Connect with us

Spread & Containment

Futures Swing In Slowmotion Overnight Rollercoaster

Futures Swing In Slowmotion Overnight Rollercoaster



Futures Swing In Slowmotion Overnight Rollercoaster Tyler Durden Mon, 06/22/2020 - 08:08

Welcome to a new week, and a new rollercoaster in illiquid overnight futures trading, which saw spoos start off sharply lower on fresh coronavirus concerns after new cases in California rose by a record (4,515) and Florida infections up 3.7% from a day earlier, compared with an average increase of 3.5% in the previous seven days, while the German R-naught surged almost 3x to 2.88 in three days. As a reminder, on Friday stocks slumped late in the day after Apple said that it will again close almost a dozen stores in the US because of a recent rise in coronavirus infections in the South and West, denting the optimism that the US recovery is in full swing.

However, sentiment reversed sharply around 9pm ET when China reported that Beijing saw only 9 new cases suggesting that the latest breakout in the capital had been contained while South Korea saw the smallest daily increase in about a month, prompting renewed optimism that everything is once again under control. Futures then continued their ascent into the early European open, when Eminis rose as high as 3,097 before once again hitting the brakes and reversing modestly lower. Despite the rise in virus cases in Germany and the U.S. states of Florida, California and Texas.

Sentiment was also lifted by the same old news, that there’s growing speculation that politicians will be unwilling to put cities back on lockdown because of the economic toll. Historical stimulus programs by the major central banks are also supporting the sentiment.

European shares also opened lower as much as 1.1% but then quickly staged a sharp rally and nudged into positive territory as a jump in Germany’s coronavirus reproduction rate over the weekend was seen as unlikely to trigger a massive second wave or new lockdowns. Germany’s coronavirus reproduction rate jumped to 2.88 on Sunday from 1.06 on Friday, health authorities said. The spike in infections was mainly related to local outbreaks including in North Rhine-Westphalia.

“I regard the German R statistic as a bit of a red herring or more of a statistical quirk,” said Chris Bailey, Raymond James European strategist. "Coronavirus at-the-margin remains an overhang but the opening up of Europe still looks on much more solid foundations than the US/Americas."

Meanwhile Germany's mega-fraud WireCard shed another 50% of its market cap after the company admitted $2.1 billion in cash will never be found. The plunge assured that CEO Braun is facing financial ruins as he no longer has enough shares to cover his €150MM margin loan.

Asian stocks were little changed, with communications rising and industrials falling, after rising in the last session. Markets in the region were mixed, with Thailand's SET and South Korea's Kospi Index falling, and India's S&P BSE Sensex Index and Singapore's Straits Times Index rising. The Topix declined 0.2%, with Olympic and Land Co falling the most. The Shanghai Composite Index was little changed, with Ningxia Xinri Hengli Steel Wire advancing and Guangdong Songyang declining the most.

Investors are also wary of developments in Hong Kong after details of a new security law for the territory showed Beijing will  have overarching powers on its enforcement. China’s top legislative body, the National People’s Congress Standing Committee, will meet on June 28, and the Global Times reported it was likely to enact the Hong Kong security law by July 1.

Hong Kong's Hang Seng .HSI fell 0.5%, underperforming regional markets.

Torn between record stimulus and growing fears of a second wave of infections, global stocks have been moving sideways in recent weeks after rising more than 40% from March lows on hopes the worst of the pandemic was over.

“Markets have climbed back ... with stocks proving the doubter wrong yet again as a world of stimulus trumps the reality of economic and health struggles,” said Joshua Mahony, senior market analyst at IG.

In rates, the 10Y TSY yield dropped to 0.685%, trading around its 50DMA, and back in sideways trading range after false breakout beginning of June. The yield on Germany’s 30-year government debt fell below zero for the first time since May. Crude oil hovered below $40 a barrel in New York. Bunds bull flattened, breaching Friday’s highs and outperforming Treasuries by ~1bp. Gilts bull steepen slightly in a subdued reaction to comments from BOE’s Bailey.

