Human Behavior

There is definitely no logic to human behavior.

This rule could give politicians heartburn

The phrase “GASB 77” is not just a random collection of letters and numbers.

It is an accounting regulation that applies to state and local governments and could potentially cause massive headaches for elected officials.

GASB 77 was finalized in August by the Governmental Accounting Standards Board, a private organization that sets the accounting requirements that governments follow when they compile their financial reports.

The new rule will require governments to disclose the tax breaks they grant to private businesses and how much those breaks are costing local taxpayers.

If the Legislature grants a special exemption to Mercedes-Benz, as it did this year at the request of Gov. Nathan Deal, GASB 77 will require the state to disclose the amount of money that Mercedes-Benz does not have to pay because of the tax break.

If a local development authority grants property tax breaks to a company to persuade it to relocate a factory there, the amount of taxes that the firm doesn’t have to pay must be disclosed to the public.

“They’ll have to put out statements about what they’ll do to taxpayers,” said Miller Edwards, a certified public accountant. “It’s in the interests of transparency and will be retroactive as well.”

Edwards’ accounting firm performs the outside audit of the Georgia Building Authority’s finances.  He briefed authority members last week on the implications of the new disclosure rule.

Deal, who chairs the Georgia Building Authority, immediately grasped the political significance of the new rule for elected officials who approve these tax breaks and then later try to run for reelection.

“It really does lend itself to political exploitation,” Deal said.

In other words, political opponents of an elected official could have a potent weapon to use against that person in the next election:  detailed information on tax exemptions promised to private businesses and how much they cost the taxpayers.

“It’s not good news for governments,” Edwards told a reporter after the briefing.  “It’s not going to be an upbeat, uplifting thing.”

“It hits you pretty hard as to what you have to disclose,” Edwards said.  “All agencies affected by the abatements have to disclose it.”

The public disclosure required by GASB 77 would have been useful a few years ago when the Joint Development Authority of Jasper, Morgan, Newton, and Walton counties announced it had persuaded Baxter International, a pharmaceutical company, to locate a manufacturing facility at the Stanton Springs industrial park.

Although state officials at first said the tax breaks and financial incentives promised to Baxter would total about $78 million, a more detailed examination later showed that the incentive package would actually be worth more than $200 million.

Those financial incentives included 10-year abatements on property taxes that Baxter normally would have been required to pay to the Newton and Walton County school boards.

The only problem was that nobody involved with the negotiations had bothered to tell the two school boards about those tax breaks that would cost them several million dollars a year in lost revenues.

After the Baxter facility was announced, the school boards were told they would have to approve the tax breaks that had already been promised, even though they had been kept totally in the dark about these exemptions during the negotiations.

It was a request that did not sit well with some of the board members.

“The feeling of disenfranchisement of board members is real,” said Coleman Landers, who was a Walton County board member at the time. “We need to make sure board members are brought in like any other elected officials.”

Property tax breaks of this type are often promised to business prospects by economic development agencies.  When they do this without consulting the elected officials who have to vote on the exemptions, it amounts to taxation without representation – an issue so important we once fought a revolution over it.

If nothing else, the new accounting rule will at least inform local taxpayers that these kinds of deals are being done.  They can decide at the ballot box whether they approve or disapprove of the decisions that led to those transactions.

For elected officials, the magic date is June 30, 2017.  That is when the GASB 77 regulation is scheduled to take full effect.

© 2016 by The Georgia Report

Tags: GASB 77 , government accounting regulations

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