A National Victory for Transparency in State and Local Budgeting
New standards issued today will substantially improve public access to important information about budget choices made at the state and local level. Because of the historic changes in accounting standards announced today, state and local governments will soon have to report how much revenue they lose to corporate tax breaks given for economic development.
Greg LeRoy, director of Good Jobs First, which has been a vocal advocate for better disclosure of state and local tax breaks, said the new guidelines aren’t perfect, but lauded the new standards and explained their importance:
“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. That’s the historic value of this new standard: taxpayers and policymakers will finally see the true price tag for economic development.”
The new reporting guidelines will apply not only to the tax abatements that a state or local government approves directly, but also to abatements that are entered into by other governments and reduce the reporting government’s tax revenues. As I understand it, that will mean that schools will have to report on how much revenue they are losing because of tax incremental financing (TIF) districts approved by municipalities (which have the effect of diverting property tax revenue from schools, in order to pay for costs incurred by the municipality).
While applauding the new standards, Good Jobs First said there is considerable room for improvement. They lamented the following omissions: no company-specific recipient disclosure, no disclosure of how many tax-break agreements are behind the aggregate program cost figures (or how many new agreements were entered into during the reporting year), and no future-year cost reporting.
The new standards, which take effect for budgets that begin after December 15, 2015, are not the product of a federal agency. They come from the relatively obscure organization that sets accounting standards, known as the Governmental Accounting Standards Board (GASB), which is a project of the non-profit Financial Accounting Foundation. GASB is best known in government circles for writing the Generally Accepted Accounting Principles (GAAP). Its standards generally have to be adhered to by states and local governments, and credit rating agencies often insist upon them when rating government bonds.
You can read more about the new standards in this article from Accounting Today.