PI Original Ellyn Fortino Friday October 23rd, 2015, 7:26pm

New Accounting Rule Requires Cities, States To Disclose Tax Break Costs

Cities and states will have to disclose information about tax abatement agreements under new accounting standards issued in mid-August. Progress Illinois takes a closer look at the Governmental Accounting Standards Board's first-ever reporting requirements on the issue.

Government reporting around tax-based economic development subsidies will become more transparent under a new policy from the Governmental Accounting Standards Board (GASB).

That's the organization that sets accounting and financial reporting standards for U.S. states and localities.

Under its "tax abatement disclosures" rule released in mid-August, state and local governments will have to disclose how much revenue they lose as part of economic development tax break agreements.

GASB says its new rule, the first of its kind, will make it easier to determine the impact of tax abatement programs on a government's fiscal condition and ability to raise revenue.

"This new guidance will result in people who use governmental financial statements having access to essential information about the tax abatements governments enter into," said GASB Chair David Vaudt. "Not only will this mean that they'll have access to information that will allow them to better assess a government's financial health, but it will also make the impact of these agreements much more apparent."

Good Jobs First, a subsidy watchdog group, called GASB's new policy "historic good news for taxpayers."

"States and cities spend an estimated $70 billion a year for economic development, most of it through tax expenditures. But we could only estimate because GASB has never before called for standardized reporting," said Good Jobs First Executive Director Greg LeRoy. "That's the historic value of this new standard: taxpayers and policymakers will finally see the true price tag for economic development."

GASB's new standards for reporting tax abatements will take effect in fiscal years starting after December 15. As such, Good Jobs First expects new data to appear in the Comprehensive Annual Financial Reports (CAFRs) issued by governments beginning in 2017.

During GASB's public comment period on its proposed tax abatement reporting standards, Chicago labor and community groups reached out to the organization in support of a strong pro-disclosure rule. The groups, including the Chicago Teachers Union and the Grassroots Collaborative, are interested in stronger standards because they want to better understand how Chicago's tax increment financing (TIF) program impacts the public school system.

That type of information will have to be reported under GASB's policy.

"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," LeRoy said. "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."

However, Good Jobs First says the rule falls short in some areas. For example, the proposal does not require governments to identify subsidy recipients or provide future-year estimates of tax revenue losses from signed subsidy agreements. Additionally, governments are not required to disclose the total number of abatement agreements in effect and how many new ones were entered into during the reporting year.

"Though we are disappointed by some of the technical shortcomings of the new standard, make no mistake: this is absolutely historic good news for taxpayers," said Good Jobs First executive director Greg LeRoy. "We have long criticized GASB for being MIA on corporate welfare; now the debate will turn to implementation of this landmark accounting rule."

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