In FX, the U.S. dollar meanwhile slipped from two-and-a-half-week highs as risk appetite remained alive in a world awash with cheap money after credit rating agency Moody’s warned that the stimulus measures will leave advanced economies with much higher debt than they accumulated during the last financial crisis. “Government debt/GDP ratios will rise by around 19 percentage points, nearly twice as much as in 2009 during the GFC ... the rise in debt burdens will be more immediate and pervasive, reflecting the acuteness and breadth of the shock posed by the coronavirus.” Moody’s said.

The pound rose for the first time in five days against the dollar after Governor Andrew Bailey indicated that the Bank of England would reduce the size of its balance sheet before considering interest-rate increases. The euro also headed for the first gain since June 15. New Zealand’s dollar and the Swedish krona led G-10 currency gains. U.S. stock futures dictated the market’s mood after a record increase in California’s new virus cases was followed by news that China was containing a resurgence of infections, prompting a rally.

As central banks continued their unprecedented liquidity firehose, gold finally appeared reach to breach $1,750, nearing a seven-year high.

Elsewhere in commodities, oil prices steadied on tighter supplies from major producers, but concerns that the rising coronavirus cases could curb demand checked gains. Brent rose 0.2% to $42.25 a barrel, while WTI fell slightly to $39.65 a barrel.

Market Snapshot

  • S&P 500 futures up 0.7% to 3,082.25
  • STOXX Europe 600 down 0.2% to 364.83
  • MXAP down 0.09% to 159.14
  • MXAPJ down 0.06% to 513.47
  • Nikkei down 0.2% to 22,437.27
  • Topix down 0.2% to 1,579.09
  • Hang Seng Index down 0.5% to 24,511.34
  • Shanghai Composite down 0.08% to 2,965.27
  • Sensex up 1.2% to 35,159.56
  • Australia S&P/ASX 200 up 0.03% to 5,944.54
  • Kospi down 0.7% to 2,126.73
  • German 10Y yield fell 1.7 bps to -0.432%
  • Euro up 0.3% to $1.1209
  • Brent Futures up 0.02% to $42.20/bbl
  • Italian 10Y yield fell 2.2 bps to 1.229%
  • Spanish 10Y yield fell 1.9 bps to 0.474%
  • Brent Futures up 0.02% to $42.20/bbl
  • Gold spot up 0.2% to $1,747.44
  • U.S. Dollar Index down 0.2% to 97.41

Top Overnight News from Bloomberg

  • Germany’s coronavirus infection rate rose for a third day, lifted by local outbreaks including in the region of North Rhine-Westphalia, where more than 1,300 people working at a slaughterhouse tested positive.
  • Beijing reported only nine new infections, a sign that a recent outbreak is under control. China blocked poultry from a Tyson Foods plant where many workers tested positive
  • The European Central Bank’s most determined attempt yet to confront the German legal headache bedeviling its quantitative easing policy may emerge as soon as this week.
  • Bank of England Governor Andrew Bailey signaled a major shift in the central bank’s strategy for removing emergency stimulus, stressing the need to reduce the institution’s balance sheet before hiking interest rates.

Asian equity markets began the week cautiously as sentiment was clouded by reports of increasing COVID-19 infections rates globally in which the World Health Organization reported a record daily increase of 183k cases, while new cases in the US topped the 7-day average and Germany’s reproduction rate surged to 2.88 from 1.79. This initially pressured US equity futures at the open and also weighed on ASX 200 (U/C) and Nikkei 225 (-0.2%), although US index futures have since fully recovered and Asia-Pac bourses also retraced their early declines with outperformance seen in commodity-related sectors, in particular Australia’s gold miners after the precious metal resumed its rally and broke above the USD 1750/oz level. Hang Seng (-0.5%) and Shanghai Comp. (-0.1%) were mixed with price action rangebound after the PBoC maintained its 1-year and 5-year Loan Prime Rates at 3.85% and 4.65% respectively as expected, while it also conducted a CNY 120bln net liquidity injection which was welcomed by mainland bourses. Furthermore, there were reports that China is planning to step up purchases of US farm goods following recent discussions and that President Trump deferred sanctions on Chinese officials related to Uighur minorities as it may impact the US-China trade deal, although Hong Kong lagged after the release of the draft Hong Kong National Security Law which the Standing Committee of the NPC is speculated to enact when it meets on June 28th-30th. Finally, 10yr JGB traded subdued as the intraday recovery in Japanese stocks weighed on bond prices but with downside also cushioned by the BoJ’s presence in the market for over JPY 1tln of JGBs with 1yr-10yr maturities and with the Japan Securities Dealers Association noting regional banks bought a record amount of ultra-long JGBs last month.

