Spread & Containment
Concern is mounting about zombie companies: why that matters for the economic recovery
A transcript of episode 10 of The Conversation Weekly podcast, including a story on a new technique to prevent predators eating the eggs of endangered birds.
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This is a transcript of episode 10 of The Conversation Weekly podcast “The zombie company problem and what it means for our economies”. In this episode, why some economists are worried about a growing army of “zombie companies” with lots of debts – and what this could mean for the shape of our economies. And researchers have found a new way to prevent predators from eating endangered birds and their eggs – via a form of biological, psychological warfare.
NOTE: Transcripts may contain errors. Please check the corresponding audio before quoting in print.
Dan Merino: Hello and welcome to The Conversation Weekly.
Gemma Ware: This week, why some economists are worried about a growing army of companies with lots of debts – known as “zombie companies”. We speak to two experts on what this could mean for the shape of our economies.
Karl Schmedders: We will see bankruptcies and some of these companies will no longer exist by their own.
Dan: And I speak to a researcher who has found a new way to prevent predators from eating endangered birds and their eggs. It’s a bit of biological, psychological warfare.
Catherine Price: It’s just mucking with their minds and getting them to ignore what is actually the smell of the bird.
Dan: I’m Dan Merino in San Francisco.
Gemma: And I’m Gemma Ware in London and you’re listening to The Conversation Weekly, the world explained by experts.
Gemma: Some companies have done better out of the pandemic than others. There have been clear winners and losers.
Dan: Online retailers have been riding high as consumer patterns have shifted. Amazon of course, has had a stellar year. Zoom, share price through the roof.
Gemma: Pharmaceutical companies have had a good year too, particularly those who successfully developed their own coronavirus vaccines.
Dan: But, it’s been bad for huge swathes of the economy.
Dan: Physical retailers such as shops and department stores, airlines, hotels… anyone of course, whose business is tourism, and the service sector have all been hit pretty hard.
Gemma: Some of these companies were ticking along nicely before the pandemic. It’s the coronavirus restrictions that have really hurt their revenues, they’ve just not had enough money coming in to cover outgoing costs. But, with a solid foundation, these companies are pinning their hopes on the recovery.
But other companies went into the pandemic hampered by large debts – economists call these zombie companies.
Dan: Ooh, zombies. OK, why are we calling companies undead?
Gemma: Well these ones aren’t quite dead, and they’re not insolvent, but they’re just about alive. It’s a term used to describe what happened to many Japanese companies in the 1990s after a bad financial crash there, or to firms in Europe and the US after the 2008 financial crisis.
But now some economists are concerned about a new and growing army of zombie companies, exacerbated by the pandemic. I’ve spoken to two financial experts about all this, and about why the situation is harder for smaller companies than larger ones.
Karl Schmedders: My name is Karl Schmedders I’m a professor of finance at IMD, a small business school in Lausanne, Switzerland.
Gemma: Karl researches the relationship between the real economy and the financial markets. I asked him what a zombie company is.
Karl: Zombie company describes a company that may be even earning money from its operation. However, these earnings are not enough to make debt payments to pay back loans or to pay back the interest on loans that they received from banks, from other lenders, or in the general financial market through bonds, through these pieces of paper that are sold in the market to take on loans.
Gemma: The financial crisis caused by the pandemic has made life even worse for many of these firms – but many were in trouble before anyone had even heard the word COVID.
Now, there may be any number of reasons why one particular company isn’t doing very well at any particular time. But Karl points to interest rates as part of the problem for the current crop of zombie companies. In Europe and the US, they’ve never been so low for long.
Some places, including Japan, Switzerland and the eurozone, have even been living with negative interest rates for a few years now.
Read more: Negative interest rates will not fix the global economy – just ask Switzerland
All this means cheap cash. Companies have been able to borrow money from banks at low cost, and so many went on a borrowing and spending spree.
Karl: For years already, interest rates were very low, so it didn’t make sense on a short-term view for companies to hold a lot of cash for a rainy day. Why? Because they received no interest, or very little interest, and so shareholders or owners said that doesn’t make sense to hold a lot of cash in a bank account. Either spend it or give it back to us through dividends or share buybacks.
Gemma: A share buyback is when a company buys back its own shares on the stock market. This reduces the number of shares and in turn can increase a key metric, called earnings per share, which financial analysts watch very closely. Share buybacks can also push up the value of a company’s own stock – which is good for the shareholders.
Karl: And so that’s what a lot of companies did. They reduced their cash holdings because it didn’t make sense to hold cash.
Gemma: But some firms went even further.
Karl: Because money was so cheap, some company even borrowed money in order to buy back their shares. Let that idea sink in. Companies, borrowed money, because money was so cheap, because interest rates are so small. Then they use the borrowed money not to invest in research and development, not to buy other companies, they borrowed money to buy back their own shares in order to drive up the share price. But at the same time, they were increasing their debt. And this is now the situation that’s happened before COVID-19 a lot.
Gemma: The problem isn’t that companies were buying back their own shares – this is a fairly common practice – but that some of the companies doing so were on shaky financial ground. They were spending borrowed money on their own shares, rather than investing it into in research and development or in an effort to become more productive.
Karl: What happened when COVID-19 occurred? Suddenly economic activity went down a lot. Some of these companies suddenly didn’t earn enough money anymore in order to pay back those loans. And now suddenly they’re in trouble and they become a type of this zombie company.
Gemma: So they’re inefficient because they’re trying to service the debt, they’re trying to pay the interest on their debt, but at the moment, they’ve hit a crunch point because they have no earnings to help service it?
Karl: That’s a beautiful summary, that’s exactly what’s happening.
Gemma: And are there specific sectors that are more affected than others?
Karl: Clearly we see these types of companies, in those areas where earnings have really fallen apart. One area that has been hit hard are the airlines. The airline business is asset intensive. Airplanes are very expensive, and airlines typically do not have the funds, the equity to pay for these airplanes in cash. So they have a lot of debt, but we all know, we are not allowed to fly. So airlines, are not earning enough money to pay these loans.
A leading example is in the United States, Delta Airlines, which is sort of an iconic company, which at the same time is a zombie. Then we also see a company such as Boeing. Boeing is selling airplanes. Nobody is buying airplanes right now. At the same time Boeing had a lot of these share buybacks in recent years.
Gemma: The pain was also felt further down the supply chain.
Karl: Another area where we see this is in the oil industry. There was a drastic reduction in the demand for oil-based products. We all drove less in our cars. The airlines needed much less kerosene for their airplanes because they couldn’t fly. And so some of the oil companies, suddenly find themselves not earning enough money to cover their interest expenses.
Gemma: Are there any estimates of the size of this zombie problem in zombie companies around the world?
Karl: Before COVID, Morgan and Stanley came out with an estimate that about one in six companies in the United States are zombies. Bloomberg came up with a study in November of 2020. They looked at Russell 3000 companies. These are the 3000 largest companies listed on the stock market in the US.
And they saw that more than a quarter – that’s a big number – more than one in four companies in their most recent business year had these problems, were zombies. For Europe there are similar numbers or maybe numbers slightly larger.
Karl: Although there are no official statistics on zombie companies globally, data suggests these figures are similar for other rich countries.
Karl: While I don’t like to speculate, I think we can say that somewhere between 20% and 30% are sort of the current estimates, by people observing these zombie firms around the world.
Gemma: When the pandemic hit, governments around the world stepped in to help companies through the crisis – whether they were healthy or not. Some central banks moved to buy up corporate bonds.
