Spread & Containment
What the great work from home experiment has taught us about the way we work
A transcript of episode 8 of The Conversation Weekly podcast, including new research on why people react to cold temperatures differently.
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This is a transcript of episode 8 of The Conversation Weekly podcast, The great remote work experiment – what happens next? In this episode, four experts dissect the impact a year of working from home has had on employees and the companies they work for – and what a more hybrid future might look like. And we talk to a researcher who asked people to sit in bath tubs full of ice cold water to find out why some of us are able to stand the cold better than others.
NOTE: Transcripts may contain errors. Please check the corresponding audio before quoting in print.
Gemma: Hello. In this episode of The Conversation Weekly, we talk to experts about the impact that a year of working from home has had on employees and the companies that they work for. And what a more hybrid future might look like.
Ruchi Sina: There’s a new kind of subgroup forming now, those who are on the video call and those who are in person.
Dan: And I speak to a researcher who asked people to sit in bathtubs full of ice cold water to find out why some of us are able to stand the cold better than others.
Victoria Wyckelsma: We got about 40 men to sit in this ice bath at 14 degrees.
Gemma: I’m Gemma Ware in London.
Dan: And I’m Dan Merino working remote this week actually, from the mountains of Lake Tahoe, California. And you’re listening to The Conversation Weekly, our world explained by experts.
Gemma: Dan, when the internet age properly dawned back in the 1990s, a lot of academics hoped that it would revolutionise the way we work. No more office.
Dan: Seems like such a natural technocratic dream, right. The internet comes in, everyone’s completely flexible, no pollution, working from home, cities change, it would have been great, right?
Gemma: Except that it didn’t really happen, and actually the number of employees who work from home full time has remained pretty flat, until the pandemic that is.
For many people who can do their work from home, and we’re talking predominantly here about those people who are employed in what’s called the knowledge economy, so jobs that don’t have to be done face to face, 2020 saw a dramatic shift to remote working.
Dan: But whether this remote work normal is going to stick around is still kind of up in the air.
Gemma: Yeah, some company bosses really don’t like it. Barclays chief executive Jes Staley said it just wasn’t sustainable … and the chief executive of Goldman Sachs, David Solomon, called it an aberration.
Dan: But other companies think working from home is the future … In San Francisco, a huge number of office buildings are just sitting empty as companies and their employees have left.
Gemma: And some companies are announcing hybrid policies, so the energy giant BP has said that it expected staff to work two days a week from home once the lockdown lifts here in the UK.
Gemma: To find out more about how remote working has changed the way we work, and about some problems of a more hybrid future, I’ve spoken to four experts who’ve been researching remote and flexible work during the pandemic.
Gemma: Before the pandemic turned many people’s lives upside down, around 3%-5% of employees in North America worked from home full time. In the European Union, it was around 6%. Some reports had suggested that numbers were increasing – one 2016 survey found that nearly half of US employees worked from home occasionally. Still, the massive shift to remote working that was envisaged back in the 1990s just didn’t happen. But why?
Jean-Nicolas Reyt: Managers tend to dislike the idea of managing remote employees, it’s more complicated.
Gemma: This is Jean-Nicolas Reyt.
Jean-Nicolas: I am an assistant professor at McGill University in the Desautels Faculty of Management and my research focuses on the distances people consider when they’re working, such as, when they’re working remotely.
Gemma: Part of the resistance to full-time remote working seemed to stem from a misconception among employers, that their staff just wouldn’t work as hard if they were not physically in the office. That productivity would go down. But decades of research shows that the opposite is actually true.
Jean-Nicolas: Research has shown consistently that actually there is an increase in productivity when people work from home, and there are several reasons for this. One of them is that people tend to reallocate their commuting time to work time but you also have the fact that people tend to be able to structure their days better and they’re less interrupted than when they’re in a physical office.
Gemma: And yet before the pandemic, managers were often reluctant to allow their employees to work from home.
Jean-Nicolas: So in a lot of organisations, what you see is that, managers get requests, by employees to telework and they often deny it saying, you know, it’s impossible. But we’ve seen, right, recently that it turns out we could actually do it. And we did it.
Gemma: And much of the world did it, very quickly.
In the European Union, estimates suggest that 40% of the bloc’s employees started working from home because of the pandemic. Of the rates vary, depending on the type of job somebody can do, and by country.
Marie-Colombe Afota: My name is Marie-Colombe Afota, so I’m a professor in management, organisational behaviour and leadership in a French business school, ISEG school of management.
Gemma: In France, Marie-Colombe says employers reacted to the sudden imperative to stop office-based work in two phases. When France went into its first lockdown in spring 2020, many companies went into crisis-management mode, shifting to remote working en masse. But after restrictions lifted, and then the second lockdown came around in October, compliance slipped.
Marie-Colombe: On the one hand, we started to see that many organisations were initiating negotiation with unions in order to implement telework programmes that would persist after the pandemic. But on the other hand, we saw these very same organisations, requiring their employees to come to the office, even though they could do their job from home.
Gemma: And data indicates that, before a new wave of restrictions were announced in parts of France last week, only a third of the people who could actually work from home, were doing so, five days per week. Marie-Colombe thinks this is partly because there is no legal obligation on companies to use remote working.
Marie-Colombe: But, I think that part of the explanation also lies in the specific managerial culture of control that still persists in many French companies. To some extent, they were perfectly expressing a form of suspicion that maybe remote workers were not really working.
Gemma: Marie-Colombe and her colleagues wanted to find out more about the way that employees were affected by these suspicions. They managed to get the agreement of a large French multinational to conduct two surveys of 4,000 of its employees, one in September and once in November last year. She can’t reveal the name of the company because of confidentiality reasons.
Marie-Colombe: This is a large company, the headquarters is based in France, but the company has offices in many countries. But most of our respondents were located in France, Spain and the US.
Gemma: The research has been submitted to an academic journal, though not yet published – but Marie-Colombe and her colleagues recently published some of the initial findings in French on The Conversation. One of the survey questions they asked was how many hours were people working, and because not all the respondents were actually working remotely full time, they were able to compare those in the office, to those working from home.
Marie-Colombe: And, it turned out that this number of hours was exactly the same for these two populations: 45 hours a week. And no significant difference also between countries.
Gemma: So no, those working from home weren’t working less, and this has been backed up by other studies too that show people have actually been working longer hours during the pandemic. But Marie-Colombe was also interested in the perception that these employees had, of how important being present and visible in the office, was to their organisation. She calls this a “climate for face time”.
Marie-Colombe: What we found is that the more employees felt that their organisation generally values being visible in the office, the more they felt expected to be constantly available while in remote work. And in turn, two months later, the less they felt productive and happy in remote work.
Gemma: This working environment isn’t just created by the top bosses of a company, it can be down to individual line managers or supervisors, and the way that they communicate to their teams. And it often means employees feel they need to be physically present in the office to demonstrate their dedication to the job.
Marie-Colombe: But now these employees are home and that don’t have any possibility to signal their dedication performance through this visibility. So it seems like they’re replacing this signal of visibility by another signal, which is extended availability. The problem is that this constant extended availability tends to impinge on their wellbeing and self-rating productivity.
Gemma: Practically, what do they do to compensate for not being in the office?
Marie-Colombe: So, some say: “I’m not moving from my desk. I feel guilty, each time I get up. And each time I have a coffee or take a break, I feel guilty because I need to be able to answer any phone calls, any message, any email as soon as I get it to signal that, yes, I’m there, I am working.”
Gemma: The results varied depending on where the employees were based.
Marie-Colombe: We saw that this climate for face time was much more important in France, Spain than it is in the United States.
Gemma: And take that from the other side, do you think that the employees are right, that their employers actually need that from them?
Marie-Colombe: We know that employees tend to think that if they are visible in the office employers will think that they’re are dedicated, and research shows that this is true. Employers will tend to think that face time equals dedication, equals performance, and research suggests that face time equals promotions. And this is a huge problem for women, for example, it’s a real cause of discrimination at work.
Gemma: This is because women tend to take on more childcare or caring responsibilities, which has tended to make them less visible in the office. And that was before factoring in the negative impact that the pandemic has had on women’s employment, including their likelihood of getting a promotion.
Other ongoing research on people’s experiences of full-time remote working during the pandemic suggest that it has taken a big toll on some.
