GASB Statement No. 77 Analysis

Good Jobs First Analysis

Governmental Accounting Standards Board (GASB) Statement No. 77 on Tax Abatement Disclosures
[a.k.a. Economic Development Tax Breaks]

by Greg LeRoy

Last update: April 28, 2017

Summary: Tax Abatement Disclosures

Using “tax abatements” as its umbrella term for all kinds of economic development tax breaks (i.e., property, sales and/or income taxes) GASB issued Statement No. 77 on August 14, 2015. Statement No. 77 applies to all state and local governments which adhere to GASB’s General Accepted Accounting Principles (GAAP); it is an amendment to GAAP. 

Statement No. 77 does not apply to other kinds of tax expenditures made by states and localities (e.g., personal mortgage interest deductions, property tax exemptions for churches, or sales tax exemptions on business inputs). Such expenditures remain ungoverned by GASB. Indeed, Statement No. 77 makes economic development the only kind of tax expenditure covered by GAAP.

This new accounting rule takes effect for budgets starting after December 15, 2015 (which is to say calendar 2016 and later), so data first began to appear in Comprehensive Annual Financial Reports (CAFRs) reporting on 2016 published in April through June 2017. Many more governments are on fiscal years ending mid-year, so they will first report in late 2017. We estimate that more than 50,000 local and state government bodies will issue such data, revealing tens of billions of dollars in heretofore hidden spending.

The new data is required simply as a Note in the CAFR. There, Statement No. 77 requires a government to report how much revenue it lost to tax abatements in the budget year covered by the CAFR, and to do so whether it was itself the abating government or if another government’s abating caused the revenue loss. This means that governments such as school districts that often lose revenue passively due to the actions of counties or cities will have to determine and report how much revenue they lose to abatement programs.

At a minimum, the government must report one dollar-cost figure per economic development program per year. It may voluntarily choose to provide the names of specific taxpayers that received abatements, pursuant to a specified quantitative threshold (such as all abatements above a given percentage tax reduction or all abatements above a given percentage of the program’s annual cost).

A government must also provide a general description of each abatement program, including its statutory authority, its public purpose, the kind of revenue lost, and whether there is a clawback safeguard (but not whether clawbacks were invoked or how many dollars were recaptured). A government must also disclose major associated obligations it may have incurred as part of an abatement deal, such as a large infrastructure spending commitment it has made in association with an abated project.

Finally, states may choose to improve upon Statement No. 77, which has three major data-quality shortcomings. It fails to require the disclosure of: the number of total abatement agreements behind the dollar totals or the number of new abatements granted during the reporting year; a projection of the amount of revenues expected to be abated in future budget years as a result of existing deals; and the names of recipients (the disclosure of even major recipients is voluntary). 

“Tax Abatement” Definition

For purposes of the new standard, GASB defines a tax abatement (at paragraph B15):

…as resulting from an agreement between one or more governments and an individual or entity in which (a) one or more governments promise to forgo tax revenues to which they are otherwise entitled and (b) the individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or the citizens of those governments. The scope of this Statement is limited to transactions that meet this definition.

GASB calls (at Paragraph B9) “the existence of an agreement” “[p]erhaps the most important feature of tax abatements.” It defines “tax abatement agreements” as consisting of two reciprocal promises: by the government to reduce the recipient’s taxes, and by the recipient to perform “a certain beneficial action.” Such agreements (B10) “may be in writing or may be implicitly understood” but they don’t have to be legally enforceable or include clawback penalties for non-performance.

GASB’s reference here to a tax reduction created an ambiguity we discuss below regarding TIF and other tax diversions. GASB rectified this ambiguity in its 2017 Implementation Guide.

Disclosure Standards: Where, What and for How Long

Statement No. 77 directs that states and localities report tax abatement spending in the Notes of their Comprehensive Annual Financial Reports (CAFRs).

The reports are to capture three kinds of spending information: direct program costs, costs generated by the actions of other governmental bodies, and costs created by obligations associated with tax abatement projects.

Tax abatement costs are to be reported in every year’s CAFR for as long as they reduce revenue. Associated costs are to be reported every year until they are paid.