And governments around the world also gave out huge sums of state aid to companies in the form of grants, loans or employment support schemes such as furlough.
Karl: There are some cynics who even say that some zombie companies who paid out too many dividends, who took out too many loans, were saved through COVID-19. Because of this global shock of COVID-19, the central banks came in with so much money and supported the economy so much, that some companies who in under normal circumstances may have gone bankrupt have been saved.
Gemma: Do you believe that?
Karl: Yes. I believe that some companies, have been saved by very cheap money.
Read more: Attack of zombie companies: don't let them eat bailouts that are vital to restore the economy
Gemma: In fact, data from the International Monetary Fund suggests that while a recession as drastic as the one we’re in one would usually be followed by a rise in bankruptcies, in the world’s 13 biggest economies, the number has actually fallen.
Still, concerns are growing about what will happen once governments around the world stop their pandemic support programmes. For some analysts, the situation looks precarious. Figures published this week indicated the default rate in Europe on corporate loans – the rate at which companies are not able to pay back their debts when they come due – has doubled over the past year. I asked Karl what the prognosis is for zombie companies from here.
Karl: It will be a very difficult process to slow down the support of worldwide economies without causing another recession that then is caused by zombie company insolvencies. So, central banks and governments face a huge task when they decide to reduce and eventually completely take out their support.
Now, certainly we hope that companies with a viable business model will see a big increase in earnings after the end of the lockdowns, if economic activity resumes and that some companies then have big earnings again so that their debt to earnings ratio will decrease and they will survive. But clearly some companies won’t see that.
Gemma: How a company fares after the pandemic may depend on its size. To understand more, I reached out to Sandy Brian Hager.
Sandy Brian Hager: I’m a senior lecturer in international political economy at City University in London. And my main research focus concerns inequality and issues of corporate power.
Gemma: Sandy is particularly concerned about what’s been happening to smaller companies. Earlier this year, he published new research with his colleague Joseph Baines at King’s College in London tracking the performance of corporations listed on the US stock exchange over the past few decades. They ranked companies based on their overall revenues, and then divided them up – into the top 10% of large corporations, the next 40% of medium-sized ones – and then the bottom 50% of smaller corporations. It’s these smaller corporations that Sandy says we should be worried about.
Sandy: So these aren’t, you know, your mom and pop corner stores if you will, these are more, generally larger than that.
Based on our research, we’ve shown that they’ve been suffering for decades now, in terms of their profitability. Because of their smaller and often negative profit rates they’re definitely not able to tap into corporate bond markets. They have to borrow from banks at a much higher rate as well.
Gemma: Larger corporations have benefited for a long time from what’s called a borrowing advantage.
Sandy: Quite simply they have better access to loans at favourable rates from the banks. They’re are also able to tap into corporate debt markets and borrow at very cheap rates on the bond market as well. That means that they’re able to borrow on a more favourable basis that allows them to consolidate their position within markets and continue to borrow at those favourable rates.
Gemma: Smaller companies, on the other hand are at a disadvantage because the loans they have access to are more expensive – they come with higher interest rates. That means they have to spend more of their hard-earned cash on paying them back.
Sandy: There’s a kind of vicious circle going on that we talk about in our research. We’ve shown that they have to borrow from banks at a much higher rate, and that obviously eats into their profits even more because they’re having to spend so much in terms of the amounts that they pay back to banks in the form of interest.
Gemma: Crucially, even during the pandemic, when the US government issued emergency loans to try and lessen the impact on the economy, Sandy says larger companies have been treated more favourably.
Sandy: If you look at, the intervention, for example, that we’ve seen in the United States, they’ve established a bunch of different lending facilities for companies of different sizes. So there’s the main street facilities that have been aimed at small- and medium-sized corporations. And then we have the corporate credit facilities that have been aimed at larger corporations. Federal Reserve has promised to prop up the corporate bond market by intervening and buying up debt if need be. And what we saw is that lending rates for larger corporations plummeted as a result and they went on a kind of borrowing spree through the pandemic.
Now, the main street facilities, they were meant to sort of help more smaller and medium-sized corporations. And the problem with the main street facilities is that a lot of the criteria that they established for companies to access them was really prohibitive. So a lot of the smaller companies were already in financial distress and they didn’t meet the requirements. Those companies that were eligible for the main street facilities, oftentimes they found that the administrative burden of accessing the facilities was just too high. So they’ve really been starved for financing through the pandemic.
Gemma: Karl says those companies that are in a more stable financial position may see this as an opportunity to acquire competitors that are struggling. And this will usher in a wave of mergers and acquisitions.
Read more: Takeovers: a tidal wave of buyouts is coming in 2021 – here's what it means
Karl: Some of these companies may be competitors to healthy companies. And so these healthy companies say, “Oh, we can get a larger market share. So why don’t we buy this distressed company?” To get, sort of out of the zombie situation and reduce zombies, we will see bankruptcies, but we will also see some of these companies will no longer exist by their own, but then will be bought out by larger companies.
Gemma: The pandemic may also prompt some healthy companies to move in new directions.
Karl Schmedders: We may see in this merger and acquisition activity very strange marriages where one company depends in some form on another company and wants to keep it alive. There was a very interesting example in the United States last year, where a big department store, JC Penney, went under. And nobody wanted to buy them, so it looked like they would literally completely vanish. And then they were bought not by another retailer, they were bought by real estate companies owning shopping centres because they’ve wanted the store to stay in these buildings.
Gemma: When I asked Sandy Brian Hager about what might happen next, he said he feared that larger companies could get even richer and bigger, while smaller ones suffer even more. This is what he calls a K-shaped recovery.
Sandy: You know, you can imagine the shape of a letter K. And what it means is that large corporations are kind of seeing their fortunes rebound. Since the pandemic first hit, they’re seeing their profitability and sales being restored. They’re seeing their financial conditions improving. Whereas smaller corporations are heading in the opposite direction.
Gemma: But it would be a mistake to think that this has been caused by the pandemic. Sandy says that in the US and the UK, the economy has been developing in a K-shape for some time.
Sandy: So if we look at, you know, the improving fortunes of large corporations that’s a process that’s been taking place since the early 1980s. And smaller corporations have been in, in a lot of financial distress for decades now.
There’s this argument that’s making the rounds at the moment that suggests that, you know, the pandemic might be an opportunity of sorts in that the pandemic might actually end up killing off a lot of these zombies and that will restore dynamism to the economy. And I think that certainly could be the case. But if the pandemic ends up killing off a lot of these smaller companies, there’s no guarantee that dynamism is going to be restored.
Gemma: Sandy’s research shows that over the past few decades it’s smaller corporations which have been investing more of their revenues in the kinds of activities that create jobs.
Sandy: What we see is that smaller corporations have actually been increasing their fixed investment. And large corporations have actually been decreasing the amounts they invest in productive capacity the past few decades.
Gemma: Productive capacity refers to a company’s means to produce goods and services that will help it grow.
Sandy: Large corporations have a monopoly position, they don’t feel sort of pressures to invest in productive capacity because of that monopoly position. Whereas smaller corporations do feel that they have to expand productive capacity just to try to compete within this system and so those kinds of wishing for a lot of companies to be killed off as a way of trimming the fat – that’s not necessarily going to be a good thing.
Gemma: And he says, smaller companies going bankrupt or being bought out by bigger ones, that could ultimately threaten the overall health of the economy.
