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July 2022 Monthly

The major central banks were slow to respond to price pressures as the economies emerged from the unprecedented depths of the Covid crisis. They have pivoted…



The major central banks were slow to respond to price pressures as the economies emerged from the unprecedented depths of the Covid crisis. They have pivoted toward more aggressive rate hikes. 

The conversion at the Federal Reserve has been stark. In an unusual admission, Federal Reserve Chair Powell acknowledged that the high May CPI and the rise in the University of Michigan's consumer (inflation) expectations prompted the 75 bp hike rather than the 50 bp move that had been signaled. The last-minute change left the Kansas City Fed President George in a difficult position. This noted hawk dissented at the June meeting, favoring sticking with the 50 bp guidance (which hardly makes her a dove).  

Powell pledged the Fed's "unconditional" commitment to reining in inflation. Even though he acknowledged that a 75 bp increase is unusual, Powell indicated another one of that magnitude or 50 bp was likely this month. Given the link to the CPI and household inflation surveys that Powell drew, those reports (July 13 and July 15, respectively) may overshadow the employment report. The "expeditious" move to neutrality (and beyond) seems to mean as fast as possible without surprising the market unnecessarily. That said, we expect the economic and price data to moderate, encouraging the Fed to signal a slower pace of rate hikes after the July hike.

The European Central Bank is widely expected to initiate its normalization cycle at its July 21 meeting. Although the meeting will not include updated forecasts, making it an unusual move, it has, without a doubt, signaled its intentions. Some are still making a case for a 50 bp move, but it seems unlikely. Still, the market will be looking for clues into how low a bar it is for a 50 bp hike at the September meeting. 

In addition to the forward guidance, the other important element of the ECB meeting is an update about the new tool to help combat an undesirable widening of the interest rate spreads among the members. The central bank argues that widening spreads interrupts the transmission of its monetary policy. In the previous sovereign debt crisis, the ECB unveiled a facility (Open Market Transaction) to do just that and neutralize the impact on the balance sheet. However, the strings attached, or what is euphemistically called "conditionality," proved sufficiently onerous as to deter any member requesting it. At the end of last year, talks revolved around similar issues, and the ECB secured extra flexibility (discretion) in reinvesting maturing proceeds.  

The contrast between the US and Europe on one hand, and Japan and China  on the other is stark. After many years of falling short, Japan's core measure of inflation has met the 2% target, but the BOJ insists it is "transitory." For the record, the market seems to agree with the BOJ's assessment. The BOJ's forecast sees core inflation finishing the year slightly below 2% and falling to 1.1% next year and in 2024. The median forecast in the Bloomberg survey puts Japan's core inflation at 1.7% this year, 1.2% next, and 0.7% in 2024.  

The BOJ is committed to its current monetary stance and defending its 0.25% cap on the 10-year JGB, bought a record $80 bln of government bonds one day in mid-May. The divergence of monetary policy is the main driver of the yen's weakness, and as global rates rise and the yen weakens, there is upside pressure on the Japanese yields. The 30-year yield has increased by more than 20 bp over the past month to 1.24%.  June was the seventh consecutive monthly increase, while the 10-year is flat near its cap and is net-net little changed over the past four months.  As the BOJ defends its cap, it underscores the divergence in monetary policy, weighing on the yen and trapping policymakers and investors in a vicious cycle. It is not clear how Japan exits its policy, but others like the Swiss National Bank's cap on the Swiss franc or Australia's cap on the three-year yield proved very messy.  We suspect it will exit its yield curve strategy after it is clear that US rates have peaked.  

China's Covid experience and extreme policy response have disrupted the economy. Beijing prefers fiscal, regulatory, and moral suasion and has used monetary policy sparingly. China's economy is recovering from the extreme Covid-related lockdowns that had shut down areas that accounted for almost half of the country's GDP. Monetary policy has been brought to bear as much as one might be expected given the modest CPI (2.1% year-over-year in May). China's producer prices have fallen for seven consecutive months through May, and at 6.4%, the year-over-year pace is less than half of its peak (13.5% in October 2021). Fiscal and regulatory policy alongside moral suasion has been relied upon.

