The Governmental Accounting Standards Board (GASB) has proposed new requirements for disclosure of state and local tax abatements. The disclosures are intended to provide insight into how certain economic development incentives might diminish a community’s tax base. Information on tax incentives can be hard to access, and municipal investors are concerned about the fiscal risks of unseen abatement agreements.

The standards are designed for government finance and accounting professionals, but they will affect the economic development community. Here we provide a summary of the draft guidelines and our take on what this means for economic developers.

Standards Summary

GASB defines tax abatements as agreements between an individual taxpayer and the government in which the government gives up tax revenue in exchange for a taxpayer promise to take a specific action that contributes to economic development or otherwise benefits the government or citizens. This definition excludes tax expenditures or other tax breaks that benefit broad classes of taxpayers.

GASB wants to “make the financial impact of these transactions much more transparent.” Accordingly, the disclosure requirements would include:

  • General descriptive information
    • the tax being abated
    • authority under which abatements are provided
    • eligibility criteria
    • mechanism by which taxes are abated
    • provisions for recapture, and
    • commitments made by recipients
  • Number of tax abatement agreements entered and in effect during the reporting period
  • Dollar amount of taxes abated during the reporting period
  • Other commitments made by a government (such as providing infrastructure)

A Few Interesting Points 

The disclosure rules are not limited to business attraction incentives. Tax incentives designed to support economic development objectives such as historic preservation, brownfield cleanup or housing construction would also be covered if they meet the other criteria.

Individual agreements (and names of recipients) do not need to be disclosed. Aggregate program disclosure is considered sufficient to meet the financial reporting objectives.

Disclosure does not depend on the existence of a written, legally enforceable agreement. Abatements must be disclosed even if the government’s agreement to reduce the tax liability and the taxpayer’s agreement to perform a “certain beneficial action” is implicit. 

Disclosure is required only for the amount of taxes to be abated during each reporting period. Future amounts to be abated do not need to be disclosed because the estimates may be unreliable.

Abatements that other entities provide that affect the reporting government’s tax revenues should be reported. This appears to apply mostly to school districts that do not enter directly into tax abatement agreements but still lose property tax revenue from incentives negotiated by their local government.

It is not clear if the standards apply to performance-based agreements. The standards indicate that programs in which the government “does not commit to abate taxes until after the taxpayer has already performed the activity for which the government is providing the tax abatement” are excluded from the disclosure requirement. This would suggest that performance-based incentives are exempt from the guidance. However, in a very informative CDFA/BNY Mellon webcast, a GASB representative indicated that the standards “could” include performance-based tax abatements as long as the agreement with the individual taxpayer preceded the performance. We would like to see this language clarified. 

Our Take

Smart Incentives supports these proposed standards. We recognize that they are not designed to improve economic development reporting or to provide policy guidance on effective incentive use, so their value is necessarily limited for the economic development world. However, we support greater transparency and accountability in economic development incentive use and believe this standard is one good step in that direction.

Some areas of concern are clarifying the language around performance-based incentives (as described above), disclosure of future commitments, and the administrative burden of the reporting requirement. We will continue to look into these topics before submitting comments by the January 30, 2015 deadline.

Economic development offices and development finance agencies will be called upon to provide the data to enable disclosure in the financial statements. GASB’s own survey found that most governments have the necessary information though they have not typically reported it. Accordingly, they do not expect it to create a burden on local governments. I suspect that it will be more complicated than that.

Let’s hear from economic development professionals (both government and non-government) about your thoughts on providing this information. 


For more information:

Others, notably Good Jobs First, have praised GASB’s efforts but also suggested that GASB require recipient-specific reporting, include future year (not just current reporting period) accounting, and include more incentives in the tax abatement definition. Check out the Good Jobs First analysis here.

The GASB is the independent, not-for-profit organization formed in 1984 that establishes and improves financial accounting and reporting standards for state and local governments. Its seven members are drawn from the Board’s diverse range of stakeholders, including preparers and auditors of government financial statements, users of those statements, and members of the academic community. More information about the GASB can be found at its website,

Comments on the proposed standard for tax abatement disclosures are due January 30, 2015.