Top Asian News

  • Hong Kong Central Office Vacancies Reach 12-Year High: JLL
  • Japan Industry Group May Penalize Banks Breaking Debt Sale Rules
  • Virus- Drug Nod Spurs Record Rally in India’s Glenmark Pharma
  • The Most Popular U.S. Bond Market Trade Has Now Gone Global

Europe kicked the week off on the back-foot but have since nursed a bulk of its losses [Euro Stoxx 50 -0.4%] as initial downside stemmed from second wave woes amid record daily increases recorded by the WHO, Germany’s R-number jumping amid cluster outbreaks and with the US cases rising above its key 7-day level. Nonetheless, stock markets continued on its upwards trajectory since the cash open despite light fundamental news-flow. Note, the EU-China summit is underway but with expectations low. Sources noted there will be no joint communique between the sides this year – but, the meeting with Germany could prove to be interesting as the country will be taking the baton of rotating EU presidency in H2 2020; note, Germany has previously signalled a tougher EU line towards China. Nonetheless, bourses regain earlier lost ground alongside sectors – now mixed following an all-negative open – but still fail to indicate a clear risk tone. The sectorial breakdown also provides little clarity on this front as Oil & Gas, Travel & Leisure and telecoms remain the laggards. In terms of individual movers, Wirecard (-36%) shares continue to suffer after the group announced the missing EUR 1.9bln likely never existed, whilst it withdrew its prelim FY19 and Q1-2020 results. Separately, former CEO Braun - who was the largest individual shareholder - is reportedly unloading a large amount of his 7% stake in the Co. Elsewhere, Lufthansa (-6%) shares are weighed on after its CEO stated that the EUR 9bln state-backed aid is at risk of not passing the upcoming shareholder vote as only around 40% of shareholders have registered to vote at the EGM thus far vs. required 2/3 majority for it to pass. On the flip side, BT (+1.9%) remains supported by reports that the Saudi Public Investment Fund is said to have been acquiring a stake in the Co. through open-market purchases over the last few weeks, according to sources.

Top European News

  • Lufthansa Braces for Portentous Week With Future on the Line
  • Turkish Stocks Erase 2020 Losses After Wave of Local Buying
  • Halkbank, Involved in U.S. Case, Jumps After Berman Resigns

In FX, the Greenback is weaker across the G10 board with only the Yen underperforming, and then only marginally vs the scale of recovery gains forged by other majors. Further increases in coronavirus infections and fatalities appear to be weighing on the Buck even though the US is far from alone in terms of suffering fresh outbreaks. Indeed, the KCDC is reportedly classifying the situation in South Korea as a 2nd wave as the global tally hit the highest level so far for a single day, according to the WHO and Germany’s R value rebounds to 2.88. However, the DXY has slipped back below 97.500 to a 97.287 low from last Friday’s 97.727 high ahead of May’s national activity index, existing home sales and a late speech from Fed’s Kashkari.