Sandy: I think if we look at the trends over the past few decades, there’s been a trend toward corporate concentration in most of the advanced economies and the consequences of that have been negative for society as a whole. So we’ve seen stagnation in terms of wages. We’ve seen a decreasing dynamism, decreasing innovation throughout the economy, decreasing productive investment as a result of concentration. And of course, we’re staring down this, um, prospect of climate breakdown as well.
We’re going to see more dominance from corporations at the top, particularly from the tech firms, from the pharmaceutical companies, those that have fared best out of the pandemic. I think that translates into increasing political power for these dominant corporations.
Gemma: Help has been forthcoming for some of these smaller businesses. In the US, the Biden administration’s US$1.9 trillion so-called American Rescue Plan, passed in early March, is targeting more government support at small businesses, particularly those in sectors most hit by the pandemic. But Sandy that says governments still need to address some of the structural issues that mean smaller companies struggle, while bigger ones thrive.
Read more: Joe Biden's US$1.9 trillion stimulus won't be enough to reignite world economy on its own
Sandy: If we think in the medium term, I think one of the major issues is that governments are going to have to tackle this issue of monopoly power and corporate concentration, and that would mean restoring, maybe antitrust regulation, which has been rolled back since the 1980s. It would involve something maybe like patent reform to break up monopolies and try to spur innovation in product markets. And it would also involve, I think, corporate tax reform. And we wrote a piece earlier in The Conversation where we show that smaller corporations are also at a huge disadvantage when it comes to corporate tax. So the rates they pay on their domestic income, relative to the rates that larger corporations pay on their domestic income, is so much higher.
Gemma: In the longer term, Sandy proposes using government-backed loans in a more targeted way, to help address some of the imbalances in the economy.
Sandy: Thinking even more longer term, I think we need to think about bolder reforms that might reassert some kind of democratic control over the economy, and that could involve establishing some sort of national investment fund or development bank where assistance and funding and financing for companies could be targeted at those businesses that are producing vital new technologies, such as, you know, green energy or alternatives to plastic or something like that.
Not to sound overly sort of pessimistic, about it, I just don’t see there being a good outcome unless we use this pandemic as a chance to implement really meaningful changes to the way that the business system operates.
Dan: As with a lot of things about this pandemic, it sounds like we’re just going to have to wait and see what happens next – and much of that depends on what governments around the world decide to do.
Gemma: Yep, and for those zombie companies, if interest rates start to go up and companies find they just can’t pay back their loans, or do a deal to restructure their debt, it could get pretty difficult. So watch this space.
Gemma: You can read more about Sandy Brian Hager’s recent research on US corporations, and Karl Schmedders’s analysis of the risk from zombie companies in their articles on The Conversation. Find the links in the show notes.
Dan: Coming up, we hear about a surprising – and very smelly, new conservation technique for endangered birds.
Gemma: But first, here’s Luthfi Dzulfikar, associate editor at The Conversation in Indonesia, with a few recommended reads.
Lutfhi Dzulfikar: Hi, my name is Luthfi Dzulfikar, an editor at The conversation based in Jakarta. Last week, we published a story by researchers from Universitas Indonesia and how a lot of low-income Indonesians currently do not have documents of personal identification and are excluded from national registries.
In Indonesia, access to around 17 different public services, including education, health insurance, sanitation and electricity requires identification such as through national IDs, household cards and birth certificates. But around 14% of children under 18 currently do not have one, with a sharp divide among groups of different income levels and between urban and rural households. Many factors contribute to the situation, but chief among them are lack of transportation infrastructure and scarcity of government presence in rural areas which make it difficult for low-income families to get in touch with civil registration offices.
Our second story comes from Nuril Huda from the State Islamic University in Lampung, Sumatra, on the adoption of cinema and filmmaking practices by the Santri, traditional practitioners of Islam who are typically students that study at Islamic boarding schools. The emergence of numerous popular Islamic movies in recent years, the rise of the Santri middle-class and modernisation of the Islam boarding school system have driven the Santri to celebrate cinema through screenings, film discussions, and even festivals.
Based on his PhD thesis, Dr Huda observed how this adoption of cinema have not only helped the Santri preserve Islamic culture on screen, but also to criticise and question it. For instance, the views and customs within these Islamic boarding schools are traditionally dominated by male religious leaders. However, female Santris in reputable boarding schools have started to use cinema as a medium to advocate more gender-inclusive Islamic traditions. That’s it from the team in Jakarta. Stay safe, everyone.
Gemma: Luthfi Dzulfikar in Jakarta there.
Dan: OK. Onto our next story now, and we’re going into the world of bird conservation. Birds in many places are having a tough go of things and their populations are plummeting. Conservationist really struggle to protect them, but a few researchers have found a new way to use misinformation to fool predators
Gemma: Misinformation, so are we talking fake news here?
Dan: You could say fake news, although not the kind that circulates on the internet, of course. But the idea is the same: confuse predators by giving them some of their favourite info, in this case smells. The team just published a new paper testing this technique in New Zealand. I called up one of the researchers based in Sydney to find out more.
Catherine Price: My name’s Catherine Price. I’m a postdoctoral researcher at the University of Sydney in Australia.
Dan: And you study wildlife, do you not?
Catherine: I do. Yep. I worked in the conservation agency in New South Wales for quite a few years. And that got me very interested and I guess kind of concerned in how we protect threatened species in particular. Like, are we doing it in ways that are effective and can we improve those ways? And that led me to go back to uni and do a PhD.
Dan: When you were working in conservation, when you were going back to school, what motivated you to do this?
Catherine: Yeah, so well in Australia and in New Zealand, a lot of birds, particularly ground nesting, birds are in decline, basically. They are constantly losing their nests and losing their chicks from predators. And in Australia, Europeans brought over a whole lot of species, things like foxes and cats and the birds that we have here, and also actually in New Zealand and other parts of the Pacific, they didn’t evolve with these predators.
New Zealand has this terrible problem with introduced predators cos they have no native mammals other than a bat. So their animals are just being absolutely destroyed. In Australia. I think it’s something like 95 species are threatened by foxes and cats. I think in New Zealand they’ve lost something like 57 or 60 species of birds or are either endangered or threatened. And at the moment, really all we can do is either try and kill the predator, which is obviously good if you can get rid of all of them, or fence off the birds, you know, somehow. We just kind of were thinking, we need some other techniques really.
Dan: I can hear it in your tone, you were just like, ugh, none of this is working. It’s bad for the environment. It’s hard. What was the idea you guys came up with?
Catherine: So, most predators, in fact most animals, you know, they have to find food and they have to find it every day. And so they want to be as efficient as possible. They don’t want to waste physical effort, but they also don’t want to waste their headspace.
So, they use what we call rules of thumb, you know, they use clues as to what is going to work based on what’s worked for them before. And so animals use smell. It’s kind of evolved from the earliest bacteria. It’s a really reliable and useful source of information to tell an animal that food is where it should be.
Peter Banks, who was my PhD supervisor, he’d kind of been thinking a lot about smell and how predators use smell. And he basically just kind of came up with this crazy idea: what if we put smell everywhere and then it kind of makes it not useful for the predator?
In a sense it’s really simple. It’s like, well, if predators are finding their food using smell and you know, anyone who’s had a dog has watched how they’ve kind of honed in on something using smell. If they keep honing in on a smell and then there’s no food there, won’t they ignore it? Like if you kept kind of smelling someone having a barbecue next door and going next door, and there was no barbecue, eventually you’d stopped going. You would start to ignore that smell and use other information to try and find your food.
It’s just mucking with their minds, mucking with what information they’re using and getting them to ignore what is actually the smell of the bird.
