Six years ago, a change in accounting directives led to better public information about corporate tax breaks: for the first time, most communities could learn the costs of local economic development subsidies to figure out if their money was well spent. But now the non-profit board that recommends government accounting procedures may be reexamining the disclosure rule.
When local governments spend money on teachers, roads, and firefighters, accountants track the expenditure in the budget. But when governments give tax breaks to businesses to encourage job creation or other public benefits, the hand-out may not show up in public financial reports because the money is never collected in the first place. Corporate giveaways in the name of economic development cost states and localities about $95 billion per year, according to some estimates, but until recently, that information wasn’t available to the public in the budgets or accounting documents of city councils, county commissions, or school boards.
That all changed a few years ago, after Good Jobs First led a broad national movement demanding greater accountability for economic development tax breaks. In 2015, the Governmental Accounting Standards Board (GASB) – the professional organization that establishes standards of accounting and financial reporting most state and local governments follow – mandated reporting of economic development tax abatements as part of the annual financial reports published by local governments, including school boards. (GASB adds new statements periodically to ensure consistent, robust reporting of government spending. Officially, this one is Statement No. 77 on Tax Abatement Disclosures.) The rule took effect in 2017.
The Benefits of Greater Transparency
Improved transparency for corporate tax breaks began to pay off immediately. A large and growing constituency started to scrutinize local government reports to understand how much money had disappeared from the public coffers into the hands of corporate executives.
Good Jobs First launched a database, Tax Break Tracker, so the public could learn about local tax abatements and published a series of reports drawing on this data. We found that school districts in New York were losing up to $5,000 per student per year to economic development tax breaks, while Black and brown students in the Cincinnati area were losing much more than students in mostly white nearby suburbs.
Journalists also pounced on the data. Reporters in New York, South Carolina, Missouri, Ohio, Texas, Nevada, Louisiana, and beyond explored what it meant to give corporations billions of dollars per year via tax abatements, while students learned from outdated textbooks and teachers watched their wages stagnate.
An Opportunity to Improve Disclosure
A month ago, GASB announced it might revisit the tax abatement disclosure rule.
Good Jobs First is calling on the board to use the reexamination as an opportunity to strengthen this important rule and improve transparency. We’re hoping the board will codify compliance so that more localities report on tax breaks more consistently. The vague wording in many local government financial reports sometimes makes it hard – even for tax and budget nerds like Good Jobs First researchers – to understand how much revenue a community has lost to tax breaks. Chief among our recommendations are the need for more uniform reporting requirements, the inclusion of all revenue losses caused by tax increment financing (TIF), and a clear abatement designation for tax exemptions bundled with Industrial Revenue Bonds, sometimes called Industrial Development Bonds (IRBs or IDBs).
If you share our concerns, please reach out to GASB and its advisory board (GASAC) and reaffirm the importance of Statement No. 77. You can reach board members here:
Joel Black, Chair [email protected]
Jeffrey Previdi, Vice Chair [email protected]
Brian Caputo, Board Member [email protected]
Kristopher Knight, Board Member [email protected]
Dianne Ray, Board Member [email protected]
Jaqueline Reck, Board Member [email protected]
Carolyn Smith, Board Member [email protected]
Staff representative to the GASAC (advisory council) [email protected]
If you’d like to learn more, please email [email protected].