  • AUD/NZD/GBP/SEK/EUR - The Aussie is back within striking distance of 0.6900 vs its US counterpart and not too unsettled by comments from RBA Governor Lowe overnight reiterating that rates are likely to remain at current levels for years, as he also seemed unfazed by the Aud’s present valuation. Meanwhile, the Kiwi has reclaimed 0.6400+ status ahead of the RBNZ policy meeting with markets all but ruling out any chance of a change in rates, but Sterling’s comeback from the low 1.2300 area towards 1.2435 is somewhat less easy to reconcile and may have more to do with Eur/Gbp flows/direction as the cross pulls back from 0.9065 to test bids said to be sitting at 0.9025. Note also, 1.85 bn option expiries at 0.9060 may be capping the cross ahead of the NY cut after Sterling shrugged off an improvement in CBI trends. Elsewhere, the Swedish Crown is also perky against the single currency and perhaps drawing some traction from the latest Riksbank business survey revealing stabilisation in May and June, though the Euro has clawed back gains vs the Dollar from circa 1.1168 to hover between decent expiry interest at 1.1200-05 (1.9 bn) and 1.1245-50 (1.24 bn) ahead of flash Eurozone consumer confidence and ECB speeches via de Guindos and Lane.
  • CAD/CHF/NOK - Also on a firmer footing to at least start the new week, with the Loonie nearer the top of a 1.3560-1.3630 range vs its US peer awaiting comments from BoC Governor Macklem, the Franc back above 0.9500 in wake of latest weekly Swiss bank sight deposits showing a dip in both domestic and total balances and the Norwegian Krona consolidating post-Norges Bank advances either side of 10.8000 against the Euro.
  • JPY/XAU - As noted above, the Yen is bucking the broad trend, but still keeping its head over 107.00 and Gold has lost some steam after surging above Usd 1750/oz and stalling ahead of the next major bullish technical target around Usd 1765 from May 18.

In commodities, WTI and Brent August contracts remain choppy and reside within a tight range, albeit the benchmarkes have nursed opening losses of around 1%, which originally emanated from COVID-19 second wave woes as the WHO reported a record daily increase of 183k cases, while new cases in the US topped the 7-day average and Germany’s R-rate spiked to 2.88 from 1.79. Meanwhile, Nigeria and Angola will be presenting their respective over-compliance plans today after failing to do so last week – with a presser expected following a review of the strategy – albeit, this has not been confirmed. Meanwhile, a new study shows that US shale companies could be forced into writing down at least USD 300bln of assets in Q2 as producers account for the oil price collapse earlier this year on balance sheets, which will be based on an oil price around USD 35/bbl according to the FT. WTI August fluctuates on either side of USD 40/bbl (vs. 39/bbl low) whilst its Brent counterpart tested resistance at USD 42.50 (vs. 41.58/bbl low) earlier in the session. Elsewhere, spot gold has given up some recent gains amid the recovery in stocks, but nonetheless currently remains underpinned by a weaker USD – with the yellow metal trading on either side of USD 1750/oz early-doors before printing a marginal new session low at USD 1741.90/oz. Copper prices are supported by the softer Buck and continues to trend higher amid support from draws in LME and China inventories. In terms of bank commentary, Citi sees gold prices at an average of USD 1702/oz this year and USD 1761/oz next year, whilst the bank forecasts copper at USD 5654/t in 2020 and 5850/t in 2021.

US Event Calendar

  • 8:30am: Chicago Fed Nat Activity Index, prior -16.7
  • 10am: Existing Home Sales, est. 4.09m, prior 4.33m; Existing Home Sales MoM, est. -5.59%, prior -17.8%

DB's Jim Reid concludes the overnight wrap

Hard to believe we’re now going to have to deal with the nights slowly getting darker again here in the northern hemisphere. We spent the longest day yesterday at the beach and I think we’ll be discovering sand in various places across the house, car and bodies for the next week. It’s a horrendously messy thing to do, especially when the showers were closed for social distancing reasons. It is amazing what the bracing sea air does though as bed time went without incident last night, which is a rarity. They were all shattered.

It was amazing how busy the beach was but people generally practiced social distancing unless they were just deliberately keeping out the way of my horrors. It’s a strange period where life is getting slowly back to some kind of normality, but with major constraints and with everyone waiting to see what happens next. Indeed the virus spread continues to create a lot of uncertainty in markets. For example, does it matter that the troublesome US states are continuing to see case numbers increase or does it provide some good news that economies can stay open as cases rumble on? It’s possible that with more knowledge on the virus, the vulnerable are now being better protected which will dramatically reduce the fatalities if successful.

