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Despite remote work and the economic downturn, some companies look to London for expansion

Barely a day goes by without news of layoffs emerging from the tech world — from cybersecurity to gaming, no industry is impervious. It’s not limited…

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Barely a day goes by without news of layoffs emerging from the tech world — from cybersecurity to gaming, no industry is impervious. It’s not limited to any particular size of company, either — everything from fledgling startups and scaleups, to billion-dollar public entities such as Netflix have all “downsized” or put their hiring plans on pause this year. On top of that, there is no geographical factor at play, with companies spanning North America, Europe, Asia, Africa, and beyond all impacted.

But juxtaposed against this, some companies seem to be bucking the downsizing trend by not only hiring, but opening physical offices to accommodate broader expansion plans.

London in particular remains a key destination for international firms looking to spread their proverbial wings, with U.S. unicorns and public companies revealing inaugural or upsized offices in the U.K. capital in recent months. And closer to home, a bunch of smaller European tech companies have also extended their reach out across the English Channel with their first U.K. hubs.

Cross-border investments

Data from FDI Markets*, the Financial Times’ cross-border investment monitoring service, indicates that London has attracted the highest number of foreign direct investments (FDI) into tech from international companies for the past few years, ahead of Singapore, Dubai, and New York. This includes international companies that are establishing a presence for the first time, and those that are expanding an existing footprint (this may include M&A activity).

Image Credits: fDi Markets, from The Financial Times Ltd 2022 (*Data provided by London & Partners)

While this data doesn’t necessarily tell the whole story, at a broad level it does suggest that some companies are still expanding, and London is still an appealing proposition relative to other major cities.

Janet Coyle, managing director of business growth at London’s official publicity arm London & Partners, told TechCrunch that there are various financial perks that might appeal to overseas companies looking to establish a base in the capital. This includes tax incentives such as the lowest corporation tax rate among G7 countries, in addition to “some of the world’s most competitive research and development tax credits,” she said.

“Other incentives such as the Enterprise Investment Scheme, Patent Box Scheme, and the ‘regulatory sandbox‘ make London an ideal place for innovative companies to test new technologies, products, and services,” Coyle added.

This narrative is supported by another recent report from real estate giant Cushman & Wakefield, which found that of the 398 Central London leasing transactions (over 5,000 square ft in size) it analyzed in 2021, 59 of these were “new market entrants,” which it defines as new businesses setting up for the first time, or those relocating from outside London. The report added that this was the highest number it had recorded since it began tracking relocation trends in 2013.

While it’s impossible to ignore the location-agnostic remote- and hybrid-working revolution spurred by the global pandemic, some believe that companies are turning to London for the same reasons they always did — it’s a major accessible conurbation, and it’s a place where people want to live.

“We expect the post-pandemic evolution of London’s office market to continue as occupiers focus upon easily accessible, high quality office space surrounded by vibrant amenities,” Ben Cullen, Cushman & Wakefield’s head of offices U.K., said in a statement in June. “The key will be about creating locations where talent wants to be.”

But this arguably raises more questions than it answers during what can only be described as turbulent times for the world’s economy. Why are some companies seemingly swimming, while others sink? Does their industry, profitability, business model, or financial independence come into play? And why might the U.K. — now economically untethered from its EU counterparts via Brexit — still appeal as a launchpad for growth?

Moreover, why is something so mundane as a bunch of companies opening new offices remotely remarkable in the first place?

The great reset

The reasons for the widespread downsizing we’ve seen in recent times are manifold, but some common threads permeate many of the organizations that are scaling back. The post-pandemic reset is one obvious factor, with some of the companies that benefitted from the world’s retreat behind closed doors succumbing when things returned to normal. Peloton is a good example of this, with the at-home fitness hardware giant skyrocketing through the pandemic before falling back to Earth with an almighty bump when people ventured into the great outdoors again. In the U.K., virtual events platform Hopin serves as another example, rising from a seed-stage upstart at the pandemic’s outset to become a $6 billion juggernaut in just twelve months — before laying off a huge chunk of its staff in pursuit of more sustainable growth.

As things transpired, people might prefer to network in-person versus digital breakout rooms.