Dan: OK, so you came up with this idea, but you needed to test it to see if it actually works right?
Catherine: Yeah, cause it’s a pretty crazy idea. And so that was basically my PhD, was testing the idea and trying to understand which aspects of it we could use. And so we were, I guess, predicting that they would initially be really interested in a new smell that they thought would be linked to food, but really quickly, if they found that it wasn’t useful, they would start to ignore it. And that’s what we found with rats in the bush around Sydney. So this was sort of the first trial to test the idea, to see if the rats would respond when they encountered a smell, but it wasn’t necessarily associated with any kind of food. It worked remarkably well.
Dan: You went out and did this on a bigger scale. So can you tell me about your project out in the Mackenzie Basin?
Catherine: Yeah, so it was fortuitous, we were at a conference and we knew Grant Norbury, who’s the lead author of the paper, from previous work. And he’s a great guy, amazing scientist. Peter was chatting to him about the results. And he pulled together an amazing team of people from Landcare and we worked with them and set up this incredible experiment in the Mackenzie basin, which is in the middle of the South Island of New Zealand, beautiful, beautiful countryside. It’s the area where the rivers are coming off the mountains. You’ve got these huge braided river beds. Huge expanses of gravel with mountains in the background, it’s just stunning. But it’s full of ferrets and stoats and hedgehogs, they have introduced over there. There’s feral cats and there’s rats.
Dan: So all the baddies.
Catherine: All the baddies, and they have these shorebirds that come in and nest on the braided river beds, these sort of big expanses of gravel. And the nests are incredibly well camouflaged, you cannot see them at all.
Dan: And what kind of species of birds are we talking here?
Catherine: So, the main one we worked on was double-banded plovers, which are these sort of small, you know, they’re like the size of your fist kind of thing. And they lay these tiny eggs, which just look like gravel. They also have, wrybills, which are another endangered shorebird, which are very similar. And then there were also a bigger bird called the South Island oyster catcher. And all of these birds, the main cause of their decline is that the predators just come in and take the nests and they’ll lose up to 95% of their nests each year. Like it’s amazing there are any left at all really, when you look at it.
Dan: So walk me through: what’s step one?
Catherine: Grant works for Landcare, they have a team of chemists. So the first thing was, well, we’ve got to make bird odour. How do we make bird smell in the quantities that we’re going to need? And we went out and caught a couple of these birds. And tried to see if we could get the smell off them by rubbing them in towels – without hurting the birds, obviously. And basically they don’t actually smell that much from what we could pick up off a towel. So it’s like, “Jeepers, what are we going to do?” So we thought, well, what about if we could use, just chicken, quail, maybe duck or something like that? Get a whole lot of easy-to-obtain bird smells. Could we get the predators to essentially kind of generalise them all together? And so that’s, that’s what we did. We did some trials in captivity and showed that the predators did do that if they were exposed to one bird odour, they’d sort of ignore all bird odours. And so that instantly made it feasible.
So the chemists at Landcare were able to essentially just boil up in a solvent chickens and quails. I think these guys are normally used to doing these really fine experiments and that was stuffing whole birds into these massive kind of jugs of solvent and then mixing them up, you know, and extracting these tiny amounts of goop. But it really did smell like the bird. It was amazing.
Dan: So you’ve got this bird scent. Then what happens?
Catherine: Mix it into Vaseline. And then we had sites where we knew the birds would come and nest. And so for about a month before we knew the birds would arrive, we were walking back and forth across this landscape and dolloping bird smell every sort of 100 metres throughout this area. I mean, it was pretty labour intensive.
We also had cameras monitoring predator behaviour around the bird smell and monitoring the number of predators that were around. I didn’t do it the whole time. The guys that did it were so fit by the end of it. Like it was snowing at times. It was so windy, it would rain. Yeah, they just did an amazing, incredible job.
Dan: OK. So did you save the birds? Tell me the results.
Catherine: It did, it worked. The birds arrived. We had another team of ornithologists, so specialised bird biologists, who were monitoring the nests at both the sites where we had odour and the sites where we didn’t. And we got, it was like a 70% increase.
Dan: Wow.
Catherine: In hatching success. Yeah. Pretty much across the board of all the species. So it was pretty astounding, because we didn’t remove any predators. There was the same, pretty much the same number of predators at the control versus the treatment sites. What we noticed with the predator behaviour is when we first started putting the smell out, the predators are really interested and then that interest in the odour drops off quite quickly. And then it’s fairly low for the rest of the experiment. When the birds arrive, there’s a slight uptick in the interest, but then it drops off again.
Dan: That’s a huge increase, 70% increase in hatching success. So are you going to start seeing increases in populations of the birds because of this?
Catherine: We had some, modellers at Landcare look at that and say, well, if you did this and you got this increase each year, does it have a population-level kind of benefit? And it really does. So it basically adds about 700 birds to the population over kind of 25 years or something, I think – if you start at kind of a thousand birds. So you essentially, almost, you’re getting towards doubling the population.
Dan: It’s great to have this result. Do you think this might get put into practice other places? Have people contacted you, I guess?
Catherine: Yeah, so we’ve had quite a bit of interest. People in Hawaii who are trying to deal with feral pigs taking birds there, because Hawaii has a big problem with invasive predators. We’ve also had people in other parts of America who are actually dealing with crabs and coyotes taking birds.
There’s in the UK and Europe, issues with, so foxes are native there and take shorebirds. So they don’t want to call the foxes. They’ve also got a whole lot of endangered native predators, like pine martins and wolves and things like that. So there’s a lot of potential in areas where you’ve got endangered predators that you obviously don’t want to hurt, but you’ve also got endangered birds that you’re trying to protect from them. And that’s, I guess, where we see it potentially having really big uptake.
Dan: Catherine, thank you so much for taking the time to speak with me today. Thank you for coming up with this, cause I can always use a good news, conservation story.
Catherine: Thanks.
Dan: If any of our listeners are conservationists and want to get in touch with Catherine Price, she was very happy to speak with anyone interested.
You can read the article she co-authored with her colleague Peter Banks about their new study in the Mackenzie basin by clicking on the link in the show notes.
Gemma: That’s it for this week. Thanks to all the academics who’ve spoken to us for this episode – and to The Conversation editors Steven Vass, Luthfi Dzulfikar and Stephen Khan. And thanks too to Alice Mason, Imriel Morgan and Sharai White for our social media promotion.
Dan: You can find us on Twitter @TC_Audio or on Instagram at theconversationdotcom or email us at podcast@theconversation.com.
And if you want to learn more about any of the things we talked about on the show today, links are of course in the shownotes and you can sign up to our free daily email.
Gemma: This episode is co-produced by Mend Mariwany and me, Gemma Ware, with sound design by Eloise Stevens. Our theme music is by Neeta Sarl.
Dan: And I’m Dan Merino. Thank you all and we’ll talk to you next week.
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Spread & Containment
The Coming Of The Police State In America
The Coming Of The Police State In America
Authored by Jeffrey Tucker via The Epoch Times,
The National Guard and the State Police are now…
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Authored by Jeffrey Tucker via The Epoch Times,
The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.
Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.
The message has been sent: Only the police can do this job. Whether they do it or not is another matter.
Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.
In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.
The law-abiding will suffer and the criminals will grow more numerous. It will not end well.
When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.
If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.
We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.
My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.
It goes like this:
1) lockdown,
2) loss of moral compass and spreading of loneliness and nihilism,
3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,
5) a rise in uncontrolled immigration/refugees,
6) an epidemic of ill health from substance abuse and otherwise,
7) businesses flee the city
8) cities fall into decay, and that results in
9) more surveillance and police state.