Dave: I’m Dave Cook.
Gemma: He’s an anthropologist and psychologist studying for a PhD at University College London.
Dave: I’m conducting a seven-year study on remote workers. And I was almost five years into the project when the pandemic hit a year ago.
Gemma: When the pandemic began, he joined a group of academics researching work-life balance as part of a project called eworklife.co.uk. They’re interviewing people in the UK about their experiences of working from home.
Dave: During in-depth interviews I noticed the main issues were not being able to unplug at the end of the day, difficulties with collaboration and communication and obviously as we all know now distractions at home. They were a nice little diversion and there were some viral videos, but by the time we got to this lockdown that started at Christmas and then went on into January and February this year and kids weren’t going back to school, that was really eroding people’s wellbeing and mental health over time.
Gemma: And you’ve actually described your findings of this initial survey as it’s kind of a public health issue. Why do you you say that?
Dave: I would say that burnout and work-life balance is the forgotten public health emergency that’s emerging throughout this lockdown. Obviously we’re focusing on trying to beat this pandemic, but while we’re looking the other way, our work-life balance is kind of like falling into tatters. So, things like overwork and not being able to manage distractions at home. Not being able to divide between family time and work time and caring responsibilities, is decreasing people’s sense of wellbeing.
Gemma: Nevertheless, the shift to remote work for those whose jobs allow it, has been a good experience for many other people during the pandemic. Here’s Jean-Nicolas Reyt again.
Jean-Nicolas: A lot of CEOs and a lot of employees are saying, like, it was forced but it’s actually pretty good. And I think one of the reasons is because it addresses a lot of problems that were unaddressed for a really, really long time. For example, I’ll always say, before the pandemic a manager could say for sure to an employee, “Your personal life is completely your problem.” But it’s true that now in a pandemic where we’re asking employees to go and work from home and so work is invading the private space, you know we’re realising that people need the flexibility and people need to to be able to structure their days better.
Gemma: Since the pandemic began, Jean-Nicolas has been tracking what chief executives of companies listed on the NASDAQ and NYSE say about the shift to remote work in their quarterly updates to investors and analysts.
Jean-Nicolas: So I’m following around 250 Canadian CEOs and around 3,000 US CEOs.
Gemma: At the start, many said they didn’t believe in remote work, or that they were worried about productivity and would bring their employees back to the office as soon as possible. But that shifted over the course of the year.
Jean-Nicolas: What you see is that actually that misconception, that telework is just not as efficient as co-located work, has vanished for a lot of CEOs. A lot of CEOs actually say that were very surprised that it was working so well. A lot of CEOs are announcing that they will make remote work permanent. Some CEOs are still maintaining that they want to have co-located work, but I would say the very very vast majority of them talk about hybrid arrangements.
Gemma: Offering some form or remote work is also a way to recruit and retain staff.
Jean-Nicolas: I see now that some companies are doing permanently the switch to remote work. This is going to be something that’s going to be a desirable attribute for a lot of workers, whether or not they can be hybrid workers. A lot of companies are pointing out how remote work also helps them recruit people from other countries or recruit people who live in other places. So it does have some advantages.
Gemma: Flexible working, of course, is not new. And there’s lots of evidence already out there on what works.
Jean-Nicolas: The less you are trying to make everything transactional by clocking in, clocking out, counting the number of clicks on a computer, the more you do that the less people are intrinsically motivated to work. Managers who have a much easier time switching to remote work are the ones who understand that employees are self-motivated that there is excellence in everyone and there is ambition in everyone. So what you have to do is you have to provide them with the resources so that they can do the work. It doesn’t mean you’re not checking that the work is being done, it just means you tell them the why they’re doing it because they need to know why. You let them figure out the how, and then you measure the output. And a lot of research actually has found that it helps a lot with intrinsic motivation.
Gemma: And I guess it’s also about choosing what they do when they’re actually in the office?
Jean-Nicolas: Yes. So this is something that’s very important which is team identification right, the extent to which you feel like you belong to a team. There are issues when somebody is a hybrid worker because they’re not here all the time. And so I’ve seen you know in my CEO data set that there is a concern among CEOs in terms of organisational culture. But it’s true that in a time where everybody would be hybrid workers, then you need to make it more intentional. It’s not just something that happens on its own by the coffee machine.
Gemma: The gravity of the coronavirus situation, and the speed of vaccine rollout is of course different around the world – and so it’s possible to see what the future has in store in countries where life has pretty much returned to normal. Like Australia.
Ruchi Sinha: I live in Adelaide where we’ve been without community transmission for a very long time.
Gemma: This is Ruchi Sinha, a senior lecturer at the University of South Australia business school, who studies organisational behaviour and psychology.
Ruchi: The transition back to work has still allowed people the flexibility to work from home if the nature of the work allows that. But yes, there is an expectation now to have more face-to-face meetings at work than it was last year.
Gemma: People who work in the knowledge economy, at least, are settling into a more hybrid routine.
Ruchi: It’s now become the norm when you schedule a meeting and it’s primarily face-to-face that you also send across a video conference link into the calendar.
Gemma: But these hybrid arrangements come with their only challenges. If some people are in the room and some people on a video call, it can be disruptive if you have to ask someone to unmute themselves or the connection keeps dropping. And this makes for some difficult decisions for employers.
Ruchi: They’re going to find it hard to make a choice. Should we mandate people to be all on a video conference call, even though they’re present in person? Or should we mandate people to start coming back to work?
Gemma: For employees, Ruchi says the issue is how to maintain the quality of relationship with their colleagues. Trust is often built up outside of work meetings - sitting next to somebody, walking to lunch with them.
Ruchi: There’s a lot of research on fault lines and how subgroups form at work. And typically they used to form based on similarity in values, you know, how much you work together. But there’s a new kind of subgroup forming now, which is the subgroup of those who are on the video call and those who are in person. And I think those fault lines can cause teams to have differing level of relationship and thus affect coordination.
Gemma: Ruchi is currently conducting research within a large Australian company on a new type of flexible work arrangement that it’s begun to pilot since the pandemic. It includes an element of working remotely, but also allows people to change when they do their work. She’s still analysing the data, but so far one of the biggest predictors of success is the support of the manager.
Ruchi: So even though you have all of these work arrangements, at the end of the day, your one-on-one relationship with your immediate line supervisor determines how much flexibility you have within that arrangement.
Gemma: Flexible working, of course, is more than just working from home, and flexibility comes in many forms: where you work, when you work, how you work and even what you’re doing. I asked Ruchi whether, after the pandemic, she’s been hearing Australian employers talk more about introducing more truly flexible work policies, ones that aren’t just determined by how many days somebody needs to be in the office.
Ruchi: I see a lot of conversation happening on the topic, and it’s happening from two or three different angles. And one is the fact that you see it as an efficiency tool. So, you start rethinking about how space needs to get utilised, on whether we need to have offices the way we used to traditionally have. I think in the last one year, at least in Australia, you’ve realised that how much time was sucked into walking over to meetings, getting out of meetings, going to the next one, that the efficiency argument for supporting this is pretty strong.
However, what I still think we are lacking in that conversation is on talking about autonomy. So we talk about flexibility and flexibility by definition means something that bends, that is adaptable to change. But we forget that in order to adapt, bend and change, individuals need autonomy. So the autonomy is choice and choice is very important in flexibility. So, I don’t think we are spending enough time thinking about are we giving people choice to shape their jobs?
Gemma: Ruchi wonders whether opportunities to really embed a more flexible way of working are being missed.
Ruchi: Once the work from home becomes the new normal, I think we will still fall back to having that as a rigid form. So, what I mean is that you start making policies that, “Oh, we will now allow you to work this many days from home, and we don’t need you to come to the office. You don’t need a desk.” And I do think all of that is going to happen. But I really think, it’s going to be tough for employers to accept giving choice, that this is all going to eventually become the new normal with more rigid work arrangements that just look different from what it used to be.
Gemma: For those parts of the world still in the grip of the pandemic, Australia offers a glimpse of the conversations that will be happening over the new few months. But once the public health crisis eventually subsidies, there will be many factors that determine whether or not a company decides to bring back their employees into the office – and for how much. I asked Dave Cook where he thought we’re heading.