Few, if any, expect China to reach its growth target of around 5.5% this year. The World Bank's updated forecast dovetail with market expectations (median forecast in Bloomberg's survey) that see growth this GDP rising 4.3% this year and rising to 5.2% in 2023. More support for the economy may be forthcoming, and many observers expect a reduction in reserve requirements and/or another cut in administered rates. However, the zero-Covid policy continues, depressing economic activity and disrupting supply chains. Anticipating a recovery has seen Chinese stocks outperform in June. The CSI 300 rose by about 9.6%, recovering about half of what it lost in the first five months of the year. 

Toward the end of June, disappointing economic data, the dramatic cut in Russian gas shipments to Europe, and the tightening of financial conditions spurred concerns of a recession iin most high-income countries. As a result, the markets shaved the extent of tightening the major central banks would deliver this year. While the tightening cycle is expected to extend into Q1 23, the futures markets have discounted a cut by the Federal Reserve and the Bank of Canada by the end of next year.  

At the risk of burying the lead, this is the new new thing in the capital markets. For the first time since the onset of the pandemic, the fear of a recession is moving into ascendancy, eclipsing inflation in all but the very short term. To be sure, the market continues to expect the major central banks (but Japan) and middle-income countries to continue to raise interest rates in the coming months. However, investors are strongly entertaining the possibility that the Federal Reserve's rate hiking cycle lasts around a year, which is shorter than previously expected.  

The US dollar trended higher against the euro and yen since bottoming on January 6, 2021 (yes, that January 6). he rate differential story and the trajectory of monetary policy were a big part of the story. In past cycles, short-term rate differentials often peak before the dollar. Although the news stream from Europe is poor, and the Bank of Japan appears committed to its extraordinary monetary policy, the dollar's 18-month rally may be coming to an end.  

All of the constituents of Bannockburn's World Currency Index (BWCI) but the Russian rouble fell against the dollar in June. However, it appears to be forging a bottom, which coincides with a broad dollar top.  

Interestingly, most of the emerging market currencies fared better than most of the major currencies. The Russian rouble was strongest with a nearly 15.5% gain against the greenback. We do not put much confidence in the price as a reflection of how the war is going or the domestic economy. By its official figures, the economy contracted by 4.8% in May after shrinking 2.8% in April. It is experiencing a positive terms of trade shock and appears to have found some offsets to the bans being implemented by Ukraine's allies. Capital controls forcing repatriating for earnings have been eased, but have not been removed and restrictions on sales by foreign investors remain in place. With a 2.1% weight in the BWCI, the rouble's appreciation was worth about 0.32 index points, but instead the BWCI fell by almost  0.90 points in June.  

The Chinese yuan (with a 21.7% weighting) slipped by 0.4%, the least, followed by the Indian rupee (3.8% weighting), which fell by almost 1.7%. The Mexican peso (1.5% ) was the third best performer with a 2.3% loss. Among the emerging markets, that leaves the Brazilian real, which posted the- sharpest decline, almost 10.0%, and the South Korean won.  It fell by about 4.7%.  

It turns out that the won's decline largely matched the Japan's yen's 5.1% loss. South Korea is maintaining export competitiveness. The won is the second weakest currency in Asia this year.  It has deepreciated by about 8.5% compared with the yen's 15% decline. On the other hand, the China seem less reactive to the drop in the yen to 22-year lows. The yuan has fallen by about 5% this year.

Among the major currencies in the BWCI, the Australian dollar (1.9% weighting) was the second worst performer after the yen, falling by about 3.7%. The euro  (19.1% weighting) was off 2.3% decline. The Canadian dollar (2.4% weighting) eased by around 1.7% and sterling (4% weighting) depreciated by about 3.4%.  

Dollar:  The Federal Reserve has been explicit. It is determined to push inflation back to its target and hopes that a recession can be avoided. To do so, it aims at weakening demand to drive down price pressures through the tightening of financial conditions. It already seems to be having an impact. Fed officials emphasize the strength of the labor market as an indication of the ability of the economy to withstand the reduction of monetary support. However, cracks are already materializing. The foreign exchange market may be particularly sensitive to further deterioration. The four-week average of weekly initial jobless claims has risen by more than 30% over the past two months. Nonfarm payrolls are slowing. The 250k increase expected in June (July 8) would be the least since the end of 2020. The year-over-year increase in average hourly earnings is expected to have eased for the third consecutive month in June. Price pressures, more generally, may be coming off the boil. Core CPI has fallen for two months through May, and the core PCE deflator fell for the third month in May. The accumulation of disappointing economic data saw the market for the first time price in a rate cut in Q4 23. In the meantime, the market is pricing in a little more than a 70% chance of another 75 bp rate hike at the July 26-27 FOMC meeting. 

