Researching Audits and Tax Expenditure Budgets

Researching audits and tax expenditure budgets

It is often possible to learn quite a bit about a state’s subsidy use even in states that do not publish disclosure data. States routinely publish a number of documents, including budgets and audits, which contain information about the spending practices of particular programs, agencies, and the legislature. While such documents rarely include information about individual subsidy deals, they can be valuable for researchers seeking to understand the overall picture of development spending in a state. In some cases, such as performance audits, information may even be available critiquing the operation of a particular program.

States vary widely in the amount of useful information they publish in these documents, as well as in how often the documents are published. Some documents, such as state budgets, can be obtained in every state, while others, such as tax expenditure budgets, are put out by some states but not others. Some of the most useful documents, including certain types of audits, may not be produced on a regular basis.

Below we discuss several types of documents your state may publish that can be useful to subsidy researchers: audits, budgets, consolidated annual financial reports (CAFRs), tax expenditure budgets, and unified economic development budgets.


Just as the IRS may audit your tax return, state and city governments periodically audit their agencies' budgets and activities. Depending on the type of audit, the goal may be to confirm compliance with regulations on how funds are spent, or to assess the effectiveness of a program by evaluating whether the outcomes match the intent.

Single audits are required by the federal government for all state and local governments that receive more than $100,000 of federal funds. Single audits must cover all of that government's financial operations, with a separate schedule of federal funds received. The audits are conducted annually. They are done by either the state auditor or state comptroller, and may be released for each agency or as a single document for the state.

Single audits review the accounting and management controls of each department in the state, and so may contain specific information about the department of economic development. They also include the total expenditures of federal money for the Community Development Block Grant program (from the U.S. Department of Housing and Urban Development) as well as a compliance audit to determine whether funds have been used appropriately, national objectives have been met, and required procedures have been followed.

Financial audits are another place to look for information about the budget and spending practices of economic development agencies. Governments must conduct financial audits of all agencies every year or every other year. Audit reports may be very thin -- a simple review of financial accounting practices to affirm compliance with accounting principles -- or they may review financial reporting, oversight over expenditures, and other useful information. In either case, you will find information about an agency's budget and at least some detailed information about how the money is spent.

States require that compliance or technical audits be conducted every year or two to evaluate compliance with the requirements of subsidy programs. These kinds of audits may provide useful financial data regarding the spending on different subsidy programs. They may also uncover cases of subsidy misuse.

Performance audits are potentially the most useful kind of audit for economic development research. Rather than evaluating technical compliance with subsidy regulations, performance audits make more substantive judgments about a subsidy's effectiveness. Their goal is to determine whether the outcomes of subsidy deals meet the program's intentions. The audits usually make recommendations for improvements based on their findings, which may or may not be accepted. A performance audit may have found problems with a subsidy similar to those cited by activists.

Unfortunately, performance audits are less common and less uniform than other types of audits. Few states complete performance audits regularly, and even those that do are hampered by data that can only be described as "garbage in, garbage out." In 2000, Good Jobs First published a report entitled Minding the Candy Store: State Audits of Economic Development. Among our findings:

  • Only 17 states required regular performance audits of their development agencies. In the other 33 states, we estimated that development subsidies only get audited about once every 15 years.
  • Even when states do audit subsidy programs, they often fail to really measure their effectiveness. That's because the agencies have bad data, or because the agencies fail to establish clear goals and criteria against which to evaluate outcomes.
  • Those audits that are able to reach conclusions overwhelmingly support the findings of grassroots investigators: subsidies are poorly targeted, insufficiently monitored, and often wasteful if not corrupt.

Despite our overall findings about the quality of many audits, auditors are generally pro-accountability. And their status as impartial watchdogs means they can lend highly credible support during reform debates.


All state legislatures pass a budget every year or every other year. The budget details how the government's money will be spent every year. The level of detail given for each program and agency varies by state. The budget includes appropriations, but does not include tax expenditures; those may be available in tax expenditure reports, described below.

You can get a copy of your state's budget through the governor's office or department of finance. City and county budgets can be obtained from the city council or office of the county commissioner. Agencies also have their own budgets, which contain greater detail about how they spend money allocated by the legislature.

You can obtain agency budgets directly from the agency or from state legislative office. You may have to pay a copying fee for government or agency budgets, but they are public documents.

Consolidated annual financial report (CAFR)

A CAFR ("Kay-fer") is the state's consolidated financial statement, which includes a schedule of federal financial assistance, sorted by federal agency and state agency. CAFRs summarize information about obligations, expenditures, and revenues. They may contain useful information about specific agencies or illustrate historical trends of spending on various areas of government. CAFRs also include detailed lists of debt obligations, but they don't often include private activity bonds (including industrial revenue bonds) because those do not represent government debt.

CAFRs are published annually. They are likely to be performed by a state's comptroller, but may also be performed by the state auditor.

Tax expenditure budgets (a.k.a. tax expenditure reports)

About three dozen states publish documents that tell the amount of revenue not collected due to tax breaks. These documents are referred to as tax expenditure reports or tax expenditure budgets. Tax expenditure budgets vary greatly in their completeness, and there is no standardized reporting format. You can expect to find some of the following information:

  • name of the tax break;
  • number of the statute that authorizes the tax expenditure;
  • estimated dollar amount of forgone revenue for the fiscal year (also called a “revenue impact”);
  • description of the tax break;
  • purpose of the tax break, usually drawn from the statute;
  • breakdown of who benefits from the tax break, either a general description or a detailed itemization of the types of people or corporations that use the tax break (i.e. their income levels or size); and
  • evaluation of whether the tax expenditure is achieving its purpose.

Some state agencies publish their own mini tax expenditure reports for particular subsidy programs. For instance, the Ohio Department of Taxation collects property tax abatement agreements granted throughout the state, aggregates the data, and maintains an online database with information on the abatements arranged by abatement class and by county going back as far as 1986. While none of the information is company-specific, the data do give a useful overview of where and how property tax money is being spent in the name of economic development. The information can be accessed online at

To find out if your state publishes summary reports for subsidy programs, check with the agency that administers the program or with the department of revenue, which is often charged with overseeing compliance, particularly for tax credits. You might also check the program's enabling legislation or administrative rules to see if they mandate any form of annual report.

Unified economic development budgets

A few states have begun to debate ways to make it easier for taxpayers and legislators to see the big picture. A unified economic development budget (UDB), also called an integrated economic development budget, compiles information on all forms of development spending -- both direct and tax expenditures – in one place.

In several states, watchdog groups have created their own Unified Development Budgets. While not official state documents, such reports can be very useful for researchers and accountability campaigners.