Corruption and Special Privilege
Special Tax Breaks Take Away from Schools, Give Welfare Handouts to Corporations
Below are edited portions of an article from the Wall Street Journal of July 18, 2001.
Heavy Tax Abatements Keep Firms In Toledo but Drain Education Coffers
by Robert Tomsho
Toledo, Ohio -- Jared Cook transferred to Toledo's Jesup W. Scott High School last year. Opened in 1913, the structure is a Tudor marvel of towers, arches and mullioned windows. But what he found inside shocked the lanky 17-year-old honor student. Teachers complained of paper rationing. Water leaks had destroyed the gym floor. Bathrooms lacked soap and, where there was toilet paper, it was often hung from a thick loop of chain. "I saw an utter sense of despair," says Mr. Cook, who organized a student protests to demand better conditions.
Area businesses also complain about the 38,000-student Toledo Public School District. They say its abysmal academic record hampers efforts to hire well-trained workers and attract new employers.
But even as they call for reform, companies are receiving hefty breaks from the very taxes that would help pay for it. Since the late 1970s, tens of millions of dollars that would have otherwise flowed into Toledo school coffers have instead gone to businesses as corporate welfare handouts. Machine shops and breweries have drunk from this well, as have large corporations seeking to build new headquarters and plants.
County auditor Larry Kaczala, a Republican, estimates that corporate welfare currently costs the Toledo school district about $13.7 million a year, or about 14% of local property-tax revenues earmarked for the schools. In a school district with a $250 million annual budget, that would be enough to bolster the annual instruction budget by 10% -- or nearly triple what it can afford for improvements on buildings plagued by moldy walls and aging boilers that require full-time attendants.
Among the big local companies benefiting: building-products maker Owens Corning Corp., which saves about $875,000 a year on school taxes from its abatement. Company spokesman Bill Hamilton said that such incentives are sometimes necessary to get such a deal done, adding that offering welfare handouts "is part of what a community does to say that they are supportive to businesses." DaimlerChrysler AG bargained for a $280 million package of incentives from state and local officials in exchange for a 1998 agreement to stay in Toledo and build a Jeep plant north of town. The county auditor estimates the company will save about $8 million in school taxes this year as a result of its abatement.
W. Frank Fountain, a senior vice president at DaimlerChrysler and chairman of the school board in nearby Detroit, says welfare handouts are "a competitive cost factor" in determining where new factories are built. He adds that Toledo schools could benefit from secondary growth around the new factory and from the facility itself after its 10-year abatement expires.
Toledo's leaders say they have compelling reasons to meet corporate demands for welfare handouts. Beginning in the 1980s, their economy lost an estimated 15,000 manufacturing jobs to corporate mergers, auto industry troubles and a shift of business to the Sun Belt and abroad. With so many rival communities willing to give away the taxpayers' money, Toledo Mayor Carty Finkbeiner contends that abandoning the welfare handouts would mean more lost manufacturing. "And that has been a good way of life in our city for a hundred years," he says.
Criticism of corporate welfare has mounted. In 1994, a group of community activists tried to get enough petition signatures to trigger a referendum on whether Owens Corning should get $25 million in tax abatements to build a new headquarters a few blocks from its old digs. The petition drive failed. But responding to criticism, the city announced that in return for future abatements, companies would have to pay the schools an amount equal to about 45% of their normal property tax bills. But even this rule was waived for Daimler-Chrysler.
These days, nearly a third of Toledo students drop out before graduation and only one in five seniors passes all of the state's proficiency tests. Ohio deems the school district to be in a state of "academic emergency," because it fails to meet 22 of the state's 27 academic standards, which are based on test results, graduation rates and attendance.
While grappling with its physical-plant problems, the cash-strapped school district laid off 50 janitors, fired 67 teachers and closed two schools.
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