Other contributing factors include an over-reliance on venture capital funding for businesses that had yet to figure out a robust business model, while the broader economic downturn has forced companies to cut their costs and safeguard their remaining capital amidst a climate of inflation and rising interest rates.

But for every yin, there’s a yang. Some companies adversely impacted by the pandemic have bounced back, such as Airbnb which laid off a significant portion of its global workforce to see it through the worst times, before recovering and then hitting the public markets to become a $67 billion business.

But corrections and resurgences aside, there’s no denying the peril that many companies currently face. According to startup sacking tracker Layoffs.fyi, there has been more than 150,000 layoffs in the past two years, spanning 1,000 startups. And this trend is showing little sign of easing.

So why are some companies thumbing their noses at all of this, and opening shiny new offices instead?

Financial independence

Proton, the Swiss company behind encrypted email service ProtonMail, already has hubs across its native Switzerland, Lithuania, North Macedonia, and Taiwan. Earlier this year, Proton revealed it was gearing up to open its first U.K. office to support its existing dozen or so employees in the country and 40 open roles advertised for the U.K. capital.

The main purpose for the London hub was that it needed somewhere for its U.K.-based workers to call home — despite a broader industrial embrace of remote or hybrid working, Proton is all about the office.

“Proton does from time-to-time make remote hires, but as a general rule we are an office-centric — rather than remote-centric — company, and most of our team works from our offices around the world,” Proton founder and CEO Andy Yen explained to TechCrunch.

While being tethered to a centralized physical office may or may not hinder Proton’s hiring chances in an increasingly remote working world, the fact that it’s in a position to expand at all, as other startups flounder, is worth exploring.

Compared to many other startups and scaleups, Proton has taken on very little venture capital (VC) funding in its nine-year history — aside from a small $2 million seed funding round back in 2015 and a $500,000 equity crowdfunder the previous year, Proton has managed to grow mostly through people paying money for its service.

“The biggest driver of our hiring is our financial independence,” Yen said. “Our focus on a subscription model allowed us to monetize early, which ensured that we didn’t have to rely on VC investment to scale, and gave us a reliable and growing revenue stream. This sets us apart from other companies that have remained dependent on annual funding rounds. As a result, we’re insulated from the global slow-down in VC investment and can continue to hire in-line with our growth.”

The nature of Proton’s product has also been instrumental in ensuring that it can be as self-sufficient as possible. Privacy-focused technologies remain in high-demand across the consumer and business spheres, and while Google’s unlikely to be knocked off its email and productivity software perch any time soon, there are still enough people out there willing to pay hard-cash for a service that’s not funded by advertising or other data-harnessing practices.

“Our user base is currently growing at a rapid rate because global demand for tech that respects privacy is on the rise,” Yen said.

Proton recently claimed that it passed 70 million accounts, up from 2 million five years ago, though the company doesn’t break out how much of those accounts are actively used, or how many are paying subscribers. But still, those 70 million accounts represent a captive audience that have demonstrated at least some interest in preserving their privacy. On top of that, Proton’s technology pitch is very much in line with the European Union’s thinking on privacy, which has been encapsulated by regulation such as GDPR. As such, Proton was able to secure a €2 million grant from the EU in 2019, further bolstering the company’s “financial independence”.

But where does London come into all of this, and why open a new office there? According to Yen, it’s a combination of factors, including where it’s seeing demand for its service, and the available talent pool.

“From the beginning, the U.K. has always been one of the countries with the largest Proton communities,” Yen said. “While Proton users come from over 180 countries, the largest segment has always come from the English-speaking world. When we were looking to open a new office, London was the natural choice — [it’s] home to an incredible number of talented individuals, who we believe will help us scale the company and build a better internet where privacy is the default.”

City slickers

Fresh off a $10 million series A funding round, SoftBank-backed German climate tech startup Plan A recently revealed plans for its first U.K. office, scheduled to house some 100 employees in the coming years. The five-year-old company, which has existing offices in Berlin, Munich and Paris, offers automation technology to help companies account for their carbon emissions. Its upsizing plans are also consistent with trends elsewhere in the climate tech space, which has been on a perennial upwards trajectory.

