Grace Tang ‘21
Foreign Correspondent
The University of Chicago Center on Law and Finance teamed up with the University of Virginia John W. Glynn, Jr. Law & Business Program to present an academic workshop on race and law of business & finance on Friday, February 19. Panelists Abbye Atkinson, Associate Professor of Law at Berkeley Law and Andrew Hayashi, Professor of Law at UVA Law, presented their research on how the law interacts with issues of race in business and finance.
University of Chicago Law School Dean Thomas J. Miles presented welcoming remarks to attendees. In his opening remarks, Dean Miles thanked Dean Goluboff and Professor Cathy Hwang at UVA for their efforts in creating the workshop, and to the panelists for “both their teaching and research, which has expanded our understanding of important legal issues and our society at large.” Aneil Kovvali, a Bigelow Teaching Fellow and lecturer at the University of Chicago, moderated the panel.
Professor Atkinson’s research focuses on the law of debtors and creditors as it affects economically disenfranchised communities. Professor Atkinson considers how race and gender are impacted by consumer financial structures—whether or not debts are fairly priced. She also analyzes how debt affects historically marginalized communities, especially those who are women, African Americans, or impoverished. “Policymakers should be aware of market-based, debt-funded provisions; debt is a channel for socioeconomic subordination,” says Atkinson, adding “Debt was historically viewed as a tool of social provision for the poor. Policy debates are about access to debt, instead of the more fundamental question when indebtedness itself is social and economic subordination.”
During the workshop, Professor Atkinson discussed her research on how pension plans depend on marginalized borrowers to generate returns to help public service and civil servants with their retirement. Pension funds are huge institutional investors, and the fund assets are increasingly held in risky investments, revealing an increased appetite for risk by pension funds. “Studies show that three-quarters of fund assets are in higher risk investments, like private equity firms.” Pension funds invest (through private equity and other investments) in for-profit colleges, subprime loans, and other marginalized debt.
Atkinson argues that pension fund investment in marginalized debt perpetuates issues in socioeconomic inequality and justifies continued inequality and marginalization. As part of our system of social welfare, Pension funds shouldn’t participate in marginalized debt, even if it serves to help teachers and public servants with their retirements.
“The issues with investment in marginalized debt is that we commoditize the income, and the investment makes the denouncement of marginalized debt more complex.” Retirement is important for public service and civil servants to retire in dignity. However, a robust, well-funded public pension fund has implications for wealth, equality, and social significance. The bigger picture shows the result of pitting one marginalized group against another. Atkinson points to larger conflicts of interest in the market-based social division.
Atkinson provides several recommendations to the current conflict of interest. Pension fund investment regulation could regulate the industries and interests. Private equity firms or fund managers and other actors tasked with working for the public good could be regulated, or public fund fiduciary duties could be expanded.
“I think race is at the core of thinking about issues of credits and debt, as well as home ownership and value. We can trace that concept of home value to racialized notions of preference. If we purport to want to move the ball forward, then we must acknowledge and think about the world with race as a factor,” said Atkinson.
Professor Hayashi’s research on dynamic property taxes and racial gentrification was motivated by a long history of discriminatory property assessments. “Historically, the property appraisal process was very subjective,” says Hayashi, where “Overvaluation of Black properties has led to increased property taxes in the past.” His research reveals a discrepancy in property taxes due to gentrification and shifts in populations from one neighborhood to another. “Under income tax, any benefits derived from racial preferences get taxed. For example, if the market rewards whiteness in wages or profits, that benefit is taxed. Real property benefits are also taxed in general, but property tax caps subsidize transitions to whiter neighborhoods during gentrification.”
Many states have property tax caps in calculating property taxes owed. The fair market value of a home assessed does not directly result in property tax amounts, but is included as part of the assessment ratio, calculated as assessed value over fair market value. States have imposed limits on the changes to the assessment ratio year over year (e.g. six percent per year, no more than twenty percent over five years) to avoid massive changes in property tax as a result of home valuation increases. These caps and limits provide benefits for white populations when they move into new neighborhoods, because housing prices increase when white populations move in.
Current methods of calculating property taxes may reduce property tax incidence (tax burdens) for white populations while increasing tax burdens for Black persons. “When white populations migrate from one neighborhood to another, they increase the values of their homes, but save significant taxes as a result of moving due to the property tax caps and assessment ratio limits imposed.” White home prices and neighborhoods appreciate more quickly than Black neighborhoods. As a result, white populations receive significant portions of tax savings. Since many states and localities rely on fixed income from property taxes, a reduction in property taxes for white populations may lead to increased tax burdens on Blacks and other minority homeowners.
Observing correlation of race with assessment ratios depends on the rate of dislocation and the rate of price adjustments. Actual tax incidence (who bears the burden of taxes) depends on capitalization of tax benefits into sales prices. Why do property values correlate with race? “There could be direct preferences for racial compositions of neighborhoods. Race could also serve as a proxy for school quality, safety, and relationship to government.” says Hayashi.
When asked by moderator Aneil Kovvali whether clear “villains” existed in either of their research findings, Professor Atkinson pushed back on the idea of ‘one villain.’ “These problems aren’t caused by one bad actor, it is a systemic issue,” said Atkinson. “For example, the wave of gentrification creates broader public benefits. However, the systemic aspect perpetuates problems we see.” Professor Hayashi adds that “one problem with laws causing these adverse effects is that the solutions or fixes are not available to everyone in the same way. For example, Black homeowners appeal their home assessments less frequently than less white homeowners. Thus, the burden of self-help is on the shoulders of the homeowners.”
---
gt5ay@virginia.edu