Euro:   The European Central Bank meets on July 21. It will hike its key rate for the first time since 2011. A 25 bp rate has been signaled, but some officials still seem to be pushing for a 50 bp hike. The swaps market has about a 15% chance of a 50 bp move. By the end of the year, the market is pricing in about 140 bp in rate increases, down from 180 bp seen in mid-June. The ECB is expected to provide more details on the new tool it is devising to combat unwarranted widening of interest rate differentials that hamper the transmission of monetary policy. The tightening of financial conditions, the disruption from Russia's invasion of Ukraine, and the energy shock (Europe's natural gas benchmark rose nearly 60% in June) are leading to a sharp deceleration of growth. The risk of a recession appears to be increasing. The euro peaked in June near $1.0775 as the ECB's press conference following the June 9 meeting got underway. It fell to about $1.0360 on June 15 to approach the May low of $1.0350. After testing the $1.16 area it returned again and foudn good demand below $1.04. It needs to establish a foothold above $1.06 to improve the technical outlook and initially give potential toward $1.08 as a bottom of the down move that began on January 6, 2021, is forged.  

(June 30 indicative closing prices, previous in parentheses)

Spot: $1.0485 ($1.0780)

Median Bloomberg One-month Forecast $1.0525 ($1.0605)

One-month forward $1.0505 ($1.0800)   One-month implied vol 9.4% (7.8%)    



Japanese Yen:  The dollar rose by 5.4% against the yen in June as the divergence in monetary policy and the relatively low credibility of intervention continues to drive the exchange rate. This brings the year-to-date loss to a little more than 15.1%. It is not just that the other central banks are tightening policy, but the Bank of Japan is still easing through its balance sheet. Moreover, to defend its 0.25% cap on the 10-year JGB, the BOJ was forced to buy over $80 bln in a single day last month. Foreign investors account for a significant amount (~$35 bln) of the sales. The cost of hedging US bonds for yen-based investors continues to rise and eat away at total returns, but reports suggest some insurers are boosting the non-hedged allocation. The BOJ has emphasized wage growth as a key component of a sustainable increase in inflation. This remains elusive. Despite the cost of living squeeze in Japan, the LDP enjoys the most support among the political parties ahead of the July 10 House of Councillors (upper house) election. 


Spot: JPY135.70 (JPY129.60)    

Median Bloomberg One-month Forecast JPY134.35 (JPY129.90)     

One-month forward JPY135.45 (JPY127.45) One-month implied vol 13.0% (9.4%)



British Pound:  Sterling depreciated in each of the first four months of the year for a cumulative decline of about 7.3% before edging almost 0.25% higher in May. A deteriorating economy kept sterling under pressure in June, driving it down nearly 3.5%. The economy unexpectedly contracted for the second month in a row in April as the consumers are getting hit with the largest cost-of-living squeeze in a generation. Economists surveyed by Bloomberg see more than twice the chance of a recession over the next 12 months as they did at the start of the year (now 35%). The Prime Minister survived a vote of confidence but remained weakened. Still, the government has successfully begun the legislative process to ditch the Northern Ireland Protocol. This can be expected to elicit a response from the EU. The Bank of England hiked rates in quarter-point increments, but the market expects the pace to accelerate to 50 bp starting with the next meeting (August 4) and probably extend for the subsequent meeting or two. The central bank warns inflation will reach 11% in Q4 as the gas cap is raised again.  


Spot: $1.2180 ($1.2650)   

Median Bloomberg One-month Forecast $1.2260 ($1.2500) 

One-month forward $1.2190 ($1.2655)  One-month implied vol 10.8% (9.1%)



Canadian Dollar:  The US dollar depreciated by around 4.5% against the Canadian dollar from about mid-May through early June. After approaching CAD1.25, the greenback recovered on the back of the equity market volatility and made a marginal new high by CAD1.3080. The correlation between the changes in the exchange rate and the S&P 500 (a proxy for risk appetites) continues to be broadly steady around the mid-0.70 area over the past 30- and 60-day. Some still depict the Canadian dollar as a petro-currency. The correlation is stable here, too but in the low 0.40 area. The strong jobs market and robust consumption, with accelerating inflation, the swaps market favors a 75 bp hike at the July 13 (to 1.50%) at the Bank of Canada meeting and has recently trimmed the likelihood of another in September. Still, the projected year-end rate has been moving lower in the second half of June. It eased by about 20 bp to 2.4%. The expected terminal rate fell from about 4.10% on the eve of the FOMC's decision to below 3.50% by the end of the month. Indeed, for the first time, the implied yield of the December 2023 BA futures contract is above the December 2024 contract, reflecting the risk of a rate cut in Q4 23.  