In 2021, around $40 billion was invested across some 600 climate-focused startups, and despite strong headwinds elsewhere in the startup investment space, this trend is seemingly continuing into 2022. Climate-focused companies are still an attractive proposition for investors, with countless dedicated funds continuing to crop up, and much of this is to do with demand from within industry which is being driven by external pressures such as regulations.

Europe’s Sustainable Finance Disclosure Regulation (SFDR) came into force just last year with a mission to enhance transparency in sustainable investments. In effect, it’s to make finance companies more accountable for claims they make around sustainability and prevent greenwashing. While Plan A targets all manner of industries, the finance sector is a central focus, given that climate change and the global economy are closely intertwined.

“The financial system is the backbone of our economy — through loans, investments, and the controlling of global cash flows, it is the most important vehicle when it comes to sustainably transforming our economy,” Plan A cofounder and CEO Lubomila Jordanova said.

The decision to launch its new office in London ultimately boiled down to strategic practicalities. Despite Brexit, London is still a global financial powerhouse, and is currently the only European city in the top 10 of the Global Financial Centers Index (GFCI), sitting behind New York in second place.

“From a business perspective, we see great potential in this location as London is both one of the world’s largest financial and business hubs and has a vibrant tech, service, and IT ecosystem — and U.K. businesses face very market-specific regulatory requirements,” Jordanova continued.

Emergency (Br)exit

It would be somewhat remiss to paint the U.K. as the land of milk and honey though — there is ample evidence that businesses seeking more liquidity, or favorable conditions for going public, often prefer to look elsewhere. And there is the thorny Brexit elephant in the room to contend with, too.

Australian tech titan Atlassian recently confirmed that it was “exploring” the possibility of redomiciling its main parent holding company from the U.K. to the U.S. It is worth stressing that Atlassian has only ever really been a U.K.-domiciled company on paper, though — its global headquarters has always been in its native Australia, and it has never had an office in the U.K., though employees are allowed to base themselves from the U.K. as part of Atlassian’s remote work policy.

So while Atlassian has never meaningfully existed in the U.K. since it officially moved there in 2014, its desire to relocate to the U.S. points to some drawbacks for companies in the U.K. Indeed, despite its U.K.-domiciled status, Atlassian has been listed on the U.S. Nasdaq since 2015, and the company said the reason that it’s now looking to move is to access more capital and a “broader set of investors” by shifting its corporate entity across the Atlantic. It said earlier this year:

We believe moving our parent entity to the United States will increase our access to a broader set of investors, support our inclusion in additional stock indices, improve financial reporting comparability with our industry peers, streamline our corporate structure, and provide more flexibility in accessing capital.

Elsewhere, it seems that the U.S. also remains a more desirable option for tech companies considering going public, with SoftBank-owned U.K. chip giant ARM reportedly favoring an IPO in the U.S, though the U.K. government is trying to engineer a dual-listing that includes the U.K. However, SoftBank has made it clear that it would prefer a U.S. listing.

“We think that the Nasdaq stock exchange in the U.S., which is at the centre of global hi-tech, would be most suitable,” SoftBank CEO Masayoshi Son said earlier this year.

And then there are the numerous companies — big and small — that have moved their official base away from the U.K. due to political events. One of those is Eigen Technologies, a seven-year-old AI startup backed by Goldman Sachs, which last year transitioned its headquarters from London to New York, citing the U.K.’s exit from the EU bloc as a driving force behind the move. Nearly three-quarters of the company’s business was already stemming from North America, however, so Brexit may have been more of a nudge in that direction rather than a violent shove.

“Brexit has significantly undermined the benefits of the U.K. as a home market for us, particularly in weakening the university ecosystem and the loss of a single unifying market with Europe,” Eigen’s cofounder and CEO Dr. Lewis Z. Liu said in a statement at the time. “So, while I am very sad to leave London, it is time for me to return to New York [where Liu is from] and lead Eigen on to the next stage of its journey in order for it to fulfil its potential.”

But for the same reason that companies have opened offices in London over the past year, Eiger has retained a strong presence in the U.K. capital, and it still serves as home for its technical leadership and command center for the EMEA and APAC regions. Similar to the Big Apple, Liu acknowledged that London remains a major draw as in international player.

