Harpel gasb 77 tax abatement disclosure workshop

GASB Incentive WorkshopIEDC FED FORUM APRIL 2017

ELLEN HARPEL SMART INCENTIVES

About us Business Development Advisorsis an economic developmentconsulting firm

 Smart Incentives helps communitiesmake sound decisions throughout the incentives process

2©2017SMARTINCENTIVES

Understanding Statement No. 77 in relation to your job as an economic developer

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Why do we use incentives? To achieve our community’s economic development goals

◦  Jobs◦  Business Development◦  Investment◦  Downtown revitalization◦  Brownfield redevelopment◦ Quality of life and quality of place◦  Strengthen tax base

 Incentives are not just about winning a deal. Smart incentive use is always connected to a larger economic development strategy.


What is driving interest in incentives disclosure? Disconnect between what economic developers believe they do and what others think they do

 Growth in incentive use◦  more programs◦  more money◦  more projects

 Expectation for data-driven, performance-based accountability in government programs


Fundamentals of reporting & disclosure Transparency◦  How much are we spending?◦ Who is receiving incentives?

 Accountability◦ What are we getting out of our incentives spending?◦  Do our programs help us achieve our goals in an effective and

efficient manner?


Reporting is part of the incentives process


Nuts and bolts of reporting and compliance


Introduction to GASB 77 Requires disclosure of financial information about tax abatement agreements between individual taxpayers and governments ◦  Guidance is limited to tax abatements – does not include all tax

expenditures or other forms of assistance to businesses◦  Not limited to tax abatements for business attraction/expansion

 Why? To make transparent the financial impact of transactions that can limit a government’s revenue-raising ability GASB is not directly concerned with the effect of tax abatements on economic development outcomes  In effect for financial statements for periods beginning after Dec. 15, 2015


Definition of a Tax Abatement A reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which (a) one or more governments promise to forgo tax revenues to which they are otherwise entitled and (b) the individual or entity promises to take specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or citizens of those governments.

  Source: Statement 77; Presentation by Pam Dolan, Project Manager, GASB


GASB Statement 77 State & Local Tax Abatement Disclosure Disclose agreements between individual taxpayers and the government that might diminish the tax base

 Includes:◦  General descriptive information (tax being abated, authority, eligibility,

mechanism by which taxes are abated, provisions for recapture)◦  Commitments made by the recipient◦  Other commitments made by a government (such as infrastructure)◦  Number of tax abatement agreements entered into and in effect during

the reporting period◦  Dollar amount of taxes abated during the reporting period

 Substance of the transaction rather than the name or description determines whether the abatement must be disclosed.


Disclosure principles A government should disclose information separately for: ◦  Its own tax abatements◦  Tax abatements that are entered into by other governments that

reduce the reporting government’s tax revenues

 Disclosure information may be presented for individual agreements or may be aggregated

 Disclosure should commence in the period in which a tax abatement agreement is entered into and continue until the tax abatement agreement expires.


Source:Statement77;PresentaEonbyPamDolan,ProjectManager,GASB

Summary of required disclosuresBriefDescrip+veInforma+on OwnAbatements OtherGovernment’s

Abatements

Nameofprogram x

Purposeofprogram x

Nameofgovernment x

Taxbeingabated x x

Authoritytoabatetaxes x

Eligibilitycriteria x

Abatementmechanism x

Recaptureprovisions x

Typesofrecipientcommitments x

Dollaramountoftaxesabated x

Amountsrec’dfromothergovernmentsforabatedtaxes

x

Thresholdforindividualdisclosure x

InformaEonomiWedduetolegalprohibiEons x


Source:PresentaEonbyPamDolan,ProjectManager,GASB

Three steps for economic developers Understand which tax incentives meet the GASB criteria for disclosure

 Communicate with your government finance staff Determine how to supplement the financial disclosure◦  Disclosures will describe costs but not expected benefits of tax

abatements◦  Consider supplemental reports◦  Be prepared for questions◦  Engage and be a good resource


How best to talk to colleagues and elected officials about Statement No. 77


To do now Communicate with government finance staff and/or budgetary officials Think about stakeholders*◦  Enacting authorities: states, cities, counties◦  Reporting entities: finance department; other affected jurisdictions

such as school districts◦  Direct stakeholders: tax departments, state auditor, municipal league,

association of counties, assessors◦  Third party stakeholders: financial institutions, investors, rating

agencies

  *Source: John Tysseling, Moss-Adams LLP


To do at time of disclosure Supplement the financial disclosure◦  Disclosures will describe costs but not expected benefits of tax

abatements◦  Consider supplemental reports

 Options:◦  Letter of transmittal with the Comprehensive Annual Financial Report

(CAFR)◦  Other supplemental material within CAFR◦  Annual report aligned with disclosures◦  Online – dashboards, opengov sites, etc.

 Be prepared for questions Engage and be a good resource


Engage and be a good resource Connect tax abatement use to your community’s economic development objectives.

 Provide context that demonstrates relative impact and fit with the community.

 Consider your audience(s).

 Strive to improve the quality of the policy conversation around incentives.


To do over time Consider how to use the disclosures in conjunction with your own reporting on economic development activities

 Develop a template or consistent method of providing both the required disclosures and any supplemental data

 Streamline and standardize data collection procedures

 How can this information improve economic development decision-making?


Contact us Ellen Harpel President 571/212.3397

[email protected] www.businessdevelopmentadvisors.com

[email protected]://www.smartincentives.org/

@SmartIncentives


Questions Have you been working with your government finance staff on these disclosures?◦  What has your role been?◦  What have been the challenges?◦  Have there been surprises?◦  What has been your experience in pulling together requested data

elements?

 What questions are you fielding about tax abatement disclosures? What story would you like to tell? What are you interested in learning from disclosures from other places?  What can we do to facilitate proper use of GASB 77 reporting?


Economy & Finance

Harpel gasb 77 tax abatement disclosure workshop