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New Accounting Standard Should Aid Reporters In Following Bad Tax Money

A New Accounting Standard Is Helping Reporters Follow The Money

Mark Niesse was one of two reporters in a conference room inside a government building in downtown Atlanta in June 2017, listening to a presentation about an obscure accounting rule change. For the first time ever, governments were required to release detailed information about tax breaks given to companies. Niesse, a reporter at the Atlanta-Journal Constitution, hoped to answer a question that had long nagged him: Are tax incentives worth it?

In Fulton County, the largest of nine counties in the Atlanta metro area, officials were trying to comply with the new disclosures and had hired Ernst & Young to help. As the accountants spoke, Niesse peppered them with questions. At one point, the accountants left the room to discuss the accuracy of their numbers. “When they came back out, they agreed they needed to present the information in a clearer way,” Niesse recalls. That’s when Niesse noticed an extensive spreadsheet on an accountant’s laptop, open on the conference room table. Unlike the PowerPoint, the spreadsheet was crystal clear: it showed the parcel IDs and property taxes not paid on every recent development in Fulton County.

Niesse made a verbal FOIA request to the public relations officials in attendance. “They weren’t counting on that,” he recalls. Back in the newsroom, he followed up with a written request, and by late June, the spreadsheet—with its 56 columns and 77 rows of data—was open on his computer. “It was a lot of good information,” he recalls. “I would have had a hard time doing that myself.”

Niesse pored over the data that summer and, by mid-September, published an explosive cover story with a solid, aggregated figure—$30.7 million in 2016 alone—for the flurry of tax abatements granted to companies in four of Atlanta’s nine counties. But it was more than a numbers story. Niesse interviewed school officials to connect the tax giveaways with pressure on the district’s budget, as well as other public services, such as police and libraries. “It would have been a massive undertaking before and almost impossible,” Niesse says. “You could do it, but only on a case-by-case basis.”

Reporting on tax abatements an important and evergreen story on the economic development beat, has never been easy. Because of a culture of government secrecy, including the privatization of economic development in many states in recent years, reporters are often forced to write about corporate tax breaks in a vague or abstract way. Worse, they might take at face value overinflated figures on economic benefits hand-picked by local officials who negotiated them.

That’s changing, as a new accounting rule requires governments to disclose the costs of corporate tax breaks for the first time, including their impact on public services, such as school districts. Notably, this new era of accountability isn’t due to a law passed by Congress, or any elected body.

In 2015, the nonprofit Governmental Accounting Standards Board, which sets financial reporting standards for US state and local governments, issued the rule change in Statement 77. Although voluntary, most governments follow GASB rules because it helps them get higher bond ratings. The new rule requires governments to disclose not only the dollar amount of tax abatements in annual financial reports, but also their purpose, as well as any commitments to build infrastructure assets for companies.

Based in Norwalk, Connecticut, GASB was formed in 1984, when there were few established standards for municipal finance. Before GASB 77, it was difficult for journalists to inform the public about how much money was siphoned away from public services. Tax abatement deals are in the public record, but few states or regional governments were required to calculate the loss to government revenues in the aggregate—or, more importantly, to evaluate the benefits of such giveaways in a systematic way.

Abatements offered by a patchwork of government entities—county, city, state—have made it hard to link, for instance, a massive tax giveaway to a local fire department struggling to buy a new truck, or a school district using outdated textbooks. It was also difficult to translate tax abatements into current dollar values, since many were disclosed on projections a decade or more in the future.

“These are real-world numbers,” says Niesse of the Atlanta-Journal Constitution. “You can get the actual impact on the local government each year.” But Niesse cautions the GASB 77 disclosures are often only the start for reporters. “It doesn’t make it easy, it just makes it available,” he says. He still had to cross-reference each parcel ID with auditor records, and then sometimes even used Google Maps to narrow down a company’s identity. “It’s not crystal-clear transparency,” he adds.

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