New rule gradually bringing corporate tax breaks to light
COLUMBUS, Ohio (AP) — Want to know how much money governments give away in corporate tax breaks? Good luck.
For years, the figure has been incredibly difficult to calculate. That’s because states, cities and other government units haven’t been directed to uniformly report the value attached to the various tax incentives, abatements and financing deals they agree to as a way of stimulating economic growth.
A major accounting shift taking place across the U.S. now is changing things.
The nonprofit Government Accounting Standards Board changed its guidelines beginning in 2016 to require reporting of economic development tax breaks.
For the first time, state, local, county and township governments were instructed to include in their annual reports information on their tax abatement programs. That included how many such deals they had going, the amount of tax revenue foregone and the value of any non-tax commitments, such as land purchases or utility structures, they had agreed to contribute in order to seal the deals.
Watchdog groups praised it as an important precursor to debating whether such incentives are a good investment for taxpayers.
“Before you get to the question of whether they’re getting their money’s worth, you have to know how much is being spent,” said Zach Schiller, director of research for Policy Matters Ohio, a Cleveland-based think tank that tracks government budget issues.
Rollout of the new guidelines has not been without its hiccups, however. The accounting board late last month had to issue a clarification to its rule to assure that governments are reporting one of the most widely used economic development tools: the tax increment financing, or TIF, district.
The mechanism has been used to develop the Polaris Fashion Place mall in Columbus; the Harbor Point Project in Stamford, Connecticut; Mesa del Sol in Albuquerque; the downtown Union Station in Denver; the Red Wings hockey stadium in Detroit; the Naval Air Station in Alameda, California; and a Cabela’s in Fort Worth, Texas, that promoters expected to draw more tourists than the Alamo, among dozens of other projects.
Columbus, one of the first big cities to comply with the new rule, had opted not to list its TIFs in the tax abatement section of its 2016 financial report. Its decision appeared to comply with guidance on the matter issued by Ohio’s state auditor, Republican Dave Yost.
Yost spokesman, Ben Marrison, said the guideline was based on the fact that there’s no reduction in revenue to the city under a TIF.
“The existing taxes remain unchanged,” he said. “The property taxes that would have been collected on the improvements are collected from the property owner in a different form, but generally in the same amount.”
With more than 50,000 local and state government bodies expected to reveal tens of billions of dollars in previously unreported tax break spending under the new accounting rule, disagreement over reporting tax increment financing deals concerns transparency advocates.
“GASB Statement No. 77 is a promising new tool for taxpayers to better understand government spending,” said Greg LeRoy, executive director of Good Jobs First, a nonprofit, nonpartisan center that tracks economic development spending. “Let’s get this right the first time!”
LeRoy said whether cities are abating, forgiving or rebating taxes as part of economic development deals shouldn’t matter. It still represents a foregone cost to taxpayers.
LeRoy commended the track record of Columbus Auditor Hugh Dorrian for openness in financial reporting. He called his criticism of the city’s latest report “friendly.” Dorrian said the city’s report was thorough and that he would change his reporting methods when the accounting board told him to.
Since the accounting board’s clarification was issued, Yost’s office has explained how to report tax increment finance under its Frequently Asked Questions. It did not amend its guidance.