Cities must disclose tax abatements

Information provided by the National League of Cities

Local governments commonly use tax abatements to attract and retain businesses and jobs in a community. In exchange for the abatement or agreement by the local government to forego tax revenues, the company commits to making certain investments in a community that contribute to economic growth and development.

State and local laws govern the use of tax abatements. They generally require a transparent process for approving the abatement agreement and compliance by both the local government and the company in filing reports regarding the abatement.

Recently, the Governmental Accounting Standards Board approved new guidelines, Statement 77, that require state and local governments for the first time to disclose on financial statements information about their tax abatement agreements.

Although many governments offer tax abatements and provide information to the public about them, "they do not always provide the information necessary to assess how tax abatements affect their financial position and results of operations, including their ability to raise resources in the future," according to GASB.

Local governments must disclose information about (1) tax abatement agreements and (2) abatement agreements entered into by other governments that reduce the reporting government's tax revenues.

The following information must now be disclosed by the government that entered into the agreement:

  • Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients;
  • The gross dollar amount of taxes abated during the period; and
  • Commitments made by a government, other than to abate taxes, as part of a tax abatement agreement.

The requirements of Statement 77 are effective for financial statements for periods beginning after December 15, 2015.

In its comments to GASB during the drafting process, the National League of Cities cautioned that the narrow focus on the taxes abated would be misleading by painting an incomplete picture of the impact of the abatement on the local government's overall financial position.