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- Category: Tax Law
Politicians typically do all they can to attract business to their states. But lately, some state policymakers are exerting their authority to punish businesses in their state that disagree with certain social policies.
What happens when these two goals clash with one another? Or when they conflict with the vital job of collecting sufficient tax revenue to operate government and balance a budget? It might not matter to the politicians, who can leverage a culture war to raise campaign funds.
But short-sighted fiscal fights tend to miss their targets, leaving taxpayers on the hook.
The “most magical place on earth” may soon have potholes, and worse.
In March, at the request of Republican Gov. Ron DeSantis, Florida passed the Parental Rights in Education, a bill that bars “classroom instruction by school personnel or third parties on sexual orientation or gender identity” through at least third grade. Soon after, the Walt Disney Corporation said it would help finance an effort to repeal the law, making it one of many businesses to oppose the legislation publicly.
DeSantis and the legislature responded by eliminating the Reedy Creek Special Improvement District. Generally, special districts are not that special. They’re a type of local government typically dedicated to one or two specific government services. There are roughly 1,800 special districts in Florida.
But the Reedy Creek Special Improvement District is special. Its boundaries include dozens upon dozens of miles of roadway and waterways, two cities, and a host of public services and facilities from road maintenance to electricity to recycling. Most importantly, it’s home to Disney’s Magic Kingdom Theme Park, other theme parks and related commercial enterprises, and tens of thousands of Disney employees. In the district, Disney is the government.
Florida lawmakers and Disney established the special district in 1967, and since then, the authority has spent over $100 million annually, building roads and bridges and managing utilities and services, leaving Disney in control of zoning, building codes, and permitting. To pay for all of this, Disney taxes itself about $53 million annually, and the District issues tax-exempt municipal bonds.
Without that special district, other local governments would be forced to repair roads and manage utilities, meaning local residents could have to pay for those services with higher property taxes. Additionally, local governments would have to absorb upwards of $1 billion in debt (currently held by the soon-to-be dissolved special district), which would also ultimately need to be repaid with even more taxes.
Disney has challenged the legality of the dissolution, and for now, has stopped donating to Florida politicians that support the parental rights bill. Meanwhile, the state quietly continues to provide other economic development tax benefits to Disney. And DeSantis is collecting more contributions nationwide for his reelection and for what is widely expected for his run for president in 2024.
Georgia’s still on my mind.
Last year, Republican lawmakers in Georgia passed the Election Integrity Act, which Democrats decry for limiting ballot access. President Joe Biden described the law as “Jim Crow in the 21st century.” A number of large employers including Coca-Cola and Delta Airlines publicly opposed the law.
Republican lawmakers responded by calling for boycotts of the companies. That went nowhere but the Georgia House then passed a bill to strip Delta of a tax break on jet fuel, worth $35 million a year.
It’s a good idea for a state to make sure taxpayer dollars are well spent. But raising Delta’s taxes wasn’t about tax policy evaluation. It was retaliatory.
Alas, everyone apparently has a price. Later in 2021, political action committees for Delta and Coca-Cola donated thousands of dollars to sponsors of the Election Integrity Act. And the Georgia Senate killed the jet fuel tax hike.
Don’t mess with Texas?
Then there’s abortion. Last September, Texas banned abortions after six weeks of pregnancy. Several businesses opposed the law, including Yelp, Uber, Lyft, Match Group, and Salesforce. Citigroup went further and said it would cover the travel expenses of employees who seek to terminate their pregnancies out of state.
Houston-area lawmaker Briscoe Cain then threatened to introduce legislation that would bar local governments from doing business with any company “that pays abortion-related expenses of its employees or that provides abortion coverage as an employee benefit.”
He specifically warned Citigroup that he will move to bar the bank from underwriting municipal bonds in the state unless it rescinds its travel expense policy. That could raise borrowing costs for state and local governments and ultimately increase taxes for their residents.
Given the latest developments in the US Supreme Court, the Texas abortion law may stand. And it remains to be seen whether Cain will succeed in barring Citi from underwriting Texas bonds. But it’s fair to say Cain will continue to raise more money for his reelection bid this fall.
Will local taxpayers accept this fate?
Politicians always will use their relationships with businesses for political leverage, whether they’re on the left or right of the political spectrum.
But state and local governments must pay for services and balance their budgets. When state politicians use tax policy as a weapon in their culture wars, the victims are often local taxpayers.
Maybe we don’t have to be victims. We just have to pay attention and vote.