May 31
2023
IDA tax breaks cost schools millions
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Editor’s note: This is the first of two stories on industrial development agencies. Tomorrow, we report on “perverse incentives” and other shortcomings in IDA programs.
Any time Susan McGee’s children want to join an activity outside of the classroom — be it sports, music or other extracurriculars — it means one thing: a fundraiser.
Raising money for extracurriculars may seem routine for a small, struggling Rust Belt city like Dunkirk, where McGee’s children attend school.
But there’s another factor at play: The Dunkirk City School District loses out on an average of $5 million in revenue every year thanks to tax breaks granted by the Chautauqua County Industrial Development Agency.
“It’s just exhausting,” said McGee, who helps her children fundraise for uniforms, musicals, field trips and more. “As an economically depressed area, Dunkirk in particular, putting so much of it on the shoulders of the families is really difficult.”
“To know that tax credits additionally are pulling even more money out of the district is disappointing,” she added. “That’s a soft word.”
In the 2021-2022 school year, the district lost out on an amount of revenue equal to 10 percent of its $51 million general fund budget. That amounted to $2,638 less to spend per student, according to district data.
In exchange for that lost revenue, the district received $279,685 from the IDA in the form of payments-in-lieu-of-taxes.
Dunkirk is not alone.
A monthslong investigation by Investigative Post has found districts across Western New York are losing millions of dollars each year from property tax breaks granted by their county IDA:
- Niagara-Wheatfield Central School District had to forgo an average of $3.2 million per year over the last six years, thanks to the Niagara County IDA. That’s an average of $956 lost per student.
- Letchworth Central School District lost out on an average of $2.8 million annually over the last six years because of tax abatements granted by the Wyoming County IDA. That’s an average of $3,112 lost per student.
- Warsaw Central School District lost an average of $2.6 million annually over the last six years, also thanks to the Wyoming County IDA. That’s an average of $2,965 lost per student.
Those figures come from annual financial reports school districts release each year. Starting in December 2015, a new rule from the Governmental Accounting Standards Board required cities, towns and school districts to list how much revenue they forgo each year due to tax abatements.
Investigative Post compiled and analyzed six years of those disclosures for four districts in Western New York hit especially hard by tax abatements. We supplemented that analysis with interviews with more than two dozen school and IDA officials, subsidy experts and local parents and taxpayers, and a review of studies on the impact of subsidies on job creation.
Statewide, school districts lost out on $1.8 billion in 2021 due to tax abatements granted by their local IDA and other economic development programs, according to a February study by Good Jobs First, a subsidy watchdog organization. In 22 districts, foregone revenue reduced money available for programming by $2,000 or more per student.
Forgoing property tax revenue affects districts in varying ways. There’s the need for fundraising in Dunkirk. In both Niagara-Wheatfield and Letchworth, coaches are in short supply. And several district leaders told Investigative Post they've had to rely on reserve funds to balance their budgets.
IDAs offer businesses a variety of tax breaks on the promise they’ll add or retain jobs. They can waive sales and mortgage taxes and discount property taxes, typically over seven to 10 years. Property tax abatements usually provide companies with the greatest savings.
Most school districts rely primarily on property tax revenue and state aid to fund their budgets.
“They are harming schools,” said Elizabeth Marcello, senior research analyst for the good-government group Reinvent Albany, which advocates for IDA reform. “And I would say they're harming more than schools. They're harming existing businesses who aren't going to get tax breaks.”
IDA leaders — and those who lobby on their behalf — contend the subsidies they grant have no detrimental effect on schools or the rest of the tax base. Rather, they argue, subsidies represent new revenue. They add that companies locating or expanding in Western New York wouldn’t have done so without the subsidies.
“To suggest school districts are ‘losing’ revenue because of IDA assistance is misleading as it assumes all the projects in question would occur if support and incentives from the IDA were not available,” Ryan Silva, the executive director of the IDA-supporting New York State Economic Development Council, said in a statement. “This is categorically untrue.”
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IDA critics argue that most subsidized projects would, in fact, go forward without the assistance.
Greg LeRoy, executive director of Good Jobs First, pointed to studies that show 75 percent to 90 percent of jobs created via tax breaks would have happened without subsidies.
“The majority of deals are windfalls,” LeRoy argued. “The system as it has evolved allows companies to get paid to do what they would have done anyway. And that's terrible, because it means that money got taken out of schools and other public services that would benefit everybody else.”
Niagara-Wheatfield Superintendent Daniel Ljiljanich said: “Our budget for next school year is a little over $80 million. And so $2 million would obviously be a significant impact for our students. As you probably know, we don't have a seat at the table in determining what those contracts look like.”
Intent of IDAs
Industrial development agencies emerged in New York at a pivotal moment. It was 1969 and deindustrialization was beginning to rock the economies in Erie County and other places now referred to as the Rust Belt. Combined with deregulation and newly mobile capital, corporate power was on the rise, and communities grew increasingly desperate to retain or create jobs.
IDAs were designed, in part, to rebuild a shrinking industrial base and convince corporations that they should come to, or stay put in, New York. To do so, they offered to offset one of the largest taxes a company has to pay: property taxes.
