How an arcane, 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.   

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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.

Before GASB 77, it was difficult for journalists to inform the public about how much money was siphoned away from public services.

The selective disclosure around tax incentives is a system rife with abuse and conflicts of interest. For example, in 2016, the City of Chamblee, in suburban Atlanta, approved an $11 million tax break to a company that employed the city’s mayor. Across the country, a patchwork of entities—increasingly privatized and, therefore, not responsive to voters—are often the first to negotiate incentives with corporations. Moreover, many agencies claim exemptions from public records laws. This has made it difficult for reporters to inform the public until after an incentive is approved, stifling public debate. Sometimes even elected officials are the last to know about a deal. For example, in late 2015, officials with a development agency in a suburban county of Atlanta approved millions of dollars in tax incentives. Officials with the city of Brookhaven were never told they stood to lose half a million dollars in tax revenues.

 

Although Statement 77 was not intended as a tool for the press, the new disclosures have become a font of valuable information for journalists. In November 2016, Hilary Russ of Reuters was able to report what New York City lost in tax breaks that year: $3 billion, with most going to housing developers under a since-expired affordable housing program. In 2017, she used GASB 77 disclosures to report tax revenues losses of $1.2 billion for New York state, noting that at least half of that was going to the film industry.

In October 2017, Nicole Raz with the Las Vegas Review-Journal reported that tax abatements reduced state revenues by $55 million in 2016. Her story included a detailed breakdown of revenue losses for school and library districts, as well as specific counties. In March of this year, Maayan Schechter, a reporter with the The State, a daily newspaper in Columbia, South Carolina, examined available reports in 33 of the state’s 46 counties, reporting that in 2016 alone, those counties lost $221 million in revenue from tax incentives. Schechter took her reporting a step further, detailing how a loss of $4.2 million had strained services inside one school district.

The larger tallies sometimes available in GASB 77 disclosures freed Jacob Barker, a business reporter at the St. Louis Post-Dispatch, to work with the newspaper’s public education reporter on an investigation into how tax incentives influence the school district’s budget. “I’ve always felt this obligation to report on every single project and was never sure if that was monotonous to readers,” he says. “You can’t cover everything. What’s new with GASB 77 is you get a snapshot for the entire year.” In a March 2018 story, Barker reported that the St. Louis Public Schools lost $18 million in 2017 to tax abatements. Barker, who has covered economic development for the past four years, says the audits are changing how he reports about economic incentives. “We want to do a deeper dive on what the district could have done with this money—the number of teachers they could have hired, the number of capital upgrades,” he says. “We want to ask them how important this chunk of cash might have been to their budget.”

Barker says the new disclosures should spur more public debate. Although 61 percent of the school district’s budget is based on property tax receipts, city officials, who approve incentives, rarely, if ever, consult with local school officials about such deals before they make them.  “School board administrators, they’ve been very quiet and never registered too much opposition to the use of tax abatements,” Barker says. “That might change. We have massive poverty in the city and the schools have been struggling for years.”

Scott Klinger, an expert on GASB 77 with Good Jobs First, a nonprofit in DC that closely tracks corporate subsidies and government disclosure, suggested more reporters should detail the losses to school districts. “There’s a lot of stories that could be told that aren’t being told,” he says. “What’s most disappointed me is the education press hasn’t jumped on this.”

Granted, not all states are complying with GASB 77, according to Nathan Jensen, a professor at the University of Texas-Austin, and co-author of the book, Incentives to Pander: How Politicians Use Corporate Welfare for Political Gain. In his review of reports nationwide, he’s seen great variance in what governments decide to disclose. He pointed to Tampa, Florida, as a bright spot, especially with its 2017 annual report, which in addition to abatement totals, included details on job promises and jobs created. “This is the ideal,” Jensen says. “But for most communities complying, they are just giving a dollar amount of total abatements. Unfortunately, there are a lot of other examples of communities that don’t look like they are disclosing any of their abatements.”

Most governments’ fiscal years end in June, and annual financial reports must be released within six months. Reporters should scour this next round for stories. There has been a flurry of mind-boggling incentive packages approved in recent years by state and local officials. In Wisconsin, the Foxconn Technology Group is on track to receive up to $3 billion in tax breaks. Maryland lawmakers recently approved a $6.5 billion incentive package in their bid to lure Amazon’s second headquarters to the state. GASB 77, of course, does nothing to stymie either deal. But as these projects move forward, reporters can at least find solid figures in annual audits to report on how such giveaways influence the budgets of public services.

“If you know there’s a mega-deal and nothing is reported, and there’s this new rule, there’s an obvious story there: Why didn’t you disclose anything?” suggests Klinger. Reporting is far from uniform nationwide. “The biggest problem for reporters is, if you look and see there’s nothing there, that does not mean there’s nothing there,” he says.

Russ, of Reuters, agrees. “Some places seem pretty rigorous in what they are disclosing, and some haven’t disclosed anything,” she says. “Whether governments have disclosed information or not, that’s the kind of information reporters should be demanding. If they can’t, they should be asking why.”

GASB 77 is also empowering public officials to speak out about corporate abatements. Crosby Kemper III, director of the Kansas City Public Library, didn’t know until 2010 how much money the library lost because of tax breaks. That year, he had invited Terry Ward, a PhD student studying tax incentives, and now a Park University professor, to speak to his board of directors. Ward estimated the library was losing $3 million a year. “We all fell out of [our] chairs,” Kemper recalls.

After the meeting, Kemper paid close attention to deals made by the city and county, and often watched in frustration as city officials claimed big, unprovable numbers about economic development benefits. “They never had to disclose the costs,” Kemper remembers. Finally, in 2016, Kemper had an unassailable figure: the library lost $2.6 million. “Now it’s in the official record,” Kemper says.

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Mya Frazier is a business and investigative journalist based in Columbus, Ohio.