school districts have shouldered crippling budget deficits in recent years, the mere mention of additional revenue is enough to incite intrigue and disappointment. Investing in public education is another way to draw corporations here, said Michelle Booth, the communications director for Education Nevada Now, an equity-focused organization.
“Any time that we lose out on potential revenue, it’s a hit to our schools who are already hurting and who have continued to make financial cuts,” she said.
The authors of the Good Jobs First report suggest states consider ways to exempt school districts from losing out on more tax revenue.
“Some U.S. school boards have a say over whether abatements that would affect their revenues are granted,” they wrote. “But in virtually every case, they are pressured by the need for jobs, and assent, even though their students may be harmed. A better path, in our view, is to prohibit tax abatements from adversely affecting school funding.”