Dave: It’s really important for individual companies, whether they’re going to want to take a moral position that remote working is a good thing or a bad thing is to start communicating that with their employees so their employees can get on with planning the rest of their lives. And then if we step back from that and we accept that not all companies are going behave in the same way, there is a very important and active role for policy and for government to bring in new legislation to make sure that companies do create a flexible and interim flexible working policies.
Gemma: Whatever happens next, it’ll be hard to please everybody.
Dave: It’s going to be quite polarising. So some people are going to be asked to come back into the office and they’re gonna feel really resentful, and some people are going to be required to work from home when they want more collaboration. And I think it’s going to be quite hard. I think, you know, we have been in a period of hibernation I think that the changes we come out of this is going to be a shock.
Dan: I totally agree with that. It’s gonna be super weird to either be forced to stay or at home, or to be back in the office, having to deal with all the things we’ve forgotten how to do over the last year.
Gemma: Yeah, and the habits of working from home have already formed right, whether or not they’re good habits or bad habits. I mean, I’m not getting out nearly enough.
So you can read more about the research of Dave Cook, Marie-Colombe Afota, Jean-Nicolas Reyt and Ruchi Sinah in their articles on The Conversation. Find the links in the episode notes.
Dan: Coming up, why one single gene might be the reason some people never seem to get cold.
Gemma: But first, we’ve got a message from our colleague Sunanda Creagh in Sydney.
Sunanda: I dunno if you can hear that. It’s rain on my roof in Sydney, where I live. I’m Sunanda Creagh from The Conversation Australia. Here on the east coast of Australia in the state of New South Wales, it’s been raining for more than a week, non stop. We’re in the grip of a one-in-100-year flooding event, and whole suburbs in the city are being evacuated. Homes everywhere are being inundated and Warragamba dam, which is the main dam that supplies Sydney’s water supply, is overflowing.
Now in the wake of all this thousands of people have already rushed to file insurance claims, but people are wondering how quickly will those claims actually be assessed and how many of them are actually going to succeed? We asked researcher Chloe Lucas from the University of Tasmania to write about that, and she’s done a really fantastic piece called “They lost our receipts three times.” How getting an insurance payout can be a full-time job. She shares some really heartbreaking stories she’s collected from people who’ve battled insurers in Australia after previous floods and makes some suggestions on how the system can change for a future that we’re flooding is likely to be more intense and more frequent.
Another piece we’ve published is titled Why do people try to drive through floodwater or leave it too late to flee? Psychology offers some answers. That one’s by Gary Stevens and Spyros Schismenos from Western Sydney university, co-authored by Mel Taylor from Macquarie University. And they talk about what clues psychology can offer to explain why people take really big risks in the middle of a flood. You can read all about that on The Conversation.
Gemma: That was Sunanda Creagh from The Conversation in a very damp Sydney. And a special shout out to our colleagues in Australia where The Conversation started ten years ago, this week.
Dan: Happy birthday to our colleagues in Australia.
OK, for the next story, we’re looking at cold tolerance actually and how it’s tied to genetics. Everyone has that one friend who seems impervious to cold, right. It’ll be absolutely freezing out. And they’re just like walking around with shorts and a sweatshirt on, happy as can be.
Gemma: I know the person you mean Dan. It’s not me, I am always there with four jumpers and five scarfs on, but I know. I have friends like that.
Dan: So it turns out that there’s actually a gene closely tied with susceptibility to cold. Some people have a mutation in this gene that turns it off and makes them able to handle the cold much better than other people.
Gemma: So I can blame being called on my genes?
Dan: You can blame it on just one single gene, and that’s super rare to find a single gene that has such a clear effect. So let’s jump into it. And by it I mean, let’s jump into some nice ice cold bathtubs.
Victoria Wyckelsma: My name is Victoria Wyckelsma, and I’m a post-doctoral researcher at the Karolinska Institute in Stockholm, Sweden. And primarily my research is on skeletal muscle and how it influences our ability to respond to exercise and environmental challenges.
Dan: OK, muscles, but not just in terms of strength and stuff. You also study how muscles help people deal with environmental factors like cold. So how did your most recent research look into this?
Victoria: We had these people and, we convinced them to have an ice bath for two hours and we wanted to see how people would respond to this ridiculous cold bath. Some people obviously respond pretty well. You can chuck some football players in an ice bath and they’re like, “Yeah, no worries, be here all day.” And you put other players in an ice bath and they’re like, “Get me out as soon as I can.” Some start shivering like crazy. I mean, there’s obviously a reason why two different people can have such insanely different reactions. And so we kind of wanted to see why.
Read more: Your genetics influence how resilient you are to cold temperatures – new research
Dan: I have friends who wear a T-shirt and shorts like 365 days a year. Meanwhile, I’m putting a jacket on the minute the sun goes down. Has this difference always been a mystery?
Victoria: Generally speaking, people don’t really understand the mechanisms and some of the molecular reasons, I suppose, why some people are better than others. There’s a lot of research suggesting that this gene is super important in maintaining your body temperature, which is the thing that’s going to make you want to get in and out of the ice bath.
Dan: So what is this gene? What does it do? And why were you looking at this gene in particular?
Victoria: Yeah, so this gene is called the ACTN3 gene. A group of researchers actually in Sydney and Melbourne, looked at this in a mouse and they noticed a few molecular, physiological things happening on a muscle level itself. And the results from that study sorta led us to think that maybe the lack of this gene is going to be really beneficial in a cold environment. So we thought, all right, let’s test it out.
Dan: OK, OK. So some people have a working version of the gene, some people don’t. And what you were trying to get at is how this genetic mutation can affect a person’s ability to withstand the cold, right?
Victoria: Yeah, absolutely. So we know that about 20% of people don’t have it. Which means they don’t express a particular ACTN3 protein in your muscle. And there’s no consequence. I mean, you aren’t, you’re not susceptible to any illness. The only thing that it does is it can enhance your athletic performance or have a detriment to your athletic performance depending on the sport. And apparently it can influence your ability to sit in an ice bath.
Dan: How do you test that please? And, I hope it wasn’t too terrible for your subjects?
Victoria: We did this testing in Lithuania and we got about 40 men to come in and we set an ice bath at 14 degrees, which is probably as cold as we could make the water and have it be medically safe for the amount of time that we wanted to put them in the water for. So we asked these guys to sit in this ice bath, the water up to their shoulders. So they completely covered. 20 minutes in, and then they got 10 minutes to sit out just in a chair next to the ice bath, watching it. And then the in between the researchers dump more ice and make sure it’s at 14 degrees. And then they go back in for 20 minutes.
Dan: How long did they have to do this for?
Victoria: They repeat this for 120 minutes of sitting in the water or until their core temperature dropped to 35.5 degrees. So that was our cutoff. Once they got to that, then we said, OK, you’re done.
Dan: Is it like dangerous?
Victoria: I think, it’s not safe to go much, much colder than that. We didn’t want to put anyone in any sort of risk for this. So, and then just to figure out if they had a gene or not, all you have to do is take a blood sample and you send it off to a lab and then they do a very quick analysis for us. So then we could separate the people.
And then actually we just found that about 70% of those people who actually could complete the challenge, didn’t have the gene compared to only 30% of the guys with the protein. I mean, pretty, pretty strong contrast. And it was, it was pretty shocking to see like, just the differences in how strong this was.
Dan: Are you saying some of these people lasted for a full two hours in like frigid icy water?
Victoria: Yep, absolutely.
Dan: OK. So they jump in an ice cold bath. How do you measure what their body is doing?
Victoria: I mean, they had things everywhere, like to measure rectal temperature so we can get an idea of their core temperatures, things to measure like their muscle activation. And we actually check their respiration and their heart rate and all sorts of things. And, obviously the drop in muscle temperature was different and the drop-in core temperature was different. But otherwise, I mean, when you look at your heart rate and oxygen consumption, they were basically identical.
Dan: What was the difference between those with and those without the mutation?
Victoria: The key thing that is the difference is the guys who have the mutation and can stay in the bath for longer – they actually shiver less. And this is something that we’re related to, to the fibre type of the muscle. So within your muscle, you have fast muscle fibres, which are a really good for athletic events, like 100m sprint, high-jump, whatever you want to do. And then we’ve got really slow muscle fibres, which are important for marathon running, and you can go all day. And when you have this mutation, you have more of these slow fibres. And then so overall your, your pattern is rather slow.
