New Rule To Demonstrate Tax Breaks’ True Costs

New accounting rules that apply nationwide now require state and local governments to report economic development incentive programs as foregone tax revenue, reports Governing – and that may be a good thing. Governing describes the new rule, known as GASB 77:

Beginning with fiscal 2017’s annual financial reports, the Governmental Accounting Standards Board (GASB) is requiring governments to report things like the total number and value of tax abatements that year, the criteria that businesses must meet, and how the government will get that money back if the goals aren’t achieved (commonly referred to as clawback provisions). Reporting the annual value of these abatements will clearly show their effect on governments’ bottom lines.

According to an estimate by The New York Times in 2012, state and local governments give away more than $80 billion annually in corporate tax breaks.

The article illustrates how lawmakers in Washington State realized earlier this year, through tracking its incentives programs, that it had lost much more money than previously contemplated on a tax incentive package offered to Boeing in 2013 – “largely regarded as the most expensive incentive deal in history.” But lawmakers would not have realized the impact of the tax incentives if the state had not monitored it so closely.

In general, proponents of corporate tax breaks argue that they compensate for tax structures that are not business friendly, and are an investment that result in net economic gain for governments. Opponents argue that this is not always the case, and may not be worth the price. The new standards may result in access to better data to hone in on whether particular incentives packages make good policy.

That, says GASB chair David A. Vaudt, is the whole point of requiring incentives reporting: to provide a truer, fuller picture of a government’s financial health. Officials will be able to see tax breaks as not just one-offs, but as investments that impact their bottom line. It’s also up to each government to decide what to do with the new information. But eventually, lawmakers everywhere could be asking the same questions those in Olympia are now: Was our investment worth the price?

Read the full article for more information.

Want to learn about how Maryland counties, with and without robust economic development incentives programs, are budgeting for the future? At this year’s MACo Winter Conference, county financial experts will share how they incorporate sound financial management practices to shore up reserves, budget conservatively and long-term, and prep for whatever rain tomorrow may bring at the conference session, “Budgeting for Bust or Boom.”

County Budget & Finance Officers’ Affiliate Session: Budgeting for Bust or Boom

As our counties bounce back from the Great Recession with lessons learned and belts tightened, it becomes especially important to plan and save to protect against whatever may come next. With furloughs and freezes thankfully behind us for the time being, the present reality of stagnant property tax revenues and sluggish income growth leaves our local governments in a different position than we were in ten years ago – and prudence warrants budgeting accordingly.

Speakers

  • Ted Zaleski, Director of Management and Budget, Carroll County
  • Mira Green, Budget Analyst, City of Baltimore

Date & Time: Thursday, December 8, 2016; 2 pm – 3 pm

Learn more about MACo’s Winter Conference:

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