GASB 77 - What Is It, And How Can We Prepare?

by Haynsworth Sinkler Boyd, P.A.
Contact

1. What is GASB 77 and why does it exist?
GASB 77 is an accounting pronouncement applicable to the financial statements of state and local governments. In order for their financial statements to be prepared in accordance with generally accepted accounting principles, they must comply with GASB 77. The stated purpose of GASB 77 is to enable users of government financial statements to understand “(1) how tax abatements affect a government’s future ability to raise resources and meet its financial obligations and (2) the impact those abatements have on a government’s financial position and economic condition.”

2. How will GASB 77 impact local and/or state governments engaged in economic development?
For the first time, state and local governments will have to report the fiscal impact of all tax incentive agreements publicly. As budgets are tighter at all levels of government, the analyses that are publicly released will undoubtedly garner attention. These analyses require a hypothetical determination of “foregone revenue” under an assumption that all projects receiving tax incentives would have made the same capital investments and paid full, unabated taxes on those investments absent the incentives.
 
3. What should local government economic professionals do to prepare?
Local government leaders should prepare in a number of ways. For purposes of compliance efforts, as a starting point, leaders should identify all tax incentive agreements for which GASB 77 requires reporting, compile the abated taxes or fees in lieu of taxes for each covered project, and obtain the property tax filings reflecting capital investments for such projects. In addition, local governments should recognize that compliance will be burdensome, in terms of staff time and/or costs. Most likely, a county’s financial professionals and economic development staff will need to be involved at a minimum. More strategically, leaders should keep in mind that agreements may be more closely scrutinized in the GASB 77 area. If local governments are not already preparing cost-benefit analyses for economic development projects, we at Haynsworth Sinkler Boyd recommend that they consider adopting that practice.
 
4. How will GASB 77 affect non-governmental people working in the economic development field?

Non-governmental people working in the economic development arena should recognize that GASB 77 will heighten the sensitivity of local governments to tax incentive agreements. In many ways, this increased awareness could be a positive aspect of GASB 77, as government leaders should be fully cognizant of the revenue impact of their incentive agreements in order to ensure that they are responsible stewards of their taxpayer dollars. However, public scrutiny will almost certainly bring increased attention and could make government leaders more leery of tax incentive agreements that have been considered the norm in prior years. Because South Carolina relies heavily on tax incentives to reduce our disproportionately high property taxes, a decrease in the use of these incentives could hinder our economic development efforts.
 
5. How could GASB 77 impact companies looking to locate in South Carolina?
Companies looking to locate in South Carolina could see the same impact in that local governments may not be as eager to provide attractive tax incentive agreements. However, on many projects that are competitive with other states or communities, both companies evaluating projects and professionals assisting those companies can make the case that GASB 77 does not take into account the fact that many projects would not have located in South Carolina (or the respective communities) absent the tax incentives. In those case, the “foregone revenue” of GASB 77 is a farce.
 
6. When will the public start seeing GASB 77 reporting information?
GASB 77 applies to reporting periods beginning after December 15, 2015. For most local governments, the fiscal year is from July 1 to June 30.  Accordingly, the first fiscal year to which GASB 77 applies is July 1, 2016 to June 30, 2017. Preparations of financial statements applicable to that fiscal year are well underway in many cases, and we expect to start seeing financial statements with GASB 77 reporting information in the very near future.
 
7. What do you think will draw the most attention in GASB 77 reporting and/or be the most misunderstood?

Fee in lieu of tax agreements are likely to draw the most attention as a result of GASB 77. South Carolina has the highest property tax on manufacturers in the country and manufacturers are often the prime targets of our economic development efforts. Many counties view a basic fee in lieu of tax agreement as simply getting to the same starting point as other states and not as a real incentive. GASB 77’s rigid parameters do not have a simple mechanism for explaining the nuances of a particular state law to justify the often valid decisions of local governments to enter into incentive agreements, but a number of options for doing so are available. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Haynsworth Sinkler Boyd, P.A. | Attorney Advertising

Written by:

Haynsworth Sinkler Boyd, P.A.
Contact
more
less

Haynsworth Sinkler Boyd, P.A. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.