New Disclosure Required for Government Tax Expenditures and Abatements
U.S. PIRG Education Fund
In a major victory for government transparency, all states and local governments will now be required to disclose the amount of revenue lost through programs that grant special tax breaks and abatements for economic development. The rule issued by the Governmental Accounting Standards Board (GASB) was the first ever governing such tax expenditures that cost state and local governments an estimated $70 billion per year but often remain undisclosed and have lacked standards for reporting.
“The public needs to know how much these programs cost in order to judge whether they deliver enough to justify the lost revenues. Ordinary taxpayers must pick up the tab when governments issue these tax favors to select companies,” said Phineas Baxandall, Senior Analyst at the U.S. Public Interest Research Group (U.S. PIRG). “Today is a big victory for government transparency, even if it falls short of requiring best practice,” he added.
Many pro-transparency and civic groups were disappointed that the new standards did not require governments to follow the lead of most states and several cities in disclosing which companies have received special tax abatements.
For the past six years, U.S. PIRG has tracked how well each of the fifty states makes data accessible to the public about specific contracts, subsidies and other outlays. The annual Following the Money reports have shown steady progress as states have made more economic development expenditure information available to the public through online tools that allow visitors to search, sort and download the data. A similar U.S. PIRG study, Transparency in City Spending, found major cities are inconsistent in how well they make data about economic development accessible to the public.
“Given that states already publish tax expenditure budgets that often include this data, the new standard will have the greatest impact on local bodies of government: cities, counties, townships, and school boards,” said LeRoy, executive director of the nonprofit Good Jobs First, a leading watchdog of economic development subsidies. “We are especially pleased that GASB is calling for public bodies that lose revenue passively due to the actions of other bodies to report such losses. This means school boards will finally have to own up to the huge costs they suffer when cities and counties abate or divert property and sales taxes.”
“Today’s decision raises the floor for government fiscal transparency. We hope that it will also spur governments to reach for higher levels of public accountability for economic development programs,” said Baxandall at U.S. PIRG. “This isn’t a Republican or Democratic issue, just a simple matter of government being open and accountable with tax dollars.”
The rule issued today is part of the Generally Accepted Accounting Principles (GAAP), which government entities are required to follow in most states and credit rating agencies typically insist are followed to rate public bonds issued by a government entity. The standards will apply for economic development tax abatements and special deductions for income, sales, and property taxes. The new standards will take effect for budgets that begin after December 15, 2015, thus making new data available in 2017.
To read U.S. PIRG’s letter earlier this year to the Governmental Accounting Standards Board calling for many of the stronger standards issued today, read here.