Fiscal Notes: November 2016 Page: 9
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Some state programs may
qualify as "tax abatements"
under GASB 77, such
as the state's
Enterprise Zone Program.
In a response to an initial draft of the statement, the
Government Finance Officers Association, International
City/County Management Association, National League
of Cities, National Association of Counties and U.S.
Conference of Mayors issued a joint letter saying that as
written, GASB 77 wouldn't fulfill its specified purpose,
stating that:
Including only a disclosure about
the abated tax revenue, without any
mention of the return on investment
analysis that preceded it or a discussion
of the benefits expected as part of this
agreement, only tells part of the story....
A working group representing Novogradac &
Company LLP, a national accounting and consulting firm,
also responded to the GASB 77 draft:
... we would recommend that the
disclosure requirements include the
expected outcomes resulting from
the tax credit investments ....
[O]mitting these impacts ... [makes]
them appear to be a liability on state
and local governments in their financial
statements. [Italics ours]
In response, GASB suggested the entities required
to report incentive costs under GASB 77 could include
information about the past and expected financial
benefits of such arrangements in their financial reports'
introductory sections.
GASB concluded the statement wasn't intended
to "provide information needed to evaluate the
effectiveness of tax abatement programs," notingthe benefits should ultimately be reflected in the
government's tax revenues and financial statements.
Some financial experts believe it may be appropriate
to discuss expected benefits from tax breaks in the
Management's Discussion and Analysis (MD&A) narrative
section of the financial report. The GASB-required MD&A
introduces the entity's financial statements by providing
an analytical overview of its financial activities. GASB
stipulates, however, that the MD&A include only factual
information, not expectations.COMPLYING WITH GASB 77
For many governments, complying with GASB 77
requirements will be a challenge. One of the more
significant obstacles is the need to determine which
parts of an economic development strategy may fall
under GASB's umbrella of "tax abatements."
To fall under GASB 77, a tax incentive must possess
three essential characteristics:
* it is the product of an agreement, not necessarily
in writing or legally enforceable, in effect prior
to the granting of a tax break, whereby the
government promises to reduce a specific entity's
tax liability in return for the latter's promise to
take certain actions.
* it is intended to promote a publicpurpose -
economic development or some other benefit to
government or its citizens.
* it affects a tax rather than a fee, charge or other
revenue source.
STATE AND LOCAL RESPONSIBILITIES
The Comptroller's office has conducted extensive
research to determine what effect, if any, GASB 77 will
have on Texas state government. The key criterion is
whether or not a state entity foregoes tax revenues
based on a prior agreement with an individual or entity.
This agreement could be very broad-based, considering
that GASB 77's definition of tax abatements appears to
include tax credits and refunds as well as abatements
(as strictly defined).
Upon careful evaluation, the agency has
determined some state programs may qualify as
"tax abatements" under GASB 77, such as the state's
Enterprise Zone Program, which offers businesses
state sales and use tax refunds on qualified purchases
in exchange for creating jobs and investment in
economically distressed areas.
But most activity affected by GASB 77 occurs at the
local level, and these local governments will bear sole
responsibility for reporting on their tax incentives.
One of the largest such programs is the TexasEconomic Development Act, commonly called Chapter
313 for its place in the Texas Tax Code. Chapter 313
allows Texas public school districts to enter into
agreements offering businesses a 10-year limitation on
their property's assessed value for maintenance and
operations (M&O) property tax purposes in exchange
for building facilities and creating jobs in the district.
While the state largely underwrites the cost of this
program through state school finance funding formulas,
CONTINUED ON PAGE 10FISCAL NOTES, NOVEMBER 2016 9
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Texas. Comptroller's Office. Fiscal Notes: November 2016, periodical, November 2016; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth1577968/m1/9/: accessed July 18, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.