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.

4 tax elements of DeKalb soccer deal

The draft memorandum of understanding (MOU) between DeKalb County and the new Atlanta United soccer team includes several provisions related to taxes:

Property tax exemption
Sec. 1(i) of the MOU says “…Atlanta United’s interest in the Project will constitute a usufruct, and the County will use its best efforts to cause the DeKalb County Chief Appraiser/Board of Tax Assessors to confirm the Parties’ determination of such interest as a usufruct.” I take this to mean that the property of the soccer headquarters and complex would be exempt from property taxes because the deed would stay in the name of a tax-exempt entity (DeKalb County or the DeKalb County development authority) because the agreement allows Atlanta United to use (as a usufruct) the land without owning it. (See an explanation of usufruct under Georgia tax law here.)

Income tax credits
Sec. 5(a) of the MOU says that DeKalb would seek opportunity zone status from the Georgia Department of Community Affairs. “If awarded, the Operator [Atlanta United] shall be eligible to apply job tax credits up to $3,500 per job created as an offset to its State of Georgia income tax liability.”

Sales tax capital outlay
Sec. 5(c) of the agreement says that “The County’s efforts shall include proposing that the Board of Commissioners of the County include Pedestrian Connectivity improvements in the proposed March 2016 Referendum Ballot for approval as an authorized Capital Outlay Project from a Special Purpose Local Option Sales Tax.” In other words, a portion of one of the existing seven pennies of local sales taxes would go toward pedestrian connectivity from the soccer site to the Kensington MARTA station.

Tax allocation district
Sec. 5(f) of the agreement says that “…The County agrees to discuss in good faith permitting the use of any accumulated funds from any applicable tax allocation district to be utilized for any permissible expense… with respect to the construction, maintenance of Phase 2 of the Project… The County will use its best efforts to obtain the participation of the DeKalb County School Board in this tax allocation district.”