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Clearer accounting

As state and local governments increasingly have relied on various kinds of incentives or tax expenditures to compete in the economic development arena, the importance of disclosure has grown. Yet often the information provided to taxpayers is piecemeal, at best.

The Governmental Accounting Standards Board has decided to do something about that. GASB, the independent organization that sets financial accounting and reporting standards for state and local governments, released proposed rules that for the first time would require public entities to disclose key facts about property and other tax-abatement pacts.

“Tax abatements can significantly reduce the amount of revenue a government receives,” said GASB chairman David Vaudt when the proposed rules were announced in October. “But in many cases, little is known publicly about their total size or their terms and conditions. What the board has proposed would make the financial impact of these transactions much more transparent.”

If adopted, the rules would make it much easier for taxpayers to obtain a range of information including the eligibility criteria for the abatement, the dollar amount of taxes abated, commitments made by recipients and clawback provisions if commitments are not met.

The requirements cover not only tax-abatement agreements inked by the reporting government, but also those initiated by other entities that reduce the reporting government’s tax revenues.

Some might argue that additional reporting requirements would be burdensome, especially for smaller governments and agencies. GASB has addressed compliance concerns by not requiring disclosure of individual tax-abatement agreements, only aggregate information for each major program.

Others might question the need for these rules. But consider this: A few years ago the New York Times reported that annual state and local corporate incentives totaled more than $80 billion—a figure that surely has grown since then.

That’s a lot of money, and taxpayers deserve to be told clearly how it’s being spent.

3/27/15 (c) 2015 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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