New government accounting standards to require subsidy disclosure
In a move with potentially enormous implications, Good Jobs First reports that the Government Accounting Standards Board (GASB) will soon issue new draft rules for Generally Accepted Accounting Principles (GAAP) for governments. Don’t fall asleep; this could be awesome!
As regular readers know, one of the things bedeviling subsidy debates is the lack of transparency in what governments actually give to businesses, and on whether incentive recipients actually deliver on their promised jobs and investment. We have just seen how Boeing is moving 2000 jobs out of Washington state despite receiving huge subsidies there. And since the stakes nationally are $70 billion a year, by my estimates, better transparency is a must if we are to have any kind of democratic debate and accountability.
As Good Jobs First reports, the GASB proposal would require governments to publish detailed information on “tax abatements” (an oddly narrow term it applies to the wider concept of tax incentives; but what about cash grants or free infrastructure?) in order to comply with Generally Accepted Accounting Principles. State and local governments will have no choice but to comply with whatever is adopted, as it is impossible to issue bonds or carry out other basic financial operations unless they meet GAAP standards. This is why Good Jobs First has long campaigned for a change by GASB. The centrality of GAAP means that we have to pay attention to the draft rules and comment on them in the three-month comment period starting in November.
It turns out that taxpayers aren’t the only people who want to know about tax incentives. Bond analysts want to know about present and committed tax subsidies to help them assess whether bond issuers can really pay them back. Good Jobs First cited the example of Memphis, where tax breaks consume about one-seventh of potential property tax revenue.
What we have now is a complete patchwork where some states (and proportionately fewer cities) have good disclosure and others don’t. This requires the constant monitoring and central aggregating of subsidy costs that Good Jobs First does so well (250,000 subsidies and counting). It also necessitates the construction of estimates, like mine, of the overall costs of investment incentives and other subsidies to business. In a good world (not even a perfect one), these data would already be available in easy-to-analyze forms. Really strong GASB rules would get us a long way to reaching that point.
I’ll let you know when the comment period starts.
Cross-posted from Middle Class Political Economist.
“where tax breaks consume about one-seventh of potential property tax revenue”
That’s an odd way to look at it. Property tax rates are generally based on assessments of property and the estimated required collections to meet the associated outlays. What is happening is not that revenue is being foregone, it is just being collected from someone else who wouldn’t owe part of it if everyone who was not being taxed was treated the same way as those who are being taxed.
Moving companies in is also not the only way that these things are skewed. It’s not at all uncommon here in Massachusetts for cities to give a benefit to owners of homes where the occupant and owner are the same person. These people get some benefit (say 1/4 off their assessed property value, resulting in lower tax), and as a result, those who don’t qualify for the reduced valuation pay more. The city won’t collect less unless it has some problem collecting the money from people (which is normally a “temporary” problem because the city will collect it the next time the property is sold).
Will this be on the CPA exam in 2015?
When I took the exam (admittedly quite a while ago), there were maybe five questions total about not for profit and governmental combined. This was after the government standards had their major change in the 2000s.
The exam is as much about the universe of potential questions being quite large as it is about any specific question showing up.
Should have mentioned that at the time, NFP and governmental were covered in the same section as tax and managerial (cost accounting). As you can imagine, tax got heavy representation.
Current sections are different (again), and the estimated coverage is as follows for that section:
Financial accounting and reporting
17-23% concepts
27-33% accounts and disclosures
27-33% transactions
8-12% governmental
8-12% not-for-profits
So out of 90 multiple choice questions, you’d average 9 questions about governmental accounting now, and you might or might not have governmental in the case studies section.