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BILLIONS IN TAX SUBSIDIES DEPRESS FUNDING AND NEED TO BE DISCLOSED
January 13, 2015

BILLIONS IN TAX SUBSIDIES DEPRESS FUNDING AND NEED TO BE DISCLOSED

For the first time, the body that oversees accounting standards for state and local governments is proposing that these entities report the revenues they are losing to business tax breaks. According to Good Jobs First, these tax abatements, offered to spur economic development, often become one-way giveaways with no benefits to local communities.

The tax subsidies can include property, income and/or sales taxes, and are often imposed by state decision makers on local communities. The Governmental Accounting Standards Board (GASB or "GAZ-bee") is ending its long silence on the issue by proposing new rules for state and local governments to report on the costs of tax-based economic development subsidies. Public comments on the proposed standards are invited through January 29, 2015.

This is the first time in its history that GASB is issuing standards specifically addressing the estimated $70 billion per year states and cities spend each year in the name of jobs. Although much of this spending is recorded (albeit in many different places), tax breaks for economic development are the costliest subsidies and also the least well disclosed. So GASB's development of standards to cover reporting of business tax breaks is a landmark event.

GASB sets rules that accountants, auditors, and other finance professionals follow when they prepare financial reports. GASB's rules are known as Generally Accepted Accounting Principles (GAAP).  Because nearly all state and local governments conform to GAAP, this new standard will have major ramifications. 

Good Jobs First "believes that when states and localities start issuing new data under this Standard in 2017, it will enable massive new bodies of analysis and reform policymaking. Organizations and scholars concerned with state and local finances, public education finance, government transparency, economic development, and contracting and privatization will all gain access to significant information previously unavailable." 

For more information, see the Tax Abatement Disclosures Draft. Good Jobs First sees the following three shortcomings in the draft standards:

"No Recipient Disclosure:Although GASB considered whether to include the disclosure of deal-specific, company-specific disclosure ... , it chose not to include such a rule. GASB compromised here, saying governments may voluntarily list deals, described but not with identifying company names. GASB determined that recipient disclosure is not needed for GASB's core mission of sound public budgets; we disagree and will articulate why in our formal comments."

"Omitted Costs: Because of the way GASB defines a "tax abatement," several kinds of costly subsidies might not qualify for coverage. These include: tax increment financing (TIF, diverting property, sales and/or other taxes); performance-based incentives; Payments in Lieu of Taxes or PILOTs; personal income taxes that are diverted to employers; and, sales tax diversions to retailers (non-TIF)."

"No Long-Term Liability Disclosure:GASB is best known in recent years for its new rules requiring disclosure of Post-Employment Benefits (OPEB, or pensions and retiree health care costs) and infrastructure replacement costs. In both cases, these standards require projections about future liabilities. But in its Exposure Draft on tax abatements, GASB chose to only require a single-year snapshot of lost revenue, with no future-years' liabilities. We consider this imprudent because some economic development programs have created enormous future-year "budget icebergs" that must be navigated and should be clearly visible."

If you or your organization would like to comment on the draft standards, GASB's instructions for commenting are contained within the Tax Abatement Disclosures Draft itself and your comments will become part of GASB's public file on the matter. Comments should be addressed to the Director of Research and Technical Activities, Project No. 19-20E, and emailed to director@gasb.org or mailed to:

Governmental Accounting Standards Board
401 Merritt 7
PO Box 5116
Norwalk, CT 06856-5116

Education Justice Press Contact:
Molly A. Hunter, Esq.
Director, Education Justice
email: mhunter@edlawcenter.org
voice: 973 624-1815 x19
www.edlawcenter.org
www.educationjustice.org


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