And when you do have this gene, then you have more of like a fast muscle phenotype. So your, your muscle behaves more like a fast muscle. And shivering is associated with fast-twitch muscles. So when you’re shivering, you’re activating a lot of your fast-twitch muscles. And if you have this gene, you have more fast-twitch muscles, and it’s a lot harder for you to produce energy because your muscles are always shivering.
So, you need to use more energy to generate heat, to keep yourself immersed in the water. When you have more of a slow-twitch phenotype in your muscle, they don’t need to go into the shivering space. And what we’ve found is they have sort of low-lying levels of contraction. So they’re activated and they’re working, but they’re not really working as hard. They don’t need a large amount of energy, like the guys who shiver a lot, do. And that’s what we found was the key difference.
Dan: To make a metaphor that might actually work here, you’re cold in the morning. One guy decides to go and sprint up a hill until he gets warm, but he can’t do that for very long. The other guy just kind of goes for a nice, slow jog, and that’ll also warm him up, but it definitely doesn’t use anywhere near as much energy. Is that what’s happening on like a muscular level?
Victoria: Yeah, basically. So your muscles are sort of contracting either really rapidly, as you say, like you would in a sprint, if you do have this protein and that’s chewing up all your energy and making your muscles fatigue. And it’s, I mean, then it’s hard to continuously use as much energy to make heat. Whereas like you said, if you just go on for a slow jog, you’re burning energy, but not as much. And then you can maintain the effort for a lot longer period of time.
Dan: What did those people kind of look like at the end of this, compared to the people that were shivering and had this more fast-twitch muscle?
Victoria: There’s not real difference in, in anything, I mean about them physically. So they weren’t, they had the same amount of body fat. They had the same amount of muscle mass sort of thing. Similar weight, similar height, similar. Yeah, from that perspective, it was more about the underlying muscle activity.
Dan: You really kind of discovered that people with this mutation, meaning they’re missing this gene and missing this protein are just kind of built different, huh?
Victoria: Yeah, their muscles are absolutely built different. Like, I guarantee you, anyone at the Olympics who is in the 100m final has absolutely got this. But then when you go to the other end and you go your marathon runners and all your cross country skiers, then these guys are probably more likely to have this mutation. And it’s 20% of the population.
Dan: That’s a tonne of people with the mutation. How is it distributed amongst people on earth? Is it some areas have a lot, some areas have less?
Victoria: Yeah, exactly. So, I mean, this gene is more prevalent in colder climates, obviously. So if you’ve got less people with this mutation living in super hot places, but then when you’re looking at more of a colder climates, I think this is definitely more prevalent.
Dan: So like we got gene therapy coming down the pipeline pretty dang soon here. Can you imagine some future where people like double up on this gene. And so therefore they’re extra fast and strong, or they like take the mutation cause they’re like swimming and love swimming cross the English Channel. Is that a possibility?
Victoria: I recommend, just doing maybe some just gradual cold exposure and a safe, over a safe, prolonged period.
Dan: Thank, you so much for taking the time to speak with me today. It’s been fun. It’s been interesting.
Victoria: Thanks for having me on. It was fun.
Dan: That’s it for this week. You can find links to Victoria’s article, and all the expert analysis we’ve mentioned in the show notes. You can also find a link to sign up to The Conversation’s free daily email.
If you want to reach out – tell us what you think about the show or what questions we should be asking academics, find us on Twitter @TC_Audio or on Instagram at theconversation.com. Or you can email us on podcast@theconversation.com
Gemma: Thanks to all the academics who’ve spoken to us for this episode. And thanks too to The Conversation editors Lee-Anne Goodman, Thibault Lieurade, Liam Petterson, Heather Kroeker, Sunanda Creagh and Stephen Khan. And final thanks go to Alice Mason and Imriel Morgan for helping with our social media and promotion.
Gemma: This episode of The Conversation Weekly is co-produced by Mend Mariwany and me, with sound design by Eloise Stevens. Our theme music is by Neeta Sarl.
Dan: Thank you so much for listening everyone, and we’ll talk to you next week.
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Government
Students lose out as cities and states give billions in property tax breaks to businesses − draining school budgets and especially hurting the poorest students
An estimated 95% of US cities provide economic development tax incentives to woo corporate investors, taking billions away from schools.
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Built in 1910, James Elementary is a three-story brick school in Kansas City, Missouri’s historic Northeast neighborhood, with a bright blue front door framed by a sand-colored stone arch adorned with a gargoyle. As bustling students and teachers negotiate a maze of gray stairs with worn wooden handrails, Marjorie Mayes, the school’s principal, escorts a visitor across uneven blue tile floors on the ground floor to a classroom with exposed brick walls and pipes. Bubbling paint mars some walls, evidence of the water leaks spreading inside the aging building.
“It’s living history,” said Mayes during a mid-September tour of the building. “Not the kind of living history we want.”
The district would like to tackle the US$400 million in deferred maintenance needed to create a 21st century learning environment at its 35 schools – including James Elementary – but it can’t. It doesn’t have the money.
Property tax redirect
The lack of funds is a direct result of the property tax breaks that Kansas City lavishes on companies and developers that do business there. The program is supposed to bring in new jobs and business but instead has ended up draining civic coffers and starving schools. Between 2017 and 2023, the Kansas City school district lost $237.3 million through tax abatements.
Kansas City is hardly an anomaly. An estimated 95% of U.S. cities provide economic development tax incentives to woo corporate investors. The upshot is that billions have been diverted from large urban school districts and from a growing number of small suburban and rural districts. The impact is seen in districts as diverse as Chicago and Cleveland, Hillsboro, Oregon, and Storey County, Nevada.
The result? A 2021 review of 2,498 financial statements from school districts across 27 states revealed that, in 2019 alone, at least $2.4 billion was diverted to fund tax incentives. Yet that substantial figure still downplays the magnitude of the problem, because three-quarters of the 10,370 districts analyzed did not provide any information on tax abatement agreements.
Tax abatement programs have long been controversial, pitting states and communities against one another in beggar-thy-neighbor contests. Their economic value is also, at best, unclear: Studies show most companies would have made the same location decision without taxpayer subsidies. Meanwhile, schools make up the largest cost item in these communities, meaning they suffer most when companies are granted breaks in property taxes.
A three-month investigation by The Conversation and three scholars with expertise in economic development, tax laws and education policy shows that the cash drain from these programs is not equally shared by schools in the same communities. At the local level, tax abatements and exemptions often come at the cost of critical funding for school districts that disproportionately serve students from low-income households and who are racial minorities.
In Missouri, for example, in 2022 nearly $1,700 per student was redirected from Kansas City public and charter schools, while between $500 and $900 was redirected from wealthier, whiter Northland schools on the north side of the river in Kansas City and in the suburbs beyond. Other studies have found similar demographic trends elsewhere, including New York state, South Carolina and Columbus, Ohio.
The funding gaps produced by abated money often force schools to delay needed maintenance, increase class sizes, lay off teachers and support staff and even close outright. Schools also struggle to update or replace outdated technology, books and other educational resources. And, amid a nationwide teacher shortage, schools under financial pressures sometimes turn to inexperienced teachers who are not fully certified or rely too heavily on recruits from overseas who have been given special visa status.
Lost funding also prevents teachers and staff, who often feed, clothe and otherwise go above and beyond to help students in need, from earning a living wage. All told, tax abatements can end up harming a community’s value, with constant funding shortfalls creating a cycle of decline.
Incentives, payoffs and guarantees
Perversely, some of the largest beneficiaries of tax abatements are the politicians who publicly boast of handing out the breaks despite the harm to poorer communities. Incumbent governors have used the incentives as a means of taking credit for job creation, even when the jobs were coming anyway.
“We know that subsidies don’t work,” said Elizabeth Marcello, a doctoral lecturer at Hunter College who studies governmental planning and policy and the interactions between state and local governments. “But they are good political stories, and I think that’s why politicians love them so much.”
While some voters may celebrate abatements, parents can recognize the disparities between school districts that are created by the tax breaks. Fairleigh Jackson pointed out that her daughter’s East Baton Rouge third grade class lacks access to playground equipment.
