Congrats to the Government Accounting Standards Board for pushing state and local governments to be more transparent about their tax subsidies. Last week, the agency approved new disclosure requirements that will require states and localities to publicly disclose how much of a given tax is being abated, what other commitments they make as part of these deals, and what promises recipients make in return for the tax breaks.
The new disclosure rules will apply to financial statements for fiscal years beginning after Dec. 15, 2015 so will begin to appear in 2017.
The GASB rules go a long way towards improving disclosure but still leave some big gaps. For instance, their definition of the kind of tax abatement that must be disclosed is narrower than it might have been. And the new rules do not require states and localities to name the beneficiaries of the abatements or disclose how much each recipient gets. That’s too bad.
While local governments have complained that the new rules will be complicated and burdensome, it is frankly a scandal that governments have been able to keep these subsidies under wraps for so long.
I was shocked when, in a recent Tax Hound blog, my colleague Renu Zeretsky described how little Michigan has disclosed about its aptly-named MEGA tax credits (for Michigan Economic Growth Authority). Through those jobs-related credits, the state will distribute nearly $10 billion in subsidies to the Big Three automakers and about two hundred other lucky firms over the next two decades. Yet, as little as Michigan discloses, other states say even less about their tax subsidies. The GASB rules will begin to fix that.
Similarly, the new rules will require states and localities to disclose more about the incentives they give developers to build sports stadiums--not only property tax abatements but other subsidies and related commitments--and create a record of those incentives.
Just as GASB cast some light on unfunded pension obligations, this rule will increase the public understanding of tax abatements, informing the debate about priorities in state government spending.
The world of financial accounting moves very, very slowly. And this step is long past due. But give GASB credit for requiring states and localities to at least begin to pull back the curtain on their lucrative tax subsidies.
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