Last month, the Governmental Accounting Standards Board (GASB) announced the issuance of new guidelines requiring local governments to disclose information about tax abatement agreements. Many municipalities agree to abate or reduce taxes in an effort to stimulate and promote economic development, job growth, and other community benefits, but these agreements also impose costs on municipalities both in terms of foregone revenue as well as in terms of financial commitments by the public body to the incentive recipient. The new GASB Statement 77 is intended to create a more consistent and transparent manner for reporting on the financial impact of these tax abatements.
Statement 77 will require local governments to include information in their financial statements about both their own tax abatement programs and about any tax abatement programs offered by other governments if those agreements impact the tax revenue of the reporting body. When reporting about their own abatement agreements, the local government will be required to disclose the purpose of the tax abatement program, to identify the nature and amount of the tax being abated and to describe any provisions for recapturing those abated taxes. The reporting must also include not only a description of any commitments required of the abatement recipients but also any other commitments the government has made under the abatement agreement, such as agreeing to build infrastructure that would benefit the abatement recipient.
Regarding tax abatements that have been entered into by other governments but that have a financial impact on the reporting municipality, the municipality should identify the body that has entered into an abatement agreement, describe the specific tax being abated, and provide the dollar amount of taxes that the reporting body will not receive because of this other reporting government’s abatement agreement.
The new requirement will apply to financial reporting periods that begin after December 15, 2015. The GASB standards apply to all Illinois municipalities’ financial reports, and compliance with them is essential for municipalities seeking a clean audit report. Accordingly, you can expect to receive more specific details about the guidelines for implementing these new requirements from your auditors and finance officers in the coming months. In the meantime, more details about the new standards can be found on the GASB’s website.
Author: Ruth A. Schlossberg