Advocates for Independent Business (AIB), a coalition of trade associations, including the American Booksellers Association, and other organizations representing locally owned, independent businesses, is cheering a new accounting rule requiring local and state governments to annually disclose the amount of tax breaks they give to corporations in the name of economic development.
The rule change was proposed earlier this year by the Governmental Accounting Standards Board (GASB). In February, AIB submitted a public comment letter strongly supporting the proposal and urging the board to go further by mandating that governments not only report the aggregate amount they spend on corporate tax breaks, but also disclose the details of individual deals.
“The new rule will help independent businesses by shining a light on the enormous sums that local governments currently spend subsidizing economic development,” Stacy Mitchell, AIB’s coordinator, told Bookselling This Week via e-mail. “Much of this money — estimated at about $70 billion a year — goes to support the growth of large companies, many of which compete with independent businesses. For the first time, we will have solid data on how much governments are spending on these giveaways and how these expenditures vary by region and state.”
Mitchell stressed that this would be very “powerful data” in the ongoing fight to level the playing field for indies. Studies indicate that subsidizing big retailers does more harm to the local economy than good by causing job and revenue losses at competing small businesses.
While GASB’s accounting standards are not law, virtually all local governments follow GASB’s Generally Accepted Accounting Principles in order to issue bonds and engage in other kinds of financial deals, said Mitchell. These standards apply to local governments, including states, counties, and municipalities. The rule change cannot be appealed.
Under the new standard, which takes effect with budgets beginning after December 15, 2015, local governments have to disclose the amount of foregone revenue they’ve lost because of tax breaks and other incentives given for economic development. The new rule requires only reporting on the total value of these deals. It is optional for governments to also report how many deals they have outstanding; how many deals they made in the previous year; and who the recipients are, Mitchell noted.
“It’s also important to note that some local governments already report this information of their own accord,” said Mitchell. “We will highlight these examples and encourage local businesses to advocate that their own local governments follow suit.”
In its public comment letter, AIB urged GASB to make two changes to its proposed rule. The first was to clarify that the disclosure requirement covers all forms of tax breaks, including those distributed through tax increment financing. The final rule does make this clarification.
The second was to mandate that local governments disclose information on individual deals, including the name of the recipient company and the value of its tax break. The final rule does not include this requirement.
Mitchell said that, while the new rule is a significant move forward, AIB is disappointed that GASB did not require disclosure of individual deals. She said she hoped GASB will mandate this level of reporting in the future.