Statement No. 77 on Tax Abatement Disclosures (GASB 77) set forth by the Governmental Accounting Standards Board (GASB) requires GAAP-compliant governments in the United States to report how much revenue they have lost to economic development tax abatement programs.
Since 2017, U.S. state and local governments that prepare their financial statements in accordance with GASB’s generally accepted accounting principles (GAAP) must include a note, if applicable, accounting for revenue foregone due to economic development tax abatement programs. However, when a financial report does not include a GASB 77 note, it can be difficult to tell: is the government not complying with the disclosure rule? Or is there nothing to disclose?
Given that GAAP does not impose a negative reporting requirement (that is, the rules don’t require a Note if there is nothing to disclose under it), only the audit process remains to ensure that all reporting requirements are met. So the absence of a GASB 77 note should indicate the absence of tax abatement agreements. However, related evidence suggests many such jurisdictions do have abatements.
To detect this non-compliance, we rely on GASB 77’s provision requiring the disclosure of “passive” revenue loss. If an actively abating government (e.g., a city) grants an abatement (e.g., of property taxes) and that agreement causes the school district and the county to lose revenue as well as the city, those passive-loss governments are also obligated to disclose. This “intergovernmental free lunch” phenomenon is central to how the true costs of tax abatements are hidden.
So we looked up local governments that reported passive revenue losses and checked them against the named actively abating governments to see if the reporting aligned. If the abating government reported nothing at all, we consider it to be a facial case of non-compliance. That government’s auditors may deem the revenue loss so small as to be immaterial, but Statement 77 clearly states that the costs of such agreements must be reported. Even if no single agreement exceeded the government’s own quantitative threshold for disclosure, the reporting government should at least state this explicitly or provide an aggregate figure if there are several agreements.
For example, Dougherty County, Georgia, reported losing $1,749,031 to the City of Albany’s agreements. The City’s Statement 77 note claimed that it “did not have any such agreements, either entered into by the City or by other governments that exceeded the quantitative threshold for disclosure.” This vague disclaimer suggests that there is a uniform threshold for disclosure (e.g., absolute value or share of revenue), but GASB has no such prescription. The County’s $1.7 million passive loss suggests the City of Albany lost about as much.
Then there are governments that omit the GASB 77 note altogether:
Sandy Springs, Georgia, said nothing about GASB 77 in its 2018 financial report, but Fulton County reported losing $208,000 to the City’s agreements. We queried officials in Sandy Springs finance department. They claimed to be unaware that other governments could lose revenue to the city’s agreements, which it deemed immaterial and therefore not reportable.
Bloomington, Illinois, did not include a GASB 77 note in its 2018 financial report. McLean County reported a number of property tax abatements that resulted in revenue reduction for all taxing districts in the location of the property. According to the County website, some of the businesses receiving tax abatements are located in Bloomington.
The same is true for New Haven, Indiana – passive revenue loss reported by Allen County; Carmel, Indiana – passive loss reported by Hamilton County; Hickman and Waverly, Nebraska – passive loss reported by Lancaster County; Avon Lake and Village of Grafton, Ohio – passive loss reported by Lorain County; Miamisburg and Moraine, Ohio – passive loss reported by Montgomery County.
We asked city officials in Carmel, Indiana, why the city did not report its revenue losses in tandem with Hamilton County. Their non-response: Ask Hamilton County – we don’t control what they put in their financial statements.
Finally, several school districts in West Virginia reported passive revenue loss to their counties (Berkeley, Marshall, McDowell, Monongalia, Nicholas, Ohio, Pleasants, Pocahontas, and Wood), but these counties themselves reported nothing. In one case, Putnam County, an auditor caught the non-compliance with GASB 77 and prescribed corrective actions (see figure at the end).
Enforcement of GASB’s Generally Accepted Accounting Principles (GAAP, as amended by Statements such as 77) is a state-by-state issue, as we have documented in 51 state-specific “ roadmaps .” Taxpayers should insist that their local governments comply and fully disclose revenue lost to “corporate welfare.” As states and localities face severe fiscal stress due to the pandemic-depression, tax abatements deserve full sunshine just like any other kind of government spending.
Figure – 2018 CAFR of Putnam County, West Virginia, p. 76.