Active Abatement Costs

This content in the CAFR Notes should include (at Paragraph 7a):

  1. A description of the tax abatement program, including its name and purpose;
  2. The tax being abated;
  3. The authority under which the program abates taxes;
  4. Eligibility criteria that apply to recipients;
  5. The abatement mechanism, including how the rate of abatement is determined;
  6. Any rules that provide for recapture or “clawbacks,” but not dollars actually clawed back (since such monies would already be reflected in general fund revenues) (at Paragraphs B44-45);
  7. Commitments made by recipients, i.e., the public benefit quid pro quos. However, we read this provision to enable a vague descriptor such as “job retention” or “capital investment;”
  8. The current-year cost of the program in foregone tax revenue, in one aggregate figure;
  9. Major recipients and their abatement values, if the government elects to disclose such recipients based upon a quantitative threshold that must be specified (such as all abatements above a given percentage tax reduction or all abatements above a given percentage of the program’s annual cost).

Passive Abatement Costs (and/or Offsetting Revenues)

Statement No. 77 (at Paragraph B46) requires any government losing revenue due to the tax abatement actions of another government to report such revenue loss. That is, passive losses of revenue must be reported.

This is an especially laudable aspect of GASB’s new standard, recognizing that the way some economic development tax abatements work essentially amounts to what we at Good Jobs First call the “intergovernmental free lunch.” The most common way this happens is when city councils or county boards grant property tax exemptions, or create TIF districts or enterprise zones. Usually the local government body losing the most revenue in such deals is the local school district. As GASB references, there are also cases in which active-abating governments lose revenue passively to other governments’ abatements.

Statement No. 77 directs that, whether a government is solely a passive revenue loser or a combined active tax abater and a passive revenue loser, it shall report the passive revenue losses, and do so distinctly. Those losses are to be organized by abating government and type of tax abated.

In a reporting example (at Appendix C, Example 2), GASB shows a county losing revenue due to two state abatement programs; in this example, the county also reports the state program names as well as the kind of tax revenue lost and the dollar cost.

Because intergovernmental abatement programs sometimes involve offsetting payments, Statement No. 77 requires a separate reporting of any offsetting revenue paid or due from another government as part of an abatement program. This disclosure should also include the names of the governments paying the offset and the authority under which that revenue was paid or is due.

Costs Created by Obligations Associated with Economic Development Projects

Statement No. 77 (at Paragraphs B38-40) recognizes that governments often obligate substantial additional monies to tax-abated economic development projects. The most common way this happens is infrastructure commitments (roads, sewer and water lines, utility connections) associated with large new facilities.

Therefore, it requires that such financial obligations be reported, by type, and that a government’s “most significant specific commitments” be disclosed, if there are any.

Privacy Exception

If a government is legally prohibited from disclosing a tax expenditure, it may omit the cost data, but when doing so, it must cite the legal authority for not reporting. In Good Jobs First’s opinion, this exception will rarely be valid. If a state privacy law prohibits the disclosure of an individual company’s income tax credit, and there is only one claimant of a program’s credit, that could invoke a privacy exception. However, such a situation is unusual. Many states disclose corporate income tax credits and there is no reason—proprietary business information or “business climate”—not to disclose them.

Here is a summary of the reporting requirements, adopted closely from a GASB presentation to state legislators:



Required Disclosure

Government’s Own Abatements

Abatements by Other Governments

Name of program


Purpose of program


Name of government


Tax being abated

Statutory authority to abate taxes


Eligibility criteria


Abatement mechanism and rate


Existence of clawback (recapture) provision


Types of commitments to which recipients are committed in exchange for abatement


Dollar amount of taxes abated

Dollar amount(s) received from or due from other governments in association with (and offsetting) abated taxes



Associated commitments made by the abating government (e.g., infrastructure)


Quantitative threshold for disclosure of individual recipient (if applicable)

Information not reported due to legal prohibition


Tax Increment Financing (TIF) and Other Tax Diversions

Defining TIF: All but one of the states allow localities to conduct tax increment financing (TIF). A small geographic area, the TIF district, is designated for subsidized redevelopment. As a result of the redevelopment, property values go up and therefore assessed property values go up, as do property taxes. When that happens, the tax revenues are divided into two streams. The first stream, set at the old “base value” before redevelopment, goes where it always went: typically to schools, public safety, and other local public services. The second stream, composed of all the new, higher taxes—the so-called “tax increment”—subsidizes the redevelopment, for periods ranging from 7 to 35 years, as allowed by state law. Some states restrict TIF only to public infrastructure; others allow it to pay for private structures as well. Some states also allow incremental sales taxes to be “TIFed,” and one (New Jersey) allows up to 25 taxes to be TIFed.

