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Saturday, August 15, 2015

Final subsidy accounting rules published!

On Friday, the Government Accounting Standards Board (GASB) published the final version of its new rules requiring governments to make reporting on subsidies a standard part of their financial reports (known as Comprehensive Annual Financial Reports, or CAFRs). Since GASB determines the content of "Generally Accepted Accounting Principles," its new rules will have to be widely adopted.

Subsidy reformers such as Good Jobs First did not get everything they wanted in the new rules, but their publication represents a gigantic step forward in subsidy transparency. In particular, every government that gives tax-based subsidies will be required to report the amount they give each year. Moreover, every government that loses revenue to subsidies given by another government must report the amount as well. Most commonly, this will be school districts and other political units that lose property tax revenue to tax increment financing (TIF) or property tax abatements.

GASB continued its incomprehensible use of the term "tax abatement" as its catchall for all tax-based subsidies. As I pointed out in my own GASB comments, the term properly only refers to property tax abatements, a smallish proportion of local subsidies used in fewer states than TIF (see Greenbaum and Landers, "The TIFF over TIF," 2014, no ungated version available). On the plus side, as Good Jobs First points out, the final rules make clear that subsidies such as tax increment financing are included in their definition of "tax abatement," although a strict reading of the draft definition might well have excluded it and other subsidies. I considered this a worry in my GASB comments, because too much focus on legal fictions (TIF recipients are legally deemed to have paid their taxes, for instance) would obscure the fact that a subsidy exists. Happily, GASB opted to be inclusive in the definition, which will make it more difficult for governments to evade the new rules.

The real drawbacks of the new rules are that they don't require that the recipients, even the largest ones, be identified (this is optional); they don't require governments to say how many subsidies are in place (just the total cost of subsidies for that year); and they don't require a listing of future subsidies already committed. In addition, as I pointed out in my comments, they do not require a cross-listing of non-tax subsidies such as grants and loans so that people reading a CAFR can determine how much a government is spending and committed to spend on total subsidies.

Still, the new rules represent a tremendous advance over the status quo. Every state and local government will now have to report the value of the subsidies it gives every year. CAFRs are audited reports, meaning that multiple sets of eyes will look at the documents even before the public sees the reports and can cross-reference them with everything else known about a government's subsidies. Good Jobs First will be expanding its Subsidy Tracker database to include the new data in governments' annual reports. I'm looking forward to all these developments, and you should be, too.

Cross-posted at Angry Bear.