Even in countries that are perceived to have had a good response to the crisis are having issues. Last week we highlighted the reports out of Germany of a meat factory closing due to a rash of infections. Over the weekend, the Robert Koch Institute estimated that the effective reproduction factor of the virus was now 1.79 in the country after being 1.06 on Friday, and below 1.0 earlier in June. Yesterday there were over 600 new cases in the country, with the 7 day average of new cases over 500 for the first time in 5 weeks. It will be interesting to see how they deal with this small uptick that has shades of a second wave. China is also seeing a mini second wave with the country now having averaged around 40 new cases per day for the last week, after seeing low single-digit new cases per day all through May and early June. Beijing has closed schools and asked those who can to work from home when possible. In a positive sign, Beijing reported only 9 new cases overnight.

Elsewhere Brazil is still engulfed in their first wave passing 1 million total cases over the weekend, and registering 54,711 new cases on Friday, the most new cases in one day for any country in the world. They did have a small reporting backlog though. Nevertheless cases have risen by 3.3% per day over the last 7 days, in line with the 7 day period prior at 3.4%. The other virus hotspot is the US. After registering multiple days with daily case growth under 1.0% in the early part of June, cases have been rising at 1.5% per day on average over the last week, higher than the 1.2% average for the period previous. The majority of these cases are in large Southern states like Texas, Florida, and Arizona, but California continues to have similar problems. All four states currently have a 7-day average of new cases higher than the period prior, implying that the virus spread is accelerating and no longer even flat.

Using rtlive’s estimates, whose underlying methodology was updated over the weekend, 24 of the 50 US states now have effective transmission rates over 1.0. Of the main focus states, California has been trending higher for the last month and after falling back below 1.0, it is now at 1.05. Florida is at 1.39 and Texas at 1.16.

So plenty of worrying news on the virus at a global level but there are still signs that technicals in the market look supportive. Doing my weekend reading of DB research it was interesting to read our equity strategist Binky Chadha’s latest view where he suggested positioning in US equities has dipped again to the 5th percentile. He suggested that such low positioning is historically associated with strong performance of the market 1 week and 1 month forward. See here for more. A reminder that when Binky discussed the low positioning a few weeks ago one of the main justifications for that during a big rally was the emergence of new retail investors into the market with institutional investors remaining relatively on the sidelines.

A quick check on markets this morning now where broadly speaking most Asian bourses have pared a weak open. The Nikkei (+0.31%), Shanghai Comp (+0.28%) and ASX (+0.47%) are now showing modest gains while the Kospi is flat and the Hang Seng down -0.32%, likely not helped by news over the weekend that China has proposed a national security law that would allow the Beijing to override Hong Kong’s independent legal system. Elsewhere, futures on the S&P 500 are trading up +0.65% after erasing losses at the open of c. -1%.

In other weekend news, a Bloomberg story has argued that a change in the composition of Germany's Constitutional Court has the potential to be less confrontational towards the ECB. Astrid Wallrabenstein, seen as more EU friendly, will replace Andreas Vosskuhle, president of the court whose term has expired and made the May 5 ruling on the ECB bond purchases while, Stephan Harbarth, a conservative lawmaker from 2009-2018, will become the new president. German daily Frankfurter Allgemeine Sonntagszeitung has already reported Wallrabenstein saying that it could be in the interest of the court to take an easier stand if the “demands are being taken seriously” and the actions taken by politicians, the German central bank and ECB “go into the right direction.” This comes on the back of Friday’s news that the ECB is preparing papers on proportionality of the PSPP to satisfy the GCC.

Staying with Europe, Italian PM Conte has indicated that his government would likely seek a wider budget gap as the government will focus on infrastructure projects including high-speed railways and may approve a value-added tax cut to stem the coronavirus’s impact. He said, “We will probably need to intervene for a further widening of the budget gap because the resources are not enough to cope with the impact of a horrible year both economically and socially,” while, adding that the government will present its reform plan in September. The reform plan is in response to lobby for the country’s share of a proposed EUR 750bn recovery fund.

