GASB Update: Tax Abatement Disclosures (GASB 77)

The Governmental Accounting Standards Board (GASB) has issued GASB 77 Tax Abatement Disclosures. A tax abatement as defined by this Standard is an agreement between a government and an individual or entity in which the government promises to forgo tax revenues and the individual or entity promises to subsequently take a specific action that contributes to economic development or otherwise benefits the government or its citizens. Some common types of tax abatement programs locally are LERTA (Local Economic Revitalization Tax Assistance Act) and Senior Relief (Act 77). However, when determining which agreements meet this definition, it is important to review the agreements based on the substance of the agreement over form or name. For example, agreements called Tax Increment Financings and Payments In Lieu of Taxes may be subject to disclosure under this Statement based on the substance of the agreement. The Statement requires governments that enter into tax abatement agreements to disclose the following information about the agreements (organized by major tax abatement program):

• Brief descriptive information (program name and specific tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions to recapture abated taxes, and the types of commitments made by tax abatement recipients.)
• The gross dollar amount of taxes abated during the period
• Types of commitments made by the recipients of the tax abatement
• Gross dollar amount by which government’s tax revenues were reduced
• Any amounts received or receivables from other governments related to the forgone tax revenue
• Commitments made by your government, other than to abate taxes, as part of a tax abatement agreement

For tax abatement agreements entered into by other governments, but affect your government’s revenue, the following must be disclosed:

• The names of the governments that entered into the agreements
• The specific taxes being abated
• The gross dollar amount of taxes abated during the period

The above
disclosures continue until the tax abatement agreement expires.

When Is GASB 77 Effective?

The
requirements of this Standard are effective for financial statements for
periods beginning after December 15, 2015. For calendar year end
governments, this means the financial statements for the year ended December
31, 2016. For governments with June 30^th fiscal year ends, this
means the financial statements for the year ended June 30, 2017. Earlier
adoption is encouraged.

What Governments Should Be Doing Now? Begin Information Gathering.

• Determine what tax abatement programs exist for your government.
• Determine if other governments or component units have tax abatement agreements that affect your revenues.
• Consider if you want to disclose agreements individually or in the aggregate. If individually, then consider the threshold for which individual agreements will be disclosed.
• Assign the task for compiling footnote information to the appropriate individual.

Do you have questions regarding the new standard? Michelle Hoke can be contacted at mhoke@md-cpas.com.

Please note this summary update of GASB 77 is not meant to substitute for reading the Statement in its entirety.