Washington, DC— A new accounting rule originally meant to shine greater light on how much corporations receive in government subsidies for jobs and development has been significantly watered down.
The final rule, expected to be issued soon and go into effect in 2022, won’t require most companies to reveal if they’ve received tax breaks, or what they promised in exchange for them. It’s a blow to fiscal transparency and corporate accountability.
The tortuous process dates back to 2015, when the Financial Accounting Standards Board (FASB) issued a draft policy that would require companies to disclose government assistance (FASB sets Generally Accepted Accounting Principles, or GAAP, for the private sector; the Governmental Accounting Standards Board, GASB, is its public-sector equivalent, and they both are projects of the private, non-profit, Financial Accounting Foundation). For those of us long-termers in the corporate welfare space, this is missing the bottom of the budget iceberg, because tax expenditures for economic development dwarf appropriated spending.
Exempting tax-based incentives will create unreliable data for another reason. About a third of the states have subsidies we call “ Paying Taxes to the Boss,” which states structure in three different ways. Some states pay it as a grant to the company (in an amount equal to the employees’ state personal income taxes), so as grants, they’d presumably be covered by the new FASB rule.
Other states create a corporate income tax credit equal the employees’ state personal income tax and other states allow the companies to simply retain the employees’ state personal income tax. Apparently, in neither of those instances would the new FASB rule mandate that reporting.
Thanks to GASB Statement No. 77, which went into effect in 2016, the public can now begin to understand how much revenue governments lose to corporate subsidies. It’s how Good Jobs First was able to learn public school districts lost $2.37 billion in fiscal year 2019 to corporate tax abatements.
Though FASB’s rule failed to help the public better understand just how much public dollars are diverted to businesses (and for what reason), we’re hoping GASB will soon revisit Statement No. 77 and close loopholes.
Specifically, we again urge it to start over on tax increment financing (TIF) and issue a clean new Statement that treats all three forms of TIF as reportable abatements akin to those clearly covered by GASB 77. We also urge the GASB to openly declare that property tax abatements that are bundled with Industrial Revenue Bonds (IRBs) or Industrial Development Bonds (IDBs) are abatements covered by GASB 77.