State and local governments nationwide grant tax breaks that annually amount to billions of dollars. Yet there is a surprising lack of disclosure about the impact on public finances and lack of standards on measuring success.
That soon will change, at least to some degree. The Governmental Accounting Standards Board, the independent body that sets standards of accounting and financial reporting for state and local governments, recently issued final rules that for the first time require the disclosure of information about tax-abatement agreements.
In issuing its Statement 77 guidance, GASB noted that “the effects of tax abatements on (state and local governments’) financial health and ability to raise revenue can be substantial. However, until now it has been difficult to determine the extent and nature of these effects from financial statements.”
The new disclosure must include the purpose of the tax-abatement program, the tax being abated, the dollar amount and provisions for recapturing abated taxes. In addition, governments must spell out the types of commitments made by recipients.
For most governments, the first required disclosures will come with their financial reports issued in 2017.
While many people think greater tax-incentive disclosure is long overdue, not everyone is sold on Statement 77. Some think it does not go far enough. For example, not all types of incentives are covered.
On the other side, some government officials think the requirement to record abatements on annual financial statements as lost tax revenue fails to reflect the economic development gains the incentives produce.
And the Pew Charitable Trusts, which works with governments to produce cost/benefit analyses, thinks smaller governments could find it a challenge to comply. Pew, however, generally welcomes the new standards.
In our view, both the new rules and the compliance timeline are reasonable. Statement 77 should lay the groundwork for broader disclosure in the future.
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