The 10th stage is the sacking of liberty and civilization itself.
It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.
But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.
It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.
Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.
As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.
The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.
Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.
By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.
The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.
Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.
The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.
The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.
But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.
What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.
As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.
The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.
Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.
Spread & Containment
Another beloved brewery files Chapter 11 bankruptcy
The beer industry has been devastated by covid, changing tastes, and maybe fallout from the Bud Light scandal.
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Before the covid pandemic, craft beer was having a moment. Most cities had multiple breweries and taprooms with some having so many that people put together the brewery version of a pub crawl.
It was a period where beer snobbery ruled the day and it was not uncommon to hear bar patrons discuss the makeup of the beer the beer they were drinking. This boom period always seemed destined for failure, or at least a retraction as many markets seemed to have more craft breweries than they could support.
Related: Fast-food chain closes more stores after Chapter 11 bankruptcy
The pandemic, however, hastened that downfall. Many of these local and regional craft breweries counted on in-person sales to drive their business.
And while many had local and regional distribution, selling through a third party comes with much lower margins. Direct sales drove their business and the pandemic forced many breweries to shut down their taprooms during the period where social distancing rules were in effect.
During those months the breweries still had rent and employees to pay while little money was coming in. That led to a number of popular beermakers including San Francisco's nationally-known Anchor Brewing as well as many regional favorites including Chicago’s Metropolitan Brewing, New Jersey’s Flying Fish, Denver’s Joyride Brewing, Tampa’s Zydeco Brew Werks, and Cleveland’s Terrestrial Brewing filing bankruptcy.
Some of these brands hope to survive, but others, including Anchor Brewing, fell into Chapter 7 liquidation. Now, another domino has fallen as a popular regional brewery has filed for Chapter 11 bankruptcy protection.
Image source: Shutterstock
Covid is not the only reason for brewery bankruptcies
While covid deserves some of the blame for brewery failures, it's not the only reason why so many have filed for bankruptcy protection. Overall beer sales have fallen driven by younger people embracing non-alcoholic cocktails, and the rise in popularity of non-beer alcoholic offerings,
Beer sales have fallen to their lowest levels since 1999 and some industry analysts
"Sales declined by more than 5% in the first nine months of the year, dragged down not only by the backlash and boycotts against Anheuser-Busch-owned Bud Light but the changing habits of younger drinkers," according to data from Beer Marketer’s Insights published by the New York Post.
Bud Light parent Anheuser Busch InBev (BUD) faced massive boycotts after it partnered with transgender social media influencer Dylan Mulvaney. It was a very small partnership but it led to a right-wing backlash spurred on by Kid Rock, who posted a video on social media where he chastised the company before shooting up cases of Bud Light with an automatic weapon.
Another brewery files Chapter 11 bankruptcy
Gizmo Brew Works, which does business under the name Roth Brewing Company LLC, filed for Chapter 11 bankruptcy protection on March 8. In its filing, the company checked the box that indicates that its debts are less than $7.5 million and it chooses to proceed under Subchapter V of Chapter 11.
"Both small business and subchapter V cases are treated differently than a traditional chapter 11 case primarily due to accelerated deadlines and the speed with which the plan is confirmed," USCourts.gov explained.
Roth Brewing/Gizmo Brew Works shared that it has 50-99 creditors and assets $100,000 and $500,000. The filing noted that the company does expect to have funds available for unsecured creditors.
The popular brewery operates three taprooms and sells its beer to go at those locations.
"Join us at Gizmo Brew Works Craft Brewery and Taprooms located in Raleigh, Durham, and Chapel Hill, North Carolina. Find us for entertainment, live music, food trucks, beer specials, and most importantly, great-tasting craft beer by Gizmo Brew Works," the company shared on its website.
The company estimates that it has between $1 and $10 million in liabilities (a broad range as the bankruptcy form does not provide a space to be more specific).
Gizmo Brew Works/Roth Brewing did not share a reorganization or funding plan in its bankruptcy filing. An email request for comment sent through the company's contact page was not immediately returned.
bankruptcy pandemic social distancing
Government
Students lose out as cities and states give billions in property tax breaks to businesses − draining school budgets and especially hurting the poorest students
An estimated 95% of US cities provide economic development tax incentives to woo corporate investors, taking billions away from schools.
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Built in 1910, James Elementary is a three-story brick school in Kansas City, Missouri’s historic Northeast neighborhood, with a bright blue front door framed by a sand-colored stone arch adorned with a gargoyle. As bustling students and teachers negotiate a maze of gray stairs with worn wooden handrails, Marjorie Mayes, the school’s principal, escorts a visitor across uneven blue tile floors on the ground floor to a classroom with exposed brick walls and pipes. Bubbling paint mars some walls, evidence of the water leaks spreading inside the aging building.
“It’s living history,” said Mayes during a mid-September tour of the building. “Not the kind of living history we want.”
The district would like to tackle the US$400 million in deferred maintenance needed to create a 21st century learning environment at its 35 schools – including James Elementary – but it can’t. It doesn’t have the money.
Property tax redirect
The lack of funds is a direct result of the property tax breaks that Kansas City lavishes on companies and developers that do business there. The program is supposed to bring in new jobs and business but instead has ended up draining civic coffers and starving schools. Between 2017 and 2023, the Kansas City school district lost $237.3 million through tax abatements.
Kansas City is hardly an anomaly. An estimated 95% of U.S. cities provide economic development tax incentives to woo corporate investors. The upshot is that billions have been diverted from large urban school districts and from a growing number of small suburban and rural districts. The impact is seen in districts as diverse as Chicago and Cleveland, Hillsboro, Oregon, and Storey County, Nevada.
The result? A 2021 review of 2,498 financial statements from school districts across 27 states revealed that, in 2019 alone, at least $2.4 billion was diverted to fund tax incentives. Yet that substantial figure still downplays the magnitude of the problem, because three-quarters of the 10,370 districts analyzed did not provide any information on tax abatement agreements.
Tax abatement programs have long been controversial, pitting states and communities against one another in beggar-thy-neighbor contests. Their economic value is also, at best, unclear: Studies show most companies would have made the same location decision without taxpayer subsidies. Meanwhile, schools make up the largest cost item in these communities, meaning they suffer most when companies are granted breaks in property taxes.
A three-month investigation by The Conversation and three scholars with expertise in economic development, tax laws and education policy shows that the cash drain from these programs is not equally shared by schools in the same communities. At the local level, tax abatements and exemptions often come at the cost of critical funding for school districts that disproportionately serve students from low-income households and who are racial minorities.
In Missouri, for example, in 2022 nearly $1,700 per student was redirected from Kansas City public and charter schools, while between $500 and $900 was redirected from wealthier, whiter Northland schools on the north side of the river in Kansas City and in the suburbs beyond. Other studies have found similar demographic trends elsewhere, including New York state, South Carolina and Columbus, Ohio.
The funding gaps produced by abated money often force schools to delay needed maintenance, increase class sizes, lay off teachers and support staff and even close outright. Schools also struggle to update or replace outdated technology, books and other educational resources. And, amid a nationwide teacher shortage, schools under financial pressures sometimes turn to inexperienced teachers who are not fully certified or rely too heavily on recruits from overseas who have been given special visa status.
Lost funding also prevents teachers and staff, who often feed, clothe and otherwise go above and beyond to help students in need, from earning a living wage. All told, tax abatements can end up harming a community’s value, with constant funding shortfalls creating a cycle of decline.
