Report: New disclosure rule creates a “seismic shift in corporate tax breaks”

Blog Post
On October 31, 2014, the Governmental Accounting Standards Board (GASB) issued an exposure draft of proposed rules governing tax abatement disclosures. In a press release announcing that it was seeking public comment on the proposal, the GASB informed the public that the rules would, for the first time, require state and local governments to disclose information about property and other tax abatement and incentive agreements. 

The problem the new policy attempted to correct was the difficulty of discerning the magnitude and nature of the effects of states’ tax incentives on their financial health, and their ability to raise revenue. In addition, the rules attempted to increase the transparency of the tax abatement deals. 

In addition, the press release contained the proposed disclosure requirements, including the following:
  • General descriptive information, such as: 
    • The type of tax being abated;
    • Criteria that must be met for the taxpayer to be eligible for the abatement;
    • Provisions for recapturing abated tax revenue;
    • The types of commitments made by tax abatement recipients;
  • The number of tax abatement agreements;
  • The dollar amount of tax revenue abated; and
  • Other commitments made by a government, such as to build infrastructure assets.
The exposure draft provided further details, including the following:
  • The rule would only apply to transactions that fall within the definition of a tax abatement, which, loosely stated, is an agreement between “one or more government entities and a taxpayer…[to] reduce the taxes that the taxpayer would otherwise owe.” A tax abatement agreement is one pursuant to which the taxpayer “taking a specific action that contributes to economic development or otherwise benefits the governments or their citizens.”

    The exposure draft further explains that, for the purposes of the GASB’s proposal, tax abatements, as distinct from other tax expenditures like deductions for charitable donations, or reduced property taxes for senior citizens, are the result of a government agreement with a specific taxpayer, which can be an individual or an entity, that the parties enter into before the taxpayer takes the promised action, and before the government reduces the taxpayer’s taxes.

  • Governments, like school districts, whose taxes are reduced by tax abatement programs of other governments, would have to disclose information about those programs.

  • Governments could disclose their abatement agreements individually or in the aggregate. 

When the GASB issued its exposure draft, the magazine, a provider of nonpartisan news and analysis on public finance, and other subjects, characterized the proposal as “the biggest effort yet to make government tax subsidies more transparent… If approved, the new disclosures could shed light on a previously murky area of government finance and provide hard data on information that has often been assembled piecemeal, if at all.” 

Comments from the public were due by January 30, 2015.


The GASB ultimately proceeded to impose the disclosure requirement. In August of 2015, it issued Statement 77, which contained the details on how government taxpayers should carry out their new reporting obligations, effective for financial statements for periods beginning after December 15, 2015. Based on the timing of most states’ fiscal years, most states’ first set of disclosures will come out in 2017. 

Good Jobs First, a critic of subsidies that may serve as corporate welfare programs, applauded the effort in a piece titled "GASB Statement No. 77 Data is Official and Coming! Finally, a Price Tag on Corporate Welfare!" It remarked on the “historic news: for the first time ever, state and local governments – including school districts that lose revenue passively – will have to report the costs of job subsidies. It is no exaggeration to refer to economic development reform in pre-GASB 77 and post-GASB 77 terms. The data will start being published in 2017 based on calendar 2016 and later budgets.”

What taxpayers can expect in 2017

A November 2016 article titled "A Sneak Peek of the Seismic Shift in Corporate Tax Breaks" ("Sneak Peek") by looked at a 2013 tax incentive package that lawmakers in Washington gave to Boeing. It acknowledged that the Evergreen State’s arrangement was “largely regarded as the most expensive incentive deal in history.” 

In January of this year, we addressed the arrangement, pointing out that the $8.7 billion of tax breaks, “the largest subsidy any state or local government has given to a single company in U.S. history, was being criticized by many who pointed out that despite the size of the incentives, Boeing had moved jobs and manufacturing out of the state. Even if the moves were technically unrelated to the incentive program, one lawmaker lamented the predicament, opining that “[w]e’ve been had.”

"Sneak Peek’s" quotes a Washington state senator, Reuven Carlyle, who expressed disappointment over the state’s job losses but still stands behind the incentive agreement. He takes the position that “[t]he overall return on investment for taxpayers, including ensuring the future of aviation in our state…is overwhelmingly strong by any standard or definition or criteria.” 

"Sneak Peak" points to this sentiment as an example of how Statement 77 will improve things, because Washington stands out as one of few states that has the data to understand whether and how the incentives are working, “thanks to a tax preference auditing program, already one of the most robust in the nation.” Delaware and Louisiana have also begun to analyze their programs more robustly, but most other states have not. GASB’s new reporting obligations will dramatically change this.

The shift in transparency 

"Sneak Peek" portrays the impact of the impending accounting shift as “seismic.” Statement 77 will give stakeholders the opportunity to see just how much governments are foregoing in tax revenues. With such information, officials will be able to identify and resolve problems, another big change for most states. For example, Washington put certain requirements into its 2013 tax incentive package for Boeing, according to Senator Carlyle, because “[t]ransparency categorically changes the conversation to, ‘What’s the value and return on investment?’ In other words: Does the damn thing work?” 

Not everything will come to light

Even with additional transparency, Statement 77 does not resolve all issues with tax incentives. "Sneak Peek" acknowledges that it does not require governments to analyze their tax programs, to report tax giveaways on an individual company basis, or to consider the data in their budget discussions. 

Beyond these matters, in a 2015 article examining the new disclosure rule, underscores what will not be required.

Besides not mandating the reporting of who exactly gets the money, the rules “ignore” how the rebates are spent. In examining the television and film subsidy program in Massachusetts, in October 2015, the Boston Herald revealed what described as “a stunning black market of sorts for Massachusetts' film tax credits. At least $335 million of the state's film tax credits were actually sold off to corporations and individuals who had little to do with the movie that won the tax credit in the first place.” 

A third issue that raises is that governments must report the subsidies as lost income, while there is no way to capture potential income on a balance sheet. This has raised concerns that the disclosures will only tell part of the story. 


In the end, the mere ability to evaluate the impact of tax breaks may not, as one might expect, reduce the size of the giveaways. "Sneak Peek" suggests that “[r]ather than eyeing them suspiciously as giveaways, the release of regular information has allowed lawmakers – and to some extent the public – to see them as an investment.” 

Related Services

Jump to Page

McDonald Hopkins uses cookies on our website to enhance user experience and analyze website traffic. Third parties may also use cookies in connection with our website for social media, advertising and analytics and other purposes. By continuing to browse our website, you agree to our use of cookies as detailed in our updated Privacy Policy and our Terms of Use.