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GASB Statement No. 77: When is a Tax Abatement Not a Tax Abatement?

GASB 77 tax abatement image

By now, most governments have either implemented or are in the process of implementing GASB Statement No. 77, Tax Abatement Disclosures. As we know by reading the guidance, GASB’s guidelines are intended to provide transparency and insight into how certain economic development incentives might diminish a community’s tax base.

While this article is not intended to recap all the specific criteria of the guidance in GASB 77, let’s take a quick look at the definition for some perspective.

What are tax abatements?

GASB 77 defines tax abatements as:

“A reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which (a) one or more governments promise to forego tax revenues to which they are otherwise entitled and (b) the individual or entity promises to take specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or the citizens of those governments.”

Breaking down the GASB 77 tax abatement definition

All of the following must exist for an agreement to qualify as one requiring disclosure under GASB 77:

  • A promise by the government to reduce taxes
  • The reduction in taxes results from an agreement with an individual or entity
  • The individual or entity promises specific action
  • The specific action occurs after the agreement has been entered into
  • The specific action contributes to economic development or otherwise benefits the government or its citizens

Several challenges have existed for governments as they have implemented or prepare to implement the new reporting guidance. One of the first challenges has been how to interpret the seemingly broad definition of tax abatements, which requires a lot of professional judgment. The ambiguity caused by the definition has resulted in some governments scrambling to determine which economic development incentives meet the criteria of a “tax abatement” and, therefore, must be reported. Making this determination can be tricky because incentives programs across the country vary in both form and function. Widely used incentive programs, such as property tax exemptions, tax increment financing (TIF), and enterprise zones, to name some common types, can function quite differently depending upon the jurisdiction.

The City of Columbus, Ohio, is a relevant example, as outlined in Christopher Knezevic’s Development Incentives Quarterly article, “Municipalities Experiencing Growing Pains with GASB 77.” As one of the first large cities to disclose forgone revenues in accordance with GASB 77, Columbus did not list TIF in the tax abatement section of its 2016 financial report. This seemed in line with the guidance, as many knowledgeable sources advised that TIF likely wouldn’t fall under GASB 77 disclosure requirements. However, in late April, GASB provided clarification in its 2017 Implementation Guide. According to GASB, if incremental tax revenues are repaid or rebated, and not used for debt service, they fall within GASB 77 and should be disclosed in the financial report.

GASB 77's lack of clarity

This leads me to my final point related to GASB 77. It is unclear whether the GASB’s broad definition of tax abatements was an attempt to accommodate the diversity of agreements across the country or, conversely, whether the GASB did not anticipate the wide diversity, which has made the guidance somewhat challenging. The latter seems improbable because of the GASB’s due process, which typically includes carefully weighing the views of its constituents in developing standards.

As governments continue to implement GASB 77 and embark on the annual process of identifying agreements and seeking guidance and clarification from the GASB, it is anticipated that more clarification will be provided in future GASB Implementation Guides.

Currently, there are six questions related to GASB 77 in the 2016 and 2017 Implementation Guides to help clarify the guidance.

  • In 2016-1, these can be found at questions 4.77, 4.78, 4.79 and 4.83.
  • In 2017-1, these can be found at questions 4.39 and 4.40.

As a reminder, GASB Statement No. 76 established the Implementation Guides as authoritative GAAP.

For now, or until further guidance is forthcoming, it is best for governments to (1) work with their auditors, and (2) take a more conservative approach, erring on the side of caution and employing the “duck test” when reviewing incentives agreements for disclosure. If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck!


To learn more about GASB 77, contact Mike Lowry, senior vice president of assurance services and government team leader, using the information below.

Mike Lowry, CGFM

Senior Vice President,
Assurance Services
Mike Lowry specializes in governmental and not-for-profit clients. Prior to joining AGH, Mike’s experience included nearly 20 years of financial and technology leadership positions in hospitality management and software companies.

He is a certified public accountant who has earned the designation of Certified Government Financial Manager from the Association of Government Accountants, and he is also a member of the American Institute of CPAs, the Kansas Society of Certified Public Accountants, and the Association of Government Accountants. He is a frequent presenter and member of the Kansas, Missouri, and Great Plains Financial Officers Association, and serves as a CAFR reviewer for the GFOA.
Mike Lowry, CGFM
Mike Lowry, CGFM
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