Incentives, payoffs and guarantees
Perversely, some of the largest beneficiaries of tax abatements are the politicians who publicly boast of handing out the breaks despite the harm to poorer communities. Incumbent governors have used the incentives as a means of taking credit for job creation, even when the jobs were coming anyway.
“We know that subsidies don’t work,” said Elizabeth Marcello, a doctoral lecturer at Hunter College who studies governmental planning and policy and the interactions between state and local governments. “But they are good political stories, and I think that’s why politicians love them so much.”
While some voters may celebrate abatements, parents can recognize the disparities between school districts that are created by the tax breaks. Fairleigh Jackson pointed out that her daughter’s East Baton Rouge third grade class lacks access to playground equipment.
The class is attending school in a temporary building while their elementary school undergoes a two-year renovation.
The temporary site has some grass and a cement slab where kids can play, but no playground equipment, Jackson said. And parents needed to set up an Amazon wish list to purchase basic equipment such as balls, jump ropes and chalk for students to use. The district told parents there would be no playground equipment due to a lack of funds, then promised to install equipment, Jackson said, but months later, there is none.
Jackson said it’s hard to complain when other schools in the district don’t even have needed security measures in place. “When I think about playground equipment, I think that’s a necessary piece of child development,” Jackson said. “Do we even advocate for something that should be a daily part of our kids’ experience when kids’ safety isn’t being funded?”
Meanwhile, the challenges facing administrators 500-odd miles away at Atlanta Public Schools are nothing if not formidable: The district is dealing with chronic absenteeism among half of its Black students, many students are experiencing homelessness, and it’s facing a teacher shortage.
At the same time, Atlanta is showering corporations with tax breaks. The city has two bodies that dole them out: the Development Authority of Fulton County, or DAFC, and Invest Atlanta, the city’s economic development agency. The deals handed out by the two agencies have drained $103.8 million from schools from fiscal 2017 to 2022, according to Atlanta school system financial statements.
What exactly Atlanta and other cities and states are accomplishing with tax abatement programs is hard to discern. Fewer than a quarter of companies that receive breaks in the U.S. needed an incentive to invest, according to a 2018 study by the Upjohn Institute for Employment Research, a nonprofit research organization.
This means that at least 75% of companies received tax abatements when they’re not needed – with communities paying a heavy price for economic development that sometimes provides little benefit.
In Kansas City, for example, there’s no guarantee that the businesses that do set up shop after receiving a tax abatement will remain there long term. That’s significant considering the historic border war between the Missouri and Kansas sides of Kansas City – a competition to be the most generous to the businesses, said Jason Roberts, president of the Kansas City Federation of Teachers and School-Related Personnel. Kansas City, Missouri, has a 1% income tax on people who work in the city, so it competes for as many workers as possible to secure that earnings tax, Roberts said.
Under city and state tax abatement programs, companies that used to be in Kansas City have since relocated. The AMC Theaters headquarters, for example, moved from the city’s downtown to Leawood, Kansas, about a decade ago, garnering some $40 million in Promoting Employment Across Kansas tax incentives.
Roberts said that when one side’s financial largesse runs out, companies often move across the state line – until both states decided in 2019 that enough was enough and declared a cease-fire.
But tax breaks for other businesses continue. “Our mission is to grow the economy of Kansas City, and application of tools such as tax exemptions are vital to achieving that mission, said Jon Stephens, president and CEO of Port KC, the Kansas City Port Authority. The incentives speed development, and providing them "has resulted in growth choosing KC versus other markets,” he added.
In Atlanta, those tax breaks are not going to projects in neighborhoods that need help attracting development. They have largely been handed out to projects that are in high demand areas of the city, said Julian Bene, who served on Invest Atlanta’s board from 2010 to 2018. In 2019, for instance, the Fulton County development authority approved a 10-year, $16 million tax abatement for a 410-foot-tall, 27,000-square-foot tower in Atlanta’s vibrant Midtown business district. The project included hotel space, retail space and office space that is now occupied by Google and Invesco.
In 2021, a developer in Atlanta pulled its request for an $8 million tax break to expand its new massive, mixed-use Ponce City Market development in the trendy Beltline neighborhood with an office tower and apartment building. Because of community pushback, the developer knew it likely did not have enough votes from the commission for approval, Bene said. After a second try for $5 million in lower taxes was also rejected, the developer went ahead and built the project anyway.
Invest Atlanta has also turned down projects in the past, Bene said. Oftentimes, after getting rejected, the developer goes back to the landowner and asks for a better price to buy the property to make their numbers work, because it was overvalued at the start.
Trouble in Philadelphia
On Thursday, Oct. 26, 2023, an environmental team was preparing Southwark School in Philadelphia for the winter cold. While checking an attic fan, members of the team saw loose dust on top of flooring that contained asbestos. The dust that certainly was blowing into the floors below could contain the cancer-causing agent. Within a day, Southwark was closed – the seventh Philadelphia school temporarily shuttered since the previous academic year because of possible asbestos contamination.
A 2019 inspection of the John L Kinsey school in Philadelphia found asbestos in plaster walls, floor tiles, radiator insulation and electrical panels. Asbestos is a major problem for Philadelphia’s public schools. The district needs $430 million to clean up the asbestos, lead, and other environmental hazards that place the health of students, teachers and staff at risk. And that is on top of an additional $2.4 billion to fix failing and damaged buildings.
Yet the money is not available. Matthew Stem, a former district official, testified in a 2023 lawsuit about financing of Pennsylvania schools that the environmental health risks cannot be addressed until an emergency like at Southwark because “existing funding sources are not sufficient to remediate those types of issues.”
Meanwhile, the city keeps doling out abatements, draining money that could have gone toward making Philadelphia schools safer. In the fiscal year ending June 2022, such tax breaks cost the school district $118 million – more than 25% of the total amount needed to remove the asbestos and other health dangers. These abatements take 31 years to break even, according to the city’s own scenario impact analyses.
Huge subsets of the community – primarily Black, Brown, poor or a combination – are being “drastically impacted” by the exemptions and funding shortfalls for the school district, said Kendra Brooks, a Philadelphia City Council member. Schools and students are affected by mold, asbestos and lead, and crumbling infrastructure, as well as teacher and staffing shortages – including support staff, social workers and psychologists.
More than half the district’s schools that lacked adequate air conditioning – 87 schools – had to go to half days during the first week of the 2023 school year because of extreme heat. Poor heating systems also leave the schools cold in the winter. And some schools are overcrowded, resulting in large class sizes, she said.
Teachers and researchers agree that a lack of adequate funding undermines educational opportunities and outcomes. That’s especially true for children living in poverty. A 2016 study found that a 10% increase in per-pupil spending each year for all 12 years of public schooling results in nearly one-third of a year of more education, 7.7% higher wages and a 3.2% reduction in annual incidence of adult poverty. The study estimated that a 21.7% increase could eliminate the high school graduation gap faced by children from low-income families.
More money for schools leads to more education resources for students and their teachers. The same researchers found that spending increases were associated with reductions in student-to-teacher ratios, increases in teacher salaries and longer school years. Other studies yielded similar results: School funding matters, especially for children already suffering the harms of poverty.
While tax abatements themselves are generally linked to rising property values, the benefits are not evenly distributed. In fact, any expansion of the tax base due to new property construction tends to be outside of the county granting the tax abatement. For families in school districts with the lost tax revenues, their neighbors’ good fortune likely comes as little solace. Meanwhile, a poorly funded education system is less likely to yield a skilled and competitive workforce, creating longer-term economic costs that make the region less attractive for businesses and residents.