“We reflect the unique international outlook of New York and London, the global cities that Eigen is rooted in,” Liu said.

Hire ground

Whether it’s privacy tech or green tech, startups with a focus on solving real problems may be better positioned to weather the current storm. But that doesn’t mean purely in terms of attracting large enterprise customers or big-name VCs — it very much extends to the hiring realm too, with workers emerging from the great resignation looking for more meaning and purpose in their day-to-day working lives.

“I think a lot of this will come down to which companies are working on solving big, important technical or societal challenges,” Dan Hynes, partner at European VC juggernaut Atomico, said. “That is where talent wants to work these days, and candidates will ask themselves ‘does this fit into my personal value system? What is its ESG (environmental, social and governance) strategy,’?”

But in terms of which companies are likely to prove more resilient during this downturn, there are many factors at play, including those that have secured enough capital to see them through this turbulence, and “which companies are being well-managed and disciplined,” Hynes said.

“It also depends on what stage companies are at — those that have found go-to-market fit will be very cautious, but they will be hiring to build out the commercial arms of those teams, and those that have product-market-fit looking for go-to-market fit will be doubling down on hiring engineering, design and product talent to get their product in the best possible shape as quickly as possible,” Hynes explained.

With much of big tech trimming their workforce or curtailing their hiring, this could also help startups with fewer financial resources to access talent that may previously have been unaffordable to them. Or, where other startups have had to scale back, this serves to enrichen the broader talent pool for other companies that are expanding.

“At a high level, things are still very positive in technology today — in-house recruiters will be going through the lists of talent that have recently been laid-off very quickly, as recycling of talent has always been a positive part of the tech industry and continues to drive the European technology ecosystem flywheel,” Hynes continued. “Europe has had deep pools of talent, across all business functions, for a number of years now with direct experience of scaling at all levels.”

Remote control

But while London might well remain a compelling option for businesses looking to expand, location might be less of a priority than it once was. There is more than enough evidence that workers aren’t keen to rush back to the office and endure 3-hour round-trip daily commutes — but despite all that, people still like having options. American sales and marketing software giant HubSpot, a $14 billion publicly-traded company, announced its first U.K. office in London last September, alongside plans for 70 new jobs in England, Scotland, and Wales. The company already had around 1,500 employees across Europe, with hubs in Berlin, Dublin, Ghent, and Paris.

It’s worth noting, though, that HubSpot’s new London office only houses 20 people, so it’s not expecting everyone to relocate to the U.K. capital — the majority of its workforce in the country would rather be remote.

“Based on our survey of how employees want to work in 2022, we know that more than two-thirds of our U.K. team is planning to work remotely long term, while the rest prefer to work from the office some or most of the time,” HubSpot’s VP of global recruiting Becky McCullough said.

From a business perspective, the U.K. has emerged as a major focal point for HubSpot too, and it’s now the company’s second biggest market globally (and largest in Europe), claiming more than 10,000 paying customers last year.

“While our Dublin office has supported our U.K. growth over the years, we recognized that with increased growth, it was the right time to increase our local presence to better support our customers with more face-to-face engagement,” McCullough added. “We [also] know that there is a hugely talented pool of individuals in the U.K., and pairing the top talent with the thriving tech business scene, London made the most sense for us to put down roots.”

On a related note, HubSpot recently published the results of a survey it carried out with its 6,000 workers globally, finding that 52% of its employees would prefer to work from home all the time, while 36% would choose a hybrid model and just 12% want to be in the office permanently.

HubSpot: Global work preferences survey

This helps to highlight why a major company might elect to expand through smaller offices — it’s a reflection of what workers want, and there are signs that other big companies are adopting a similar approach.

San Francisco-based API and microservices platform Kong opened a new London office in May. The company, which hit unicorn status last year off the back of a $100 million fundraise, wanted a hub that was easier to access for its U.K. workforce, which constitutes more than 10% of its global headcount of 450. Moreover, 25% of its  current open positions are based in the EMEA region — so having an office that is accessible for short-term visitors from the continent, and from within the U.K. itself, was key.

