Disclosure of Tax Abatement: State Governments’ Compliance with the Governmental Accounting Standards Board Statement 77

Howard Frank, Hai (David) Guo and Yongqing (Carrie) Cong

Municipal Finance Journal, 2024, vol. 45, issue 2, 99 - 119

Abstract: The Governmental Accounting Standards Board (GASB) issued Statement 77 on Tax Abatements in 2015 to provide users of state and local financial reports with enhanced disclosure of foregone revenue attributable to tax breaks granted to specific employers with the expectation of future business development. Our assessment of fiscal years 2017–2021 squares with prior research. Disclosure is limited to aggregate total of tax breaks with limited analysis of the economic benefits and costs to jurisdictions. The GASB’s decision to allow jurisdictions to define materiality and threshold amounts of disclosure limits intertemporal and interjurisdictional comparisons and may lead to underdisclosure of abated revenue. Regression analysis confirms that political competition, intergovernmental revenue, state GDP, and political culture are statistical drivers of disclosure quality. High- and low-disclosure states remained consistent over time, suggesting that administrative culture may foster enhanced reporting. Nondisclosure agreements are an integral part of economic development activities and impede revelation of specifics related to tax breaks and their beneficiaries. It is suggested that the GASB may wish to overcome this limitation in updates to the standard via increased use of North American Industrial Classifications in required disclosure.

Date: 2024
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