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Harpel gasb 77 tax abatement disclosure workshop


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Implications of forthcoming tax abatement disclosures and steps economic developers can take to prepare.

Published in: Economy & Finance
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Harpel gasb 77 tax abatement disclosure workshop

  2. 2. About us  Business Development Advisors
 is an economic development
 consulting firm  Smart Incentives helps communities
 make sound decisions 
 throughout the incentives process 2 © 2017 SMART INCENTIVES
  3. 3. Understanding Statement No. 77 in relation to your job as an economic developer © 2017 SMART INCENTIVES 3
  4. 4. 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. 4 © 2017 SMART INCENTIVES
  5. 5. 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 © 2017 SMART INCENTIVES 5
  6. 6. 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? 6 © 2017 SMART INCENTIVES
  7. 7. Reporting is part of the incentives process © 2017 SMART INCENTIVES 7
  8. 8. Nuts and bolts of reporting and compliance © 2017 SMART INCENTIVES 8
  9. 9. 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 © 2017 SMART INCENTIVES 9
  10. 10. 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 © 2017 SMART INCENTIVES 10
  11. 11. 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. 11 © 2016 SMART INCENTIVES
  12. 12. 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. © 2017 SMART INCENTIVES 12 Source: Statement 77; PresentaEon by Pam Dolan, Project Manager, GASB
  13. 13. Summary of required disclosures Brief Descrip+ve Informa+on Own Abatements Other Government’s Abatements Name of program x Purpose of program x Name of government x Tax being abated x x Authority to abate taxes x Eligibility criteria x Abatement mechanism x Recapture provisions x Types of recipient commitments x Dollar amount of taxes abated x Amounts rec’d from other governments for abated taxes x Threshold for individual disclosure x InformaEon omiWed due to legal prohibiEons x © 2017 SMART INCENTIVES 13 Source: PresentaEon by Pam Dolan, Project Manager, GASB
  14. 14. 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 © 2017 SMART INCENTIVES 14
  15. 15. How best to talk to colleagues and elected officials about Statement No. 77 © 2017 SMART INCENTIVES 15
  16. 16. 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 © 2017 SMART INCENTIVES 16
  17. 17. 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 © 2017 SMART INCENTIVES 17
  18. 18. 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. © 2017 SMART INCENTIVES 18
  19. 19. 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? © 2017 SMART INCENTIVES 19
  20. 20. Contact us  Ellen Harpel
 President  571/212.3397
 @SmartIncentives 20 © 2017 SMART INCENTIVES
  21. 21. 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? © 2017 SMART INCENTIVES 21