New York Lawmakers Push for New Limits on School Tax Breaks

As New York students and teachers head back to classrooms, some Albany lawmakers are planning to push a bill limiting tax breaks that threaten school funding.

The legislation would prohibit industrial development agencies, a group of more than 100 public benefit corporations that promote economic development projects, from waiving taxes that would otherwise go toward funding school districts. The exemptions in recent years have reached nearly $2 billion.

Fiscal watchdogs have long questioned the financial tradeoffs of these locally controlled entities, which are empowered by the state to offer businesses incentives to locate in their respective regions. An IDA can grant exemptions from mortgage recording taxes, property taxes, and sales taxes on some purchases. But despite criticisms of this power, recent legislative efforts to rein in the IDAs and make them more transparent have failed to gain traction.

State Sen. Sean Ryan, the Buffalo-area Democrat sponsoring the bill, said he will make it his “top priority” in the upcoming legislative session after it failed to move earlier this year.

Ryan said his bill could be aided by greater awareness of the impact these exemptions can have on schools. Property taxes are the main source of funding for local school districts, and education officials in the Long Island town of Riverhead recently called for closer scrutiny of exemptions granted by their local IDA.

“This idea of the school taxes seems to have captured people,” Ryan said in an interview, noting that people are beginning to “parse out” what IDAs mean for schools.

NYC Schools Hit Estimated at $1.3 Billion

There are more than 100 industrial development agencies across the state, managing 4,324 projects, according to the most recent data compiled by State Comptroller Thomas DiNapoli. New York first established the authorities in 1969 to foster local economic development and job creation, but Democratic lawmakers and budget groups have long questioned their financial payoff. Former Gov. Mario Cuomo (D) put an end to the creation of new authorities in the 1980s.

“Really since Cuomo banned them, people have been fighting to get rid of them,” Ryan said.

Recent IDA projects include a new cheese manufacturing plant in western New York and redevelopment of a Syracuse department store into apartments and retail. But tax breaks have also gone to projects like new fast-food restaurants, fueling calls for better oversight.

Over the past several years, the value of IDA projects and tax exemptions has “increased greatly,” but the net number of jobs created hasn’t, the comptroller’s office wrote in its report. Project operators estimated in 2021 that 221,305 jobs—with a median salary of $40,000—would be created from all active IDA projects, a 1.7% decrease from 2020. Some projects may not have had job creation as the primary goal, but the state doesn’t track progress toward other objectives like energy generation, the expansion of affordable housing, and downtown revitalization.

Tax exemptions for IDA projects totaled $1.9 billion in fiscal 2021, 89% of which were delivered in the form of property tax exemptions, DiNapoli’s office reported.

Statewide, schools lost $1.8 billion that same year to corporate tax abatements, a “substantial” portion of which were granted by industrial development authorities, according to a report by Good Jobs First, a nonprofit that tracks state and local government subsidies. The figure included $430 million in self-reported losses by 318 school districts and $1.4 billion in estimated losses for schools in the state’s five largest cities, where education tax abatement disclosures aren’t available. Good Jobs First estimated New York City schools lost $1.3 billion to the city’s tax abatement programs. The group based its estimate off the city, which spends 32% of its budget on education, abating $4.1 billion in tax collections.

Districts with a higher proportion of students of color were among those that lost the most revenue per student, the report continued. Peekskill City School District, in Westchester County, reported one of the largest net revenue losses, at $19 million. Nearly nine out of 10 Peekskill students are minorities, with more than three-quarters qualifying for free or reduced-price lunches.

States Push New Limits

Other states—including Alabama, Florida, and Maryland—-shield school taxes from all forms of tax abatements, according to Good Jobs First.

Kansas, Pennsylvania, and Texas require school boards to sign off before the school portion of property taxes is abated, according to the office of New York Assemblymember Harry Bronson (D), who is sponsoring the proposed ban on school tax waivers in the Assembly.

New York lawmakers have introduced other bills to crackdown on incentives from IDAs, including one that would prevent IDAs from “giving financial assistance to projects where the project occupant is kept secret from the public.”

“People are starting to pay attention to this struggle between economic development priorities and school funding adequacy,” Christine Wen, lead author of the Good Jobs First report, said in an interview.