Depending on state law and local practice, the increment may be used to service debt (paying off TIF bonds), or to reimburse the developer after he builds something (known as “pay as you go TIF”), or even to simply be automatically rebated to the developer (“tax rebate TIF”).

TIF was ambiguous when held against GASB’s originally stated definition of “tax abatement” because the tax increment gets paid, while GASB’s definition included the concept of a tax reduction. This ambiguity prompted a protracted 2014-2017 debate between GASB and numerous organizations, including Good Jobs First. Without reciting that debate, here is what we believe GASB Statement No. 77 now requires on TIF and other tax abatements that are structured as tax diversions or tax rebates. (This is per GASB’s 2017 Implementation Guide, at Question 4.40, which applies to reporting years starting after June 15, 2017.)

Debt-based TIF: When the tax increment is used to pay debt service on TIF bonds, it is not a reportable expense under Statement No. 77. That’s because such debt service is already reportable in a different part of the CAFR, under GAAP.

“Pay as you go TIF”: When the increment is paid back to the taxpayer in exchange for the taxpayer performing an agreed-upon activity, that is reportable under Statement No. 77.

Tax-rebate TIF: When the increment is simply rebated to the taxpayer, as it is in some states, that is also a reportable tax abatement.

In its 2017 Implementation Guide, GASB ended a protracted debate over TIF and other abatements structured as tax diversions and tax rebates. Good Jobs First and numerous other organizations argued that GASB’s original wording of its “abatement” definition failed to capture such programs, which are often very costly. GASB’s guidance, in a question and answer format, clarified the matter succinctly. In this example, the phrase “additional property tax revenues above the baseline” refers to the “tax increment.”

  1. Q—A local government enters into an agreement with a real estate developer for the purpose of stimulating economic growth. Under the terms of the agreement, (a) the developer will construct a building; (b) a baseline for property tax revenues for the specific geographic area in which the building will be constructed will be established prior to the start of the project; and (c) the developer will receive an amount from the additional property tax revenues above the baseline, based on certain costs incurred by the developer related only to the developer’s building. Does this agreement meet the definition of a tax abatement in Statement 77?

A—Yes. Unlike the transaction described in Question 4.77 in Implementation Guide 2016-1, this agreement meets the definition of a tax abatement in Statement 77, although both may be labeled as a tax increment financing. The developer is promising to take the specific action of constructing a building for purposes of economic development, and the government is forgoing tax revenues to which it is otherwise entitled by providing some or all of the additional property tax revenues above the baseline to the developer. Although many tax abatements directly reduce the amount of taxes paid and do not involve the actual collection and return of taxes, the mechanism used to conduct the transaction is not relevant to determining whether a transaction meets the definition of an abatement. Therefore, the fact that the developer pays property taxes and subsequently receives amounts from the government related to the additional property tax revenues means that the government did, in substance, forgo tax revenues.

GASB’s clarity here is a clear reference back to its definition of “tax abatement,” in which a government agrees to receive less revenue in exchange for a taxpayer performing a community benefit (e.g., job creation). 

Good Jobs First believes this clear framing also applies to state and local economic development programs which involve personal income taxes being collected and then being rebated to the employer or credited to the employer on its corporate income tax return.

In addition to property tax and income diversions and rebates, some states allow taxpayers to retain or receive back a share of the sales tax they collect that would otherwise be remitted to state and/or local governments. (This is not a reference to so-called “vendor discounts.”) Such transactions are also reportable abatements. GASB makes this clear in its March 2016 Implementation Guide (at Question 4.78). 

