Disclosing the Costs of Corporate Welfare

AP Photo/Rogelio V. Solis, File

A Nissan auto manufacturing facility in Canton, Mississippi. 

For decades, politicians of both parties have touted the glories of massive tax-break deals. Whether it’s a governor announcing an auto assembly plant or a mayor breaking ground for a new mall, they invariably take credit for the jobs and claim that tax breaks did the trick.

But the costs of such deals and the programs that bankroll them have seldom been fully disclosed. The details are usually buried in different state, county, and city agencies. And of course, the costs are suffered by taxpayers over decades, long after the politicians win their re-election.

Taxpayers in Canton, Mississippi, for example, were shocked to learn that the Nissan assembly plant they thought cost $295 million in subsidies actually cost $1.3 billion. The smaller figure they remembered from a long-ago special vote by the state legislature. But $1 billion more was revealed in local records, where long-term property tax abatements were impoverishing schools, and in an obscure state program in which Nissan workers were actually paying taxes to the company.

Activists seeking to rein in corporate welfare have long argued that if the true costs of proposed deals were as obvious as the alleged benefits, many deals would never happen. Precious public dollars would be preserved for vital public services.

Well, in 2017 the true costs are going to become obvious.

For the first time in U.S. history, the costs of corporate welfare are going to be revealed, coast to coast. Tens of billions of dollars never before disclosed will become visible to taxpayers—and some people say they might have better uses for the money.

The price-tag data won’t arrive a moment too soon: As school districts and other local and state government bodies finally report these huge costs, they will also be struggling to cope with big cuts in federal aid soon to be enacted by the Trump administration and the Republican-led Congress. For activists fighting to preserve fair public services, the new numbers will become ready ammunition.

GASB: Your New Best Friend for Progressive Budget Advocacy

Why will all this data suddenly appear? Why will more than 50,000 local and state government bodies disclose all this spending? Because GASB says so. That’s the Governmental Accounting Standards Board (or “GAZ-bee”), the obscure professional standards-setting group which issues Generally Accepted Accounting Principles, or GAAP, for the public sector.

GASB periodically updates GAAP by issuing Statements, or amendments. You may recall GASB for its controversial Statements requiring governments to disclose their future pension and retiree health-care liabilities.

Though GASB by itself has no legal authority, most states require some school districts, counties and/or cities to obey GAAP. Many more jurisdictions adhere to GAAP because it enables them to get the best credit ratings and lowest interest rates when they float bonds.

In 2015, GASB issued Statement No. 77 on Tax Abatement Disclosures, using “abatements” as an umbrella term for all kinds of corporate tax breaks granted for economic development (property, income or sales tax). Costly giveaways like property tax abatements and many other tax breaks granted in the name of jobs or other community benefits will now show up in government spending reports.

Statement No. 77 took effect starting in calendar 2016, so that as governments close their books on either calendar 2016 budgets or fiscal 2017 budgets, they will have to report how much revenue they lost to each economic development tax abatement program.

What Will Be Disclosed and How

State and local governments—including school districts—issue Comprehensive Annual Financial Reports (CAFRs) to report on prior-year spending. Under Statement No. 77, economic development programs like property tax abatements, sales tax exemptions, and corporate income tax credits will usually now show up in the notes section of these reports. That is, the numbers will be in PDF text, not a balance sheet or spreadsheet.

At a minimum, governments will have to report one comprehensive dollar figure per program for that year. Governments may voluntarily elect to disclose some company names, but we doubt many will. But then, Good Jobs First already has lots of company-specific data in its Subsidy Tracker database.  

The notes will also explain where the program is legally enabled, which tax it reduces, how companies qualify, and whether there is a “clawback” safeguard to protect taxpayers if a company fails to deliver (but nothing about whether any clawbacks were imposed).

If a public body loses revenue passively, as the result of another government’s actions, it must compute that passive harm and report it. That’s especially relevant to schools districts, which are usually helpless to stop cities and counties giving away tax breaks that actually harm schools the most.

Finally, if a government makes a large infrastructure commitment associated with a tax-abated project, it must also disclose that cost. For example, if a city agreed to a new freeway off-ramp and highway widening for an abated mall, it would have to report those expenses.

In the history of government transparency, this is tectonic news: GASB has never before required any reporting of any kind of tax expenditures. (That is, other kinds of state and local tax breaks, corporate or personal—like itemized deductions or sales tax exemptions on groceries—are still not covered by any GASB Statements.)

What happens to the new data will vary state by state. In most, local governments send their CAFRs to a state auditor, comptroller or treasurer. In some, school boards send their CAFR to a state education department. Good Jobs First has prepared 51 state-specific “roadmaps” for anyone seeking to get started.

What, if anything, happens next to the data is all over the map. Some states, like New York, pay close attention to CAFRs. The Empire State stress-tests localities, watching for possible municipal bankruptcies. Other states don’t even post local CAFRs online, much less analyze them.

So getting the new Statement No. 77 data into spreadsheet form to be analyzed is going to be tedious in most states. But two years from now, there will be an entire new cottage industry—composed of activists, academics, and journalists—issuing powerful analyses with it. Especially those who care about equity will be able to explore: do “the poor pay more,” as the economic development axiom goes?

When and Where the Data Will First Flow

The data will start trickling in this April, flow strongly by June, and reach fire-hose proportions by November and December of 2017, as governments, many closing their fiscal years on June 30, report several months later.

Good Jobs First has begun mapping these early release dates. In the spring, cities such as Columbus, Denver, and Fairbanks will report. June begins the flood, with Anchorage, Augusta, Charleston (South Carolina), Fargo, Indianapolis, Little Rock, Minneapolis, New Orleans, Omaha, Pittsburgh School District, St. Louis County, Seattle, Sioux Falls, and Wichita disclosing—along with hundreds of smaller places.

So from coast to coast, as communities fight Trump-era cutbacks, let us all toast GASB Statement No. 77 as a new fightback tool to save public services!

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