The class is attending school in a temporary building while their elementary school undergoes a two-year renovation.
The temporary site has some grass and a cement slab where kids can play, but no playground equipment, Jackson said. And parents needed to set up an Amazon wish list to purchase basic equipment such as balls, jump ropes and chalk for students to use. The district told parents there would be no playground equipment due to a lack of funds, then promised to install equipment, Jackson said, but months later, there is none.
Jackson said it’s hard to complain when other schools in the district don’t even have needed security measures in place. “When I think about playground equipment, I think that’s a necessary piece of child development,” Jackson said. “Do we even advocate for something that should be a daily part of our kids’ experience when kids’ safety isn’t being funded?”
Meanwhile, the challenges facing administrators 500-odd miles away at Atlanta Public Schools are nothing if not formidable: The district is dealing with chronic absenteeism among half of its Black students, many students are experiencing homelessness, and it’s facing a teacher shortage.
At the same time, Atlanta is showering corporations with tax breaks. The city has two bodies that dole them out: the Development Authority of Fulton County, or DAFC, and Invest Atlanta, the city’s economic development agency. The deals handed out by the two agencies have drained $103.8 million from schools from fiscal 2017 to 2022, according to Atlanta school system financial statements.
What exactly Atlanta and other cities and states are accomplishing with tax abatement programs is hard to discern. Fewer than a quarter of companies that receive breaks in the U.S. needed an incentive to invest, according to a 2018 study by the Upjohn Institute for Employment Research, a nonprofit research organization.
This means that at least 75% of companies received tax abatements when they’re not needed – with communities paying a heavy price for economic development that sometimes provides little benefit.
In Kansas City, for example, there’s no guarantee that the businesses that do set up shop after receiving a tax abatement will remain there long term. That’s significant considering the historic border war between the Missouri and Kansas sides of Kansas City – a competition to be the most generous to the businesses, said Jason Roberts, president of the Kansas City Federation of Teachers and School-Related Personnel. Kansas City, Missouri, has a 1% income tax on people who work in the city, so it competes for as many workers as possible to secure that earnings tax, Roberts said.
Under city and state tax abatement programs, companies that used to be in Kansas City have since relocated. The AMC Theaters headquarters, for example, moved from the city’s downtown to Leawood, Kansas, about a decade ago, garnering some $40 million in Promoting Employment Across Kansas tax incentives.
Roberts said that when one side’s financial largesse runs out, companies often move across the state line – until both states decided in 2019 that enough was enough and declared a cease-fire.
But tax breaks for other businesses continue. “Our mission is to grow the economy of Kansas City, and application of tools such as tax exemptions are vital to achieving that mission, said Jon Stephens, president and CEO of Port KC, the Kansas City Port Authority. The incentives speed development, and providing them "has resulted in growth choosing KC versus other markets,” he added.
In Atlanta, those tax breaks are not going to projects in neighborhoods that need help attracting development. They have largely been handed out to projects that are in high demand areas of the city, said Julian Bene, who served on Invest Atlanta’s board from 2010 to 2018. In 2019, for instance, the Fulton County development authority approved a 10-year, $16 million tax abatement for a 410-foot-tall, 27,000-square-foot tower in Atlanta’s vibrant Midtown business district. The project included hotel space, retail space and office space that is now occupied by Google and Invesco.
In 2021, a developer in Atlanta pulled its request for an $8 million tax break to expand its new massive, mixed-use Ponce City Market development in the trendy Beltline neighborhood with an office tower and apartment building. Because of community pushback, the developer knew it likely did not have enough votes from the commission for approval, Bene said. After a second try for $5 million in lower taxes was also rejected, the developer went ahead and built the project anyway.
Invest Atlanta has also turned down projects in the past, Bene said. Oftentimes, after getting rejected, the developer goes back to the landowner and asks for a better price to buy the property to make their numbers work, because it was overvalued at the start.
Trouble in Philadelphia
On Thursday, Oct. 26, 2023, an environmental team was preparing Southwark School in Philadelphia for the winter cold. While checking an attic fan, members of the team saw loose dust on top of flooring that contained asbestos. The dust that certainly was blowing into the floors below could contain the cancer-causing agent. Within a day, Southwark was closed – the seventh Philadelphia school temporarily shuttered since the previous academic year because of possible asbestos contamination.
A 2019 inspection of the John L Kinsey school in Philadelphia found asbestos in plaster walls, floor tiles, radiator insulation and electrical panels. Asbestos is a major problem for Philadelphia’s public schools. The district needs $430 million to clean up the asbestos, lead, and other environmental hazards that place the health of students, teachers and staff at risk. And that is on top of an additional $2.4 billion to fix failing and damaged buildings.
Yet the money is not available. Matthew Stem, a former district official, testified in a 2023 lawsuit about financing of Pennsylvania schools that the environmental health risks cannot be addressed until an emergency like at Southwark because “existing funding sources are not sufficient to remediate those types of issues.”
Meanwhile, the city keeps doling out abatements, draining money that could have gone toward making Philadelphia schools safer. In the fiscal year ending June 2022, such tax breaks cost the school district $118 million – more than 25% of the total amount needed to remove the asbestos and other health dangers. These abatements take 31 years to break even, according to the city’s own scenario impact analyses.
Huge subsets of the community – primarily Black, Brown, poor or a combination – are being “drastically impacted” by the exemptions and funding shortfalls for the school district, said Kendra Brooks, a Philadelphia City Council member. Schools and students are affected by mold, asbestos and lead, and crumbling infrastructure, as well as teacher and staffing shortages – including support staff, social workers and psychologists.
More than half the district’s schools that lacked adequate air conditioning – 87 schools – had to go to half days during the first week of the 2023 school year because of extreme heat. Poor heating systems also leave the schools cold in the winter. And some schools are overcrowded, resulting in large class sizes, she said.
Teachers and researchers agree that a lack of adequate funding undermines educational opportunities and outcomes. That’s especially true for children living in poverty. A 2016 study found that a 10% increase in per-pupil spending each year for all 12 years of public schooling results in nearly one-third of a year of more education, 7.7% higher wages and a 3.2% reduction in annual incidence of adult poverty. The study estimated that a 21.7% increase could eliminate the high school graduation gap faced by children from low-income families.
More money for schools leads to more education resources for students and their teachers. The same researchers found that spending increases were associated with reductions in student-to-teacher ratios, increases in teacher salaries and longer school years. Other studies yielded similar results: School funding matters, especially for children already suffering the harms of poverty.
While tax abatements themselves are generally linked to rising property values, the benefits are not evenly distributed. In fact, any expansion of the tax base due to new property construction tends to be outside of the county granting the tax abatement. For families in school districts with the lost tax revenues, their neighbors’ good fortune likely comes as little solace. Meanwhile, a poorly funded education system is less likely to yield a skilled and competitive workforce, creating longer-term economic costs that make the region less attractive for businesses and residents.
“There’s a head-on collision here between private gain and the future quality of America’s workforce,” said Greg LeRoy, executive director at Good Jobs First, a Washington, D.C., advocacy group that’s critical of tax abatement and tracks the use of economic development subsidies.
As funding dwindles and educational quality declines, additional families with means often opt for alternative educational avenues such as private schooling, home-schooling or moving to a different school district, further weakening the public school system.
Throughout the U.S., parents with the power to do so demand special arrangements, such as selective schools or high-track enclaves that hire experienced, fully prepared teachers. If demands aren’t met, they leave the district’s public schools for private schools or for the suburbs. Some parents even organize to splinter their more advantaged, and generally whiter, neighborhoods away from the larger urban school districts.
Those parental demands – known among scholars as “opportunity hoarding” – may seem unreasonable from the outside, but scarcity breeds very real fears about educational harms inflicted on one’s own children. Regardless of who’s to blame, the children who bear the heaviest burden of the nation’s concentrated poverty and racialized poverty again lose out.
Rethinking in Philadelphia and Riverhead
Americans also ask public schools to accomplish Herculean tasks that go far beyond the education basics, as many parents discovered at the onset of the pandemic when schools closed and their support for families largely disappeared.
A school serving students who endure housing and food insecurity must dedicate resources toward children’s basic needs and trauma. But districts serving more low-income students spend less per student on average, and almost half the states have regressive funding structures.
