Thursday, October 29, 2015

New bookkeeping rule shines sunlight on tax breaks

A new accounting rule would require local governments nationwide to disclose of how much tax revenue was forgone by virtue of abatement or payment-in-lieu-of-tax agreements between development authorities and property owners.

Such agreements have been a sore spot in Georgia for school systems in counties where development authorities have offered tax incentives to attract or retain businesses to their districts. The new rule should help with transparency about those tax incentives, and there is very good illustration of how the process will work under the Governmental Accounting Standards Board’s new rule.

That said, I can envision a couple complicating factors that limit the usefulness of the data. For one thing, these calculations may not really reflect foregone revenues, because if the incentives were not offered, then the business may have moved elsewhere.

Secondly, at least in Georgia, the calculations will require coordination between several different government entities and it may take a few iterations before everybody gets on the same page. If the calculation is a reporting requirement when a local government’s financial statements are being audited, the auditors are probably going to ask the county or city accountant, and they’re not going to know the answer because this data doesn’t exist yet. They will reach out to the tax commissioner who has no reason to calculate bills for property owners that do not receive tax bills. Then the tax commissioner’s office will need to calculate a theoretical bill based on the assessment then report that back to the city or county for inclusion in the audit.

Thirdly, this reporting requirement really only addresses abatements after the horse is out of the barn. School and local government elected officials won’t be able to do much other than complain about how much taxes the development authorities agreed to abate in the prior year. Georgia lawmakers have been considering proposals over the last year or two that would involve more advanced notification and even consent of school boards before such deals are struck.

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