How Tax Abatements Contribute to Systemic Racism
Image by jotoya from Pixabay

July 20, 2020
By Mark Funkhouser

I have long argued against the use of tax incentives, including tax increment financing (TIF), in which future property tax revenues are diverted to companies to subsidize development. It was the focus of some of my more controversial work as Kansas City’s auditor and a central theme of my campaign for mayor in 2006 and 2007. 

My main arguments were that they were ineffective in producing real prosperity and were simply corporate welfare, a form of legal corruption in which well-connected insiders effectively bribe elected officials and collude to line each other’s pockets with public money at the expense of basic government services.

It was the waste and greed of the tax incentive schemes that pissed me off. I had little doubt that it promoted economic inequality, but I didn’t think to call it “systemic racism.” 

Kansas City Public Schools Superintendent Mark Bedell, however, did just that, and he’s right. In a scathing letter to the City Council last month urging its members to vote down a property tax abatement deal, Bedell pointed out that TIFs keep property taxes low for years — often decades — thus depriving schools of needed revenue while placing all the pressures of a growing local population upon them. “I am exhausted with the development community pitting the City against the public entities that are doing the work of trying to give our students and their families access to the world they deserve. This is systemic racism.”

The Kansas City metropolitan area sits in two states, and among close observers of government is semi-famous for the constant “border war” of tax incentives that rages as jurisdictions seek to lure companies back and forth across the Kansas-Missouri line. Kansas City itself has more than a dozen school districts, but the one that Bedell leads covers downtown and the urban core, and a majority of its students are Black. The city is geographically divided by the Missouri River, and the area north of the river is mostly suburban and white. In his letter to the council, Bedell went on to say, “Financial decisions can be moral ones and this request is a violent economic practice that would never be inflicted on the majority-white school districts in the Northland.”

Still, while the incentive situation may be more egregious in Kansas City, it is a national problem. Back in 2012, The New York Times reported that state and local governments were spending about $80 billion a year on incentives. (And that was before the feeding frenzy over Amazon’s location of its second headquarters.) I suspect that a careful analysis of the impact of all that spending would find that it has exacerbated racial disparities in income and wealth. Certainly, the billions of dollars spent annually on incentives in the name of economic development have done nothing to reduce those disparities. The Washington Post reported last month that the nation’s racial economic divide is as wide today as it was in 1968.

Want to read our full newsletter?

Click here to subscribe and receive insights like these and more directly in your inbox