Facing dwindling resources for schools, several cities have begun to rethink their tax exemption programs.
The Philadelphia City Council recently passed a scale-back on a 10-year property tax abatement by decreasing the percentage of the subsidy over that time. But even with that change, millions will be lost to tax exemptions that could instead be invested in cash-depleted schools. “We could make major changes in our schools’ infrastructure, curriculum, staffing, staffing ratios, support staff, social workers, school psychologists – take your pick,” Brooks said.
Other cities looking to reform tax abatement programs are taking a different approach. In Riverhead, New York, on Long Island, developers or project owners can be granted exemptions on their property tax and allowed instead to shell out a far smaller “payment in lieu of taxes,” or PILOT. When the abatement ends, most commonly after 10 years, the businesses then will pay full property taxes.
At least, that’s the idea, but the system is far from perfect. Beneficiaries of the PILOT program have failed to pay on time, leaving the school board struggling to fill a budget hole. Also, the payments are not equal to the amount they would receive for property taxes, with millions of dollars in potential revenue over a decade being cut to as little as a few hundred thousand. On the back end, if a business that’s subsidized with tax breaks fails after 10 years, the projected benefits never emerge.
And when the time came to start paying taxes, developers have returned to the city’s Industrial Development Agency with hat in hand, asking for more tax breaks. A local for-profit aquarium, for example, was granted a 10-year PILOT program break by Riverhead in 1999; it has received so many extensions that it is not scheduled to start paying full taxes until 2031 – 22 years after originally planned.
Kansas City border politics
Like many cities, Kansas City has a long history of segregation, white flight and racial redlining, said Kathleen Pointer, senior policy strategist for Kansas City Public Schools.
Troost Avenue, where the Kansas City Public Schools administrative office is located, serves as the city’s historic racial dividing line, with wealthier white families living in the west and more economically disadvantaged people of color in the east. Most of the district’s schools are located east of Troost, not west.
Students on the west side “pretty much automatically funnel into the college preparatory middle school and high schools,” said The Federation of Teachers’ Roberts. Those schools are considered signature schools that are selective and are better taken care of than the typical neighborhood schools, he added.
The school district’s tax levy was set by voters in 1969 at 3.75%. But successive attempts over the next few decades to increase the levy at the ballot box failed. During a decadeslong desegregation lawsuit that was eventually resolved through a settlement agreement in the 1990s, a court raised the district’s levy rate to 4.96% without voter approval. The levy has remained at the same 4.96% rate since.
Meanwhile, Kansas City is still distributing 20-year tax abatements to companies and developers for projects. The district calculated that about 92% of the money that was abated within the school district’s boundaries was for projects within the whiter west side of the city, Pointer said.
“Unfortunately, we can’t pick or choose where developers build,” said Meredith Hoenes, director of communications for Port KC. “We aren’t planning and zoning. Developers typically have plans in place when they knock on our door.”
In Kansas City, several agencies administer tax incentives, allowing developers to shop around to different bodies to receive one. Pointer said he believes the Port Authority is popular because they don’t do a third-party financial analysis to prove that the developers need the amount that they say they do.
With 20-year abatements, a child will start pre-K and graduate high school before seeing the benefits of a property being fully on the tax rolls, Pointer said. Developers, meanwhile, routinely threaten to build somewhere else if they don’t get the incentive, she said.
In 2020, BlueScope Construction, a company that had received tax incentives for nearly 20 years and was about to roll off its abatement, asked for another 13 years and threatened to move to another state if it didn’t get it. At the time, the U.S. was grappling with a racial reckoning following the murder of George Floyd, who was killed by a Minneapolis police officer.
“That was a moment for Kansas City Public Schools where we really drew a line in the sand and talked about incentives as an equity issue,” Pointer said.
After the district raised the issue – tying the incentives to systemic racism – the City Council rejected BlueScope’s bid and, three years later, it’s still in Kansas City, fully on the tax rolls, she said. BlueScope did not return multiple requests for comment.
Recently, a multifamily housing project was approved for a 20-year tax abatement by the Port Authority of Kansas City at Country Club Plaza, an outdoor shopping center in an affluent part of the city. The housing project included no affordable units. “This project was approved without any independent financial analysis proving that it needed that subsidy,” Pointer said.
All told, the Kansas City Public Schools district faces several shortfalls beyond the $400 million in deferred maintenance, Superintendent Jennifer Collier said. There are staffing shortages at all positions: teachers, paraprofessionals and support staff. As in much of the U.S., the cost of housing is surging. New developments that are being built do not include affordable housing, or when they do, the units are still out of reach for teachers.
That’s making it harder for a district that already loses about 1 in 5 of its teachers each year to keep or recruit new ones, who earn an average of only $46,150 their first year on the job, Collier said.
East Baton Rouge and the industrial corridor
It’s impossible to miss the tanks, towers, pipes and industrial structures that incongruously line Baton Rouge’s Scenic Highway landscape. They’re part of Exxon Mobil Corp.’s campus, home of the oil giant’s refinery in addition to chemical and plastics plants.
Sitting along the Mississippi River, the campus has been a staple of Louisiana’s capital for over 100 years. It’s where 6,000 employees and contractors who collectively earn over $400 million annually produce 522,000 barrels of crude oil per day when at full capacity, as well as the annual production and manufacture of 3 billion pounds of high-density polyethylene and polypropylene and 6.6 billion pounds of petrochemical products. The company posted a record-breaking $55.7 billion in profits in 2022 and $36 billion in 2023.
Across the street are empty fields and roads leading into neighborhoods that have been designated by the U.S. Department of Agriculture as a low-income food desert. A mile drive down the street to Route 67 is a Dollar General, fast-food restaurants, and tiny, rundown food stores. A Hi Nabor Supermarket is 4 miles away.
East Baton Rouge Parish’s McKinley High School, a 12-minute drive from the refinery, serves a student body that is about 80% Black and 85% poor. The school, which boasts famous alums such as rapper Kevin Gates, former NBA player Tyrus Thomas and Presidential Medal of Freedom recipient Gardner C. Taylor, holds a special place in the community, but it has been beset by violence and tragedy lately. Its football team quarterback, who was killed days before graduation in 2017, was among at least four of McKinley’s students who have been shot or murdered over the past six years.
The experience is starkly different at some of the district’s more advantaged schools, including its magnet programs open to high-performing students.
Baton Rouge is a tale of two cities, with some of the worst outcomes in the state for education, income and mortality, and some of the best outcomes. “It was only separated by sometimes a few blocks,” said Edgar Cage, the lead organizer for the advocacy group Together Baton Rouge. Cage, who grew up in the city when it was segregated by Jim Crow laws, said the root cause of that disparity was racism.
“Underserved kids don’t have a path forward” in East Baton Rouge public schools, Cage said.
A 2019 report from the Urban League of Louisiana found that economically disadvantaged African American and Hispanic students are not provided equitable access to high-quality education opportunities. That has contributed to those students underperforming on standardized state assessments, such as the LEAP exam, being unprepared to advance to higher grades and being excluded from high-quality curricula and instruction, as well as the highest-performing schools and magnet schools.
“Baton Rouge is home to some of the highest performing schools in the state,” according to the report. “Yet the highest performing schools and schools that have selective admissions policies often exclude disadvantaged students and African American and Hispanic students.”
Dawn Collins, who served on the district’s school board from 2016 to 2022, said that with more funding, the district could provide more targeted interventions for students who were struggling academically or additional support to staff so they can better assist students with greater needs.
But for decades, Louisiana’s Industrial Ad Valorem Tax Exemption Program, or ITEP, allowed for 100% property tax exemptions for industrial manufacturing facilities, said Erin Hansen, the statewide policy analyst at Together Louisiana, a network of 250 religious and civic organizations across the state that advocates for grassroots issues, including tax fairness.
The ITEP program was created in the 1930s through a state constitutional amendment, allowing companies to bypass a public vote and get approval for the exemption through the governor-appointed Board of Commerce and Industry, Hansen said. For over 80 years, that board approved nearly all applications that it received, she said.
Since 2000, Louisiana has granted a total of $35 billion in corporate property tax breaks for 12,590 projects.