“London is an easy hub to navigate to and within,” Kong’s VP of EMEA Carl Mattson said. “At the end of the day — and in the new ‘remote-first’ world we live in — the office must be easy to access and centrally located. Naturally, our U.K.-based team will utilize the space on a more regular basis due to proximity, but the space is also available as a collaboration space for those located elsewhere.”

Kong serves as another good example of how the office of the future is evolving in-line with the growth of remote working — smaller offices located strategically in locations near to where employees are based, should they need to use it.

“We’re beginning to plan our workforce locations more deliberately,” Mattson said. “While we will always be a remote-first company, the pandemic has taught us that we need and value the ability to gather, collaborate, connect and engage in person. As a result, we anticipate additional offices where we have a high concentration of employees.”

Kong’s new office currently has a capacity for just 20 people, though its arrangement allows it to scale up quickly as its headcount in the region grows, and when in-person collaboration returns to normal.

“Kong is eager for more in-person collaboration, especially after such a long period of time working primarily in isolation due to the global pandemic,” Mattson added.

Some six months after its debut on the Nasdaq last June, enterprise project management and team collaboration software company Monday.com launched its first U.K. office, serving as the Israeli company’s official European HQ. Then in May, Monday.com expanded into a new office located in Fitzrovia, revealing plans to grow its existing 60 headcount to as much as 150 in the coming years.

As TechCrunch noted after Monday.com’s Q1 earnings this year, its strong growth figures were a further indication that SaaS remains strong in an environment of slowdowns and scalebacks, which positions businesses such as Monday.com well. Moreover, as Monday.com’s new London office suggests, hunkering down and hiding isn’t really a long-term strategy.

“Companies struggling to find their footing during this time might be moving towards a ‘hibernation’ period where they abandon growth and only focus on maintaining,” Naveed Malik, Monday.com’s regional director for EMEA channel partnerships, explained. “While this can sometimes be a viable strategy, it may be less sustainable now as we emerge from the peaks of the pandemic, where many organizations were already pulling back and trying to re-stabilize.”

Given that its product is all about connecting disparate teams, Monday.com might be well-positioned to flourish in a world that has rapidly transitioned to remote work. But as its new office indicates, the company itself hasn’t abandoned real-world interactions — it wants people in the office, at least part of the time.

“During the pandemic, the entire, global organization adopted a remote-first work model,” Malik said. “Today, as it becomes safer to open back up, we’ve transitioned back to an office-first approach that encourages employees to embrace both in-person and remote work models depending on their needs. While offices remain open for everyone throughout the week, individual teams are able to choose which days they want to collaborate in-person, and which days they will work remotely.”

Similar to other companies that have recently arrived in the U.K. capital, Malik pointed to the “outstanding talent” as one reason it chose London, though the new office is also strategically located close to customers.

“We have seen terrific traction on our platform in the area, and having the team headquartered there will support our continued growth,” Malik said.

What all this shows is that the future of work is not a rigid, one-size-fits all model — some companies want workers in the office more than others, but for the most part, they will need to offer a degree of flexibility if they’re to attract the best talent.

Future of work

Another emerging theme here is how companies’ relationships with local communities and society in general are evolving, with remote and hybrid working playing a pivotal part.

Around the world we’ve seen how high concentrations of companies can have negative consequences for the area they inhabit. This includes places such as San Francisco and the wider Bay Area, where the price of housing, pervasiveness of homelessness, and a growing wealth gap are symptoms of billion- and trillion-dollar companies permeating the region. There are some early signs that things are changing.

A few weeks back, esteemed Silicon Valley VC Andreessen Horowitz revealed it was “moving to the cloud,” meaning that it was shifting its center of gravity away from the Bay Area in response to the world’s newfound love affair with remote working. It initially committed to three new offices in Miami, New York, and Santa Monica, in addition to its existing hubs in San Francisco and Menlo Park. It’s also planning more physical offices around the world.

While acknowledging the historical reasons around why Silicon Valley and surrounding area emerged as a magnet for technical talent, Ben Horowitz, Andreessen Horowitz cofounder and partner, noted that the pandemic changed everything — companies were “forced to figure out how to work remotely,” and while it may not be perfect, the benefits of decentralization perhaps outweigh the bumps.

