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More Transparency on Business Tax Breaks

The Governmental Accounting Standards Board (GASB), which sets the rules that states and localities follow in reporting revenues and spending, has handed the public and fiscal watchdog groups an invaluable tool to hold policymakers accountable for the tax breaks they give companies to encourage economic development. 

A new GASB rule mandates that state and local annual financial reports include data on the revenue lost in the past year to “tax abatements” — agreements with specific companies to cut their taxes in exchange for job creation and investment.  The covered tax abatements include things like property tax cuts for businesses that locate in a low-income neighborhood designated as an “enterprise zone” and sales tax exemptions for materials to make movies and TV shows.                                                              

As I’ve written, the public often learns little about the costs of these deals.  But, starting with financial reports for 2016 (which will be issued in 2017), states and localities that wish to comply with GASB standards (as most do by law or practice) must include revenue losses from tax abatements.  Getting that information is the critical first step to evaluate whether the economic development benefits justify the costs and whether there might be more cost-effective alternatives. 

The new rule has shortcomings.  GASB didn’t adopt improvements that we and many other organizations recommended, such as requiring financial reports to show how long existing abatements will run and to name specific companies receiving exceptionally large tax breaks.  Also, the rule allows states and localities to omit abatements whose disclosure is prohibited by taxpayer privacy laws, even though they could include those abatements without revealing the kind of company-specific information those laws are designed to protect.

Thus, good-government advocates will need to maintain their activism around tax break disclosure.  They’ll have to make sure states and localities do not misapply privacy laws to avoid including abatements in financial reports, and press for as much information as possible.  The GASB rule, after all, is a minimum disclosure standard, not a maximum one.