It’s October 2016. Six months from now, state and local governments will start to reveal how much tax revenue they lose each year to economic development subsidies for corporations.
The revelations will be especially profound for local governments, which have never published anything akin to the (irregular and unreliable) tax expenditure budgets states issue.
The disclosures will only happen because of Statement No. 77 on Tax Abatement Disclosures, the new accounting rule issued last August by the Government Accounting Standards Board (GASB). The Statement is GASB’s latest amendment to Generally Accepted Accounting Principles (GAAP), and “tax abatements” is GASB’s umbrella term all kinds of economic development tax-break deals (property, sales and income tax).
The new standard will cause about 50,000 tax-collecting local governmental bodies to compute and report how much revenue they lose each year on tax breaks, starting with calendar 2016 financial statements and beyond.
The reporting requirement will cover even those government bodies that lose revenue passively, as when school districts suffer when cities or counties grant property tax abatements or create TIF districts or enterprise zones.
In some states, it is clearly evident that diligent officials are helping local governments get ready for GASB 77 reporting. Texas Comptroller Glenn Hegar (R) is surveying local governments , asking for the key tax abatement data that will be required next year. Finding gaps in data collection will allow the Comptroller’s office to follow up with technical assistance.
New Mexico State Auditor Tim Keller (D) and Ohio State Auditor Dave Yost (R) are travelling their respective states educating local government leaders about GASB 77 requirements and what their offices will be looking for when they audit local government reports. Yost’s presentation to the Ohio Municipal Association is posted online. Keller’s office has issued a GASB 77 Bulletin to make clear what is expected from local governments it audits. Florida’s Department of Financial Services, tasked with providing technical assistance to local governments, includes slides on GASB 77 in its update on changes in financial reporting requirements.
Local governments are also preparing in important ways. The Lumpkin County (Georgia) Commission discussed who within the county should guide the tax abatement disclosure called for by GASB 77.
Associations of public officials and universities are also helping assure strong disclosure. The Association of County Commissions in Alabama included six slides on GASB 77 in a longer presentation of new reporting requirements offered to its members. The University of Georgia’s Carl Vinson Institute published a GASB 77 Bulletin to inform local government officials about the new requirements. The South Carolina Association of Counties will be hosting a member’s webinar on GASB 77 reporting requirements on December 8, 2016.
GASB 77’s requirements are not onerous. They require governments to report a single number of tax revenues foregone during the previous year for each economic development subsidy program that affects their revenue. The big news will be in lost property taxes, because property tax breaks are often the largest subsidy a company receives, yet property tax records are scattered among the counties and tax-break calculations are usually not online.
A decade ago, University of Missouri-St. Louis Professor Kenneth Thomas estimated that state and local governments spent $70 billion on economic development subsidies each year. By 2018, we’ll know whether his estimate was accurate or conservative.
While we applaud the states and county named above, much more is needed. If you know of GASB 77 education efforts undertaken by your state or local public officials, please let us know.