“There’s a head-on collision here between private gain and the future quality of America’s workforce,” said Greg LeRoy, executive director at Good Jobs First, a Washington, D.C., advocacy group that’s critical of tax abatement and tracks the use of economic development subsidies.
As funding dwindles and educational quality declines, additional families with means often opt for alternative educational avenues such as private schooling, home-schooling or moving to a different school district, further weakening the public school system.
Throughout the U.S., parents with the power to do so demand special arrangements, such as selective schools or high-track enclaves that hire experienced, fully prepared teachers. If demands aren’t met, they leave the district’s public schools for private schools or for the suburbs. Some parents even organize to splinter their more advantaged, and generally whiter, neighborhoods away from the larger urban school districts.
Those parental demands – known among scholars as “opportunity hoarding” – may seem unreasonable from the outside, but scarcity breeds very real fears about educational harms inflicted on one’s own children. Regardless of who’s to blame, the children who bear the heaviest burden of the nation’s concentrated poverty and racialized poverty again lose out.
Rethinking in Philadelphia and Riverhead
Americans also ask public schools to accomplish Herculean tasks that go far beyond the education basics, as many parents discovered at the onset of the pandemic when schools closed and their support for families largely disappeared.
A school serving students who endure housing and food insecurity must dedicate resources toward children’s basic needs and trauma. But districts serving more low-income students spend less per student on average, and almost half the states have regressive funding structures.
Facing dwindling resources for schools, several cities have begun to rethink their tax exemption programs.
The Philadelphia City Council recently passed a scale-back on a 10-year property tax abatement by decreasing the percentage of the subsidy over that time. But even with that change, millions will be lost to tax exemptions that could instead be invested in cash-depleted schools. “We could make major changes in our schools’ infrastructure, curriculum, staffing, staffing ratios, support staff, social workers, school psychologists – take your pick,” Brooks said.
Other cities looking to reform tax abatement programs are taking a different approach. In Riverhead, New York, on Long Island, developers or project owners can be granted exemptions on their property tax and allowed instead to shell out a far smaller “payment in lieu of taxes,” or PILOT. When the abatement ends, most commonly after 10 years, the businesses then will pay full property taxes.
At least, that’s the idea, but the system is far from perfect. Beneficiaries of the PILOT program have failed to pay on time, leaving the school board struggling to fill a budget hole. Also, the payments are not equal to the amount they would receive for property taxes, with millions of dollars in potential revenue over a decade being cut to as little as a few hundred thousand. On the back end, if a business that’s subsidized with tax breaks fails after 10 years, the projected benefits never emerge.
And when the time came to start paying taxes, developers have returned to the city’s Industrial Development Agency with hat in hand, asking for more tax breaks. A local for-profit aquarium, for example, was granted a 10-year PILOT program break by Riverhead in 1999; it has received so many extensions that it is not scheduled to start paying full taxes until 2031 – 22 years after originally planned.
Kansas City border politics
Like many cities, Kansas City has a long history of segregation, white flight and racial redlining, said Kathleen Pointer, senior policy strategist for Kansas City Public Schools.
Troost Avenue, where the Kansas City Public Schools administrative office is located, serves as the city’s historic racial dividing line, with wealthier white families living in the west and more economically disadvantaged people of color in the east. Most of the district’s schools are located east of Troost, not west.
Students on the west side “pretty much automatically funnel into the college preparatory middle school and high schools,” said The Federation of Teachers’ Roberts. Those schools are considered signature schools that are selective and are better taken care of than the typical neighborhood schools, he added.
The school district’s tax levy was set by voters in 1969 at 3.75%. But successive attempts over the next few decades to increase the levy at the ballot box failed. During a decadeslong desegregation lawsuit that was eventually resolved through a settlement agreement in the 1990s, a court raised the district’s levy rate to 4.96% without voter approval. The levy has remained at the same 4.96% rate since.
Meanwhile, Kansas City is still distributing 20-year tax abatements to companies and developers for projects. The district calculated that about 92% of the money that was abated within the school district’s boundaries was for projects within the whiter west side of the city, Pointer said.
“Unfortunately, we can’t pick or choose where developers build,” said Meredith Hoenes, director of communications for Port KC. “We aren’t planning and zoning. Developers typically have plans in place when they knock on our door.”
In Kansas City, several agencies administer tax incentives, allowing developers to shop around to different bodies to receive one. Pointer said he believes the Port Authority is popular because they don’t do a third-party financial analysis to prove that the developers need the amount that they say they do.
With 20-year abatements, a child will start pre-K and graduate high school before seeing the benefits of a property being fully on the tax rolls, Pointer said. Developers, meanwhile, routinely threaten to build somewhere else if they don’t get the incentive, she said.
In 2020, BlueScope Construction, a company that had received tax incentives for nearly 20 years and was about to roll off its abatement, asked for another 13 years and threatened to move to another state if it didn’t get it. At the time, the U.S. was grappling with a racial reckoning following the murder of George Floyd, who was killed by a Minneapolis police officer.
“That was a moment for Kansas City Public Schools where we really drew a line in the sand and talked about incentives as an equity issue,” Pointer said.
After the district raised the issue – tying the incentives to systemic racism – the City Council rejected BlueScope’s bid and, three years later, it’s still in Kansas City, fully on the tax rolls, she said. BlueScope did not return multiple requests for comment.
Recently, a multifamily housing project was approved for a 20-year tax abatement by the Port Authority of Kansas City at Country Club Plaza, an outdoor shopping center in an affluent part of the city. The housing project included no affordable units. “This project was approved without any independent financial analysis proving that it needed that subsidy,” Pointer said.
All told, the Kansas City Public Schools district faces several shortfalls beyond the $400 million in deferred maintenance, Superintendent Jennifer Collier said. There are staffing shortages at all positions: teachers, paraprofessionals and support staff. As in much of the U.S., the cost of housing is surging. New developments that are being built do not include affordable housing, or when they do, the units are still out of reach for teachers.
That’s making it harder for a district that already loses about 1 in 5 of its teachers each year to keep or recruit new ones, who earn an average of only $46,150 their first year on the job, Collier said.
East Baton Rouge and the industrial corridor
It’s impossible to miss the tanks, towers, pipes and industrial structures that incongruously line Baton Rouge’s Scenic Highway landscape. They’re part of Exxon Mobil Corp.’s campus, home of the oil giant’s refinery in addition to chemical and plastics plants.
Sitting along the Mississippi River, the campus has been a staple of Louisiana’s capital for over 100 years. It’s where 6,000 employees and contractors who collectively earn over $400 million annually produce 522,000 barrels of crude oil per day when at full capacity, as well as the annual production and manufacture of 3 billion pounds of high-density polyethylene and polypropylene and 6.6 billion pounds of petrochemical products. The company posted a record-breaking $55.7 billion in profits in 2022 and $36 billion in 2023.
Across the street are empty fields and roads leading into neighborhoods that have been designated by the U.S. Department of Agriculture as a low-income food desert. A mile drive down the street to Route 67 is a Dollar General, fast-food restaurants, and tiny, rundown food stores. A Hi Nabor Supermarket is 4 miles away.
East Baton Rouge Parish’s McKinley High School, a 12-minute drive from the refinery, serves a student body that is about 80% Black and 85% poor. The school, which boasts famous alums such as rapper Kevin Gates, former NBA player Tyrus Thomas and Presidential Medal of Freedom recipient Gardner C. Taylor, holds a special place in the community, but it has been beset by violence and tragedy lately. Its football team quarterback, who was killed days before graduation in 2017, was among at least four of McKinley’s students who have been shot or murdered over the past six years.