4.78. Q:—A state government enters into an agreement with a business in which the business commits to open 10 new retail stores within the state. The agreement meets all of the aspects of the definition of a tax abatement, according to Statement 77, except that it does not involve taxes for which the business would otherwise be liable. Under the terms of the agreement, the business is allowed to retain 40 percent of the state sales tax collected from its customers in the new stores for the first 5 years of their operation. Those are taxes the business otherwise would remit to the state, but the taxes are being paid by the business’ customers. Do the requirements of Statement 77 apply to this agreement?


A—Yes. Even though the taxes are the obligation of the customers and the business is acting solely as the remitter of the sales taxes, the state government forgoes tax revenues as a result of this agreement. Consequently, this agreement meets the definition of a tax abatement under Statement 77.

Definitional Ambiguity Concerning Performance-Based Incentives

In a passage (at Paragraph B 11), GASB creates an ambiguity concerning so-called “performance-based incentives.” It writes that:

Certain tax expenditures that exhibit the features of a tax abatement—they reduce taxes, encourage beneficial actions by individuals or entities, and may be based on an agreement—are nonetheless excluded from the scope of this Statement because the government does not commit to abate taxes until after the individual or entity has already performed the activity for which the government is providing the tax abatement. Most often, such programs do not involve an agreement;…

How a tax abatement that is based upon an agreement becomes not an abatement not involving an agreement is left unstated. Our point here is not to be sarcastic, but rather to point out that Statement No. 77’s use of its own terminology can be elusive. As context, in this passage GASB goes on to state that programs such as tax deductions for installing energy-efficient appliances are not “tax abatements” covered by Statement No. 77.

However, as many organizations commenting on GASB’s Exposure Draft stated, a large body of economic development tax expenditures known in the profession as “performance-based incentives” could theoretically fall through GASB’s definition here. Although they conform to all of GASB’s abatement definitions, they are back-loaded: that is, companies claim them after performing their promised activity. A key critical interpretive point may be when the government commits to the agreement; commenters argued that governments knowingly agree to the abatements when they enact them, and routinely do so for a specified company or group of companies. Hence the quid pro quo central to an abatement is created. 

Our Advice to the States: Make Statement No. 77 Data Complete, Accessible and Useful

About three-fourths of the states require at least some of their localities and/or school districts to adhere to GAAP. According to this 2008 national survey by GASB, many more counties, localities and school districts do so, apparently to obtain optimal credit ratings on their bond offerings and/or to comply with federal reporting requirements (if they receive substantial federal funds).

As state and local governments prepare to comply with Statement No. 77, we have five specific recommendations to make the new data complete, accessible and useful:

Make Sure Local Governments are Aware of the April 28, 2017 Implementation Guide Clarification on TIF and other Tax Diversions and Rebates: State auditors, comptrollers and/or treasurers typically oversee compliance with GAAP and typically collect and review CAFRs. In some states, there are university programs, municipal leagues or other agencies that provide ongoing professional training on GAAP. We recommend that they update their published guidances and curricula to reflect the April 28, 2017 Implementation Guide, and draw special attention to its clarification on TIF and other tax diversions and rebates. 

Make Data Accessible: Wherever local government CAFRs are collected (typically by the state auditor, comptroller or treasurer), we recommend that Statement No. 77 data be compiled and published online, preferably in a single downloadable document. To our knowledge as of April 2017, only one state official, New Mexico State Auditor Tim Keller, has committed to such transparency.

Every state could do so. In addition to many states’ collecting and publishing data culled from local CAFRs, there is ample precedent for this on tax abatements. State transparency websites such as those in New York, Ohio and Louisiana already collect and publish recipient-specific local property tax abatement records online. States such as Illinois and Minnesota already collect and publish TIF district-specific data.

Report the Numbers of Abatements: At its final deliberative meeting before approving Statement No. 77, GASB (as discussed in Paragraph B31) inexplicably chose to veer from its Exposure Draft and not require that abating governments include the number of agreements entered into during the reporting year or the total number of agreements in force at the end of the reporting year. This was surprising, given that the Exposure Draft discussed such disclosure in several passages (including Paragraph 6b in General Disclosure Principles and in two of its illustrations in Appendix C). This is a serious degradation of data quality, making it difficult or impossible to discern either the trajectory of a program over time (is it granting more abatements or fewer?) or the average cost per abatement.