Louisiana’s executive order
A few efforts to reform the program over the years have largely failed. But in 2016, Gov. John Bel Edwards signed an executive order that slightly but importantly tweaked the system. On top of the state board vote, the order gave local taxing bodies – such as school boards, sheriffs and parish or city councils – the ability to vote on their own individual portions of the tax exemptions. And in 2019 the East Baton Rouge Parish School Board exercised its power to vote down an abatement.
Throughout the U.S., school boards’ power over the tax abatements that affect their budgets vary, and in some states, including Georgia, Kansas, Nevada, New Jersey and South Carolina, school boards lack any formal ability to vote or comment on tax abatement deals that affect them.
Edwards’ executive order also capped the maximum exemption at 80% and tightened the rules so routine capital investments and maintenance were no longer eligible, Hansen said. A requirement concerning job creation was also put in place.
Concerned residents and activists, led by Together Louisiana and sister group Together Baton Rouge, rallied around the new rules and pushed back against the billion-dollar corporation taking more tax money from the schools. In 2019, the campaign worked: the school board rejected a $2.9 million property tax break bid by Exxon Mobil.
After the decision, Exxon Mobil reportedly described the city as “unpredictable.”
However, members of the business community have continued to lobby for the tax breaks, and they have pushed back against further rejections. In fact, according to Hansen, loopholes were created during the rulemaking process around the governor’s executive order that allowed companies to weaken its effectiveness.
In total, 223 Exxon Mobil projects worth nearly $580 million in tax abatements have been granted in the state of Louisiana under the ITEP program since 2000.
“ITEP is needed to compete with other states – and, in ExxonMobil’s case, other countries,” according to Exxon Mobil spokesperson Lauren Kight.
She pointed out that Exxon Mobil is the largest property taxpayer for the EBR school system, paying more than $46 million in property taxes in EBR parish in 2022 and another $34 million in sales taxes.
A new ITEP contract won’t decrease this existing tax revenue, Kight added. “Losing out on future projects absolutely will.”
The East Baton Rouge Parish School Board has continued to approve Exxon Mobil abatements, passing $46.9 million between 2020 and 2022. Between 2017 and 2023, the school district has lost $96.3 million.
Taxes are highest when industrial buildings are first built. Industrial property comes onto the tax rolls at 40% to 50% of its original value in Louisiana after the initial 10-year exemption, according to the Ascension Economic Development Corp.
Exxon Mobil received its latest tax exemption, $8.6 million over 10 years – an 80% break – in October 2023 for $250 million to install facilities at the Baton Rouge complex that purify isopropyl alcohol for microchip production and that create a new advanced recycling facility, allowing the company to address plastic waste. The project created zero new jobs.
The school board approved it by a 7-2 vote after a long and occasionally contentious board meeting.
“Does it make sense for Louisiana and other economically disadvantaged states to kind of compete with each other by providing tax incentives to mega corporations like Exxon Mobil?” said EBR School Board Vice President Patrick Martin, who voted for the abatement. “Probably, in a macro sense, it does not make a lot of sense. But it is the program that we have.”
Obviously, Exxon Mobil benefits, he said. “The company gets a benefit in reducing the property taxes that they would otherwise pay on their industrial activity that adds value to that property.” But the community benefits from the 20% of the property taxes that are not exempted, he said.
“I believe if we don’t pass it, over time the investments will not come and our district as a whole will have less money,” he added.
Meanwhile, the district’s budgetary woes are coming to a head. Bus drivers staged a sickout at the start of the school year, refusing to pick up students – in protest of low pay and not having buses equipped with air conditioning amid a heat wave. The district was forced to release students early, leaving kids stranded without a ride to school, before it acquiesced and provided the drivers and other staff one-time stipends and purchased new buses with air conditioning.
The district also agreed to reestablish transfer points as a temporary response to the shortages. But that transfer-point plan has historically resulted in students riding on the bus for hours and occasionally missing breakfast when the bus arrives late, according to Angela Reams-Brown, president of the East Baton Rouge Federation of Teachers. The district plans to purchase or lease over 160 buses and solve its bus driver shortage next year, but the plan could lead to a budget crisis.
A teacher shortage looms as well, because the district is paying teachers below the regional average. At the school board meeting, Laverne Simoneaux, an ELL specialist at East Baton Rouge’s Woodlawn Elementary, said she was informed that her job was not guaranteed next year since she’s being paid through federal COVID-19 relief funds. By receiving tax exemptions, Exxon Mobil was taking money from her salary to deepen their pockets, she said.
A young student in the district told the school board that the money could provide better internet access or be used to hire someone to pick up the glass and barbed wire in the playground. But at least they have a playground – Hayden Crockett, a seventh grader at Sherwood Middle Academic Magnet School, noted that his sister’s elementary school lacked one.
“If it wasn’t in the budget to fund playground equipment, how can it also be in the budget to give one of the most powerful corporations in the world a tax break?” Crockett said. “The math just ain’t mathing.”
Christine Wen worked for the nonprofit organization Good Jobs First from June 2019 to May 2022 where she helped collect tax abatement data.
Nathan Jensen has received funding from the John and Laura Arnold Foundation, the Smith Richardson Foundation, the Ewing Marion Kauffman Foundation and the Washington Center for Equitable Growth. He is a Senior Fellow at the Niskanen Center.
Danielle McLean and Kevin Welner do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
subsidies pandemic covid-19 governor mortality oilSpread & Containment
Revving up tourism: Formula One and other big events look set to drive growth in the hospitality industry
With big events drawing a growing share of of tourism dollars, F1 offers a potential glimpse of the travel industry’s future.
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In late 2023, I embarked on my first Formula One race experience, attending the first-ever Las Vegas Grand Prix. I had never been to an F1 race; my interest was sparked during the pandemic, largely through the Netflix series “Formula 1: Drive to Survive.”
But I wasn’t just attending as a fan. As the inaugural chair of the University of Florida’s department of tourism, hospitality and event management, I saw this as an opportunity. Big events and festivals represent a growing share of the tourism market – as an educator, I want to prepare future leaders to manage them.
And what better place to learn how to do that than in the stands of the Las Vegas Grand Prix?
The future of tourism is in events and experiences
Tourism is fun, but it’s also big business: In the U.S. alone, it’s a US$2.6 trillion industry employing 15 million people. And with travelers increasingly planning their trips around events rather than places, both industry leaders and academics are paying attention.
Event tourism is also key to many cities’ economic development strategies – think Chicago and its annual Lollapalooza music festival, which has been hosted in Grant Park since 2005. In 2023, Lollapalooza generated an estimated $422 million for the local economy and drew record-breaking crowds to the city’s hotels.
That’s why when Formula One announced it would be making a 10-year commitment to host races in Las Vegas, the region’s tourism agency was eager to spread the news. The 2023 grand prix eventually generated $100 million in tax revenue, the head of that agency later announced.
Why Formula One?
Formula One offers a prime example of the economic importance of event tourism. In 2022, Formula One generated about $2.6 billion in total revenues, according to the latest full-year data from its parent company. That’s up 20% from 2021 and 27% from 2019, the last pre-COVID year. A record 5.7 million fans attended Formula One races in 2022, up 36% from 2019.
This surge in interest can be attributed to expanded broadcasting rights, sponsorship deals and a growing global fan base. And, of course, the in-person events make a lot of money – the cheapest tickets to the Las Vegas Grand Prix were $500.
That’s why I think of Formula One as more than just a pastime: It’s emblematic of a major shift in the tourism industry that offers substantial job opportunities. And it takes more than drivers and pit crews to make Formula One run – it takes a diverse range of professionals in fields such as event management, marketing, engineering and beyond.
This rapid industry growth indicates an opportune moment for universities to adapt their hospitality and business curricula and prepare students for careers in this profitable field.
How hospitality and business programs should prepare students
To align with the evolving landscape of mega-events like Formula One races, hospitality schools should, I believe, integrate specialized training in event management, luxury hospitality and international business. Courses focusing on large-scale event planning, VIP client management and cross-cultural communication are essential.
Another area for curriculum enhancement is sustainability and innovation in hospitality. Formula One, like many other companies, has increased its emphasis on environmental responsibility in recent years. While some critics have been skeptical of this push, I think it makes sense. After all, the event tourism industry both contributes to climate change and is threatened by it. So, programs may consider incorporating courses in sustainable event management, eco-friendly hospitality practices and innovations in sustainable event and tourism.