In Chautauqua County, a massive subsidy for the now-shuttered NRG Energy plant has pulled revenue from Dunkirk schools for years. The district serves a student population that is two-thirds Black or Latino and three-quarters economically disadvantaged.
One of the worst-polluting power plants in New York, NRG was under pressure from state officials to clean up its emissions or shut down. NRG opted to renovate and received a 20-year tax break from the IDA in 2008. Rather than pay $4.9 million in property taxes to Dunkirk schools, the deal allowed NRG to pay $656,000 in 2016.
That, plus a handful of smaller projects, means the district forgoes an average of $5 million annually.
PILOT payments to the district dropped when NRG pulled the plug on transitioning from coal to natural gas. That prompted the district to turn to the state for supplemental funding.
“At that point, we had to fight to get mitigation aid,” said Kenneth Kozlowski, president of the Dunkirk school board.
The district received $280,000 in payments-in-lieu-of-taxes for the 2021-2022 school year.
Mark Geise, CEO of the Chautauqua County IDA, argued that NRG was a “special case” and that the 20-year PILOT deal was necessary to keep jobs in the city.
“The bottom line is the [IDA] provided incentives in order to maintain high-paying union jobs and revenue to the taxing jurisdictions for as long as possible,” Geise said in a statement. “Every deal we do has been fully vetted with the mission of retaining and creating jobs, and increasing investment in our communities.”
Dunkirk Superintendent Michael Mansfield said the schools could certainly use additional funding, but that the community needed jobs, too. Like other superintendents interviewed for this story, he said he worried more about state education aid than IDA tax breaks.
“I just need to have an idea of what our revenues are going to be [each] year and I leave the political side to politicians,” he said. “We take what we have, and do the best we can with it, and really try to stay out of complaining about what we don't get.”
Impact on school finances
The Niagara-Wheatfield district has foregone an average of $3.2 million annually in recent years. That number is set to jump an additional $2 million if Amazon follows through on its plan to build a warehouse in the Town of Niagara. The IDA last year granted a subsidy package to the tech giant worth $124 million in exchange for a promise of 1,000 warehouse jobs.
LeRoy, of Good Jobs First, said Amazon decides where to place warehouse based on logistics more than subsidies. As such, tax breaks are just a bonus for the tech giant. Amazon, for example, previously built two other warehouses in Erie County — in Tonawanda and Lancaster — and sought no tax breaks.
The property the warehouse would occupy presently pays about $14,000 a year in property taxes that go to Niagara-Wheatfield schools. If the warehouse is built, revenue would jump to $6.6 million a year without any abatements. Instead, the district would see about $2.2 million under the deal approved by the Niagara IDA.
Ljiljanich, the district superintendent, said he’d prefer if the abatements didn’t affect school funding.
“I would just add that that would be ideal for districts if the PILOTs impacted the municipalities, but not the school districts,” he said.
Reform legislation
That’s a change a handful of state lawmakers are looking to make. Legislation sponsored by Sen. Sean Ryan, D-Buffalo, would strip IDAs of the power to grant property tax breaks that would affect school districts. Influential Senators Liz Kreuger of Manhattan and James Skoufis of Orange County have signed on as co-sponsors.
“The people on the short end of the stick have been school kids, getting diminished school programming, because the big buildings, the big real-estate ventures and companies, are not paying into the tax burden,” Ryan argued in a February interview with Investigative Post.
The power that IDAs exert on communities around New York is often invisible.
Downtown Warsaw, in Wyoming County, for example, looks like many small, rural towns around the country: Signs advertise local honey, syrup and eggs. Historical markers, churches and small businesses dot Main Street. Residents gather for sandwiches and coffee at the Vertical Cafe; Bible verses adorn the walls.
Outside of town, dozens of wind turbines dot the hills.
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Few residents know the tax breaks granted to wind-turbine operators reduce the amount of money school districts would otherwise receive. The Warsaw Central School District forgoes $2.6 million in revenue each year due to the IDA, equal to a little more than 10 percent of its budget. The bulk of that foregone revenue for Warsaw schools is due to property tax breaks to the Stony Creek Wind Farm. In the Letchworth district, the majority of the foregone revenue is in tax breaks to the Noble Bliss and Noble Wethersfield wind farms.
In the end, Warsaw and Letchworth schools are left with fewer resources. The payments-in-lieu-of-taxes they do receive can fluctuate depending on how much power the wind turbines produce.
Jim Pierce, executive director of the Wyoming County IDA, argued that the PILOT deals for the wind turbines are increasing revenue to the school district. The land they sit on, he said, was previously exempt from property taxes due to its use for agriculture.
“There are no additional costs or use of resources for the schools due to these projects, yet they receive the benefit of the majority percentage of PILOT payments,” he said in a statement.
Some residents are beginning to catch on to the impact of tax breaks on school funding.
“It's not a fair process,” said Kathy Humphrey, who worked as the Warsaw Elementary nurse for three decades. Over the years, she said she’s seen companies come to Warsaw for a tax break, only to leave once the subsidy ran out.
“I think the district has done well, as far as being able to do their building projects and keep their buildings up to speed and stuff. But, you know, they could always use more money. Teachers need raises and they're kind of limited on what they can do there."