“Concentrating all of those companies into one or two geographies cuts off great opportunities from anyone who can contribute, but cannot easily move,” Horowitz wrote. “Remote work is opening up many new locations for entrepreneurs and technology workers.”

A slow but steady number of companies have either abandoned the Bay Area or opened secondary headquarters and satellite offices. Fintech giant Xero transitioned its Americas HQ to Denver in 2018 long before the pandemic, while Oracle and Tesla have since revealed similar plans but with Texas as the destination. While there is no love lost between Tesla and California, CEO Elon Musk attributed the HQ move to simple practicalities — Austin is more accessible for workers.

“It’s tough for people to afford houses and people have to come in from far away,” Musk said of its Palo Alto HQ. “There’s a limit to how big you can scale it in the Bay Area. In Austin, our factory is like five minutes from the airport, 15 minutes from Downtown.”

One of the most notable facets of the tech industry is that it’s always moving and evolving, with cities competing for companies, workers, and inward investment. So what’s true today, may not be true tomorrow, meaning that no city can rest on its laurels, but they must also address the unintended consequences of their successes.

London, as with many other major global cities, has long laid in the shadows of tech holylands such as Silicon Valley, but it has suffered similar problems on a smaller scale. In 2017, the Shoreditch area of the city, home of the so-called Silicon Roundabout, received the dubious honour of being named the world’s most expensive technology district in terms of office real estate. And more recently, news emerged that housing development in west London could be curtailed due to the high concentration of data centers in nearby Slough — data centers require a lot of electricity, and the grid is apparently approaching capacity.

This demonstrates the inextricable link between companies, infrastructure, and the environment they inhabit. “Tech scenes” and high concentrations of specific kinds of companies have their benefits, but there are downsides. And that could be one positive consequence of the pandemic — major cities such as London will always be in demand, but location in 2022 is not as important as it was three years ago, which may lead to a more balanced technology ecosystem.

“London continues to be in a good strong position in terms of talent and access to capital, but the world has changed significantly since Covid,” Atomico’s Hynes said. “The majority of companies today, especially at the early-stage, are either remote-first or definitely hybrid, and you will see that continue as tech will always be a talent-driven market. [But] London will continue to be an important part of the tech ecosystem in Europe — it has more engineers than anywhere else in Europe, but I think the way of working has certainly changed again in terms of remote and hybrid, and I can’t see people wanting to go back to pre-Covid full-time office hours.”

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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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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 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.

Tyler Durden Sat, 03/09/2024 - 16:20

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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.

Overall beer sales have fallen.

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.

 

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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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Exxon Mobil Corp.'s campus in East Baton Rouge Parish, left, received millions in tax abatements to the detriment of local schools, right. Barry Lewis/Getty Images, Tjean314/Wikimedia

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.”

Academic research shows that economic development incentives are ineffective most of the time – and harm school systems.

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.

Cement surface surrounded by a fence with grass beyond. There's no playground equipment..
The temporary site where Fairleigh Jackson’s daughter goes to school in East Baton Rouge Parish lacks playground equipment. Fairleigh Jackson, CC BY-ND

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.

Front of a four-story brick school building with tall windows, some with air-conditioners
Horace Furness High School in Philadelphia, where hot summers have temporarily closed schools that lack air conditioning. Nick-philly/Wikimedia, CC BY-SA

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.

Three-story school building with police officers out front and traffic lights in the foreground
Roxborough High School in Philadelphia. AP Photo/Matt Rourke

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.

James Elementary in Kansas City, Mo. Danielle McLean, CC BY-ND

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.

Aerial view of industrial buildings along a river
Exxon Mobil Corp.’s Baton Rouge campus occupies 3.28 square miles. AP Photo/Gerald Herbert

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.

Black-and-white outline of Louisiana showing the parishes, with one, near the bottom right, filled in red
East Baton Rouge Parish, marked in red, includes an Exxon Mobil Corp. campus and the city of Baton Rouge. David Benbennick/Wikimedia

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.

In 2022, a year when Exxon Mobil made a record $55.7 billion, the company asked for a 10-year, 80% property tax break from the cash-starved East Baton Rouge Parish school district. A lively debate ensued.

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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