Additionally, business programs may consider emphasizing strategic marketing, brand management and digital media strategies for F1 and for the larger event-tourism space. As both continue to evolve, understanding how to leverage digital platforms, engage global audiences and create compelling brand narratives becomes increasingly important.
Beyond hospitality and business, other disciplines such as material sciences, engineering and data analytics can also integrate F1 into their curricula. Given the younger generation’s growing interest in motor sports, embedding F1 case studies and projects in these programs can enhance student engagement and provide practical applications of theoretical concepts.
Racing into the future: Formula One today and tomorrow
F1 has boosted its outreach to younger audiences in recent years and has also acted to strengthen its presence in the U.S., a market with major potential for the sport. The 2023 Las Vegas race was a strategic move in this direction. These decisions, along with the continued growth of the sport’s fan base and sponsorship deals, underscore F1’s economic significance and future potential.
Looking ahead in 2024, Formula One seems ripe for further expansion. New races, continued advancements in broadcasting technology and evolving sponsorship models are expected to drive revenue growth. And Season 6 of “Drive to Survive” will be released on Feb. 23, 2024. We already know that was effective marketing – after all, it inspired me to check out the Las Vegas Grand Prix.
I’m more sure than ever that big events like this will play a major role in the future of tourism – a message I’ll be imparting to my students. And in my free time, I’m planning to enhance my quality of life in 2024 by synchronizing my vacations with the F1 calendar. After all, nothing says “relaxing getaway” quite like the roar of engines and excitement of the racetrack.
Rachel J.C. Fu does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
spread pandemicSpread & Containment
Dropping Like a Stone: ON RRP Take‑up in the Second Half of 2023
Take-up at the Overnight Reverse Repo Facility (ON RRP) has halved over the past six months, declining by more than $1 trillion since June 2023. This steady…
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Take-up at the Overnight Reverse Repo Facility (ON RRP) has halved over the past six months, declining by more than $1 trillion since June 2023. This steady decrease follows a rapid increase from close to zero in early 2021 to $2.2 trillion in December 2022, and a period of relatively stable balances during the first half of 2023. In this post, we interpret the recent drop in ON RRP take-up through the lens of the channels that we identify in our recent Staff Report as driving its initial increase.
ON RRP Take-up Has Been Decreasing since June 2023…
Banks’ Balance-Sheet Costs
As the Federal Reserve expanded its balance sheet in response to the COVID-19 pandemic, it increased the supply of reserves to the banking system and, as a result, banks’ balance sheets also grew. Reserves increased from $1.6 trillion—or 9 percent of banks assets—in January 2020 to $3.2 trillion—or 16 percent of bank assets—over the following three months, reaching a historical maximum of 19 percent of banks’ assets in September 2021. As the chart below shows, bank assets also grew from $18 trillion in January of 2020 to $20 trillion in April 2020, and continued to increase to $23 trillion in May 2023.
As banks’ balance sheets expand, regulatory ratios—such as the supplementary leverage ratio (SLR)—are likely to become tighter for some institutions. Banks react to increased balance-sheet costs by pushing some of their deposits toward the money market fund (MMF) industry—for instance, by lowering the rate paid on bank deposits—and reducing their demand for short-term debt. As we explain in our paper, both effects are likely to have boosted ON RRP take-up during March 2021 – May 2023, as most MMFs are eligible to invest in the ON RRP and do so especially when alternative investment options, such as banks’ wholesale short-term debt—including repos by dealers affiliated with a bank holding company—dwindle.
Likely, these effects have subsided relative to 2022. Indeed, since June 2023, bank assets have hovered around $23 trillion, slightly below their March 2023 peak. Moreover, reserves have been around 14 percent of bank assets since June 2023, below the average of 16 percent observed between March 2020 and May 2023. Since the SLR treats all assets in the same way regardless of their riskiness, large banks’ balance-sheet expansions are particularly costly if they are used to finance safe assets with low returns. Therefore, though bank assets have remained relatively stable, the recent decline in the ratio of reserves to bank assets has likely reduced banks’ overall balance-sheet costs.
…while Bank Assets and Reserves Relative to Bank Assets Have Remained Roughly Constant.
Consistent with a decrease in banks’ balance-sheet costs (and an increase in the supply of bank debt), the interest rates at which banks and broker dealers borrow via overnight Treasury-backed repos have increased since the fourth quarter of 2022 and are now a few basis points above the ON RRP rate (see chart below). This positive rate differential pushes MMFs away from investing at the ON RRP facility and into private repos.
The SOFR-ON RRP Spread Has Been Positive…
Monetary Policy
Monetary policy can affect ON RRP take-up by MMFs in two ways. First, the interest-rate pass-through of MMF shares is higher than that of bank deposits; as a result, the size of the MMF industry comoves with the monetary policy cycle as investors switch from bank deposits to MMF shares when the policy rate increases. Though the assets of the MMF industry are at an all-time high, the pace of the increase has somewhat decreased recently, consistent with a slower pace of monetary policy tightening; moreover, the share of MMF assets managed by government funds—the ones most likely to invest in the ON RRP—has decreased since June 2022 by 7 percentage points.
Second, monetary policy can affect MMFs’ take-up at the ON RRP also through its effect on interest-rate uncertainty. Higher uncertainty leads MMFs to rebalance their portfolios toward investments with shorter duration; the ON RRP is one such investment as it is overnight. Indeed, interest rate uncertainty—as measured by the MOVE index—had increased substantially during the latest tightening cycle, raising from 57.3 in May 2021 to 136 in May 2023. Recently, however, the increase has been partially reversed. Indeed, the average level of the MOVE was 125.6 in the first half of 2023 but declined to 117.3 in the second half of the year.
…while Interest-Rate Uncertainty Has Been Decreasing.
The Supply of T-bills
A third driver of ON RRP take-up is the supply of T-bills. The Federal Government has expanded the supply of T-bills dramatically in 2023: T-bills outstanding increased from $3.7 trillion at the end of 2022 to $5.3 trillion at the end of September 2023, with a $1.3 trillion increase since June. As the supply of T-bills grows, the investment options of MMFs—and especially of government funds, which represent 83 percent of the industry and can only invest in short-term government debt and repos backed by government debt—expand and, as a result, their investment in the ON RRP dwindles. In our staff report, we estimate that a $100 billion increase in the amount of T-bill issuance reduces the proportion of ON RRP investment in a government-MMF portfolio by 2.3 percentage points, relative to that in a prime-MMF portfolio; since average monthly T-bill issuance went from $1.12 trillion in the period from 2022:Q1-2023:Q1 to $1.53 trillion in 2023:Q2-2023:Q3, this effect on portfolio rebalancing amounts to an additional decrease in ON RRP investment of roughly $350 billion.
Summing It Up
The increase in ON RRP take-up between 2021 and May 2023 was driven by a series of factors: a rise in banks’ balance-sheet costs due to the expansion of the supply of reserves in response to the COVID-19 pandemic, the rapid hikes in policy rates aimed at fighting inflation and the resulting increase in interest-rate uncertainty, and the decrease in the T-bill supply of 2021-22 resulting from the normalization of public debt after the COVID-19 crisis.
These factors have reversed: the Federal Reserve restarted running off its balance sheet after the temporary expansion during the banking turmoil of March 2023; the growth of the banking system waned while the ratio of reserves to asset decreased; the pace of interest-rate hikes slowed down; and the T-bill supply increased again. If these dynamics persist in the months ahead, ON RRP take-up may continue to decrease. Such a steady decline would be consistent with that observed in early 2018, when investment at the ON RRP gradually disappeared as the Federal Reserve continued to normalize the size of its balance sheet and reserves in the banking system became less abundant.
Gara Afonso is the head of Banking Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.
Marco Cipriani is the head of Money and Payments Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.
Gabriele La Spada is a financial research economist in Money and Payments Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.
How to cite this post:
Gara Afonso, Marco Cipriani, and Gabriele La Spada, “Dropping Like a Stone: ON RRP Take‑up in the Second Half of 2023,” Federal Reserve Bank of New York Liberty Street Economics, December 19, 2023, https://libertystreeteconomics.newyorkfed.org/2023/12/dropping-like-a-stone-on-rrp-take-up-in-the-second-half-of-2023/.
Disclaimer
The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).
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