U.S. states, cities to report money lost on corporate tax breaks

August 17, 2015


By Hilary Russ, August 14, 2015

For the first time, state and local U.S. governments will be required to report how much money they lose on corporate tax breaks for economic development projects, according to a new accounting rule issued on Friday.

The rule will "make the impact of these agreements much more apparent" and allow taxpayers and the public to better assess a state or city's financial health, David Vaudt, chairman of the Governmental Accounting Standards Board (GASB), said in a statement.

States and cities across the country try to stimulate economic development by providing tax abatements to companies that expand in or move to their areas, especially in low-income communities that need jobs.

GASB examined the issue because tax abatement programs can substantially impact the ability of governments to raise revenue, while the extent of the impact is often difficult to determine from financial statements.

"States and cities spend an estimated $70 billion a year for economic development, most of it through tax expenditures," said Greg LeRoy, executive director of Washington-based watchdog group Good Jobs First, in a statement.

"This is absolutely historic good news," he said of the new rule. "Taxpayers and policymakers will finally see the true price tag for economic development."

The rule goes into effect for fiscal years that begin after Dec. 15. That means reporting under the new standard would not begin appearing until 2017.

Good Jobs First said the rule still had several shortcomings: no requirement to name specific companies, no disclosure of how many individual agreements are included in a reporting year, and no future-year cost reporting.

Others said the rule could cause taxpayers to not see the benefits of breaks given for economic development.

"If you didn't realize this was connected with actual benefits, it would give you a very incomplete picture," said Stephen Gauthier, director of technical services at the Government Finance Officers Association. (Reporting by Hilary Russ; Editing by Leslie Adler)