The main highlight this week is likely to be the flash PMIs for June tomorrow, with manufacturing, services and composite PMIs coming out from around the world. Back in May, the PMIs rebounded from April’s rock-bottom prints. For example, the Euro Area composite PMI rose to 31.9 from 13.6, while in the US the composite PMI recovered to 37.0 from 27.0. For June the range of expectations across Europe/US are generally in the 40s with U.K. at the lower end and the US manufacturing possibly scraping to just over 50. Given these are diffusion indices and simply reflect whether conditions are getting better or worse then surely at some point soon these numbers are going to massively spike up regardless of the actual level of growth.

There are various other data releases but it’s not a big week for data. See the day by day calendar at the end for the full slate. Note that the IMF’s latest economic forecasts are released this Wednesday. In a website blogpost last week, their Chief Economist Gita Gopinath said that the update “is likely to show negative growth rates even worse than previously estimated.”

Looking back at last week now, Global equities finished higher but there feels like there is a bit more two way tension in asset markets now. Nevertheless, the significant amount of liquidity in the financial system and a steady drip of improving data outweighed concerns of a rise of covid-19 cases in China and Germany (albeit from low levels) as well as in the largest US states. The S&P 500 rose +1.86% (-0.56% Friday as Apple reversed a decision to reopen some stores in high case states). The index is now down -4.12% YTD. The last two weeks have seen growth stocks go back to outperforming in the US, with the tech-focused Nasdaq finishing this past week up +3.73% (+0.03% Friday). European equities also outperformed the S&P, with the Stoxx 600 rallying +3.22% (+0.56% Friday) over the five days. The rally was widespread with the DAX (+3.19%), FTSE MIB (+3.87%), FTSE 100 (+3.07%), and CAC (+2.90%) all gaining on the week. Asian indices also rose but to a lesser degree. The Nikkei rose +0.78% over the week (+0.55% Friday) while the CSI 300 was up +2.39% (+1.34% Friday), and the Kospi rose +0.42% (+0.37% Friday). The CSI 300 joined the NASDAQ as one of the few equity indices in the world that is up on the year, closing Friday +0.05% YTD.

Oil prices rallied for a 7th week out of the last 8 as OPEC+ gave reassurances on output cuts on Thursday. Expectations for demand also continues to slowly improve. WTI futures rose +9.62% (+2.34% Friday) to $39.75/barrel and Brent crude rose +8.93% on the week (+1.64% Friday) to $42.19/barrel. With risk assets rising and sentiment staying generally constructive, HY credit spreads on both sides of the Atlantic tightened on the week. European HY cash spreads were -15bps tighter on the week (+2bps Friday), while US HY cash spreads were -26bps tighter (+1bp Friday). Euro IG and US IG cash spreads were -3bps (+1bp Friday) and -12bps (-1bp Friday) tighter, respectively.

Peripheral debt tightened, with Spanish 10yr yields -12.6bps tighter to German bunds over the 5 days, while Italian BTPs were -11.4bps tighter, and Portuguese bonds tightened -8.5bps. Core sovereign bonds were little changed on the week as US 10yr Treasury yields fell -1.0bps (-1.5bps Friday) to finish at 0.694%, while 10yr Bund yields rose +2.4bps over the course of the week (-0.8bps Friday) to -0.42%.

The main highlight from last Friday was the European Council meeting where leaders were cautious, but still constructive on a Recovery Fund agreement. German Chancellor Merkel mentioned that an agreement had been reached on the mixture of grants and loans, while Austrian Chancellor Kurz said that grants would be possible, with conditionality. It feels like compromise is slowly building even if we’re not yet there. On the data front, the main two headlines were out of the UK. Public finance data for May showed the government’s debt-to-GDP ratio rose above 100% for the first time since 1963. Retail sales in the UK rose +12.0% MoM during May, well above the expected rise of 6.3% and recovering from last month’s revised -18.0% fall.

Read More

Continue Reading

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…



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

Read More

Continue Reading

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.



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," 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.


Read More

Continue Reading


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.




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.

Read More

Continue Reading