Therefore, states should consider restoring the two numbers GASB originally proposed in the Exposure Draft: new abatements entered into and total abatements in force at the end of the reporting year.

Disclose Recipient Names: Although (as detailed above) Statement No. 77 gives governments the option to disclose the identities of major recipients, GASB (at Paragraph B30) explicitly concludes that such disclosure does not serve financial reporting purposes. We disagree: In our comments on the Exposure Draft, we cited examples of governments that have been severely stressed by the failure of one deal or the costs of a handful of abatements. Therefore, we suggest that states consider requiring disclosure of all recipients, or at least all recipients that account for two percent or more of a program’s cost in the reporting year.

Disclose Future-Year Liabilities: GASB is best known in recent years for its new rules requiring disclosure of Other Post-Employment Benefits (OPEB, or pensions and retiree health care costs) and infrastructure depreciation costs. In both cases, these statements require projections about future liabilities (which necessarily require assumptions about variables such as inflation and interest rates). But in Statement No. 77 (at Paragraph B36), GASB chose to only require a single-year snapshot of lost revenue, with no future-years’ liabilities (or even data on the duration of abatements).

Good Jobs First considers this imprudent because some economic development programs have created enormous future-year “budget icebergs” that should be clearly visible ahead. For example, in its second long-term abatement award to Boeing and other aerospace manufacturers, the State of Washington agreed to forego $8.7 billion in revenue starting in the year 2024—a decade in advance! 

Conclusion: Statement No. 77 is a Historic Transparency Breakthrough That States and Localities Should Embrace and Employ for Good Jobs and Sound Budgeting

After decades of being MIA on “corporate welfare,” GASB has finally issued an accounting standard that requires states and localities to reveal how much corporate tax breaks granted in the name of economic development are affecting the tax base for public services.

This is a historic breakthrough, with nine- and ten-figure “megadeals” surging since 2008, creating more stress than ever for state and local budgets. While we raise concerns here, we salute GASB for stepping into a glaring executive-branch leadership vacuum on this issue.

Many long-term observers argue that the surge in tax abatement spending is ultimately caused by the “economic war among the states,” or unfettered competition among states, enabled by the federal government’s laissez-faire industrial policy. For example, the last time the National Governors Association debated the issue of costly interstate competition for jobs was 1993. Since then, there have been no positive federal or gubernatorial-association actions on the issue. A Supreme Court case (DaimlerChrysler v. Cuno) was found to lack standing, and two governors have turned interstate job piracy into a partisan sport. Missouri’s bi-partisan enactment of half of a two-state cease-fire (which Kansas tragically failed to reciprocate, allowing the offer to expire) is the latest example of why taxpayers need more information on tax abatements’ costs.

We also acknowledge that states (but not so much localities) have made big strides in the disclosure of recipient-specific subsidy data (urged on by our 50-states-plus DC “report card” studies we have issued since 2007). Every state now has at least one program disclosing recipient data online, although many states’ disclosure is still incomplete and of poor quality, especially when it comes to reporting jobs actually created and wages actually paid. Since 2010, Good Jobs First has been capturing state and local disclosure data and making it accessible via Subsidy Tracker.

While state disclosure has improved, local disclosure is far behind. Combined with the fact that property tax-based subsidies (i.e., abatements, tax increment financing, and payments in lieu of taxes) are often the largest dollar-value tax breaks a company receives, this means that it has not been possible to make an accurate accounting of how much revenue is being lost to economic development tax expenditures. We have had to rely upon best estimates by scholars such as Prof. Kenneth Thomas. That’s the historical significance of Statement No. 77: finally we will get a complete set of uniform data on costs.

But unless it is improved by the states, the data required under Statement No. 77 will be crude. Disclosing only one dollar figure per program per year—without even stating how many new or total deals make up that cost—is a very limited tool. As well, not requiring the names of even major recipients, or the future-year costs of abatement programs—even though such costs are often legally enacted—will make the new data far less useful than it could be.

Done right, Statement No. 77 will open a whole new chapter in the United States’ debate over economic development. It will enable a more honest accounting, and more rational and empirically informed public discourse.