Accounting standards for tax abatements are few and could help governments better understand their revenue pictures.
The Governmental Accounting Standards Board, an organization that establishes accounting principles for state and local governments, has drafted new recommendations for disclosing corporate tax breaks. Accounting standards for this money are few and could help governments better understand their revenue pictures.
Granting tax abatements in the name of economic development has become normal procedure for state and local governments. Typically, a government foregoes collecting taxes from a company or developer in exchange for something benefiting residents, like revitalization of a blighted area or job creation. Good Jobs First, an organization that tracks government incentive programs, estimates that Pennsylvania has had nearly 9,000 incentive agreements worth at least $4.5 billion, though that includes all incentives, not just tax abatements. Note: there is some disagreement about this figure. See further coverage here.
The problem? The Board’s research manager, Dean Mead, says the abatements often go untracked. “These disclosures are very important because they tell the user of the financial statements that this is an amount of money that the government otherwise would have collected but it’s chosen not to, and so effectively, on its own, limited its ability to raise revenues in the future,” Mead said.
The proposed standards would require governments to report general information about their tax abatement programs, the number and dollar amounts of existing abatement agreements, and any other commitments associated with the programs, such as promises of infrastructure build-out as part of a development project. As the proposal currently stands the disclosures would not include the names of companies receiving the tax abatements.
Comments on the draft standards will be taken until the end of January. The disclosures will be available in 2017.