The experience is starkly different at some of the district’s more advantaged schools, including its magnet programs open to high-performing students.
Baton Rouge is a tale of two cities, with some of the worst outcomes in the state for education, income and mortality, and some of the best outcomes. “It was only separated by sometimes a few blocks,” said Edgar Cage, the lead organizer for the advocacy group Together Baton Rouge. Cage, who grew up in the city when it was segregated by Jim Crow laws, said the root cause of that disparity was racism.
“Underserved kids don’t have a path forward” in East Baton Rouge public schools, Cage said.
A 2019 report from the Urban League of Louisiana found that economically disadvantaged African American and Hispanic students are not provided equitable access to high-quality education opportunities. That has contributed to those students underperforming on standardized state assessments, such as the LEAP exam, being unprepared to advance to higher grades and being excluded from high-quality curricula and instruction, as well as the highest-performing schools and magnet schools.
“Baton Rouge is home to some of the highest performing schools in the state,” according to the report. “Yet the highest performing schools and schools that have selective admissions policies often exclude disadvantaged students and African American and Hispanic students.”
Dawn Collins, who served on the district’s school board from 2016 to 2022, said that with more funding, the district could provide more targeted interventions for students who were struggling academically or additional support to staff so they can better assist students with greater needs.
But for decades, Louisiana’s Industrial Ad Valorem Tax Exemption Program, or ITEP, allowed for 100% property tax exemptions for industrial manufacturing facilities, said Erin Hansen, the statewide policy analyst at Together Louisiana, a network of 250 religious and civic organizations across the state that advocates for grassroots issues, including tax fairness.
The ITEP program was created in the 1930s through a state constitutional amendment, allowing companies to bypass a public vote and get approval for the exemption through the governor-appointed Board of Commerce and Industry, Hansen said. For over 80 years, that board approved nearly all applications that it received, she said.
Since 2000, Louisiana has granted a total of $35 billion in corporate property tax breaks for 12,590 projects.
Louisiana’s executive order
A few efforts to reform the program over the years have largely failed. But in 2016, Gov. John Bel Edwards signed an executive order that slightly but importantly tweaked the system. On top of the state board vote, the order gave local taxing bodies – such as school boards, sheriffs and parish or city councils – the ability to vote on their own individual portions of the tax exemptions. And in 2019 the East Baton Rouge Parish School Board exercised its power to vote down an abatement.
Throughout the U.S., school boards’ power over the tax abatements that affect their budgets vary, and in some states, including Georgia, Kansas, Nevada, New Jersey and South Carolina, school boards lack any formal ability to vote or comment on tax abatement deals that affect them.
Edwards’ executive order also capped the maximum exemption at 80% and tightened the rules so routine capital investments and maintenance were no longer eligible, Hansen said. A requirement concerning job creation was also put in place.
Concerned residents and activists, led by Together Louisiana and sister group Together Baton Rouge, rallied around the new rules and pushed back against the billion-dollar corporation taking more tax money from the schools. In 2019, the campaign worked: the school board rejected a $2.9 million property tax break bid by Exxon Mobil.
After the decision, Exxon Mobil reportedly described the city as “unpredictable.”
However, members of the business community have continued to lobby for the tax breaks, and they have pushed back against further rejections. In fact, according to Hansen, loopholes were created during the rulemaking process around the governor’s executive order that allowed companies to weaken its effectiveness.
In total, 223 Exxon Mobil projects worth nearly $580 million in tax abatements have been granted in the state of Louisiana under the ITEP program since 2000.
“ITEP is needed to compete with other states – and, in ExxonMobil’s case, other countries,” according to Exxon Mobil spokesperson Lauren Kight.
She pointed out that Exxon Mobil is the largest property taxpayer for the EBR school system, paying more than $46 million in property taxes in EBR parish in 2022 and another $34 million in sales taxes.
A new ITEP contract won’t decrease this existing tax revenue, Kight added. “Losing out on future projects absolutely will.”
The East Baton Rouge Parish School Board has continued to approve Exxon Mobil abatements, passing $46.9 million between 2020 and 2022. Between 2017 and 2023, the school district has lost $96.3 million.
Taxes are highest when industrial buildings are first built. Industrial property comes onto the tax rolls at 40% to 50% of its original value in Louisiana after the initial 10-year exemption, according to the Ascension Economic Development Corp.
Exxon Mobil received its latest tax exemption, $8.6 million over 10 years – an 80% break – in October 2023 for $250 million to install facilities at the Baton Rouge complex that purify isopropyl alcohol for microchip production and that create a new advanced recycling facility, allowing the company to address plastic waste. The project created zero new jobs.
The school board approved it by a 7-2 vote after a long and occasionally contentious board meeting.
“Does it make sense for Louisiana and other economically disadvantaged states to kind of compete with each other by providing tax incentives to mega corporations like Exxon Mobil?” said EBR School Board Vice President Patrick Martin, who voted for the abatement. “Probably, in a macro sense, it does not make a lot of sense. But it is the program that we have.”
Obviously, Exxon Mobil benefits, he said. “The company gets a benefit in reducing the property taxes that they would otherwise pay on their industrial activity that adds value to that property.” But the community benefits from the 20% of the property taxes that are not exempted, he said.
“I believe if we don’t pass it, over time the investments will not come and our district as a whole will have less money,” he added.
Meanwhile, the district’s budgetary woes are coming to a head. Bus drivers staged a sickout at the start of the school year, refusing to pick up students – in protest of low pay and not having buses equipped with air conditioning amid a heat wave. The district was forced to release students early, leaving kids stranded without a ride to school, before it acquiesced and provided the drivers and other staff one-time stipends and purchased new buses with air conditioning.
The district also agreed to reestablish transfer points as a temporary response to the shortages. But that transfer-point plan has historically resulted in students riding on the bus for hours and occasionally missing breakfast when the bus arrives late, according to Angela Reams-Brown, president of the East Baton Rouge Federation of Teachers. The district plans to purchase or lease over 160 buses and solve its bus driver shortage next year, but the plan could lead to a budget crisis.
A teacher shortage looms as well, because the district is paying teachers below the regional average. At the school board meeting, Laverne Simoneaux, an ELL specialist at East Baton Rouge’s Woodlawn Elementary, said she was informed that her job was not guaranteed next year since she’s being paid through federal COVID-19 relief funds. By receiving tax exemptions, Exxon Mobil was taking money from her salary to deepen their pockets, she said.
A young student in the district told the school board that the money could provide better internet access or be used to hire someone to pick up the glass and barbed wire in the playground. But at least they have a playground – Hayden Crockett, a seventh grader at Sherwood Middle Academic Magnet School, noted that his sister’s elementary school lacked one.
“If it wasn’t in the budget to fund playground equipment, how can it also be in the budget to give one of the most powerful corporations in the world a tax break?” Crockett said. “The math just ain’t mathing.”
Christine Wen worked for the nonprofit organization Good Jobs First from June 2019 to May 2022 where she helped collect tax abatement data.
Nathan Jensen has received funding from the John and Laura Arnold Foundation, the Smith Richardson Foundation, the Ewing Marion Kauffman Foundation and the Washington Center for Equitable Growth. He is a Senior Fellow at the Niskanen Center.
Danielle McLean and Kevin Welner do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
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Students lose out as cities and states give billions in property tax breaks to businesses − draining school budgets and especially hurting the poorest students
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