By Will Johnson, Shareholder, Haynsworth Sinkler Boyd
What is GASB 77 and why does it exist?
GASB 77 is an accounting pronouncement applicable to the financial statements of state and local governments. In order for their financial statements to be prepared in accordance with generally accepted accounting principles, they must comply with GASB 77. The stated purpose of GASB 77 is to enable users of government financial statements to understand "(1) how tax abatements affect a government's future ability to raise resources and meet its financial obligations and (2) the impact those abatements have on a government's financial position and economic condition."
How will GASB 77 impact local and/or state governments engaged in economic development?
For the first time, state and local governments will have to report the fiscal impact of all tax incentive agreements publicly. As budgets are tighter at all levels of government, the analyses that are publicly released will undoubtedly garner attention. These analyses require a hypothetical determination of "foregone revenue" under an assumption that all projects receiving tax incentives would have made the same capital investments and paid full, unabated taxes on those investments absent the incentives.
What should local government economic professionals do to prepare?
Local government leaders should prepare in a number of ways. For purposes of compliance efforts, as a starting point, leaders should identify all tax incentive agreements for which GASB 77 requires reporting, compile the abated taxes or fees in lieu of taxes for each covered project, and obtain the property tax filings reflecting capital investments for such projects. In addition, local governments should recognize that compliance will be burdensome, in terms of staff time and/or costs. Most likely, a county's financial professionals and economic development staff will need to be involved at a minimum. More strategically, leaders should keep in mind that agreements may be more closely scrutinized in the GASB 77 area.