Spot: CAD1.2875 (CAD 1.2655) 

Median Bloomberg One-month Forecast CAD1.2810 (CAD1.2800)

One-month forward CAD1.2880 (CAD1.2660)    One-month implied vol 7.6% (6.9%) 



Australian Dollar:  The Australian dollar extended its recovery off the nearly two-year low set in mid-May near $0.6830 and reached almost $0.7285 in early June. The pullback we expected was surprisingly deep, and by the middle of the month, it had fallen to around $0.6850. It enjoyed a two-day recovery, recouping about half of what it lost, but faded and remains in the trough. Recession fears in the US and Europe weigh on sentiment, and weaker commodity prices don't help. The futures market has a 50 bp rate hike at the July 5 meeting at a near 2-in-3 probability. It has and a little more than 230 bp of tightening discountedall told in H2 22. That would bring the cash target rate to about 3.20% at the end of the year. The terminal rate is seen closer to 3.75% by mid-2023. Australia's 10-year premium over the US is among the most it has been in the last six years, but the 2-year differential, which the exchange rate often seems more sensitive to, favors the US dollar by more than 30 bp. Re-establishing a foothold above the $0.7000 would help lift the tone.  A break of May's two-year low near $0.6830 spur another 1% decline toward $0.6760.  


Spot: $0.6905 ($0.7195)     

Median Bloomberg One-Month Forecast $0.7010 ($0.7200)    

One-month forward $0.6910 ($0.7205)    One-month implied vol 12.7% (11.1%)   



Mexican Peso:  The peso depreciated in the first half of June and appreciated in the second half, leaving it off about 2.0% against the dollar. That made it the best-performing currency in the region. The central bank hiked its target rate by 75 bp to 7.75% and signaled a move by the same magnitude at its next meeting (August 11). The swaps market has discounted about 200 bp of rate hikes in the second half. Banxico has sees inflation peaking at 8.1% in Q3 rather than 7.6% in Q2 as it previously did. The market seems to accept this and has the tightening cycle peaking this year. The dollar has spent the bulk of the time over the past three-and-a-half months between MXN19.50 and MXN20.50. It finished June near the middle of the range. Barring a significant negative shock, we expect the range to hold in July. There is scope for short-covering by speculators, who in the futures market had the largest net short position of the year in late June.  


Spot: MXN20.11 (MXN19.5355)  

Median Bloomberg One-Month Forecast MXN20.09(MXN20.2755)  

One-month forward MXN20.2160 (MXN19.6375) One-month implied vol 11.6% (11.6%)



Chinese Yuan: From mid-April through mid-May, the US dollar appreciated by around 7.5% against the Chinese yuan but spent June consolidating in a CNY6.65-CNY6.73 trading range. China's economy is recovering from the lockdowns that had shuttered around half the economy. The composite PMI rose above the 50 boom/bust level in June for the first time since February. The CSI 300 rose 9.6% in June, its best monthly performance in two years. Its 9.2% year-to-date loss is among the least in the large markets.  The US 10-year premium over China peaked near 65 bp in the middle of the month but fell below 20 bp as US yields retreated. A continuation of the consolidative phase is most likely. Meanwhile, the greenback had been pressing against the top of its range against the Hong Kong dollar, even spurring some intervention by the Hong Kong Monetary Authority. By the end of June, the market recognized that despite the changing circumstances, the peg would hold, and the dollar backed off.  


Spot: CNY6.6995 (CNY6.6615)

Median Bloomberg One-month Forecast CNY6.7175 (CNY6.6700) 

One-month forward CNY6.6985 (CNY6.6675)  One-month implied vol 6.6% (6.6%)  



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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…



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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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.


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Students lose out as cities and states give billions in property tax breaks to businesses − draining school budgets and especially hurting the poorest students

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.

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