Corporate Tax Incentives: Do rules really mandate disclosure?

October 12, 2020

By Christine Wen, project coordinator and Greg LeRoy, executive director of Good Jobs First, a nonprofit group that led advocacy for the adoption of GASB Statement 77. 


Local governments in the U.S. give out billions of dollars in economic development incentives to corporations every year. But because the vast majority of those dollars are elusive tax-based subsidies — tax credits, tax exemptions, tax increment financing (TIF), etc. — they have been poorly disclosed and little-understood. Politicians habitually emphasize the benefits of costly projects while obscuring the costs. 

There has seemed to be hope for that all to change, thanks to a new government accounting rule. Most local governments, including school boards, keep their books in accordance with the standards set by the Governmental Accounting Standards Board (GASB). Since FY 2017, a landmark amendment to GASB’s Generally Accepted Accounting Principles (GAAP), Statement No. 77 on Tax Abatement Disclosures, has required most governments to report the amount of revenue lost due to economic development tax abatement programs in their audited financial statements. 

With the adoption of the GASB rule, it felt like time to open the champagne bottles in the world of public sector disclosure. After all, Statement No. 77 is GASB’s first and only rule on accounting for any form of tax expenditure.  

But put away the corkscrews.  As Good Jobs First dug into this data, we discovered that many local governments failed to include a Statement No. 77 Note, and because GASB does not require a government to disclose a negative, there is no way to tell if the government a) has no abatements; b) has abatement revenue losses it deems immaterial; or c) is ignoring the new disclosure requirement. 

Given how ubiquitous tax abatements are in this country, we immediately suspected that some places are under-reporting. Following our instinct, we went looking for—and quickly unearthed—lots of cases where local government reports don’t match up. That is, we found some school districts reporting passive revenue losses to abatements granted by cities or counties. Yet those same localities that actually granted the abatements reported nothing. (It’s a strength of Statement No. 77 that it requires every affected government to report, no matter which one actually grants the deals.) 

Equally problematic as omitting tax abatement disclosures is superficially acknowledging Statement No.77 without providing any substantial information. For example, in our quest to track non-compliance through passive revenue loss reporting, we found that Dougherty County, Georgia, lost $1.7 million to agreements made by its seat—the City of Albany, and yet Albany claimed it had no agreements that exceeded the (unspecified) quantitative threshold for disclosures, and said no more. 

We identified nine kinds of disclaimers that governments are using to get out of reporting their tax abatements. Sometimes the passive losers weren’t provided with the information by the abating governments, and hence may be blameless. Other governments violate the Statement, in our opinion, by saying, in so many words: “Yes we lost some revenue, but we made it up [apparently by raising millage rates on everyone else and/or enjoying population growth], so we’re not going to disclose the losses.” 

Even if this is indeed the case, that’s not what Statement No. 77 intends or requires. And the issue of how abatements cause a tax-burden shift is absolutely a salient tax policy consideration that Statement No. 77 should be illuminating.  

Many New Jersey school districts reported that raising everyone’s taxes obscured the calculation of foregone revenue, such that the amount of taxes abated is “indeterminate.” By contrast, Tacoma School District No. 10 in Washington State also experienced a levy increase that made calculations complicated, but it still managed to provide an estimate for the abated taxes—$2.2 million.

Other places claim, magically, that abatements stimulated so much growth, they paid for themselves; but again, that’s now how Statement No. 77 works. Some were so unabashed as if to say: “Never mind that lost revenue; look how much we received!” Some even claimed privacy shields, even though property tax records are public information. 

Scanning the country, we found large variations among states in the share of local governments that adhere to Statement No77. For example, almost all governments (cities, counties, and school districts) in Iowa reported tax abatements. So we can reasonably believe that those few that didn’t report had no abatements. South Carolina, Michigan, Oregon, and New York are other exemplary states—with over 70 percent disclosure rates and sufficient details in the disclosures. At the other end of the spectrum, we can hardly find any tax abatement data in states like Arkansas, Indiana, and Utah, when their local governments follow the same set of accounting standards and use tax abatements to subsidize investment and jobs. 

It’s clear that the requirements of Statement No. 77 are not overly stringent or cumbersome. We urge state and local officials in the laggard states to proactively ensure all local governments have the information they need to be in compliance and keep the public informed.